Report: Nonprofit Sector Walking a Financial Tightrope

There’s been relatively good news for the nonprofit sector of late: Donations continue to surge, hiring is seeing a rebound, and global meetings business is growing. But amid those positive trends, most nonprofits are walking a financial tightrope, according to a new report  (opens in a new tab).

In the 2015 State of the Nonprofit Sector Survey  (opens in a new tab), the Nonprofit Finance Fund found that, despite the modest economic recovery, demand for critical services—things like affordable housing, job training, and youth development—continued to rise. And that demand puts additional strain on budgets that have been rapidly shrinking.

“The social sector is in flux, with many organizations moving beyond ‘crisis mode’ but still facing an uncertain future,” Antony Bugg-Levine, CEO of NFF, said in a statement. “Nonprofits need access to the right kinds of resources to allow them to adapt and meet their missions. Relying on business-as-usual approaches from government contracts and private donations is not going to sustain the social system in the long term.”

Of the more than 5,400 respondents surveyed, 52 percent said their nonprofit couldn’t meet demand in 2014—the third year in a row that more than half of groups couldn’t keep up. And among those who said they couldn’t meet demand, 71 percent said that client needs go unmet when they can’t provide services.

The graphic below provides more of the key findings from the report. (For the best experience on mobile, move your device into landscape mode.)

One positive finding: 47 percent of organizations reported finishing fiscal year 2014 with a surplus, compared to 24 percent with a deficit. Another 29 percent reported break-even financials. Still, NFF was cautious about what those numbers mean.

“[F]inancial improvements do not necessarily indicate stability,” NFF said in a summary of the report  (opens in a new tab) [PDF]. “In fact, even organizations that achieved operating surpluses reported long-term sustainability as their greatest challenge.”

The problem, NFF suggested, is rooted in poor financial management on a number of fronts: relying on delayed government payments and private funders, focusing on expanding programs rather than the financial health of the program, and ignoring overhead costs.

“All of these factors contribute to a chronically brittle sector living under the constant fear that a small misstep could lead to a massive fracture,” NFF said. “As we consider the long-term viability of the social sector, we will need to build the systems and follow the practices that will bolster the resilience and adaptability of organizations, and not simply address short-term survival.”

(iStock/Thinkstock)