The change of administration in Washington, as well as state and local initiatives, makes this a hard time for nonprofit boards and management to predict and determine the best strategies for sustainability -meeting the needs of its stakeholders and financial viability becomes ever more challenging.
A Rand research report in 2012 (“Financial Stability for Nonprofit Organizations-A Review of the Literature”) highlighted some key challenges in balancing financial stability with organizational mission. Here are some thoughts on how they apply today.
Risk of reliance on external funding sources and streams
Nonprofits receive funding from a variety of sources including government, service fees, foundations, private donors and membership fees.
President Trump’s current proposals for tax reform call for lower individual tax rates and a higher standard deduction, as well as lower corporate rates. Depending upon the nature of the donor base, if these changes are enacted, there could be a significant drop in contributions (especially in states with high state or local taxes, which would no longer be itemized deductions) because fewer individuals would be itemizing their deductions. On the other hand, individuals who have more disposable income in a strong economy may be more generous to causes that they believe are important.
Budget proposals under consideration will call for significant cuts in funding in several areas, particularly those serving human needs and the environment. The National Endowments for the Arts and Humanities (NEA, NEH) is targeted for zero funding and will be eliminated if passed. Nonprofits with missions in these areas will need to take immediate steps to find alternative funding sources as well as finding ways to provide services to those who will turn to them for help when government funding is no longer available.
Creating a nonprofit “brand”
“A brand that clearly and consistently communicates a nonprofit’s social mission may build trust between the nonprofit organization and its constituents and may ultimately insulate it from competition from other organizations” (Renz et al 2010). Despite limited resources, it is critical to make communities, foundations and other stakeholders aware of the organization and the importance of its mission. Modern technology is a critical factor. Traditionally, many nonprofits have looked to their board and client base for support. In today’s environment, sustainable organizations will need to reach out to a wider base.
A presence on Facebook, Twitter and other social media channels is an important way to connect with and educate the community about the mission and reach of the organization; as well as ways that people can help and why they should want to.
The 2016 Republican Party Platform called for repeal of the “Johnson Amendment” which bans 501(c)(3) organizations from participating in election-related activities. The National Council of Nonprofits and other organizations have consistently held that nonprofits have more power and independence to resolve community issues if they are non-partisan. If organizations are branded as a “Republican charity” or a “Democrat charity”, it could lessen the public’s respect for the nonprofit sector.
Advocacy will be important for every organization and clear communication of constituents’ needs becomes even more essential than it has been to date.
Demonstrating value and accountability to funders
Hand in hand with branding and communication of the mission is evaluating financial and programmatic results that demonstrate the value of the organization and its positive impact on those it serves as well as the entire community. Nonprofits need to be financially proactive and boards may need to make difficult decisions about which programs are viable and which simply cannot be sustained without bankrupting the entire organization. Good accounting and data systems with educated users are necessary in order to do that.
Innovation will be critical. Consideration of “clustering “as identified in Nonprofit Workplace Challenges Predicted for 2017, The NonProfit Times, January 6, 2017 means that many organizations will band together to share resources, overhead and personnel to serve a common demographic. Many will focus on specialization in a particular are or service versus considering expansion.
Funding sources at state and local levels may also encourage or require nonprofits to collaborate or merge, a process that is always painful but sometimes necessary. The health care industry (both for-profit and nonprofit) has already experienced this in many areas of the country. Considering collaboration as part of an ongoing strategy will allow management and boards to identify which partners and which structure might be most likely to work for them.
Promoting community engagement and leadership
“Where your treasure is, there will your heart be also.” -Matthew 6:21 People support things that they are personally connected with, issues that they care about and, often community organizations which they feel a part of. Volunteers of today may have a different focus. Considering short-term projects that an individual can help with (perhaps online or at home) may be more appealing. Developing a larger group of “community advisors” on specific issues may be a helpful tactic to involve more people who might not be candidates for board membership.
Make sure that board members understand the commitment that is being asked of them. How often does the board meet, what level of financial contribution is expected, are there opportunities for board members to work directly on projects? Andy Robinson in a recent GuideStar Blog, suggests including a “mission moment” at every meeting. Something that reminds the board of why they are serving and a break from the stress of financial and programmatic issues.
It is too early to tell which of the proposals will ultimately be adopted. Changes in tax law, health insurance reform, minimum wage and protections for workers will all have implications for nonprofits and their constituents. UHY LLP will keep you updated on our analysis of potential changes as they occur throughout the coming year.
You're Invited! Annual Not-For-Profit Accounting Update
Thursday, September 26, 2019
Hosted at Detroit Historical Museum
Save The Date!
Middle Market Manufacturing Outlook
Wednesday, October 23
Hosted at the Detriot Athletic Club
7:30 AM - 11:30 AM