Non-Profit Industry Challenges

October 17, 2011
Industry Intelligence from First Research, a division of Hoover's (a D&B company)

critical issues

Uncertain Revenue - The amount of revenue available every year from a variety of sources is uncertain for most nonprofits. Unlike for-profit enterprises, nonprofits don't depend on product sales, relying instead on the generosity of contributors and fees for services. Even nonprofits with large endowment funds have uncertain revenue because their investment income depends on the state of the financial markets.

Contributions Depend on Economic Conditions - Charitable contributions typically shrink in more difficult economic times. In the late 2000s, the level of charitable donations was affected by the performance of stocks and other investments. During difficult economic periods, the stream of small donations at many charities is unaffected, but big donors give less.

OTHER BUSINESS CHALLENGES

Dependence on Big Donors - Many nonprofits depend on a few large donors for a large share of revenue. Large donors may verbally commit to continue contributions, but few nonprofits have contractual assurances. In recent years, some donors who made multi-year romises were unable to fulfill them when the value of their financial assets dropped.

Barriers to Recruiting Qualified Staff - A skilled, committed, and diverse pool of next-generation leaders want to become nonprofit executives in the future. However, significant barriers exist, including work-life balance concerns, insufficient lifelong earning potential, lack of mentorship, and overwhelming fundraising responsibilities.

Rising Healthcare Costs Challenge Nonprofit Hospitals - Rising costs in healthcare, increases in the uninsured population, declining government and nongovernment reimbursements, and mounting competition from physician-owned diagnostic and treatment centers are squeezing the finances of many charity-run hospitals. For-profit hospital chains, in many cases, have adapted better cost-cutting
measures.

Nonprofit Numbers Proliferating - The number of nonprofit organizations grew by 45 percent over a recent 10-year period, and public charities grew by 60 percent, according to the IRS. This proliferation of charities can result in the duplication of services, a drain on individual nonprofits' funding resources, and an increased demand for experienced nonprofit managers and staff.

Fluctuating Cash Flows - Many nonprofits raise a majority of their income during the last quarter of the year, when donors are often in a more charitable mood and large donations may be made for tax reasons. Another factor that can dramatically impact nonprofit cash flows is the economy. Charitable giving typically doesn't keep pace with inflation during economic recessions. In the five recessions since the early 1970s recession, giving fell an average of 1.3 percent. In nonrecession years between 1966 and 2007, giving increased an average of 4.3 percent annually. However, contributions declined 5.6 percent in 2008 as the late-2000s recession took hold of the economy.