I am a champion of nonprofits. I found it was easy to raise money for worthy causes and a great way to enhance and give back to my community. I welcomed the skills and experiences I acquired in the nonprofit arena for the last 40 years — first as a long-time volunteer, and then in the last five, as a professional consultant recruiting individuals to serve on boards.
Nonprofits have a tremendous impact on our state and our community. According to the Impact Foundry’s An Economic Report Card 2017-2018, in the four-county Sacramento region (defined as El Dorado, Placer, Yolo and Sacramento counties), there are over 16,000 nonprofits. They represent more than $34 billion in assets and $1.5 billion in annual revenue. The nonprofit sector needs to be recognized as a major economic participant to our region.
But many nonprofits are or will soon be in financial crisis. Some basic problems faced by nonprofits were highlighted in a 2015 survey conducted by the Nonprofit Finance Fund. Fifty-three percent of nonprofits nationally had three months or less of cash on hand; 48 percent weren’t able to meet the demand for their services leaving significant unmet needs. Only 51 percent had collaborated with other organizations to improve or increase services offered.
Nonprofits need to obtain sustainable funding, which starts with diversifying their sources. I’ve seen the same companies, foundations and individuals solicited over and over again. During the 2008 financial crisis, there was much talk in the nonprofit community about the “new normal” approach to operations and fundraising. When nonprofits believed they couldn’t go back to the same companies and individuals, they tried to be creative and looked for alternative funding sources. Have nonprofits been successful at these new approaches, or have they gone back to their old comfortable ways of asking the same sources for money? Nonprofit leaders must be appropriately trained in fiscal management, strategic planning and staff/crisis management as these skills are essential to their success.
There’s another tough question we need to ask ourselves: Do we have too many nonprofits in our region? The first step to starting a nonprofit should not be a great idea for a particular project, but instead an assessment around an issue, organizations impacted by it and potential services already available to address it. As a region, we need to take a hard look at where there might be duplication of, as well as gaps in, services. This sort of strategic planning is enabled by enhanced communication and stronger collaboration between executive directors across variations and locations of service.
Collaboration — and even mergers — could be the solution to existing and future problems. There are nonprofits that are passionate about their mission but are too small to be economically sustainable unless they collaborate or merge. Particularly for those organizations with annual budgets under $250,000, this type of strategy may enable them to realize economies of scale and enhance their long-term impact. Those nonprofits, with professional guidance, should determine which should merge and which can continue to function through collaboration. They can then reorganize their structure and work together to generate great interactions, a synergy of ideas and collectively create programs with a broader scope, wider appeal and more successful outcomes.
A dialogue amongst our community leaders with consultation from our nonprofits needs to take place in order to examine methods of making our nonprofits more sustainable, efficient and effective. Currently, mergers seldom happen until an organization is financially desperate and on its last breath. I would hope some of these nonprofits could ask themselves the hard questions and entertain the possibility of being stronger together. Greater influence in the community through a merger and or collaboration could stimulate real action.
In the for-profit world, mergers frequently create greater value to customers, clients and shareholders. This has been accomplished less frequently by nonprofits. Prior to considering a merge, serious concerns need to be identified: different cultures, fear of change, job security, loss of identity and control and merging of board leadership. Each one of these concerns are very real and need to be addressed in a sensitive manner. The board and the executive director must be able to honestly look at their financial position.
I believe we need a call to action to create comprehensive strategies that will enable the nonprofit arena to be more effective and efficient. I would like to suggest our community leaders begin to look at various possibilities to help our nonprofits:
Look to funders who are eager to eliminate these kinds of issues through innovative approaches. I propose creating a pilot project with a group of funders who would have the opportunity to create a funding pool and select a sector of nonprofits for focus. A meeting with these sectors’ executive directors and board chairs/presidents could be convened. A number of benefits could be derived for the nonprofits coming together: Each organization would highlight what they do and their target market. Most importantly, the group would come to understand where duplication of services exists. In addition, this would provide the nonprofit sector a unique opportunity to address service gaps. Data on population and per-person spending, with special emphasis on our underserved communities, should be provided to this group. The funding pool would serve as an incentive for these nonprofits to collaborate in the areas that are duplicated, and could create opportunities for organizations to work on the newly-identified service gaps. This process could be replicated in each nonprofit sector. Long term, this would create more stable nonprofits with better funding.
In conversations with many consultants, funders and professionals in this area, I see a great willingness to change. However, nonprofits have to be open to fresh strategic approaches to see where and how the greatest impact can be achieved — they have to want to really move the needle. We are much stronger together than apart.
What are your ideas? I welcome them.
This story is part of the 22nd annual Capital Region Cares, Comstock’s special publication dedicated to nonprofits and charitable giving. You can order the 2017-2018 edition online here. To submit your nonprofit success story for consideration in next year’s edition, fill out this online form.
According to my attorney Eric krasle, you don't have to file with the IRS if your 501 c is value less than $5,000. So if all these 501 C's haven't registered, how can you get an accurate count with all these numbers? You can't! You're speculating
There can be little doubt that the massive quantity of nonprofits throughout the country is on a path to change. Quick note: the Baby Boomers' birthrate was about 25.6 per thousand women in the population. But the Gen Xers' and Millennials' birthrates were both about 12 per thousand women in the population. This is the surest sign that the status quo is changing. When I work with two or more nonprofits that are interested in merging, the planning process itself usually offers a number of options. In part to counteract the fear of merger -- and to preserve organizational legacies -- we assemble a small group of board members and roughly an equal number of executives. In a professional, reassuring setting, this approach makes it worthwhile to facilitate the group as a whole.
P.S. . . . this process takes time -- but so do most things that are worth doing . . .
What a wonderful article. So articulate. So to the point. Congradulations!