Approximately 50 percent of U.S. nonprofits are operating on a financial precipice, a new report by Oliver Wyman, SeaChange Capital Partners, and GuideStar reveals.
“The report’s findings are sobering,” stated George Morris and Dylan Roberts, partners at Oliver Wyman and two of the four authors of the report. “Half of U.S. nonprofits had less than one month’s cash reserves. Some 30 percent had lost money over three years, and 7 to 8 percent were technically insolvent.”
The Financial Health of the United States Nonprofit Sector: Facts and Observations examines the finances of more than 219,000 U.S. nonprofits for fiscal years 2010-2014, the period covered by a previous report on Philadelphia-area nonprofits. It provides an overview of the sector; analyzes nonprofit financial health by organization size and mission area; and suggests ways to improve nonprofit financial health. The analysis was derived from GuideStar’s proprietary archive of digitized IRS Form 990 data. Form 990 is a reporting return filed annually with the IRS by nonprofits with gross receipts of $200,000 or more or total assets of $500,000 or more.
Nonprofit financial insecurity is a significant issue, John MacIntosh, partner at SeaChange and another of the report’s authors, explained. “The scale of the problem is vast. Just restoring currently insolvent nonprofits to solvency would require an injection of $40 to $50 billion dollars. Changes to federal tax code may exacerbate the issue, by changing charitable donations and/or by increasing the likelihood of future pressure on federal budgets for human services.”
The impact of nonprofit financial uncertainty extends beyond the nonprofit sector, noted Adrian Bordone, vice president of strategic partnerships at GuideStar and the report’s fourth author. “Nonprofits play vital roles in our nation. They also employ more than 10 percent of the U.S. workforce. When nonprofits face financial distress, it creates hardships for some of the most vulnerable and fragile segments of society. It also means that hardworking staff may lose paychecks or pensions and that trustees may be exposed to personal liability.”
The report suggests several steps nonprofit leaders, funders, regulators, and policy makers can take to improve financial health in the sector. Initial steps include:
- Nonprofits—use the report to benchmark financial health.
- Funders—create more flexible funding models.
- Government—revise current cost-minus contracting practices.
Free copies of The Financial Health of the United States Nonprofits Sector: Facts and Observations can be downloaded here.