We felt this report was important to share to the nonprofit sector and hope you find these observations helpful. This report was provided by GuideStar, SeaChange Capital Partners, and Oliver Wyman.
Nonprofits play a critical social role in improving education, alleviating poverty, providing economic opportunities, supporting the health care system, and sustaining the arts. Their health is vital to our nation. So, when they face financial distress, it creates hardship 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.
Our analysis shows just how fragile the nation’s nonprofits really are:
- 7-8% are technically insolvent with liabilities exceeding assets
- 30% face potential liquidity issues with minimal cash reserves and/or short-term assets less than short-term liabilities
- 30% have lost money over the last three years
- ~50% have less than one month of operating reserves
What can Funders, Regulators, and Policy-Makers Do?
A nonprofit’s ability to substantially improve its financial situation is often limited. Taking action to enhance risk management practices is important, but may not be enough. Improving the financial health of the nonprofit sector will require coordination between nonprofits, funders, regulators, and policy-makers.
The following ideas may help to improve financial health:
- Provide adequate funding for overhead
- Provide more flexible funding
- Encourage nonprofit restructurings, closures and/or mergers
- Create a rescue fund for strategically important nonprofit
We hope everyone will take this report seriously and see what we can all do to improve the financial health of the US Nonprofit Sector going forward.