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Apr 10, 2013

Latest surveys confirm that nonprofits’ services are falling behind growing demand

The latest Nonprofit Finance Fund survey shows that the other shoe is continuing to drop.  When the 2008 financial crisis hit, survey after survey showed that nonprofits were preserving services by running down cash and cutting employee salaries and benefits.  By 2012 this resiliency was diminishing and services cuts were beginning to emerge. The most recent headline is that demand for services is now outstripping nonprofits’ ability to meet those services.

This is no surprise.  Financial pressures on nonprofits have been building even before the financial crisis exploded.  It began with governments and foundations reducing the amount of overhead they would cover in their grants and contracts, essentially pushing financial losses onto the recipient nonprofits.  The financial crisis only upped the ante on these reductions.

The brave and wise nonprofits are realizing that their financial sustainability is in their own hands.  Fundraising will not rescue them.  As I repeat over and over, charitable contributions as a share of nonprofit revenues have been essentially flat since 1985.  We have been in a zero sum game for a long time.  Our major effort is to maintain a strong philanthropic focus of the children, then grandchildren of the traditional philanthropists.

Nonprofits need to be supported in developing profit-making activities to supplement charitable contributions.  The strongest nonprofits have always had profitable supporting activities, which is now popularly called social enterprise.  But there is still a long way to go to convince both nonprofits and the general public that profitable supporting activities are mission-focused IF those profits are channeled into covering the financial losses of key mission activities.  We also need to convince nonprofits that developing profitable supporting activities is essential if nonprofits have any hope of keeping up with demand for their mission services.  That is the dual nonprofit business model:  the loss-generating high mission activities, supplemented by the lower-mission profit-generating activities.  In short:  Linking Mission to Money.