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Apr 10, 2014

Recession Persists but Nonprofits Seeking Solutions

Two recent surveys by New York-based Nonprofit Finance Fund and the local Tony Wells Foundation provide a timely view of the state of the nonprofit sector, the challenges it faces, and the need for broader support of social enterprise to restore its financial resiliency.

The first issued its 2014 State of the Nonprofit Sector based on over 5,000 survey responses from all 50 states.  It found that nonprofits continue to be squeezed in a vise of growing demand for their services and increasing financial costs imposed by their government and foundation funders.  This impressive survey with an interactive link to drill into more specific state and sector detail can be found at http://nonprofitfinancefund.org/state-of-the-sector-surveys.

Eighty percent of respondents report that service demand has increased in the past year, 92 percent expect further increases in 2014, yet over half do not believe they will be able to meet this increased demand.

For about half of the nonprofits, the major challenge is long-term sustainability, but they encounter at least three barriers to achieving this.  One barrier is the increasing costs to measure impact that are imposed by funders.  While most agree that metrics are valuable, only one percent report that funders cover the cost of impact measurement while 71 percent said these costs “were rarely or never covered.”  The second barrier for over 40 percent is the continued decline in federal, state, and local government support.  The third barrier is the financial costs imposed by government contract administration:  over half do not receive federal, state, or local government payments on time while about one-fourth have to devote more than 100 hours per month to administrative compliance with government contracts.  The situation is the same for Ohio respondents.

These barriers have persisted for at least five years so most nonprofits are expert in the options they need to consider.  About half, both nationally and in Ohio, are collaborating with other organizations to reduce expenses or are revisiting their long-term strategic plans.

I am delighted that one-fourth are pursuing new earned income ventures, often called social enterprises.  Ohio has a higher share — one-third, up is considerably from the 12 percent that had social enterprise in their cross hairs in 2013.

The Tony Wells Foundation survey identifies foundations’ concerns with the number and availability of social enterprises in which they can invest.  The survey paints a disappointing picture of underdeveloped infrastructure to support nonprofits in building successful social enterprises.  Over four-fifths of the foundations saw the need for more and/or better-prepared investment proposals.  Incomplete financials and deficient business plans were the most common problem.  At the same time four-fifths of the foundations were aware of no programs to educate nonprofit leaders on social enterprise investing.  One of the biggest areas for education and change in culture is the acceptance of risk in starting new enterprises, as I wrote about in an earlier blog.

We need to support the significant share of nonprofits that are ready to explore social enterprise as a strategy to overcome the barriers to sustainability.  Yet a supportive model for social enterprise is in its infancy compared with the support model that has emerged for technology start-ups.  That infrastructure must provide information, networking, business development support, mentoring, and investment capital.  Ohio nonprofits are ready to step up; it is time for the community to step up too.

Contact me to learn more about the Community Investment Network of Central Ohio, a new effort to help the Central Ohio community to step up.  Or have me speak to your group — or just watch these video clips where I talk about the role of social enterprise in nonprofit sustainability.