Are nonprofit boards sooooo mission focused that they have lost track of the need to stay solvent? This is essentially the yellow flag hoisted in the following Governing Magazine article titled: Nonprofits Have Major Money Problems.
The Association that pretty much includes the family services organizations around the country conducted a survey of "executives at 40 government agencies and 177 nonprofits, plus a review of three years of tax filings from more than 40,000 nonprofits" to develop its report. Findings indicated:
- On average, government contracts cover only about 70 percent of nonprofits' direct program expenses and less than half of indirect expenses.
- Nearly one in eight human service nonprofits are technically insolvent, meaning that their liabilities exceed their assets.
- Three in 10 nonprofits have cash reserves that cover less than one month of expenses.
- Nearly half have a negative operating margin over a three-year period.
- About one-third also have no plans in place to deal with financial challenges.
The Governing article notes that "though nonprofits aren't designed to yield excess money, they need a financial cushion for times when money comes in late or below projections, for settlement expenses related to lawsuits, for capital projects that cost more than expected and valuable government contracts that don't get renewed."
And of course, no surprise, there are the frequently late payments by government and often excessive rules, by government and private funders alike, imposing regulations and reporting that distracts from providing services (and generating revenue).
Recommendations include:
- nonprofits need to be more selective about the contracts they pursue, and more assertive when negotiating the terms of a contract with governments.
- nonprofit executives also need to recruit more people with experience in financial and risk management to their boards of trustees, the report says, and hire a chief financial officer if they don't already have one.
- Governments can eliminate overlapping and unnecessary regulations and commit to measuring long-term outcomes.
I pose that nonprofit boards should begin generative conversations toward developing policies, strategies and action plans that will keep their nonprofits above water and pursuing mission.