Top 10 Trends in the Nonprofit Industry
By Laurie De Armond and Adam B. Cole
The nonprofit industry is anything but static. With numerous external factors influencing daily operations, we’ve compiled a list of what we see as the top ten trends impacting nonprofit organizations with input from Nonprofit Standards, our third annual benchmarking survey.
1. Navigating Political Uncertainty
The current political environment has created a great deal of uncertainty, impacting everything from legislation (e.g.: tax reform, data privacy, financial reporting regulations) to federal funding and government efficacy. Nonprofits are tasked with continuing the pursuit of their mission during these uncertain and rapidly changing times. It’s no surprise then that nearly two-thirds of nonprofit organizations surveyed in Nonprofit Standards said the time and effort to deal with government regulations and legislative changes will be a high or moderate challenge this year, up from less than half in 2018. While nonprofits are focused on consistently providing their services to succeed in their mission, they will need to be mindful and strategic in the current political environment – and keep up to date with changes.
2. Budget Cuts – Federal, State and Local Governments
Over the past several years, many nonprofit organizations have been faced with budget cuts at all levels of government. These cuts have put many organizations in financial hardship and impacted their programming, particularly those in the social services subsegment. At the same time, nonprofits are facing higher demand for their services and subsequently, more investment in infrastructure to meet those needs. Our survey found that variability in funding is a top challenge for nonprofits over the next year (70 percent). To mitigate uncertainty in your funding sources from government entities, look for ways to expand and diversify funding and revenue streams.
3. Mergers, Partnerships and Joint Ventures
Nonprofit organizations have historically tried to expand programs on their own, which can result in an expansion of operations into areas that are not core strengths. Demographic and technological shifts have made it more expensive and challenging to successfully specialize in all aspects relevant to the mission. To adjust, some nonprofits are looking to form partnerships or joint ventures to maximize their impact. Forty percent of nonprofits say they’re considering the possibility of entering a strategic partnership with another nonprofit organization, while one-in-four might enter into a joint partnership with a for-profit organization. Other organizations are finding that mergers, either with another nonprofit or a for-profit entity, may be the best way to continue to serve their constituents.
4. Technology – Augmented Reality, Automation, Crowdfunding
Like many other industries, the nonprofit sector is experiencing digital disruption. There is a large push to increase the adoption of technology by organizations, with 64 percent of nonprofits planning to invest in new tech this year. The use of technologies, including management platforms, data analytics software, automation, artificial intelligence, Internet of Things, virtual reality and others can save an organization money and resources in the long run. Organizations seeking to adopt these technologies need to calculate the ROI associated with their implementation, while considering potential funding variations, and identify how tech might best assist in improving their operational efficiency and mission.
The increasing complexity and sophistication of cyberattacks continues to challenge many entities. In fact, more than half (51 percent) of nonprofit boards cited cybersecurity as a moderate-to-high challenge. The need to protect data, especially for health and human services organizations, who maintain large amounts of private data, is critical.
6. It’s All About Engagement
How nonprofits engage their constituents and donors is more important than ever. Changes in technology and the ways in which individuals absorb information require additional creativity on the part of nonprofits across their social media, outreach and communications strategies. While it can be challenging to develop a constant stream of content to engage constituents and donors, impact reporting is so crucial to the health of nonprofit-donor relations that 96 percent of nonprofits share the results of their programming externally. When asked what technological investments they’re prioritizing, 66 percent of nonprofits said they favor management platforms or software that assists with tasks like fundraising or social media. With the proliferation of crowdfunding, engaging constituents on a regular basis and creating a sense of community is critical.
7. Changes in Charitable Giving Paradigm
With so many worthy nonprofits, the demand for donor dollars is growing increasingly competitive. As the charitable giving paradigm continues to evolve, nonprofits must monitor how their core donor base is changing and how they might be affected by these shifts. The good news for now is that the change in the tax law does not appear to have had as large of an influence in 2018 as some had predicted, but major impacts could still arise in the coming year once donors see further effects of the tax law. With an uncertain effect of taxes on charitable contributions, nonprofits have all the more reason to diversify their funding sources.
8. Employee Engagement – As Retention Tool
Employee satisfaction is key to recruiting and retaining talent, but compensation is only part of the equation. According to Nonprofit Standards, nearly 8-in10 nonprofits (78 percent) cited compensation levels as a moderate-to-high challenge. Employee training and development is another concern, with 68 percent ranking it as a moderate-to-high challenge. At the same time, employees generally join nonprofit organizations to make a difference through mission-driven work—and employees who don’t see this goal coming to fruition are more likely to leave. This can be particularly challenging for organizations that are already struggling financially. We found that one-third of organizations that experienced net loss in revenue last year also ranked disconnect from the mission as a high-to-moderate challenge for employee satisfaction. The combination of mission and compensation is key to keeping top talent.
9. Board Members as Advocates/Developers
An age-long debate: should your board members be fundraisers? While Nonprofit Standards found attracting quality leadership to be a moderate-to-high level challenge for 48 percent of nonprofits, that number shifts depending on who you ask in the C-suite. Forty-two percent of CFOs view fundraising as the most important skill for board members—but that number is halved (21 percent) when posed to nonprofit CEOs and Presidents. A board should be comprised of various members who lend different skill sets to meet the needs of the organization, including fundraising. For smaller or mid-sized organizations, other skills may be more important. Nearly half of organizations with revenue below $25 million prioritize leadership and management skills for board members over fundraising abilities.
10. Sustainability not Starvation
As demand for services provided by social service organizations continues to grow, many nonprofits are finding themselves at risk of falling into the starvation cycle—when organizations chronically underfund internal infrastructure and/or operate without adequate financial reserves in the service of mission and pursuit of low overhead costs. Health and Human Services nonprofits are particularly at risk of entering this cycle, with managing growth (56 percent) and internal resource constraints (60 percent) noted as a high or moderate challenge for more than half of all HHS organizations surveyed. However, as demand continuously evolves and grows, the sophistication of services and solutions is rising to the challenge, thanks to technology. These evolutions in how services are provided require more investment in resources, making organizations look closely at how they can fund these enhancements to stay ahead ―or at least keep pace with―the rate of change.
This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” blog (July 29, 2019). Copyright © 2019 BDO USA, LLP. All rights reserved. www.bdo.com
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