Social Currency

In a world where the last two years have produced 90% of all data ever created (so says IBM), there is something to be said for avoiding information overload. This is especially true for nonprofit organizations whose leaders must constantly balance money and mission, while marshaling ongoing evidence of social and financial performance. With limited finance staff and multiple sources of financial information, it’s no wonder these leaders and their supporters often struggle to tell a clear, compelling financial story that makes sense of all the data.

How can nonprofit executives, funders, and advisors identify what matters most when examining finances? What are some trends and indicators that can guide us through an abundance of data and help assess true financial health?

Not all financial indicators are created equal. Below, I offer a short list based on NFF’s years of experience lending to and advising nonprofits. You can find this data on historical-looking documents such as audited financial statements and Forms 990, as well as on forward-looking internal budgets and projections.

Strapped for time to do this number crunching yourself? Financial SCAN, a data platform developed by NFF and GuideStar, can do this analysis for you, illustrating trends in an organization’s financial performance through user-friendly dashboards and graphs. You can also use the tool to see how one organization’s financial metrics and ratios stack up against its peers.

INCOME STATEMENT INDICATORS:

• Revenue reliability. Rather than overly focusing on the ratio of earned to contributed revenue, we suggest evaluating revenue reliability – an organization’s track-record of bringing in recurring dollars, on an unrestricted operating basis, year after year. Reliable revenue doesn’t always come from the same sources providing the same amounts of money. However, it does suggest an ability to predict a level of income with a fair amount of certainty, based on historical performance and an understanding of market dynamics.

Since the end of the 2008 financial crisis, the US has seen faltering signs of economic recovery. But underneath these glimmers of improvement are the 46.2 million poverty-stricken Americans that have seen little change. With poverty at record levels, our nonprofit safety net and the 10.7 million workers who sustain it are shouldering an unprecedented responsibility and showing the strain. Nonprofit Finance Fund’s 5th annual survey captures this economic reality through the voices of 5,983 nonprofit leaders. Here’s an overview of our national results -- to take a closer look, check out our survey brochure and filter the results for yourself using our 2013 Survey Analyzer. There’s more to come: in future posts, we’ll take a look at how the sector is coping in an era of more need and fewer resources and explore some of the solutions organizations are adapting to fundamentally change the way we work. 

Community Need For Services is High

While organizations show slight signs of financial improvement, this is also the 5th straight year in which they reported dramatic increases in service demand. 78% of respondents reported an increase in demand for services, about half of respondents weren’t able to meet that demand. Organizations that work on the front lines saw even greater community need, with 85% of respondents that served low income communities reporting demand increases and 63% unable to meet that need.

While we at NFF strongly encourage nonprofits to always balance money and mission, the reality is that coping with demand can mean turning people away. And this is incredibly difficult for nonprofits to do. Says one survey respondent: "Homelessness is on the rise and youth homelessness is increasing daily. In order to maintain the integrity of our program, we must turn students away once we reach our maximum capacity. It is a challenge daily to know that you may be leaving a teen on the street due to funding limitations.

The Uncertainties of Government Funding

Meanwhile, government support continues to falter, leading many to believe that programs for the public good are experiencing long-term disinvestment.  Of the 47% of respondents with state/local funding or contracts, a huge 86% said that the funding failed to pay the full cost of services. On top of that, payments were delayed for more than half of respondents, with 10% reporting delays that were more than three months late. Reports were similar, although not quite as severe, for the 29% of respondents with federal funding/contracts. As one respondent puts it: "The social safety net has been gradually chipped away for decades. Non-profits, private donors and volunteers simply cannot fill the yawning chasm between services needed and government support currently provided. We and our network of member agencies are strained beyond capacity. The neediest families continue to need more, while further cuts in government support are inevitable."  To fill the revenue gap caused by payment delays, organizations have had to tap into reserves, draw on lines of credit, cut staff costs, reduces services, and more.

With our state of the sector survey in full swing, we’re already taking a look at early responses.  Thanks to the organizations who have weighed in so far, some important themes are already  emerging in the qualitative responses. Over the next few weeks, we’ll be exploring some stories survey respondents have shared with us in discussing the challenges their organizations faced in 2012, and how they responded to those challenges. Please do take the survey and share your own perspective!

Estimates indicate that, by 2050, the number of people 65 or older will have grown by 135% since the start of the millennium, rising  from 12.7% to 20.3% of the total population. As quality of life and health care improve in the United States, we are also living longer. Over the last thirty years, the number of people 90 years old or above has tripled, according to the US Census.

In this year’s survey, nonprofits are sharing stories about the impact of these changing demographics on several dimensions of the nonprofit enterprise including programs and services and human, social, and financial capital.

Increased demand

Doctors and nurses are preparing for new ways of delivering care to older patients with multiple chronic illnesses, while government still struggles for a solution to the oncoming financial issues facing the Social Security and health care systems. Says one survey respondent working in the field of health care education: “Our health care system is becoming increasingly fatigued, strained by a physician shortage, retiring practitioners and a wave of aging baby boomers placing a tremendous strain on the infrastructure’s ability to handle the increased patient load. The bottom line: we need more physicians and health-care professionals…[Our organization] is stepping up to meet the needs of our community by increasing our class size and number of graduates by 36% from 2009 to 2017.”  

Changing demand

In responding to this demographic trend, one Human Services survey respondent observes that organizations providing elder care will see an increasing need to expand the breadth and types of services they offer in order to help older adults age in place. Individuals will need services to grow and change with them, as they evolve through different stages of need, requiring nonprofits to take a deeper role across the spectrum of care-giving activities:  “We serve the elderly, keeping them safe in their own homes.  As they continue to live longer, their needs rise. Thus our expenses rise to assist them,” she notes. “Example:  a client arrives at age 70, and we provide transportation as needed. Flash forward 14 years, and our typical client is 84 and lives alone.  She/he now needs hot meals and light housekeeping. Flash forward another 10 years, and that same client will need help with bathing, additional housekeeping, a phone pal, minor home repairs, and emergency assistance for medical service payments.”  Economic stress has shifted the demand profile as well.  An Oregon-based healthcare organization reports: “The number of seniors who will need our meal service is increasing exponentially as the Baby Boomers turn 60. The age group 60-69 is our fastest growing, because they have been hardest hit by economic downturn and forced early retirement. We need to develop a comprehensive funding plan so we aren't scrambling to make our budget each year, but have a fund that provides enough interest to help pay for increased programming.”

Shifting donor base

The aging population also presents a challenge to organizations’ financial capital. Several noted that many of their individual donors are above retirement age. With government funding on the decline, organizations are tasked with finding new ways develop reliable revenue from a broader spectrum of donors.

On January 30, the Catalyst Fund hosted an event to celebrate the release of two new publications highlighting emerging lessons and success stories in nonprofit collaborations.  The event represented an important milestone in building momentum and infrastructure for supporting strategic collaborations among nonprofits in the Boston area.  The event featured a panel of nonprofit leaders who have recently engaged in strategic collaborations through the support of the Catalyst Fund.  The panelists addressed a standing-room only crowd of nonprofit leaders, providing an open and honest dialogue about their objectives and motivations for collaboration and the challenges associated with planning and implementation.  While the nonprofit sector has historically shied away from structured collaborations, audience questions and feedback presented a picture of eager and engaged nonprofit leaders looking for tactical guidance on how to find and initiate conversations with potential partners. 

Weren’t able to participate in person?  An archived video of the event can be seen below or here: 

Still want to learn more?  The Catalyst Fund’s Interim Assessment Report (pdf) provides key insights into the characteristics of successful collaborations and shares additional stories of lessons learned in the pursuit of nonprofit collaborations. 

The Catalyst Fund will be reviewing applications on a quarterly basis in 2013.  For more information about the application process, guidelines and timeframe please visit the Catalyst Fund’s website.