survey

"Over the past 3 years, the length of stays at our shelter has increased from 11 to 27 to 33 nights, because of a lack of affordable housing. We are scrambling to come up with creative solutions to shelter women for whom we have no room. Economic recovery is still not a reality here."

-Sarah Lange, Abby's House

This is a quote from one of the 4,607 respondents to NFF's just-released Annual State of the Sector Survey. If this sounds a lot like your organization's situation, you are not alone. This year's respondents tell a collective story of a sector still stretched thin, with organizations feeling distant from their funders and boards, and staff facing more work with less money and fewer benefits to take home. While the recession may be over, the nonprofit financial crisis isn't. Here are a few facts from the survey (to check out detailed results and analysis, visit the main survey page):

• 85% of nonprofits experienced an increase in the demand for services in 2011.
• This is on top of years of increased demand: previous NFF surveys found that 77% of nonprofits experienced an increase in demand in 2010; 71% experienced an increase in 2009; and 73% experienced an increase in 2008.
• 88% expect an increase in demand for services in 2012. 57% have 3 months or less cash-on-hand. 87% said their financial outlook won't get any better in 2012.

NFF conducts the State of the Sector Survey to provide the sector with concrete data to act as a compass for decision-making. While there are some glimmers of financial improvement, the fact remains that people who need nonprofit services are slipping through the holes in the safety net. In the current system, nonprofits cannot keep up. And with government funding on the decline and private funding not making up the difference, there are no signs that things will get better any time soon.

We'll be taking a closer look at the results over the next few months and posting them here. In the meantime, take a look at our new Survey Analyzer. In our efforts to make the data more readily available to even more people in the sector, we created a tool that allows you to filter the results by geography, sector, and/or annual expense. Please share with us here what you find!

Editor's Note: A version of this post originally appeared at the ASU Lodestar Center Blog as part of their Research Friday series.

At Nonprofit Finance Fund (NFF), we use financial data every day in our work with nonprofits and their funders. One source of data informing this work is our annual State of the Sector Survey. Throughout the year, I’ve been blogging about key trends from our 2011 survey, which was completed by nearly 2,000 nonprofit leaders nationwide. They told us about their organizations’ financial outcomes from 2010 and speculated on what 2011 would bring. As we look back on what was certainly a challenging year, I thought it would be interesting to revisit some of their expectations.

Nonprofit leaders told us about planned changes to their service offerings in 2011: 

Although contributed revenue was generally down from public and private sources alike, a majority of nonprofits indicated that they actually planned to add or expand their offerings in 2011. Many anticipated expanding the geography they serve or partnering with another organization in order to meet the increased demand for their services. In fact, 88% of respondents indicated some sort of shift in their service delivery. But it wasn’t just program change; management steps and tough decisions were also required.

Nonprofits told us about their planned financial management actions in 2011:

Nonprofit leaders have learned to expect the unexpected. As a result, many predicted that they would engage more closely with their board and develop a “worst case scenario” contingency budget. If they were fortunate enough to have reserves, some groups planned to tap them. Many organizations decreased expenses. But some collaborated to manage their expenses and a third of organizations actually increased their expenses. Twelve percent even expanded their space. A big picture takeaway from both these charts:

Twenty-five percent of annual operating expenses. That’s what the National Center for Charitable Statistics recommended in it's Operating Reserve Policy Toolkit for Nonprofit Organizations, published in September 2010 in partnership with the Center on Nonprofits and Philanthropy at the Urban Institute and United Way Worldwide.  Grantmakers in the Arts, in January 2010, launched their National Capitalization Project and at their October meeting in Chicago released a summary document which stressed the importance of well capitalized organizations and added, “…we repeatedly came back to the fact that the most common source of capital is accumulated surpluses. We agreed that getting organizations to achieve a surplus would require encouraging a significant shift in nonprofit practice and culture, a challenge we thought well worth undertaking.”

Nonprofit Finance Fund has long been a proponent of healthy balance sheets, but as the reports and recommendations mount, it’s clear that NFF is not alone in suggesting a course of action that considers the creation of reserves.  While reserves alone do not comprise total capital structure, they are an indicator of the degree to which an organization is prepared for the day to day and long term challenges they may face.   Capital structure is the nature, composition and magnitude of the assets, liabilities and net assets comprising the balance sheet – or in other words the financial and physical platform from which the organization’s mission is accomplished.

The provocative question is, how will nonprofits develop healthier balance sheets?  And perhaps more pointedly, how patient are we willing to be?  While generating operating surpluses may be ideal, it will take time and patience to realize a well capitalized sector utilizing this approach.  Our third annual national survey of over 1900 nonprofit leaders (funded by Bank of America) is telling on this point: 

So, is capitalization via accumulation of operating surpluses the answer?  In simple terms, if we are waiting for the sector to build (or re-build) balance sheets independent of new philanthropic dollars, it will take a minimum of five years for those functioning at the 5% surplus level to generate even the equivalent of three months of additional cash reserves.

At NFF our recently released paper, The Case for Change Capital in the Arts, sets out a series of definitions, strategies, and sample cases from our work with Leading for the Future (funded by the Doris Duke Charitable Foundation) that can inform the conversation about capitalization.  In today’s economic environment, in the midst of the conversations and changing dynamics in the field about capitalization for nonprofits, the time for an equity ethic, an embrace of philanthropic equity if you will has arrived.   While we have many tools to teach nonprofits how to create new strategies for operating that generate surpluses, the sector has been struggling for a long time with inadequate capitalization.   Asking nonprofit leaders to generate operating surpluses to build healthy balance sheets will also require asking ourselves if we are providing the proper support for that expectation to be realized.

In times of recession, financial uncertainty and job stability are at the top of everyone's minds. They come to the forefront of the national agenda, spurring our government to step up and take action (whether sufficient or not). But for some workers, job instability may be more than a passing trend. 

Of the 1,935 organizations that responded to our State of the Sector Survey this year, we took a closer look at organizations reporting higher percentages of contract workers on staff. While most sectors had relatively lower percentages of contract workers, the arts (represented by 373 survey respondents) dramatically stood out.

While 48% of non-arts organizations had no contract workers, only 25% of arts organizations operated without contract workers. 23% of arts nonprofits operated with 76-99% of staff as contract workers, compared to only 3% for the rest of respondents. 6% of ARTS organizations operated with 100% of staff on contract.

There are a number of reasons why organizations might need to rely heavily on contract workers. Younger or start-up organizations still gaining their footing often employ on contract to minimize the costs and complexities associated with providing extensive employee benefits. They also have less visibility into their futures and are less able to guarantee long-term employment.

For arts organizations that operate on small budgets, a few dollars can make a major difference in both mission impact and stability. Small nonprofits may rely on higher percentages of contract workers and volunteers to maintain more agility and do more with less. Of the smallest arts organizations that responded--91 organizations with budgets under $250,000--substantial 21% operated with their entire staff on contract. When we compared these numbers to small nonprofits across the board, however, the numbers weren't quite so stark. Of the total 333 organizations with budgets under $250,000, 15% operated with an entire staff of contract workers.

So what might make arts organizations different?