Inadequate cash reserves, negative income margins, technical insolvency among problems nonprofit sector faces
New York, NY, and Washington, DC—January 30, 2018—Approximately 50 percent of U.S. nonprofits are operating on a financial precipice, a new report by Oliver Wyman, SeaChange Capital Partners, and GuideStar reveals.
“The report’s findings are sobering,” stated George Morris and Dylan Roberts, partners at Oliver Wyman and two of the four authors of the report. “Half of U.S. nonprofits had less than one month’s cash reserves. Some 30 percent had lost money over three years, and 7 to 8 percent were technically insolvent.”
The Financial Health of the United States Nonprofit Sector: Facts and Observations examines the finances of more than 219,000 U.S. nonprofits for fiscal years 2010-2014, the period covered by a previous report on Philadelphia-area nonprofits. It provides an overview of the sector; analyzes nonprofit financial health by organization size and mission area; and suggests ways to improve nonprofit financial health. The analysis was derived from GuideStar’s proprietary archive of digitized IRS Form 990 data. Form 990 is a reporting return filed annually with the IRS by nonprofits with gross receipts of $200,000 or more or total assets of $500,000 or more.
Nonprofit financial insecurity is a significant issue, John MacIntosh, partner at SeaChange and another of the report’s authors, explained. “The scale of the problem is vast. Just restoring currently insolvent nonprofits to solvency would require an injection of $40 to $50 billion dollars. Changes to federal tax code may exacerbate the issue, by changing charitable donations and/or by increasing the likelihood of future pressure on federal budgets for human services.”
The impact of nonprofit financial uncertainty extends beyond the nonprofit sector, noted Adrian Bordone, vice president of strategic partnerships at GuideStar and the report’s fourth author. “Nonprofits play vital roles in our nation. They also employ more than 10 percent of the U.S. workforce. When nonprofits face financial distress, it creates hardships for some of the most vulnerable and fragile segments of society. It also means that hardworking staff may lose paychecks or pensions and that trustees may be exposed to personal liability.”
The report suggests several steps nonprofit leaders, funders, regulators, and policy makers can take to improve financial health in the sector. Initial steps include:
- Nonprofits—use the report to benchmark financial health.
- Funders—create more flexible funding models.
- Government—revise current cost-minus contracting practices.
Free copies of The Financial Health of the United States Nonprofits Sector: Facts and Observations can be downloaded here.
About Oliver Wyman
Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across nearly 30 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm has more than 4,500 professionals around the world who help clients optimize their business, improve their operations and risk profile, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC]. For more information, visit www.oliverwyman.com. Follow Oliver Wyman on Twitter @OliverWyman.
About SeaChange Capital Partners
SeaChange Capital Partners is an investment bank focused exclusively on the nonprofit sector and is itself a nonprofit. SeaChange’s mission is to improve nonprofit effectiveness and efficiency by making grants, loans, and investments, by providing advisory services, and by “making markets” within its network. SeaChange’s principal asset is a network of foundations, individuals, nonprofits and public entities that trust it to make strategic grants and investments, provide advice and analysis, synthesize and flow information, and manage potential conflicts of interest.
GuideStar, http://www.guidestar.org, is the world’s largest source of nonprofit information, connecting people and organizations with data on 2.6 million current and formerly IRS-recognized nonprofits. Each year, more than 9 million people, including individual donors, nonprofit leaders, grantmakers, government officials, academic researchers, and the media, use GuideStar data to make intelligent decisions about the social sector. GuideStar Nonprofit Profiles are populated with information from the IRS, directly from nonprofits, and via other partners in the nonprofit sector. In addition, users see GuideStar data on more than 200 philanthropic websites and applications. GuideStar is itself a 501(c)(3) public charity.
- Oliver Wyman