'Starvation Cycle', Regulation Among Nonprofits' Top Concerns

'Starvation Cycle', Regulation Among Nonprofits' Top Concerns

Top concerns for nonprofits in 2019 include the dangers posed by the nonprofit "starvation cycle," regulatory and legislative changes, and compensation, a report from the BDO Institute for Nonprofit Excellence finds.

Based on a survey of two hundred nonprofits, the report, Nonprofit Standards: A Benchmarking Survey (44 pages, PDF), found that organizations are increasingly at risk of underfunding critical infrastructure — including technology systems, employee training, and investments in fundraising — and allocating more of their limited resources to programmatic spending. Indeed, nearly three-quarters (72 percent) of the surveyed nonprofits allocated between 80 percent and 100 percent of their spending to program-related activities in their most recent fiscal year, while 63 percent currently maintain operating reserves of no more than six months. Seeking new sources of revenue or funding was the top priority for 39 percent of respondents, followed by updating or revising programs (16 percent), digital transformation (11 percent), measuring impact (10 percent), adding staff (9 percent), and improving board or staff diversity (3 percent).

According to the report, 70 percent of respondents rated variability in revenue or funding as a high or moderate challenge, followed by rising overhead costs (66 percent) and staff retention or recruitment (66 percent). In addition, 64 percent of respondents said they were planning to invest in new technologies this year, with a focus on donor management platforms and/or fundraising or social media (66 percent) software, data analytics tools (56 percent), and automation (33 percent) software that allows them to do more with less.

The survey also found that in the wake of changes to the federal tax code, new data privacy regulations, and new financial reporting guidelines, 63 percent of respondents said that regulatory and legislative issues will present a high (22 percent) or moderate (41 percent) challenge in 2019, up from 45 percent in 2018.

In addition, the report found that in terms of employee satisfaction, 78 percent of respondents rated compensation as a high (32 percent) or moderate (46 percent) challenge, while 24 percent said a disconnect from the organization's mission was a high or moderate challenge, including more than a third of organizations that experienced a net loss in revenue in 2018. According to the report, health and human services organizations face unique challenges, including rising operational costs, funding shortfalls, and increased demands for transparency.

"Employees value both the social and financial aspects of nonprofit work, and retaining them requires the best of both worlds," said Laurie De Armond, partner and co-leader of BDO's Nonprofit & Education practice. "Nonprofits who take a business mindset to their recruitment and retention policies will work with their best assets — highly impactful and rewarding work — to promote internally and externally the value of a nonprofit career."

"Nonprofit Standards: A Benchmarking Survey." BDO Institute for Nonprofit Excellence Report 06/10/2019. "Regulation Concerns Spike Among Nonprofits." BDO USA Press Release 06/10/2019.