Report: Half of U.S. nonprofits on financial precipice

Written on Apr 25, 2018

Around 50% of the nation’s nonprofits are operating with less than one month’s cash reserves, a new report reveals.

The report, Financial Health of the United States Nonprofits Sector: Facts and Observations, released by Oliver Wyman, SeaChange Capital Partners and GuideStar, examines the finances of more than 219,000 U.S. nonprofits for fiscal years 2010-2014. The new report provides an overview of the sector, analyzes nonprofit financial health by organization size and mission area, and suggests ways to improve nonprofit financial health.

Additional findings:

  • Some 7-8% of U.S. nonprofits are technically insolvent, with liabilities exceeding assets.
  • Restoring these nonprofits to solvency would require an infusion of $40-$50 billion.
  • Some 30% of the country’s nonprofits have lost money over a three-year period.
  • Size does not seem to affect financial health. Larger organizations are as likely as smaller ones to be financially unstable.
  • Financial health varies according to business model.
  • Nonprofits that depend on government contracts and fee-for-service revenue use debt more often, operate in a tighter liquidity range, and have smaller reserves.
  • Nonprofits that are more reliant on private philanthropy have less debt and larger reserves.
  • Financial health differs across sub-sectors, as well.
  • Environmental and animal-related nonprofits had the lowest insolvency rate, 5%.
  • Health and human services agencies had the highest insolvency rate, 13%.

The report suggests several actions nonprofit leaders, funders, regulators, and policy makers can take to improve nonprofit financial health. It recommends these first steps:

  • Nonprofits: use the report to benchmark financial health
  • Funders: create more flexible funding models
  • Government: revise current cost-minus contracting practices

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