Not-For-Profit Challenges

10 Challenges for Not-for-Profit Organizations

Posted by  Marco Rolla

Not-for-profit organizations, also known as nonprofits or NfPs, may accomplish a world of good and receive certain tax incentives, but running one is much harder than it looks. Aside from the regular issues that face any company, like adapting to new technology or staying up to date with accounting and regulatory requirements, nonprofits face additional challenges.

In our not-for-profit series, we've talked about transparency issues, and we've discussed the issues of attracting new volunteers, developing a solid business plan, structuring the board and finding sources for grants. However, the problems facing not-for-profit companies don't end there. These are some additional challenges faced by nonprofits.

1. Philanthropy and the War Against Economic Inequality

For many people, a donation of millions of dollars to their alma mater or an art program perpetuates the income gap. Instead, they believe the money should be used to combat poverty. Unfortunately, this trend means that your nonprofit may have a tough time convincing donors to contribute.

2. Shrinking Help From the Government

Many nonprofit organizations depend on the assistance of the government. Assistance may be in the form of grants or part of a matching scheme, or it may merely serve as a safety net to fill the gap when funds are short. Shrinking budgets at state, national and city levels mean there is less to go around. Most nonprofits end up getting less than they are used to receiving, and some are cut out completely.

3. Stable Income and Accurate Budgeting

Having a steady income from any source is hard for nonprofits, and that can make budgeting a real challenge. Moreover, income may be unsteady throughout the year, so your focus usually falls on securing enough to cover overhead before seeing what is left for projects, and the organization often runs on a shoestring just in case.

4. Pressure to Show Results

In the past, the emphasis in the not-for-profit world was on showing that programs were being used. Foot traffic and event attendance mattered most. Now, largely because there is less to go around, the pressure has shifted. Your NfP has to demonstrate that its objectives are being achieved. For example, a program for adult literacy has to prove that students are learning to read and comprehend material rather than show strong class attendance.

5. Not Running It Like a Business

With some much emphasis on performance, your nonprofit may struggle with remembering that it's still a business that has to have a positive bottom line, or at least, it has to break even. Nonprofits often put their local goals at the forefront and their business objectives second, which is fine until there's not enough coming in to cover what is going out.

6. Attracting the Right Staff With Limited Resources

This leads to a secondary issue: attracting the right staff. When money is tight, you might be able to attract people who believe in your cause, but they may not always be the top talent in their fields. It can be difficult to justify a large salary or benefits package at a nonprofit, and that can lead the best and brightest to look elsewhere.

7. Increase in Need for Services

Across the board, nonprofits are seeing an increase in the need for their services. Poverty is a real issue, and many people are facing economic hardships. The environment needs saving, and arts programs in many schools are being cut, which puts the burden on local nonprofits.

8. Growth Is Risky

On the flip side, even if your nonprofit gets enough funding to serve all the people it wants, attracts the right talent, and manages to turn a small profit, growth is precarious. Usually, that funding is not guaranteed, and the staff is not contracted to stay, so putting money into growth is a gamble.

9. Working Itself Out of a Job

Successful nonprofits face additional issues: They could work themselves right out of a job. Let's say that the objective of your organization is to find employment for area veterans, and it does so, continually growing and evolving its services to meet that goal. Once it does, the demand for its services may decrease, which then puts the pressure on the nonprofit to either scale back or expand its offerings in size, scope or geography.

10. Eye on the Bottom Line

Qualified financial professionals and business managers may be able to analysis your nonprofit's finances and suggest the most useful places to put its efforts, but having a dedicated financial staff is beyond the means of most nonprofits. Instead, people in nonprofits tend to wear many hats. Being generalists can mean that there is no one in your organization who has the dedicated knowledge those upper-level business and finance functions require.

Not-for-profit organizations face a range of challenges, some of which are obvious, while others are less so. In order to remain solvent and functional enough to achieve the social goals set by your nonprofit, you need to be aware of these issues and how they could be affecting your business. Nonprofits that are serious about being around for the long-term need to create strategies to mitigate these challenges and use them as a starting point for developing a comprehensive business strategy. Approaching not-for-profit strategy from this perspective is essential to developing the nonprofit's business operations.

Marco Rolla

Marco is an industry researcher who focusses on global business, finance and the public sector. Marco aims to free service organizations from excessive administrative work.