Skip to main content
group of volunteers working

Top challenges for nonprofit organizations and how to overcome them

from  January 16, 2023 | 5 min read

Nonprofit organizations work hard to accomplish a world of good, but running one is much harder than it looks. Aside from the common issues that any company faces, like adapting to new technology and staying up to date with accounting and regulatory requirements, nonprofits face additional challenges and problems specific to their sector.

Challenges and problems facing non-profit organizations

What exactly are the challenges facing nonprofits, and how can they tackle them efficiently and within the limited resources they have? Let’s take a look at the eight most significant strategic issues facing nonprofit organizations today:

1. The challenge of limited government funding for nonprofit organizations

Many nonprofit organizations depend on the assistance of the government. This 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 municipal levels means there is less to go around. Most nonprofits end up getting less funding than they want or need, while some are left with no funding at all.

2. Nonprofit’s stable income and accurate budgeting issues

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 administrative costs before seeing what is left for projects, and the organization often runs on a shoestring just in case. 

3. Pressure on nonprofits to show results and strategic solutions

In the past, the nonprofit world’s emphasis was on showing that programs were being used and accessed by those they aimed to support.  Now, largely because there is less to go around, the pressure has shifted. Your nonprofit must demonstrate that its social impact objectives are being achieved, which can be a much more complex calculation.

4. Not running nonprofits like a business and ignoring the bottom line

With so much emphasis on performance, your nonprofit may struggle with remembering that it is still a business that has to have a bottom line in the black. Nonprofits often put their social impact goals at the forefront and their business objectives second, which is fine until there is not enough coming in to cover what is going out.

Cost and social impact must become aligned to deliver real life-changing results across all activities. To ensure your mission never loses sight of its capability/reach, you should use the right tools and recognize the importance of a break-even analysis. This will make your people and processes more agile and adaptable, and ready to meet changing circumstances within the resources you have. And they will allow you to track the bottom line in real time.

Click to read Helping nonprofits deliver on their mission with FP&A and HCM - Blog - FG 

5. Attracting and retaining the right talent over other sectors

Many nonprofits struggle to win the battle for talent when competing with opportunities in other sectors. This leads to an equally important issue: are they attracting the right people? Looking at what type of person is attracted to the sector and why others are not.

People attracted to nonprofit work are generally very dedicated to the causes they serve and are an asset to the sector. However, the limited resources many nonprofits have also make it tricky to recruit ‘top talent’ - those candidates often get hoovered up by more lucrative industries with bigger offers and opportunities. Is there a solution?

The solution comes in two parts. First, fight the fear. If these are the people you need, then invest in them. Nonprofits must fight the fear that they may leave or cost too much and look at the bigger picture.

Second, where investing in new talent is not possible, you must believe in your top talent. Provide engaging work experience that allows your people to focus on why they love their work – your mission. And help them flourish and take their undeniable passion further.

6. The problem of a significant increase in the need for nonprofit 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, putting the burden on nonprofits to respond quickly to unpredictable situations and deliver much-needed services.

7. Decreasing demand for nonprofits due to their increased success becoming an issue

Successful nonprofits face the possibility that they could work themselves right out of a job. Let's say that your organization’s objective is to find employment for local 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, putting nonprofits under pressure to either scale back or diversify their mission and programs.

8. Nonprofits challenged to keep their eye on the bottom line

People working for nonprofits tend to wear many hats. Being generalists can mean no one in your organization has the dedicated knowledge that detailed business and finance analysis functions require. Finding tools that empower everyone to analyze information and make data-driven decisions is essential. 

Nonprofit organizations clearly face a range of specific challenges, some of which are obvious while others are less so. To future-proof your organization and achieve your mission, you need to be aware of these issues and how they could affect your business.

Nonprofits that are serious about being around for the long-term need strategies to mitigate these challenges and use them as a starting point for developing a comprehensive business strategy. Approaching an operational strategy from this perspective is essential to sustaining successful business operations.

How Unit4 can help you with this problem

Our solutions for nonprofit organizations focus on People Experience to help free your teams to do more of what matters: making a positive impact in the world.

Make a more significant impact with people-centric software solutions purpose-built for nonprofits, with industry-leading Enterprise Resource Planning (ERP), Human Capital Management (HCM), and Financial Planning & Analysis (FP&A) solutions. Click here to find out more about how our software can help nonprofit organizations or click here to talk to Unit4 sales team.


How does strategic management differ for profit and nonprofit organizations?

Although there are many differences between for profit and nonprofit organizations, when it comes to strategic management, the most fundamental difference is that the main goal for a nonprofit is to advance their mission, which does include making money but their strategic management will focus on different expectations to profitability. 

What are the main threats to a nonprofit organization?

  • Changes to regulations

Laws and regulations that nonprofits are bound by are often reviewed, updated and changed so it is essential they are monitored and activities are adapted. 

  • Competition 

Not just competition in terms of donations, but also volunteers, partnerships with other organizations, and funding from public money. 

  • Social Media 

Social media is great for awareness and fundraising but it is also out of the control of the organization so it is best to mitigate risk by pushing social media audiences to an email list. 

How can nonprofit organizations improve their strategic decision-making?

For nonprofit organizations, improving strategic decision-making can be done with the right technology providing the data on which to base decisions. Technology such as Unit4 ERP, FP&A and HCM provide a single source of data truth that helps nonprofits maximize funding, build trust and accountability, and make more impactful decisions. 

Sign up to see more like this