Strategic Planning

June 2017

Operating Reserves

Loss of revenue can be devastating for nonprofits, and 40 percent of organizations list it as a concern for their board. To supplement a potential loss, organizations should maintain adequate operating reserves (liquid unrestricted net assets). The nonprofits surveyed maintain an average of 8.7 months of operating reserves. However, a plurality (40 percent) maintain between one month and less than six months of reserves. 

Nearly one-quarter (23 percent) of HHS providers do not maintain any operating reserves, compared to just 6 percent of their public charity counterparts. HHS organizations have an average of 6.3 months of operating reserves, while public charities have an average of 11.8 months. Similarly, 16 percent of smaller nonprofits with annual revenue of less than $25 million do not currently maintain any liquid unrestricted net assets, compared to 10 percent of larger organizations. Organizations with less than $25 million in revenue have an average of 6.2 months of operating reserves, while their larger counterparts have an average of 10.3 months of reserves.

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Nonprofit Challenges

The majority of nonprofits (72 percent) rank staff retention and recruitment as a challenge they expect to face this year, followed by cutbacks in funding and drops in revenue (48 percent). These concerns will likely continue to be top-of-mind as the new administration continues to introduce new policies and potential federal funding cuts to various programs and organizations. 

Attracting quality leadership and board members (34 percent), rising costs (33 percent), compliance with government regulations (28 percent) and excess demand for services (25 percent) were among the other top challenges identified by nonprofit executives. Interestingly, only 11 percent of organizations identify adequate liquidity as a challenge, even though 53 percent of nonprofits have less than six months of liquid unrestricted net assets. 

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Revenue & Sector Breakdown

While most organizations name staff retention as a top challenge this year, more than double the proportion of organizations with less than $25 million in annual revenue (49 percent) cite attracting quality leaders, compared to 24 percent of nonprofits with revenue greater than $25 million. Nonprofits with revenue less than $25 million are more likely than larger organizations to cite the cost of complying with government-funded programs as a concern (21 percent versus 10 percent). Larger organizations, conversely, more frequently name compliance with government regulations as a top concern than smaller organizations (32 percent versus 21 percent). 

HHS providers list staff retention and recruitment (92 percent), cutbacks in funding (76 percent), compliance with government regulations (46 percent) and rising costs (35 percent) as top concerns. Among public charities, the top challenges include staff retention and recruitment (65 percent), attracting quality leadership and board members (44 percent), excess demand for services, and cutbacks in funding and drops in revenue (38 percent each).

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Future Plans

More than half (55 percent) of all respondents plan to introduce new programs to their current offerings, including more than two-thirds of HHS organizations (68 percent). Twenty‑seven percent of all organizations plan to eliminate some current programs and introduce new programs, while nearly one quarter (24 percent) intend to maintain the same program offerings. Overall, only 7 percent of all respondents have plans to merge in the next two years.
For the 7 percent of respondents who selected “other” for this question, responses include: adding new fundraising platforms, conducting capital campaigns, optimizing mission, scaling programs nationally, making acquisitions and affiliating with larger organizations.

Looking at the sector differences, the clear majority of HHS organizations (68 percent) are looking to expand programs, while 41 percent of public charities plan to do so. Sixteen percent of HHS organizations have plans to merge in the next two years, compared to just 3 percent of public charities. 

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