Are most nonprofits in bad financial shape?

The Boston Foundation released a study of Massachusetts Nonprofits called Passion and Purpose: Raising the Fiscal Fitness Bar for Massachusetts Nonprofits.

The report is worth looking at, even if you aren’t from the Bay State, as it provides a very intriguing analysis of nonprofits by size and business model. The report categorizes the sector into three segments based on budget size and “value proposition” as follows:

Grassroots organizations create civil society through grassroots action and volunteerism. They have budgets below $250,000.

Safety net nonprofits provide a societal benefit and a “safety net” through the delivery of services and quality of life contributions. They have budgets between $250,000 and $50 million.

Economic Engines provide large scale services and contributions to the state’s economic health and competitiveness. These are the largest institutions, primarily universities and hospitals (60%), that represent just 2% of nonprofit numbers but 80% of assets and 72% of their spending. (GG: It’s interesting to me that the description of these economic engines says nothing about their charitable purpose. Why is that?)

The report looks at success from a financial perspective only. To me, it displays the Nonprofit Finance Fund’s bias that a nonprofit needs to have a budget in the over $50m category to be considered financially robust.

In my book, any nonprofit that has lasted for 20 to 150 years and continues to achieve important societal outcomes, while nimbly executing on a measly budget (by report standards) of a cool $1-5 million without accumulating debt, is doing pretty well and shouldn’t feel that it hasn’t worked out a viable financial model.

I’m not disputing the financial difficulty that so many nonprofits face and the harsh reality of living payroll to payroll. But having worked at an organization that had an annual budget of $25 million, let me tell you, there was no edge-of-the-abyss financial struggle going on there.

While the report has many recommendations worth echoing, the little hairs on my neck are standing up as I fear that it could result in discounting the resilient financial model of many small and very worthy organizations and push much needed financial resources into the pockets of some of those mega organizations that frankly, in my estimation, don’t need another charitable dime. See our earlier post How much is enough? Philanthropic Greed.

glg