Friday, January 21, 2011

Four Horsemen of the Nonprofit Apocalypse

This one is for my many friends whose lives are dedicated to healing the world, either as staff or volunteers in the nonprofit sector, and for my many students who are working toward their masters of nonprofit administration degrees.  You must take a peek at Clara Miller's article, "The Four Horsement of the Nonprofit Financial Apocalypse"  in "The Nonprofit Quarterly."  I'm going to give you the gist of her arguments, but it's worth clicking through to read the nitty gritty of her article, and her guidance. 

Miller says the old one-size-fits-all wisdom about building financial sustainability for your nonprofit is, unfortunately, working against organizations in today's economy.   Here are the four horsemen, paraphrased and greatly oversimplified (again - read the full article):

(1) too much real estate - problematic from an equity perspective (dropped values), and also from a cash-flow perspective - because the owner picks up major maintenance and repair costs during a cash poor economic climate;

(2) too much debt - during unpredictable revenue streams, you want your cash available to provide services, not debt service;

(3) under-water balance sheets/over-reliance on endowments - once seen as the ultimate vehicle to free a NP from the fundraising scramble, these prove unreliable in bad markets because they are invested with a goal of throwing off profits and maintaining the corpus; and,

(4) labor market issues - two-prong issue - a) nonprofits are often labor-reliant to meet mission, and labor is expensive, and b) bad economy often means a greater need, not a reduced need, for services, and that means more staff. The three problems above lead to reduced cash flow and inability to be financially nimble enough to take care of staff.

The sector definitely needs to rethink its financing model...


  1. I've been saying this for some time and teach this lesson as part of what I see as the need to go to social enterprise as the core of sustainability for Community Development. Charity and need are often inversely related as you point out. The UK is way ahead of the US on this issue.

  2. Yes, and it's more important now than ever!