Nonprofit Financial Management Practices: A 50 Year Compendium

Nonprofit Financial Management Practices:A 50-year CompendiumHeather Carpenter & Donijo Robbins

Grand Valley State UniversitySchool of Public, Nonprofit, & Health AdministrationGrand Rapids, Michigan

September 2013

2

Our Purpose• To understand how NPOs weather small and large

financial and economic changes and challenges over time.

3

NPOs by the Decades• 1950s – Birth of modern day NPO• 1960s – Declaration of War (on Poverty)• 1970s – Commercialization• 1980s – Tax reform• 1990s – Boom then bust• 2000s – Debt & Dependency

4

Weathering Storms• Key indicators

• NPO growth • Revenue diversification• Self-sufficiency• Fundraising efficiency ratio• Liquidity • Assets and liabilities• Net worth• Debt and dependency

5

Number of NPOs filers,1988 – 2010 (IRS 990 information)

6

Revenue for NPOs with Assets <$1M

7

Revenue for NPOs with Assets $1M - $50M

8

Revenue for NPOs with Assets $50M+

9

Change in the composition of revenue<$1M $1M - $50M $50M+

2010

1988

10

Program Stabilization Ratio

11

Fundraising Efficiency

12

Liquidity

13

Assets to Liabilities Ratio

14

Net Asset Growth (%change)

15

Change in the composition of liabilities<$1M $1M - $50M $50M+

2010

1988

16

According to NPOs, in 2009 governments*

• Didn’t pay for the full cost of contracted services • Increased complexity and time required for reporting on

contracts and grants• Made the application process too complex and time

consuming• Changed the contracts and grants • Paid bills late

* Urban Institute (2010). Human Service Nonprofits and Government Collaboration: Findings from the 2010 National Survey of Nonprofit Government Contracting and Grants, p. vii.

17

NPOs responded by*• Freezing or reducing employee salaries (50%)• Drew on reserves (39%)• Laid off employees (38%)• Reduced health insurance, retirement contributions, and

other staff benefits (23%)• Borrowed funds or increased lines of credit (22%)• Reduced programs or services (21%)• Served fewer people (17%)

* Urban Institute (2010). Human Service Nonprofits and Government Collaboration: Findings from the 2010 National Survey of Nonprofit Government Contracting and Grants, pp. vii-viii.

18

Observations

• NPOs weathered the Great Recession better than the private sector

• Large NPOs are taking on more and more debt to stay afloat

• Medium sized NPOs best the others in all areas

• NPOs have less restrictive financial practices

• Continue professionalization

• Increase reserves

• Watchdog orgs should consider size of NPOs

Recommendations

19

QUESTIONS?