Many Nonprofits Face a Watershed Moment Amid Economic Upheaval

The nonprofit sector is at a key inflection point?facing the conflicting headwinds of increased demand and a depressed economy?according to BDO's annual Nonprofit Standards benchmarking survey. Now in its fourth year, this survey of over 200 nonprofit leaders features extensive data on the key trends impacting nonprofit organizations, as well as detailed information on nonprofit operations, finances and governance.

Prior to the emergence of COVID-19, 43% of nonprofits said a potential economic downturn would be a significant challenge in 2020. And, as of May 28, 75% of organizations report being concerned about their own financial health. Facing months and potentially years before the broader economy has fully recovered, this is a crucial time for nonprofits to balance mission with business acumen.

"There are over 1.5 million nonprofits in the United States, and each has stepped up in its own unique way to help address the unforeseen challenges we've faced this year," said Andrea Wilson, partner and co-leader of BDO's Nonprofit & Education practice. "For those organizations to be able to continue to do their good work, they need to focus not only on mission, but also on ensuring their own financial stability."

One key challenge for nonprofit organizations will undoubtedly be maintaining the cash on hand needed to manage uncertain times, particularly if funding is unpredictable. Nearly a third (30%) of nonprofits surveyed have less than 4 months of operating reserves, meaning they could be vulnerable if faced with further funding cuts or unbudgeted costs.

"For nonprofits, liquidity has always been a metric that can make or break an organization," said Adam Cole, partner and co-leader of BDO's Nonprofit and Education practice. "That's truer now than ever before, given the economic upheaval we're all experiencing. While there's no ideal amount of operating reserves, organizations should make sure they're exercising every available option to increase their liquidity, including halting nonessential purchases, applying for any available financial relief, and negotiating with any vendors or suppliers."

Other top findings include:

• Nonprofits are mixed on the 2020 presidential election. While the highest portion of nonprofits believe that a republican (50%) or democratic (35%) victory in November will have no impact on their organizations' revenues, the outlook is slightly rosier if a Democrat sits in the White House. Thirty-six percent of nonprofits believe a democratic victory will have a positive impact on their revenues, compared to 18% who say the same if a Republican is elected.

• Technology was critical to effective crisis response. As many organizations instituted work from home mandates as a result of COVID-19, their ability to continue operations often hinges on technology. Nearly half (46%) of nonprofits say limitation in their tech restricted their ability to respond to the pandemic. The good news is the majority of organizations (64%) plan to invest in new technologies this year, with the goal of using those investments to improve operational efficiency (61%) and assist in the delivery of programs and services (29%).

• Impact reporting remains challenging. Seventy-eight percent of nonprofits say that some portion of their funders are requesting more information on outcomes and impact than they previously required. Organizations report a number of obstacles to effective impact reporting, including not having enough human resources to gather impact (56%), lacking a consistent framework to measure impact (51%) and lacking the technology needed to gather information on impact (49%).

• Good leadership is scarce. More than half of organizations (54%) say attracting quality leadership, including board members, will be a challenge this year. When asked what skill they are prioritizing in board members, organizations cite fundraising (36%), leadership (31%) and financial management or accounting skills (14%).

For more information, including data on human resources, governance and operations, download the full report. The survey data is further supplemented by additional polling done specifically around the effect of COVID-19 on the nonprofit sector, gathered from nonprofit professionals during BDO webinars on March 26, 2020 and May 28, 2020.

NONPROFIT & EDUCATION PRACTICE

For 100 years, BDO has provided services to the nonprofit community. Through decades of working in this sector, we have developed a significant capability and fluency in the general and specific business issues that may face these organizations.

With more than 4,000 clients in the nonprofit sector, BDO's team of professionals offers the hands-on experience and technical skill to serve the distinctive needs of our nonprofit clients?and help them fulfill their missions. We supplement our technical approach by analyzing and advising our clients on the many elements of running a successful nonprofit organization.

Please see www.bdo.com/industries/nonprofit-education/overview for more information.

BDO INSTITUTE FOR NONPROFIT EXCELLENCE^SM

BDO Institute for Nonprofit Excellence^SM (the Institute) has the skills and knowledge to provide high quality services and address the needs of the nation's nonprofit sector.

Based in our Greater Washington, DC Metro office, the Institute supports and collaborates with BDO offices around the country and the BDO International network to develop innovative and practical accounting and operational strategies for the tax-exempt organizations they serve. The Institute also serves as a resource, studying and disseminating information pertaining to nonprofit accounting and business management.

The Institute offers both live and local seminars, as well as webinars, on a variety of topics of interest to nonprofit organizations and educational institutions. Please check BDO's web site at

www.bdo.com/resource-centers/institute-for-nonprofit-excellence for upcoming local events and webinars.