Nonprofit Financial Performance in Challenging Times

Background and Purpose

Given the complexity of social problems and shrinking government resources, many nonprofits have struggled to survive while others appear to be innovating and thriving. In our prior research of a recognized high performing group of organizations we found that they performed above industry standards but were affected by the 2008-2010 recession. This research goes further to analyze differences in performance between the recognized group and a comparative sample.

Research questions:

1. Did nonprofit organizations recognized as “world changing” exceed the financial performance of organizations with similar purposes?
   1. Did the organization’s age, amount of assets or service location impact financial performance over time?
   2. Was performance differentially impacted by the 2008-2010 economic recession?

Methods

Our sample consisted of 44 nonprofit organizations recognized in 2008 by Fast Company as award-winning social enterprises (www.fastcompany.com/social/2008). A comparative sample of 44 nonprofits was randomly selected from the National Center for Charitable Statistics (NCCS) database matching on the National Taxonomy of Exempt Entities (NTEE) codes of the Fast Company sample.

We used Bowman’s model (2011) to test financial sustainability on seven indicators “for setting financial objectives and diagnosing the causes of success or failure in achieving them (p. 38).” Data from each organization’s IRS Form 990 was obtained from NCCS for two time periods (2002-2004 and 2009-2011). We used generalized estimating equations (GEE) to determine if the organization’s age, amount of assets, or service location impacted financial performance across time.

Results

Question 1: On average the Fast Company sample performed better than the general sample in all seven indicators. Findings also showed that both samples were above the industry standard in five of the seven indicators. GEE analysis showed that the decade an organization was founded affected the equity ratio, status-quo mark-up and working capital but the specific decade’s influence varied. The interaction between the year created and geographical focus also was significantly correlated with equity ratio, mark-up, working capital and change in working capital.

Question 2: Both samples had similar dips in indicator scores during 2009 and 2010 – indicative of the impact of the recession. The Fast Company sample showed growth in revenue over the time period; while, the comparative sample did not. However, the key indicator that reflects adjusted assets/revenue to expense ratios (status-quo markup) was stagnant for both samples.

Conclusions and Implications

Findings suggest that older organizations with larger assets did better during the recession. The decade of founding showed significance, but further research needs to be to better understand nuances in the results. Future research should address what strategies smaller nonprofits could utilize to enhance financial sustainability.

References

Bowman, W. (2011). Finance Fundamentals for Nonprofits: Building Capacity and Sustainability. John Wiley & sons, Inc., Hoboken, New Jersey.

Fast Company. 2008 Social Capitalist Awards. www.fastcompany.com/social/2008. Retrieved on March 1, 2014.

Korr, W., & Long, A. Innovative Nonprofits in Challenging Times: Are They Financially Stable? Paper presented at the Society for Social Work Research 19^th Annual Conference: The Social and Behavioral Importance of Increased Longevity, New Orleans, LA, January 2015.