Nonprofits are feeling the strain of months of revenue lost to the impact of the COVID-19 pandemic, with continued uncertainty ahead. At a time when need may be greatest, nonprofits face a challenging future.
The State of Nonprofits
A significant majority of nonprofits have seen reduced philanthropic revenue and donations and expect to see the trend continue through the rest of the year, according to recent surveys by the Nonprofit Finance Fund (NFF)1 and the Stanford Social Innovation Review2. Nonprofits who rely on income from services like ticketed performances or tuition are understandably faring even worse. All told, this presents a concerning picture for the nonprofit sector at large. Sixty percent of those included in the NFF survey say they are currently experiencing destabilizing conditions that threaten their long-term financial stability.
Nonprofits at a Glance
- Up to 73% of nonprofits have seen decreases in revenue and donations2
- 92% have annual budgets less than $1M4
- 35% expect decreased revenue from government sources in 20201
- 60% say they are already experiencing conditions that threaten their long-term financial stability1
While organizations around the world, nonprofit and otherwise, are struggling to adapt to decreased revenue and other limitations, many nonprofits are uniquely unsuited to weather this kind of significant financial challenge. Driven to put every dollar possible into services and programming, many nonprofits are operating on slim margins under ordinary circumstances. In a 2018 NFF survey of 3,400 nonprofits3, half said they had only three months’ cash on hand or less.
The timing of the COVID-19 pandemic and subsequent economic consequences came at a particularly difficult time. Spring is typically gala season for many nonprofits, and social distancing protocols and stay at home orders have forced organizations to cancel or postpone these events. At this point, it appears doubtful that postponed events will be able to happen in many major cities even later this year.
Government grants and contracts with cities and states seem unlikely to provide much relief with state and municipal budgets tightening, and donations from private corporations will likely be down as companies face layoffs and worse. Nonprofits that were able to secure Paycheck Protection Program loans this spring are reaching the end of those funds. All of this while operating costs have gone up for the nonprofits who are able to be open to accommodate additional cleaning and facility retrofitting to abide by required social distancing protocols to protect their staff and clients.
For nonprofits providing health services, counseling, housing support, employment assistance for the newly unemployed, childcare for essential workers and food for struggling families, the need has never been greater even as resources dwindle. The YWCA surveyed more than 200 member organizations5, and more than one-third of those that responded reported an increase in demand for domestic violence services of all kinds, including counseling, and more than half reported an increase in requests for housing and shelter, according to NPR. Americans are under emotional, physical and financial strain, and nonprofits are so often tapped to fill those needs. Even before COVID-19, rising wealth inequality and shrinking budgets for social services, education and the arts meant nonprofits have already been faced with doing more with less. In the previously-mentioned 2018 NFF survey3, 86% of nonprofits said demand for services keeps rising, and 57% said they can’t meet demand.
The Fine Arts Museums of San Francisco faces a projected loss of $9 million in revenue on lost admissions, canceled events and two major fundraisers.6
What Can You Do?
More than anything, nonprofits need flexible funding that they can use for general operational costs. Because of the stringent regulations under which they operate, nonprofits are required to adhere to any designations donors make. Giving without specific designations or to their “general fund” is typically your best option to help keep an organization afloat in challenging times.
Many nonprofits will also need continued help even as the impacts of the pandemic eventually subside. The most vulnerable populations served by many nonprofits have been negatively impacted since the beginnings of the pandemic and resulting economic downturn and will need help deeper into any economic recovery. Giving now is necessary and beneficial, but recurring gifts can also provide your chosen nonprofits some predictable revenue. You can also consider purchasing museum memberships or performance or class tickets now, even if events and exhibitions may be postponed.
Advantages and Uses of a Donor Advised Fund
If you already have a Donor Advised Fund (DAF), now is a great time to make grant recommendations with whatever funds you currently have available. While many people tend to do much of their charitable giving at the end of the year, many donors have leapt at the opportunity to help in a time of such extreme need. Over $100 million in grants to more than 4,500 nonprofits were recommended from DAFs administered by Fidelity Charitable in the month of March alone.7
Consider nonprofits that may be new to you, but that work in areas that you may be specifically concerned about given recent events, like food pantries and social justice organizations. If you’re not sure to whom to donate to support a particular cause, many DAF administrators can do the due diligence on your behalf and can make recommendations of groups to whom to direct funds.
Now is also a fantastic time to get your family involved, pool resources if you aren’t already, and teach the younger generation about the benefits of giving to causes important to you.
What If I Don’t Already Have a DAF?
If you don’t already have a DAF, it could be a useful strategy for you to maximize your charitable donations and get some potential tax benefits as well. DAFs are typically run by community foundations or the charitable arms of major investment firms like Schwab and Vanguard and will hold funds or assets transferred to them until you decide to grant them to a nonprofit. You can read this helpful primer from The National Philanthropic Trust for more information.
However you choose to donate, nonprofits need our help more than ever, and the community good they provide will pay us back handsomely.
If you’re interested in finding out more about how to incorporate DAFs and other charitable planning options into your wealth planning strategy, please feel free to reach out to your Wetherby team.
1 Nonprofit Finance Fund. COVID-19 Survey Results. 2020.
2 Stanford Social Innovation Review. COVID-19’s Impact on Nonprofits’ Revenues, Digitization, and Mergers. 2020.
3 Nonprofit Finance Fund. State of the Nonprofit Sector Survey. 2018.
4 National Council of Nonprofits. Nonprofit Impact Matters. 2019.
5 NPR. “As Economy Struggles, Nonprofits Ask Congress for Help.” March 23, 2020.
6 The Wall Street Journal. “Nonprofits Face Bleak Future as Revenue Dries Up Amid Coronavirus.” May 11, 2020.
7 The Nonprofit Times. “Fidelity DAF donors eclipse $100 million in grants, aim for another $100 million.” April 8, 2020.