May 14 2019
Many nonprofits and public charities fail to survive – at a time when their need is unquestionable
As an investment manager, I have witnessed time and time again that nonprofits lack focus on long-term financial sustainability. A critical challenge faces all nonprofits and charities—how to remain financially sustainable.
Research indicates that about one in eight nonprofits fails within five years and one in five fails within ten years. The boards of nonprofits usually put a lot of their focus on fundraising, but this neglects their other responsibility – how to invest their endowment so it won’t deplete over time.
The use of nonprofit organizations to address social and environmental problems is increasing. The National Center for Charitable Statistics (NCCS) reports that in 2018, there were 1.56 million tax-exempt 501(c)(3) nonprofit organizations registered in the U.S. The majority of these (1.09 million) are public charities – organizations to which the public donates contributions. The remainder includes private foundations, and other types of nonprofit organizations, including chambers of commerce, fraternal organizations and civic leagues.
Nonprofits spend a great deal of time and effort fundraising each year, but many do not maximize the value of their endowment by investing it wisely. This wastes their resources and increases the risks that they simply run out of money if their fundraising declines over time.
The number of nonprofit organizations has been increasing in recent years. This is attributed to many factors, including a recognition that the world faces many social and environmental problems that governments do not have money to address.
Millennials have a keen interest in getting involved in nonprofit sector work, but often do not have the financial or executive experience necessary to do the proper planning for revenue development and long- term survival.
Many organizations exist to help nonprofit boards of directors learn leadership, planning, and financial management skills. I especially recommends that once a nonprofit reaches the $500,000 endowment mark, they formalize an Investment Policy document and begin working with an investment manager who can assist them with endowment investment decisions. This step is also necessary to ensure that boards of directors fulfill their fiduciary responsibilities to their stakeholders.
The Sustainable Endowment was written for executives and board members of small- to mid-size U.S.-based nonprofits, charities, or foundations. Running a nonprofit requires specialized knowledge and skills, especially regarding foundation management and investing your endowment so it remains sustainable for years to come. This book walks you through the basics and best practices of what you need to know to be successful.