After a year in crisis, is your favorite charity doing great, or is it teetering on the edge of uncertainty? There’s probably an easy way to learn the answer and find out what you can do to help.
Many charities are strapped for cash and in jeopardy of closing within the next two years, the Center for Disaster Philanthropy (CDP) and the research company Candid report. Meanwhile, the Evangelical Council for Financial Accountability (ECFA) says resilient Christian charities are defying the odds. What accounts for these seemingly polar opposite reports?
Most agree that the nonprofit sector, on the whole, is pretty resilient, having grown consistently over the last two decades and accumulating a collective $1 trillion in net assets. But the collective picture masks the struggles of smaller nonprofits, which are harder hit in a COVID-impacted economy, the CDP report says.
The CDP and Candid analyzed data from 300,000 nonprofits and then explored 20 future scenarios. The end result of their most optimistic scenario would see the shutdown of three percent of all the nonprofits in the country. Their most dire scenario ends in the U.S. losing 38 percent of nonprofits – 119,517 organizations.
“These scenarios reveal a range of contradictions,” Candid says. “On the one hand, they demonstrate the strength of the nonprofit sector,” because most nonprofits are prepared to weather a six-month storm. But populations served by smaller nonprofits (which include many education-related charities, as well as crisis-intervention and mental-health nonprofits) may suffer the most if charitable revenues decrease in the next few years.
“Some degree of turnover is healthy to maintain a vibrant sector,” the report says. “But the people served by shuttered nonprofits face practical consequences that cannot be abstracted away.”
Why cash reserves are critical?
These researchers used the amount of a nonprofit’s cash reserves to determine whether it is likely to remain resilient in a struggling economy. The median nonprofit has about six months of cash reserves, meaning that if they received no income for six months, they could continue their regular activity for that amount of time before having to shut down. Financially stronger organizations with more than a year in cash reserves are better prepared for a storm.
Why are they measuring cash? “In crisis, cash is always king,” says Lauren Dillon, who runs the nonprofit capacity-building organization Triad Resource Group in Chicago. A crisis doesn’t just squeeze nonprofits; it may squeeze their donors as well. So having liquid reserves is critical.
A crisis doesn’t just squeeze nonprofits; it may squeeze their donors as well. So having liquid reserves is critical.
But, Dillon points out, a sustainable, mature organization will have more reserves than just cash. A diverse funding portfolio is as critical to a nonprofit as it is to an individual. “In crisis, different assets are going to do different things,” she says. “The diversification of an organization’s asset portfolio is one strong indicator of just how institutional an organization is. And, the more institutional you are, I’d argue the more resilient you’re going to be.”
There were remarkable stories in 2020 of givers coming through for the nonprofits they care about to make sure they didn’t go under and some really savvy and mature Christian nonprofit leaders, she says. There is also a sense that God prepared his children for 2020, with 2019’s 4th quarter being the best ever for many Christian charities.
Still, there is work to be done if charities (many of which have seen their workload double, triple, or more during the pandemic) are going to be strong enough to weather storms over the next few years.
Little by little, charities spend less and less to do more and more and eventually fail, because they don’t have the resources they need to thrive.
5 ways to help your favorite charity stay strong
- Talk to them
If you want to know how the charities you love are faring through these uncertain times, you’re probably going to have to ask. What setbacks did they face in 2020, and how well prepared are they for the future? Did they have to dip into cash reserves or furlough employees? Looking forward, what is their dream for the future, and what are the roadblocks to achieving it? (Being able to answer these kinds of questions is critical.)
Dave Furman, pastor of Redeemer Church in Dubai, says you can take your questions a step further. Ask, “What can I do, this year, for you … that would completely transform your ministry?” Or ask it this way: “What’s something that would put you so far ahead that it would set you up for gospel success [and] be a game changer for the entire ministry?”
- Give specifically
Everyone wants to give toward the mission of their favorite charity. Help find homes for orphans. Further the translation of the gospel. Create jobs for the poor that lead to a sustainable life. These are critical, and they’re the reason you’re passionate about the charities you support. But running a charity also requires paying for other things, like office space, employee salaries, equipment, leadership training … and fundraising And restricted grants to mission-only activities is hurting the nonprofit world.
Most charities are familiar with the term “nonprofit starvation cycle.” The scenario goes something like this: Funders want charities to keep overhead low. Charities feel this pressure, so they underreport or underspend, feeding the initial unrealistic expectations. Little by little, charities spend less and less to do more and more and eventually fail, because they don’t have the resources they need to thrive. Some givers counteract this cycle by giving toward expenses so a charity can say, “When you give, 99 cents out of every dollar goes straight to ministry.” What a gift to be part of a group that made this possible!
- Offer your expertise
Are you an entrepreneur or a business leader? Do you work in financial services? Are you good at storytelling or marketing? Smaller nonprofits may need your skills. The array of skills it takes to lead a nonprofit are more than most people possess. That’s why leaders of smaller nonprofits need others to come alongside them.
Leadership skill, financial acumen, the ability to share the ministry story in a way that compels people to give – adding these skills to their repertoire so that they feel supported is a great way to give something other than money. The valuable gift of your time could mean even more to the leadership of an organization than a cash gift – especially if that gift of time helps them learn financial resilience.
- Hire a catalyzing organization
Don’t think you have the skills or the time to offer? Organizations exist whose sole purpose is to make nonprofits stronger. They may offer mentoring, leadership training, financial guidance or accountability. They help charities to dream and then map their way through the actual steps it will take to achieve those dreams, architecting an organizational structure that has a foundation strong enough to last.
These organizations may also provide marketing skills critical to getting out the nonprofit’s message, or they may connect the charity’s leadership with peers. Other nonprofit leaders can help them do their work in community and not feel alone with the unique issues only someone who has led such an organization can understand.
It can be fun to surprise a charity with a big gift. But it’s also kind to give consistently and let them know the extent to which you will be supporting them in the future. Planning your giving – and letting the charity know how much they can expect and for how long – allows them to plan better and not to see their work disrupted when the grants stop coming. (NCF has a great solution for ensuring your giving to your favorite charities can continue consistently.)
How will your contribution be a game changer for the organizations that are serving the cause you care most about? Go deep, dream big, and stay with the ministry you love for the long haul, and watch what God will do.