The nonprofit business model presents a unique environment for risk. There are six challenges that are carried by most nonprofits as a matter of course. These risks are viewed as the price of doing business in the nonprofit sector and they are vastly different from risks carried by commercial enterprises.
1. Multi-year government contracts with flat funding can cause budget deficits because the cost of providing services increases every year but contract funding does not.
2. Complex program eligibility can make it hard to identify people who are approved to attend a program or use a service. This can leave the organization with programs that are not fully subscribed, or, on the other hand, ineligible participants who receive services for which there is no reimbursement from funders.
3. Required fundraising matches to cover basic operating expenses for services otherwise supported by a government contract or need to increase fees beyond what patrons or recipients can afford in order to generate sufficient operating revenue.
4. Increasing costs of doing business with no steady source of additional revenue to cover staff salaries and benefits, supplies and materials, and costs that grow each year.
5. Growing demand that exceeds the organization’s ability to respond, creating long waiting lists, poor client relationship management, and community dissatisfaction.
6. Rigorous performance requirements and the need for back-office operations that require new technology, a data analytics team, or quality improvement activities that are not reimbursed through government contracts or through private fundraising which favors direct support to programs and services.
[This blog post is adapted from The Nonprofit Risk Book DE/G Press (2017), by Jesse Feiler and Gail B. Nayowith. The book is available on Amazon, by clicking this link.]