The College Donor Digest

Here’s What Funders Need to Know

July 31, 2023 | Rebecca Richards

This month, the Center for Effective Philanthropy released State of Nonprofits 2023: What Funders Need to Know as part of its Nonprofit Voice Project. The project surveys a group of 500 nonprofit leaders whose organizations receive at least some foundation funding, with the goal of helping individual and institutional funders gain a better understanding of the challenges that nonprofits face. The State of Nonprofits 2023 explores how these organizations have fared after the period of crisis brought on by the COVID-19 pandemic in 2020. Among its key findings, the survey found that many nonprofits report increased trust from funders; that staffing needs are the top challenge facing most organizations; and that most nonprofits experienced a balanced budget or surplus in the most recent fiscal year.

Increased Trust

Early in the COVID-19 pandemic, foundations were encouraged to lift or reduce gift restrictions to enable nonprofits to respond quickly to the effects of the economic shutdown. They were also encouraged to simplify application and reporting processes and to pledge multiyear support rather than annual gifts. These actions require foundations to trust nonprofits to steward finances effectively with less direct accountability. The reduction in gift restrictions has continued post-pandemic, and a majority of nonprofit leaders perceived “an increase in trust during the past year from their funders.”

More than half of nonprofit leaders “experienced easier application processes and reduced reporting requirements from at least some of their foundation funders.” Nearly half (48%) reported “the reduction or removal of grant restrictions,” and 40% experienced “an increase in multiyear financial contributions.” When asked which of these changes was more helpful, nonprofit leaders said they experienced greater financial security from being allowed to direct unrestricted gifts toward general operating costs and that multiyear gifts simplified budget planning. They also described a change in their interpersonal dynamic with funders, and noted that donors exhibited greater interest in the mission and day-to-day activities of the organization.

Staffing Challenges

Employment has been a contentious issue over the last three years across numerous sectors in the United States. Nonprofit leaders named staffing issues, such as burnout, high turnover, and affording equitable pay, as their top challenge. The survey notes that these internal problems are “connected with external factors, such as the economic outlook, lingering impacts of the pandemic, and demand for services.” One-fourth of nonprofit leaders experienced higher turnover than usual, and three-quarters struggled to fill positions. Nonprofits in gentrifying cities faced additional pressure from the rise of living costs, “particularly when competing against tech and for-profits.”

Burnout poses a particularly strong problem, with 36% of nonprofit leaders describing themselves as “very much” concerned about burnout and 32% as “somewhat” concerned. Survey respondents highlighted several factors that have contributed to staff burnout, including having to spend more time fundraising than on strengthening programs and funders’ tendency to request new projects rather than supporting existing ones. New programs take significant energy and make it complicated to measure the organization’s impact. One survey respondent shared that requests for new projects with every grant resulted in “chaos, overload, and staff burnout.”

Budgetary Projections

The financial performance of nonprofits has remained surprisingly strong given the projections in early 2020. More than two-thirds of nonprofit leaders expect to close the current fiscal year with a balanced budget or budget surplus. To explicate these financial projections, the report asked the leaders to rank factors of expected revenue from foundations and individual giving as well as expected costs. Forty-eight percent of organizations with a surplus experienced higher foundation revenue; 41% experienced lower costs; and 37% received higher revenue from individual givers.

Only 10% of nonprofit leaders reported a deficit in the last fiscal year, and only 10% expect another deficit this year. They cited inflation as a major contributor to their funding challenges. Sixty percent of these respondents cited higher costs; 48% pointed to lower-than-expected giving from individuals; and 37% identified lower-than-expected foundation revenue.

Although projected revenue is high overall, nonprofit leaders want to increase “unrestricted and long-term support” to help them address staffing concerns. The push for unrestricted gifts may (understandably) give the discerning donor pause. That said, relaxing some requirements does not mean removing accountability altogether. Many funders are asking for one-on-one meetings, which allow for greater nuance than written reports. Meeting in person can cultivate trust, responsibility, and a deeper understanding of organizational missions.

Successful philanthropy is a partnership. The State of Funders 2023 survey helps nonprofits and foundations understand each other’s concerns while working together to make the world a better place.

This article was originally published on Philanthropy Daily on July 26, 2023.

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