Financial Sustainability for Nonprofit Organizations

A Review of the Literature

by Lisa Sontag-Padilla, B. Lynette Staplefoote, Kristy Gonzalez Morganti

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Research Questions

  1. What are the major challenges of financial sustainability common among nonprofit organizations, and what challenges are unique to nonprofits that serve higher-need communities?
  2. What promising practices can nonprofits adopt to overcome these challenges and achieve financial sustainability?

Abstract

Nonprofits face a myriad of challenges in establishing and maintaining financial sustainability, and these challenges are exacerbated for nonprofits serving low-resources, high-need communities. This literature review identifies key themes and findings that may inform operations and decisionmaking related to improving sustainability in such organizations. The authors conducted systematic literature searches using a combination of academic search engines and the broader Internet. They identify and discuss key challenges of financial sustainability for nonprofits, such as over-reliance on external funding sources, demonstrating value and accountability to funders, and promoting community engagement and leadership, as well as promising practices for meeting these challenges and achieving financial sustainability. Additionally, the authors discuss unique challenges faced by nonprofits serving low-resources, high-need populations. It is the authors' hope that this review will enhance the limited literature on financial sustainability in low-resource or high-need communities and will contribute to an evidence base for promising practices, providing leaders of and investors in nonprofits the ability to support and promote growth among organizations serving those most in need.

Key Findings

Challenges to Achieving Financial Sustainability

  • Many nonprofit organizations are over-reliant on external sources of funding, such as government grants, that have been cut back in recent years.
  • Nonprofits depend on marketing and branding efforts to help promote and sustain their programs and services, but branding considerations are often overlooked in the nonprofit sector.
  • Donors increasingly want access to up-to-date information about an organization's operations and finances as a way of ensuring return on their investment.
  • Nonprofits serving low-income communities often struggle to raise funds, as few community members have the means to contribute financial support to nonprofits.

Promising Practices to Overcome These Challenges

  • Innovative fundraising techniques, such as giving circles and fostering relationships with investors, can help to address financial challenges.
  • Clear, consistent marketing and branding will help communicate a nonprofit's social mission to funders and the community in which it resides.
  • As a way to respond to the changing resource environment and minimize competition for funding sources, many nonprofits have formed collaborations with other organizations that have similar goals.
  • Engaging in evaluation activities that outline financial and programmatic outcomes as a result of funding support demonstrates the value of a nonprofit's operations and helps determine mission impact. Additionally, clearly and consistently communicating evaluation efforts and findings to funders and investors demonstrates accountability.
  • Establishing and engaging community board leadership and a system of community volunteers provides a resource of varied experiences and expertise while bringing a sense of ownership to the communities that nonprofits serve.
  • Fostering a culture of giving and addressing the "willingness to give" gap may address fundraising challenges in communities where many residents have very limited resources to spare.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Challenges and Promising Practices of Financial Sustainability in Nonprofit Organizations

  • Chapter Three

    Implications for Financial Sustainability in Nonprofits Serving Low-Income Populations

  • Chapter Four

    Conclusions

  • Appendix

    Financial Sustainability Challenges and Promising Practices References Categorized by Literature Review Themes

Research conducted by

The research described in this report was sponsored by the YMCA of Greater Pittsburgh and was conducted within RAND Health and RAND Education, divisions of the RAND Corporation.

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