2012 Non-Profit Trends and Predictions: Contraction Continues

This week I’m looking back upon 2011 for major trends, and then looking forward to 2012 with an eye towards making a few predictions. Today, we are looking at non-profit failures, mergers, acquisitions, and strategic alliances.

I have heard rumblings for years that the non-profit sector is about to experience a wave of mergers. This conversation always involves facts like:

  • There are approximately 1.5 million non-profit corporations in existence of which three-quarters are classified as “charitable”
  • Every year brings another 20,000 to 60,000 new non-profit agencies in existence (depending on what source you read)
  • Almost 25-percent of non-profits allegedly report $25,000 in annual revenue and are obviously very small (and the vast majority operate with annual budgets of less than $3 million . . . in fact most are smaller than $1 million)
  • Every year 30,000 to 60,000 non-profit organizations go out of business

In 2008, Paul Light predicted that the new economic challenges would result in more than 100,000 non-profit organizations failing over a two year period. Two years later Caroline Preston wrote a follow-up article in the Chronicle of Philanthropy and investigated whether or not this prediction actually came true. As you can imagine, the answer was difficult to ascertain, but in the end the conclusion seemed to be a resounding —  “YES“.

With so many friends working in the non-profit sector, I’ve tried to stay on top of where they perceive their agencies to be with regard to financial solvency, and I must admit that I see too many indicators pointing to:

2012 continuing (and likely escalating) the trend
of non-profit failures, mergers, acquisitions and strategic alliances.

Guidestar recently published a great document titled: “Late Fall 2011: Nonprofit Fundraising Study“. If you have some time, you need to read this report! While I am usually very skeptical about the validity of survey research, I indulge in it every once in a while. After looking at this report, I am even more convinced now that the non-profit sector is still only at the beginning of a long-term trend involving bankruptcy, mergers, and alliances because:

  • small non-profits are experiencing more financial stress than before (and I suspect many are finally at their breaking point)
  • small agencies are experiencing more donor turnover (most likely resulting from poor stewardship efforts)
  • small organizations have less money in the bank and their reserves are marginal (a bad position to be in if there is another economic shock)
  • small non-profits report are preparing to downsize staff in 2012 (not a great situation to be in when donors want to see more impact for less money)

Combine some of these generalizations with the government funding contraction trends we’re seeing, and it becomes obvious to me that more failures and mergers awaits us as we travel down the 2012 road. If you want some good reading materials on this subject, you may want to check out the following resources:

Is your non-profit organization living on the edge? Have you ever looked at merger, acquisition, or strategic alliances? If so, what were your considerations in moving forward or not moving forward? If the best time to look at mergers and strategic alliances is BEFORE a crisis, are you starting to look more seriously at these opportunities?

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC