The non-profit sector has already created millions of jobs and has potential to add many more. A study conducted by Lester M. Salamon, S. Wojciech Sokolowski, and Stephanie L. Geller of Johns Hopkins University, showed that in 2010 the non-profit sector had a total of 10.7 million paid workers [*.pdf] coming close to other industries, such as manufacturing at 11.5 million workers. The non-profit sector accounts for a large portion of employment in education, health, arts, civic associations, professional services and social assistance fields and it accounts for a large portion of employment compared to industries like utilities, mining and real estate.
However, in order for these non-profit organizations to create jobs they need to have access to capital and, unfortunately, non-profit funding is being cut. It’s hard to get donors and sponsors, and grants are being taken away, which leads to the reduction of staff and services.
According to a study done by Idealist.org, Bouncing Back? Employment Trends in the NonProfit Sector, 81% of non-profit organizations from 2008-2009 where impacted in a negative way due to changes in funding. The 81% of respondents either had to cut back on services, reduce staff, or both due to the decrease in funding. This also causes non-profits to be at a disadvantage when it comes to hiring qualified individuals to fill positions.
The NonProfit HR Solutions, 2012 NonProfit Employment Trends Survey, indicates that the lack of an appropriate budget makes it difficult for non-profits to retain employees. The inability to pay competitively and inability to promote/advance top performing staff members are the top two challenges non-profits face with employee retention.
Our greatest retention challenge is at the lower levels of the organization – keeping the good people challenged and promoting them up. I have ambitious staff members who are very good at what they do and no place to move them up to. And that’s the main reason why people leave is that they get promotions to other organizations.
Chief Administrative Officer, Mutual/Membership Benefit Nonprofit by Nonprofit HR Solutions
Despite recessions and staffing cuts, the non-profit sector has seen continuous growth from 2000-2010. According to the Johns Hopkins University study, “Throughout this decade, the non-profit sector grew steadily, achieving an average annual growth rate of 2.1%. By contrast, the for-profit sector lost jobs over the same time period at an average annual rate of minus 0.6%”. While the overall growth rate is great, access to capital is still keeping nonprofits from hiring the appropriate amount of staff for their operations. According to Nonprofit HR Solutions, “Nonprofits that plan to create positions in 2012 predict creating a median of two positions per organization. In contrast, nonprofits that plan to eliminate positions in 2012 predict eliminating a median of three positions per organization”.
If non-profits had the capital necessary to hire and retain more people than they will have more impact on the community through their services and through job creation. Access to capital will increase the amount of new hires by each organization and keep other organizations from reducing staff.
What is a Non-Profit?
Organizations operating in the non-profit sector are those that are not working towards making money for owners or investors, but rather working for a specific mission. In other words, any surplus revenue made is used to improve and expand the organization instead of it being classified as profits or being paid as dividends. Most non-profit organizations can apply for income tax and other tax exemptions with the Internal Revenue Service under section 501(c)(3). In order to become a non-profit organization, one must file an articles of incorporation within the state they wish to operate.
Each state will have their own articles of incorporation requirements along with filing fees. Once the articles of incorporation are filed, the organization can start operations by hiring staff and enlisting volunteers. Whether it be in higher education or health care, non-profits operate just like for-profit businesses. Non-profits have expenses that must be paid for in order to continue providing their services and the only way to achieve this is through capital.
Where does Non-Profit Revenue Come From?
Non-profits receive revenue from a variety of outlets including:
- Private/Grant Foundation Funding: These are planned giving foundations that offer funding to a variety of charities. The grant provider controls the disbursement of funds and receives tax deductions. According to Nonprofit Legal Center, “Private foundations maintain or aid charitable, educational, religious, or other activities serving the public good, primarily through the making of grants to other nonprofit organizations”.
- Government Grant Funding: Government grant funding is probably one of the more difficult sources of funding to obtain. As GovernmentGrants.US explains, “Before you are allowed to apply for government grants for nonprofits, the requesting entity must endure a long and exacting process of initial registration and approval – only to repeat the process over and over with the various governmental agencies awarding the grants for nonprofit organizations”.
- Individual Giving Revenues: These revenues come from individual donors of the organization. The people who donate to a specific organization are those that are passionate about the mission of the non-profit and wish to support its continued success and growth. Regardless of the amount, individual donations help ensure the continuation of a non-profit’s services.
- Corporate Donor Revenues: Corporations offer donations to non-profit organizations through programs such as matching gifts and grants. If a corporation is part of the matching gift program, they match the dollar amount of a donation made by a current employee. Some corporations offer grants to qualified non-profit organizations. Bank of America is one corporation that offers non-profit grants to individuals and organizations that have an impact in their communities through their Neighborhood Builders Program and Student Leader Program. Other corporate foundations include the Wal-Mart Foundation, JP Morgan Chase & Co. Foundation, and the GE Foundation.
- Membership Revenues: Many non-profit organizations offer membership fees in a variety of formats. One common way is to offer donation level memberships which classifies donors based on their level of giving. The different levels can include benefits that the organization offers to the donors such as invites to exclusive events. Other organizations may charge a fee for the services that are offered to the community.
Other Types of Funding Available to Non-Profits
There are other types of financing available to non-profit organizations such as loans, lines of credit, or tax exemptions. Here are a few, of many, resources that non-profits should look into for their financing needs:
- SBA Loans: The Small Business Administration helps non-profit organizations find programs that offer financial assistance such as grants, tax exemptions, and government surplus.
- Non-Profit Finance Fund: The Non-Profit Finance Fund is a Community Development Financial Institution that offers non-profit organizations loans that assist in expanding programs, managing the timing of receivables, and upgrading equipment, among others.
- Growth Capital Associates, Inc.: The Growth Capital Associates, Inc. helps non-profit organizations secure tax-exempt bonds that can be used to invest in capital assets, acquisition of existing facilities, or facility expansion.
- The Loan Fund: The Loan Fund offers loans and financial planning to non-profit organizations in New Mexico. They finance equipment, inventory, bundling renovations, operating capital, and business expansions.
Did we miss something? Are there other ways Non-profits are finding the funding they need to grow today?