By Bo Garner, CPA, MBA

As we stand on the threshold of a new year, the not-for-profit sector is gearing up for the challenges and opportunities that lie ahead in 2024. The nonprofit landscape is a dynamic one, constantly evolving to adapt to economic shifts, technological advancements, and changing societal preferences.

Continuing the trend of nonprofit quarterly updates, this late year notice points to continuing trends in guest experiences (museums, parks, and zoos) and financial challenges for private schools. Cybersecurity remains a top concern, and some membership and religious organizations are facing declining enrollment or attendance.

There are many reasons to be optimistic, though: revenue is up in some segments, there are new opportunities for growth and strategies to appeal to different demographics.

Navigating Change with Resilience and Innovation

The main takeaway from this quarter’s analysis is clear: resilience and innovation are key to navigating the ever-changing landscape of the not-for-profit industry. Across the board, nonprofit organizations are facing hiring and retention challenges, high interest rates, and continued economic uncertainty.

Industry Drivers

  • Consumer Spending
  • Government Regulations

Critical Issues

  • Dependence on Economic Performance
  • Relying On Large Donations

Today’s donors, notably millennials, seek visible impact and connection to causes. Appeals should spotlight cause impact, using compelling stories for effective engagement, especially on social media. Some organizations are focused on turning charitable giving into a customizable experience, with more options for giving, connecting, and sharing with their networks.

Organizations can focus on diversifying their communication to reach new audiences. Targeted email marketing remains a highly effective way to connect with a diverse population.

Financial Insight: Average Performance Metrics

  • Quick Ratio (measures short-term liquidity): 1.56
    • Higher is better
    • Unchanged from Q2 2023
  • Current Liabilities to Net Worth (measures short-term debt obligations): 0.64
    • Lower is better
    • Unchanged from Q2 2023
  • Officer Compensation: 3.1 percent*
  • Operating Expenses: 93.9 percent*
  • Operating Income: 2.9 percent*
  • Cash: 32 percent*
  • Accounts Receivable: 8.7 percent*
  • Accounts Payable: 8.6 percent*
    • Changed from 8.8 percent in Q2
  • Current Liabilities: 30.2 percent*
    • Unchanged from Q2 2023

*as a percentage of total revenue

Spotlight: Museums, Parks, and Zoos

Not-for-profit museums, parks, and zoos face a unique set of challenges and opportunities. Leveraging mobile tech, engaging apps, and innovative fundraising methods like micro giving will be vital for future growth. Targeting active baby boomers through tailored marketing can significantly boost attendance, and fostering engagement through interactive tech and virtual reality tours can enhance visitor experiences.

This segment has seen a positive trend in revenue, with a remarkable 30 percent revenue surge for related institutions in Q1 2023.

To sustain this growth, it is imperative to carefully manage risks, especially in the face of increased labor costs and environmental threats, ensuring long-term sustainability and success.

Spotlight: Private Schools K-12

Private schools face unique financial challenges. The primary sources of income for private schools are tuition and student fees. However, they face challenges due to heightened competition from magnet and charter schools. Additionally, the cost of food increased by 5.7 percent in June 2023 compared to the previous year, impacting the operational expenses of these institutions.

There are growth opportunities for private schools related to changing 529 plan rules and Education Savings Accounts (ESAs). Expanding to international students, highlighting academic achievements, and enhancing student safety are also vital strategies to foster growth amidst increased competition and rising consumer prices.

Spotlight: Colleges & Universities

Colleges and universities are witnessing stability in student enrollment, with an increasing number offering online distance learning. The online learning industry is projected to reach $700 billion by 2030. Leveraging online learning and integrating AI-driven tools can enhance academic potential and address the growing demand for flexible educational options.

However, cybersecurity threats pose a significant challenge to institutions. Addressing vulnerabilities and enhancing security systems is crucial to prevent cyberattacks and ensure the safety and privacy of both students and institutions.

Spotlight: Membership Organizations

Successful membership organizations leverage strong leadership, name recognition, and effective fundraising for a competitive edge. Efficient database and customer relationship management are vital for member and donor relations. Online giving via secure websites streamlines fundraising and minimizes administrative costs. Technology plays a key role, with crowdfunding, peer-to-peer networks, and targeted email marketing gaining traction.

Challenges within this sector include stagnant fundraising, salaries, and a decline in donations, even though 50 percent of Americans express interest in increasing their charitable giving. Notably, a quarter of those surveyed have stated their plans to reduce their donations. Climate crisis initiatives are trending, propelled by the rise in catastrophic environmental events, influencing the preferences and priorities of donors.

Spotlight: Religious Organizations

Religious organizations are navigating a landscape of changing societal attitudes, economic fluctuations, and shifting demographics. Digital strategies and targeted outreach are avenues for growth. Specific opportunities include electronic giving, catering to members who prefer online donations, and focusing on the expanding older population through religious TV and radio programs.

Research indicates that U.S. church attendance has declined by four points since 2019 and ten percentage points since 2012. Despite challenges, religious leaders are innovating to revitalize engagement and adapt to the changing landscape.

For questions about nonprofit financial metrics and other trends that may impact your organization, contact Bo Garner, Leader of PBMares’ Not-for-Profit group.