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All is not well with America’s charities. A Guidestar report released January 30 suggests that 50% of U.S. nonprofits have less than one month of operating reserves. Thirty percent have posted net losses for three straight years. Between seven and eight percent are bankrupt on paper—liabilities eclipse assets.

The total shortfall—the amount of cash needed to bail the sector out—stands between $40 and 50 billion.

Of course, these numbers need perspective. There are approximately 1.6 million nonprofits in the United States. They range in gross annual revenue from under $10,000 to over $20 billion. According to the National Center for Charitable Statistics, 80% of nonprofits have revenue below $100,000. Nonprofits range in type as well: the list includes private foundations, community centers, religious orders, educational institutions, child sponsorship networks, social welfare agencies, research labs, and so on.

But the crisis arises from what they all have in common: every nonprofit must stretch limited resources to cover fixed needs, and they must do it without underfunding their mission.

This challenge means higher expectations for all staff—board members, employees, volunteers.

They must wear multiple hats, often including those they’re not qualified for.

They must balance fulfilling their role with representing their cause.

They must draw motivation from sheer passion, from commitment to their organization’s purpose, rather than from meager or nonexistent salaries.

Some organizations have adapted to these constraints. As the Guidestar numbers demonstrate, however, many more have not. Whether small or large, private foundation or public soup kitchen, nonprofits often face severe underfunding.

Just like malnutrition in the human body, underfunding has distinct implications, or ‘symptoms,’ for charitable organizations. Stagnant or declining donations and low cash reserves hamper morale, undermining the nonprofit’s ability to deliver on core competencies. The quality and efficiency of service suffers as nonprofits find themselves forced to support back office functions.

This ‘condition’ affects nonprofits to varying degrees. Some find it a mere distraction. For others, it’s debilitating. In the worst cases, nonprofit malnutrition doesn’t just threaten a charity’s core competencies. It threatens the survival of the organization itself.

Nonprofit executives ask—and face—a host of vital questions. How can we best steward our resources? What new fundraising techniques, what tips or tricks, could help us get more revenue? Is there a way to put ourselves in the black, or is the condition incurable? How can we keep our core competencies strong in the face of fiscal limitations?

Unfortunately, I don’t think the financial constraints on nonprofits will ever fully disappear. As long as nonprofits must depend on donations, they—and their staff—will face a definite set of pressures.

Today, an unprecedented number of nonprofits are using collaboration to address internal deficiencies.

I realize that this might seem like a cheap answer. I’m not saying that outsourcing will remove the pressures nonprofits face. There’s no silver bullet.

But here’s what I am saying: every organization—no matter its size or tax status—stands to gain from collaboration.

Nonprofits have a long history of adopting good ideas from their for-profit cousins. Charities long ago borrowed the basic structure of modern businesses, with core operations segmented into finance, logistics, HR, PR, IT, and facilities.

This makes collaboration an easy transfer. For-profits have spent the last twenty years leveraging the power of shared services. As early as 2002, one study found some sort of collaborative initiative at 80% of Fortune 100 companies. Today, you can find collaboration in almost every top enterprise.

It’s time for nonprofits to follow suit.

Shared services can take multiple forms. Nonprofits can collaborate by sharing facilities, as when multiple religious entities use the same sanctuary at different times. Or they can pool not just space but staff, a key part of the rising ‘nonprofit center’ phenomenon. Other nonprofits share costs for transportation, printing, or catering services. Collaboration can look like multiple charities joining forces, or it can look like one charity making a strategic partnership.

No matter how it looks, the principle is the same: the use of qualified partners to handle areas outside a nonprofit’s core competencies. This simple idea puts the lie to many of myths and concerns that surround ‘shared services.’ Contrary to popular belief, sharing services does not mean relinquishing control. If you choose the right partner, you will have the freedom to be as involved in or distant from the outsourced process as you wish. Neither is it driven entirely by cost reduction. Collaboration makes vital resources available for many similar organizations, all at tremendous economies of scale. ‘Outsharing’ doesn’t just save money. It empowers nonprofits to recover their priorities, to focus their energy once more where it matters most: their mission.

By leveraging the power of shared services, nonprofits can gain:

Strategic Focus: By removing the distractions associated with operational and administrative processes, both leadership and front-line staff can focus on the cause and core competencies of an organization. Improved focus almost always results in sharper delivery of service.

Economies of Scale: Outsourcing allows clients to gain services of equal or higher quality at a far lower cost. Collaborative offerings can also give nonprofits access to capabilities that would otherwise be out of reach, capabilities like co-op purchasing services, healthcare, distribution, and so on.
Improved Internal Controls: Nonprofits that collaborate with software vendors can use technology to automate processes, improve communication, reinforce statutory compliance, and provide real-time visibility into their activities and risks across the globe.

Greater Efficiency: Whether in agility, standardized processes, best practices, service improvement, cost reduction, or access to new technologies, improved efficiency is a hallmark of collaboration via outsourcing and outsharing.

Operational Simplification: I produce my best work within my areas of expertise. An organization is no different. When we work within simple, appropriate roles, our company can operate with greater efficiency, hone agility, and expand more quickly with fewer risks.

Access to Quality Resourcing and Innovative Technology: Outsharing allows non-profits to access specialized expertise, improved services, and new technologies that might otherwise be unaffordable or unavailable.
Growth Potential: Building and responding to demand generation via shared services can drive – and even multiply – an organization’s future growth.

Employee Retention and Stability: When nonprofit executives encourage staff to focus on their mission, job satisfaction rises rapidly. Over time, employee specialties deepen and interlock. A tightly-woven staff network fosters best practices, ensures reliable service delivery, secures access to institutional insight, and mitigates risk.

I would recommend that nonprofits conduct an audit to determine which functions they would profit most from outsharing. Which functions fall outside their core competencies? For most nonprofits, accounting and bookkeeping will be at the top of the list.

Once upon a time, ERP systems—the software many businesses use to manage their finances—were too expensive, too complex, for nonprofit budgets. Cloud solutions and monthly subscriptions brought that era to an end. Today, nonprofits can access advanced business management tools for a fraction of on-premise prices.
Xledger provides true public cloud ERP to thousands of nonprofit organizations that range in size from mid-market to multinational. All 9300 clients operate on the same version of Xledger’s software, enjoying best-in-market automation, robust insight, and limitless scalability.

To discuss whether your nonprofit would benefit from partnership with Xledger, please give us a call. We would love to hear from you.