#Financial Health #Indiana University #mid-sized nonprofits

New Research Highlights Financial Health of Mid-Sized Nonprofits

Recent findings from a study titled "Measuring the Financial Health of Mid-Sized Nonprofits" conducted by the Indiana University Lilly Family School of Philanthropy and supported by Bernstein Private Wealth Management, shine a light on the surprising financial stability of mid-sized charities. These organizations, defined as those possessing investable assets between $5 million and $75 million, have proven to be more financially robust compared to both larger and smaller nonprofits.

In the research, it was established that 69% of mid-sized nonprofits achieved a healthy classification across various financial metrics, outpacing the financial health of large nonprofits at 65% and small nonprofits at 64%. This indicates a trend where mid-sized organizations demonstrate superior liquidity, better management of expenditures, and lower debt levels, which collectively contribute to a more cautious financial approach.

Jon Bergdoll, Interim Director of Data and Research Partnerships at Indiana University, points out that the nonprofit sector heavily focuses on larger institutions and smaller grassroot organizations, while mid-sized nonprofits remain somewhat under-researched. This study serves as a vital resource not only for these organizations but also for funders and donors who are looking to understand the financial implications of their support.

Key Findings of the Study

As part of this comprehensive evaluation, several critical findings have emerged:

1. Endowment Presence: Mid-sized nonprofits share striking similarities with large nonprofits regarding endowment status, with 55% maintaining an endowment compared to 65% of large nonprofits and merely 12% of small nonprofit organizations.
2. Revenue Sources: The study also highlights how large nonprofits derive 7% of their revenue from investment incomes. In contrast, mid-sized nonprofits attain only 3%, while small nonprofits generate a relatively meager 1%.
3. Administrative Efficiency: An efficiency metric reveals that 54% of mid-sized nonprofits boast a “healthy” administrative ratio, showcasing superior management capabilities compared to 44% from small and 52% from large nonprofits.
4. Debt Analysis: When evaluating debt levels, nearly two-thirds of mid-sized nonprofits (64%) and small nonprofits (66%) are maintaining a debt margin under 20%. This is notable when compared to less than half (49%) of their large counterparts.

The research delves deeply into the financial health indicators by utilizing data from IRS Forms 990 and illustrating best practices in the nonprofit sector. This approach aims to provide a broader understanding of the financial metrics that govern nonprofits of all sizes and offers actionable insights for leaders within the sector.

Marisa Swystun, National Director of Bernstein’s Foundation and Institutional Advisory team, affirms that data-backed understanding can drive effective operational changes for mission-driven organizations. Through collaborations with the Lilly Family School of Philanthropy, this research aims to empower boards, donors, and advisors to make informed decisions enhancing the impact of charitable initiatives.

Practical Implications

Determining financial health across diverse nonprofit organizations is a nuanced challenge due to their varying revenue models and missions. This new report provides clarity by focusing on mid-sized nonprofits, highlighting actionable strategies for enhancing financial conditions across the sector:

• - Nonprofit Board Engagement: Encouraging dynamic partnerships between boards and staff can drive successful mission-related strategy and financial health.
• - Balanced Budgets: Developing a budget that merges realistic expectations with ambitious opportunities fosters sustainability.
• - Investment in Resources: Exploring new technologies, investing in workforce development, and seizing fresh opportunities ensure nonprofits remain relevant.
• - Flexible Funding Approaches: Funders are encouraged to provide unrestricted gifts to mid-sized organizations to enhance their operational flexibility and meet liquidity needs.
• - Resilience Strategies from the Pandemic: Nonprofits that flourished through the COVID-19 crisis often maintained higher operational reserves, diversified income streams, and flexibly managed finances, setting a precedent for resilience.

The findings from the