The social sector is in the midst of a radical transformation. In the past ten years, many of the fundamental underpinnings of the sector have shifted.
However, grantmaking practices – especially around funding indirect and overhead costs – have failed to keep pace. And the consequences are being felt across the nonprofit sector as organizations report feeling the effects and are challenged to meet the ever-growing demand for services. Roughly seven in 10 nonprofits in California say the government funding they receive fails to cover the full cost of their services, according to Nonprofit Government Contracts and Grants: California Findings a new report from the Urban Institute.
Most nonprofits in the state are operating with little or no safety net, with 53% of nonprofits report having three months or less of cash of hand (Nonprofit Finance Fund, 2015). And for nonprofit organizations serving low-income communities, 60% of organizations reported having less than three months of cash readily available (Nonprofit Finance Fund, 2015).
Lack of liquidity means scrambling to manage payroll, cutting or reducing programs, and reducing staff hours or eliminating staff positions. These organizations do not have the financial capital to withstand risk and adapt to changes in the communities they serve.
Both funders and nonprofits agree that there needs to be a better understanding of the real cost of doing business as well as more open and transparent conversations between funders and grantees on what outcomes really cost.
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