In 2022, we can look forward to having another 50,000 to 60,000 nonprofits joining the sector! We must emphasize that this number underestimates what we may call “new” nonprofits or “start-up” nonprofits because a lot of new and small “nonprofit” activities can fly under the radar and may never rise up in any administrative records. If we look at how many organizations received the tax-exempt status, which is only a narrow definition of what counts as new nonprofits, there were around 68,000 organizations that obtained their 501(c)(3) status in 2020.

These nonprofits are likely to be small operations with revenues less than $100,000. As the current nonprofit density ranges tell us, these new nonprofits will be distributed across American communities. They represent exciting opportunities to serve their communities and strengthen the sector. Unfortunately, we can also expect many nonprofits to close this year. With most discussions of nonprofit management focusing on large, established organizations, we can do more to help small and young nonprofits – the majority of the sector – become more sustainable, given today’s challenges.

Building capacity and sustainability for small nonprofits cannot be the sole responsibility of individual nonprofits; it requires collaboration to create a vibrant nonprofit sector. The value of increased sustainability goes beyond the sector’s significant economic contributions, as nonprofits play a large part in keeping government and private industry accountable and responsive. Nonprofits operating alongside their private sector counterparts can provide a check against exploitative business practices, while nonprofits holding the government accountable can lead to higher quality services and more attention to marginalized communities.

We know from existing studies that local areas with larger and more diverse populations have more nonprofits. Studies also showed that we will find more nonprofits when there is greater government spending. Existing studies also provide insights into community factors that could bolster the nonprofit sector. However, we are still left with limited knowledge regarding how some community factors influence nonprofits at different stages in their life cycle, especially at the beginning of their life cycle and at the end.

While new nonprofits are constantly created, the rates of nonprofit entry and exit vary widely across geographies and time. These rates determine whether nonprofit density is expanding or contracting in a community. Although many scholars have explored the factors associated with how many nonprofits per capita in different local areas, we have relatively limited knowledge about the life cycle of nonprofits and the factors that contribute to the growth of nascent nonprofit organizations. Having a better understanding of the factors that matter to those nonprofits at the beginning of their lifecycle can help smaller and newer nonprofits to grow and be sustainable. Similarly, knowing what matters to keep some faltering nonprofits to stay alive can save many invaluable nonprofit programs that communities benefit from.

Read the full article about understanding nonprofit birth by Mirae Kim at The Independent Sector.