10 Red Flags Your Nonprofit May Be on the Path to Financial Failure

Things might be going well for you right now. But you have a sense that trouble is just around the corner. You can’t put your finger on it, but you’re worried about it.

I have been there myself, so your instinct is on point. Here are the most common signs that a nonprofit is in trouble — and how to navigate them.

1. Revenue Is Down

You can blame it on the economy or uncertainty or something external. But in my experience, the external explanations are rarely the real reason. It is usually about how you talk to and care for your donors. 

During the financial crisis in the 1990s and 2008, many nonprofits did not experience a shortfall. They all grew by addressing how they talked to and treated their donors. So, look closely at how you are relating to your donors. 

2. Donor Attrition and Giving Levels Are Falling

There is high donor and value attrition, while current active donors are giving less. Much like the first point, this is a clear sign that something isn’t right. 

When your best donors give less and disappear, it’s because they do not see their relationship with you making a difference. Analyze what you are saying to them and how you are treating them. 

Be honest. Is your relationship with donors more about getting the money or helping them fulfill their interests and passions? If it’s about the money, expect more trouble ahead.

3. Donor Acquisition Isn’t Keeping Pace With Losses

Donor acquisition is not keeping up with the loss of donors, which negatively affects mid-level, major and planned gifts — the highest net revenue generators for your organization. And that is a big problem. 

Mid-level, major and planned gifts are where nonprofits secure the most net revenue at the least cost. But these functions depend on a healthy donor acquisition and cultivation program. Too often, no one monitors the relationship between donor acquisition and attrition. Review this at your organization to see how you are doing.

4. Transactions, Not Relationships, Drive Fundraising

When everything your organization does in fundraising is about the money, you are heading down a perilous path. That staff focus and attitude will migrate into all areas of the organization — including non-fundraising and program functions. Donors will feel mistreated, and the organization will suffer financially. 

Check your culture of philanthropy. Does everyone in accounting, HR, operations and programs truly value donors? Are you constantly talking about the important role donors play in fulfilling your organization’s mission? Everyone — and I mean everyone — in your organization must have a warm, receptive heart and attitude toward donors.

5. Fundraising Strategies Aren’t Delivering Results

This one’s interesting because you often know the numbers — you can see a strategy is not working. But you keep doing it. 

Why? Because a board member or important donor loves it. Or a valued employee believes it’s the best approach. Or it would be too painful to change. Take a hard look at these underperforming strategies. Then take action to do something about it.

6. Structure and Systems Aren’t Aligned With Donors

If your organization’s objectives are to: 

1. Address a societal need.
2. Fulfill the interests and passions of donors who want to help meet that need.

Then everything your organization does — organizational structure, labor division, management authority and systems, etc. —should support both goals. That means your organization mirrors the donor’s journey from acquisition and cultivation through mid-level, major and planned giving. All your non-fundraising, marketing and communications programs should be donor and donor pipeline facing.

7. The Wrong People Are Leading Key Functions

Now we’re getting personal. Some of the employees in your organization — from fundraising to marketing to communications — are in the wrong roles. You know how they got there. Maybe it was easier to add a function to an existing position. Maybe someone wanted to take it on and you couldn’t say “no.” Maybe there was political pressure to hire a particular person. 

There are many reasons good employees end up in the wrong positions. But the reality is, that is hurting them and your organization. Make a list of situations you need to address — then act. Align each employee’s motivated abilities with the right job.

8. Donors Aren’t Connecting With Your Programs or Offers

Donors are not “buying” the non-profit’s program and product offers. 

You likely experienced this in a commercial environment: You enter a store with a specific purchase in mind, but you cannot find it. It’s frustrating. 

It is amazing how many nonprofit leaders do not recognize this dynamic in fundraising. At its essence, the nonprofit sector is about working with donors (individual and institutional) to address a societal need. Your programs address that societal need and your program division, or program categories, are your “products” in your store that donors can “buy” with various donation amounts based on their interests and passions. This is how good fundraising works. 

The nonprofit markets these “products” to donors. But when the offers don’t resonate, donors stop “buying.” Then leadership wonders why giving is down.

Take a close look at your donor offers and uncover the connection between what you’re presenting and any decline in giving.

9. Fundraising Investments Are Out of Balance

The donor pipeline is a very delicate ecosystem. You must balance investments in every phase: acquisition, cultivation, mid-level, major, and planned giving. Nonprofits often invest unevenly — favoring one strategy over another, or sometimes having the wrong balance between fundraising non-fundraising areas.

I see errors all the time — too much investment in acquisition and not enough in mid-level or major gifts. Or the reverse — no investment in acquisition, assuming mid-level and major donors will just appear. 

Review your budget distribution to create a strategic distribution of the fundraising, marketing and communications budget that aligns with how the donor pipeline works and the giving pathway of the donor’s journey.

10. There’s No Clear Vision or Growth Plan

What is your vision and plan for growth? If you are meeting a real societal need, that need is likely bigger than your current capacity to address it. So, what is the plan? Is it visionary, compelling and exciting? Donors want to be part of something they care about that has a good vision and energy. 

If I read your plan, would I see that? Would I feel it?

Those are the 10 signs your organization may be dysfunctional and face financial failure, so do your discovery and implement solutions before it is too late.

The preceding content was provided by a contributor unaffiliated with NonProfit PRO. The views expressed within may not directly reflect the thoughts or opinions of the staff of NonProfit PRO.