The Nonprofit Industry

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Defining the Nonprofit Sector

I. Defining the Nonprofit SectorII. Characteristics of NonprofitsIII. Scope of the U.S. Nonprofit IndustryIV. Nonprofit Industry as an Economic ForceV. Challenges Faced by NonprofitsVI. CharityNet USA: Services for Nonprofit

Organizations

Defining the Nonprofit Sector

Nonprofit Organizations:• Are Legal entities• Most incorporated under state law• Some eligible for tax exemption with the

IRS• Most have public service mission• Governance structure eliminates self

interest and private financial gain

Defining the Nonprofit Sector

• The concept of ownership is completely absent from nonprofit organizations

• May make money, but that money must be directed toward the public purpose for which the organization was formed

Characteristics of Nonprofits

I. Defining the Nonprofit SectorII. Characteristics of NonprofitsIII. Scope of the U.S. Nonprofit IndustryIV. Nonprofit Industry as an Economic ForceV. Challenges Faced by NonprofitsVI. CharityNet USA: Services for Nonprofit

Organizations

• Nonprofits have distinctive characteristics that equip them well to contribute to the solution of social problems.

• These characteristics include:• Flexibility• Responsiveness• Value Focus• Public Service Component• Credibility & Trust• Advocacy Role• Ability to Adapt

Characteristics of Nonprofits

Structural Constraints

• Limitations on the performance and contributions that nonprofits make to social improvements arise from the fact that they must operate under government mandates.

• Government mandates=regulatory compliance.

Resource Constraints

• Nonprofits often face serious resource (money) constraints in performing the roles of which they are capable.

• This leads to a reduction in service delivery

• Therefore, fundraising is essential!

Scope of the U.S. Nonprofit Industry

I. Defining the Nonprofit SectorII. Characteristics of NonprofitsIII. Scope of the U.S. Nonprofit IndustryIV. Nonprofit Industry as an Economic

ForceV. Challenges Faced by NonprofitsVI. CharityNet USA: Services for Nonprofit

Organizations

A World of Opportunity

• The nonprofit sector is growing. • Between 1995 and 2005, the number of

organizations registered with the IRS grew by more than 27 percent.

• However, the number of public charities—those classified as 501(c)(3) as described above—grew at a rate greater than 50 percent over ten years.

• More than 100 new nonprofit organizations file with the IRS every day.

U.S. Nonprofit Sector

• Fast Facts:– The newest and

fasting growing sector in U.S.

– Number of organizations has doubled over last 25 years

– Often referred to as “third sector”

U.S. Nonprofit Sector

• Composed of charitable, advocacy, mutual benefit, scientific, educational, and religious organizations.

• There are over 1.4 million public-serving organizations (501 c 3).

• There are over 400,000 member-serving organizations.

Size & Scope

• The nonprofit sector spans a wide range of organizations, from neighborhood associations that have no paid staff to multibillion-dollar hospitals and universities.

• The vast majority—and those holding most of the sector’s revenues and assets—are registered with the IRS as 501(c)(3) “public charities,” a category that includes most arts, education, health care, and human service organizations.

Size & Scope

• The nation’s approximately 350,000 religious congregations are also considered public charities but they are not required to register with the IRS, (although about half do so).

Nonprofit Industry as an Economic Force

I. Defining the Nonprofit SectorII. Characteristics of NonprofitsIII. Scope of the U.S. Nonprofit IndustryIV. Nonprofit Industry as an Economic

ForceV. Challenges Faced by NonprofitsVI. CharityNet USA: Services for Nonprofit

Organizations

Economic Force

• The nonprofit sector has proven to be an economic force:

• Rapidly growing service sector

• Potential direct contributor to employment

• In many areas, employment in nonprofit sector growing more rapidly than in business sector.

• When compared to other sectors of the economy, the nonprofit sector accounts for 5.2 percent of gross domestic product (GDP) and 8.3 percent of wages and salaries paid in the United States.

Economic Force

• The finances of nonprofit organizations also grew at a healthy rate from 1994 to 2004. While the U.S. GDP increased by less than 37 percent over this period after adjusting for inflation, all three of the major financial measures for nonprofit organizations increased by at least 56 percent—a difference of nearly 20 percentage points.

• Total assets, in particular, rose the most rapidly, with an increase of approximately 90 percent for both public charities and the sector as a whole.

Economics of Charitable Giving

• According to the latest estimates from Giving USA, private charitable contributions from households, private foundations, and businesses increased by more than 13 percent from 2000 to 2005.

• In 2005, individuals, corporations, and foundations gave $260 billion in charitable contributions to nonprofits!

Challenges Faced by Nonprofits

I. Defining the Nonprofit SectorII. Characteristics of NonprofitsIII. Scope of the U.S. Nonprofit IndustryIV. Nonprofit Industry as an Economic ForceV. Challenges Faced by NonprofitsVI. CharityNet USA: Services for Nonprofit

Organizations

Challenges Faced by Nonprofits

• Lack of Revenue• Lack of Diversified Fundraising Plan• Current Economic Environment• Lack of Business Skills Among

Administrators• Poor Volunteer Recruitment

Administrative Challenges

• In many cases, nonprofits are founded by individuals with a passion for a specific cause, but who may not have adequate business education or experience.

• In order for nonprofits to remain financially stable and thus have the ability to fulfill their missions, they should be run like a business.

• Education in nonprofit management, or the assistance of an educated professional, is essential!

• A lack of revenue is the main reason why many nonprofits fail. – In order to avoid this, nonprofit

organizations should have diversified fundraising plans– they should be receiving funding from multiple income streams.

• For example, a successful nonprofit organization will gain income from individual donors, corporations, grants, service fees, and fundraising events.

Economic Challenges

Economic Challenges

• The role of the nonprofit advisor or consultant, in the current economic environment, is to reinforce the importance of working hard to generate funding.

• NPOs need to be provided with assistance in exploring a variety of fundraising initiatives.

• If you’re able to help the organization raise funding, they’ll be able to then cover the expenses related to proper organizational administration. This in turn leads to additional service orders!

Services for Nonprofit Organizations

I. Defining the Nonprofit SectorII. Characteristics of NonprofitsIII. Scope of the U.S. Nonprofit IndustryIV. Nonprofit Industry as an Economic

ForceV. Challenges Faced by NonprofitsVI. CharityNet USA: Services for

Nonprofit Organizations

Opportunities to Serve Nonprofit Organizations

• It is clear that the size and scope of the nonprofit sector creates a world of opportunity for those who provide these organizations with essential administrative services.

• As a partner serving the nonprofit sector, there are limitless opportunities to make CharityNet USA services available to the nonprofit organizations within your community.

CharityNet Services

CharityNet USA provides:• 501c3 tax exempt services• State tax exemption & Charity

Registrations• Articles of Incorporation• Grant writing Services• Strategic Planning Services• Web development Services• Bookkeeping and Accounting Services