Stacey Hyland
The New England nonprofits sector faces a confluence of economic, reputational and operational challenges requiring decisive action and innovative strategies. The prospects of governmental funding cuts, potential investigations of waste and fraud, dissolution of diversity initiatives, and other hurdles to mission demand that organizations prioritize enterprise-wide risk management, diversify revenue streams and enhance workforce retention while maintaining their mission-driven focus. With strategic planning and expert guidance, nonprofits can turn these challenges into opportunities for growth and impact.
Nonprofit organizations — which comprise 17% or more of private employment in New England — depend on a strong and motivated workforce to achieve their missions. However, financial struggles and rising burnout rates have made retention and recruitment increasingly difficult.
While nonprofit employment grew by 4% from 2021 to 2022, outpacing the private sector, 20% of nonprofit employees report living paycheck to paycheck. This financial strain has driven many workers to seek opportunities in higher-paying industries, while sagging volunteerism compounds the labor shortage.
Scott Konrad
Reputational challenges pose another significant threat to nonprofits, particularly as employment-related lawsuits rise. Discrimination charges increased by 10% in 2023, driven in part by heightened enforcement of antidiscrimination laws by the Equal Employment Opportunity Commission. The recent federal rollback of diversity, equity and inclusion (DEI) protections invites new lawsuits.
For nonprofits, such claims can harm their reputation and hinder their ability to attract and retain staff and volunteers.
To address these challenges, nonprofits must foster a people-centric culture that prioritizes a culture of inclusivity and respect.
Developing a compelling Employee Value Proposition (EVP) and offering personalized benefits, such as mental health support and financial wellness tools, can differentiate organizations in a competitive job market. Utilizing employee benefits analytics can help streamline costs while addressing the specific needs of staff, creating a supportive environment that enhances productivity and morale.
Additionally, developing clear policies, offering training programs and fostering transparent communication can help protect against employment-related claims.
Tenuous government funding, stubborn inflation, fluctuating donor contributions and job market volatility have left many nonprofit organizations adopting a cautious “wait-and-see” approach to funding.
Although charitable giving rose to $557.2 billion in 2023, this increase did not outpace the rise in operational costs such as salaries, insurance and rent. Compounding these challenges, the percentage of Americans donating to nonprofits has declined from 82% in 1983 to 67.2% in 2023.
Nonprofits must diversify their funding sources to mitigate reliance on individual donations. Foundational giving now comprises 19% of total charitable contributions, a significant increase from 6% in 1983. Additionally, corporate giving has risen by 14.3% over the past five years.
These trends underscore the need for nonprofits to secure strategic partnerships with corporations and foundations to bolster financial stability and strengthen their operations. Another less certain avenue is contracting with government agencies for specific services, which may provide a steady revenue stream in uncertain times.
Faced with economic pressures, many New England nonprofits are also exploring mergers and acquisitions (M&A). While M&A activities can unlock new opportunities and resources, they also come with risks, including potential pitfalls during due diligence and integration processes.
Nonprofits considering these options should engage advisors who specialize in navigating M&A complexities. A comprehensive risk management strategy, supported by an experienced insurance broker, is essential to mitigate potential exposures and ensure successful outcomes. Such expertise can help organizations align their goals, optimize insurance coverage and manage costs effectively.
While the economic and operational challenges facing nonprofits are daunting, they also present opportunities for growth and innovation. By diversifying revenue streams, fostering a supportive workforce culture and implementing robust risk management strategies, nonprofits in New England and beyond can navigate uncertainties with confidence. Collaboration with industry experts, including insurance brokers and advisors, will be instrumental in achieving these goals.
Nonprofits that embrace these strategies will not only weather the current challenges but also emerge stronger and more capable of fulfilling their missions. With the right tools and partnerships, 2025 can be a year of transformation and impact for the nonprofit sector.
Stacey Hyland, employee benefit practice leader, and Scott Konrad, North American nonprofit practice leader, offer expertise at global insurance brokerage HUB International in New England.
