December 12, 2018

As with any company, there’s going to be some uncertainty about the future when starting a nonprofit. If you want to keep your organization afloat, it helps to know how many of them fail, where they fail and why. This isn’t meant to be taken as gospel—we certainly can’t tell the future. But being aware of the statistics can aid in your decision making, so take a look at the stability and prevalence of nonprofits nationwide.

How many nonprofits fail?

First, it’s important to note how the IRS determines nonprofit failure. Each year, they send out a Form 990 that organizations must return to notify them that they’re still in business. Organizations that don’t respond for three years are automatically removed from the IRS’s list of registered organizations. So, how many of the more than 1.5 million tax-exempt organizations nationwide are successful (or at least operational) in the long-term? Well, it’s hard to say exactly, because although organizations are supposed to notify the IRS when they formally dissolve, not all of them do. Plus, some organizations may be inactive temporarily, but eventually find funding and are able to start back up again.

In an IRS study of “nonfilers,” around 16 percent of nonprofits that filed their 990s from 2000 to 2005 did not re-file in 2005. This indicates they either fell under the $25,000 filing threshold or ceased operations altogether. A more recent statistic says from the middle of 2010 to the end of 2017, the IRS revoked the tax-exempt recognition of more than 760,000 nonprofit organizations for failing to file Form 990 returns.

Where are nonprofits most successful?

A 2016 study showed that Washington D.C. had the most nonprofits per capita, with one nonprofit organization for every 86 inhabitants. Vermont is next, with a nonprofit for every 160 people, which doubles the national average of 320. The state with the fewest charities per person is Utah, with one for every 546 people; Nevada, Mississippi, Arizona and South Carolina also make up the bottom five. Note, however, that this doesn’t determine the amount people donate in each state or the size of the organizations, but it does help indicate which states are charity-friendly, no matter the size.

Here’s an interactive map that will tell you how many nonprofits your state has per person. And these maps will tell you exactly how many nonprofits are in your state and how many there are per 1,000 people.

It’s also important to remember that the number of nonprofits in an area does not determine how viable starting a nonprofit would be in that area. In fact, it might be just the opposite. Areas with few nonprofits deal much less with mission creep and competition for funding.

Which types of nonprofits are most successful?

The National Center for Charitable Statistics uses the National Taxonomy of Exempt Entities to classify nonprofits as one of 26 categories that can be generalized into eight larger categories: Arts, Culture and Humanities, Education, Environment, Health, Human Services, International Affairs, Public and Societal Benefit and Religion-related. The largest group is human services with 35 percent of all nonprofits. This includes the subcategories of employment, housing, public safety, etc. The smallest type deals with International and Foreign Affairs, which makes up 2.1 percent of all nonprofits.

Keep in mind that there are successful and unsuccessful nonprofits in each of these categories, and a highly concentrated category likely means there’s more competition in that area. However, it helps to know which types of nonprofits Americans prioritize and understand which category yours falls into.

What can your organization do to stay afloat?

According to Forbes, over half of all nonprofits are destined for failure (yikes!). But don’t worry—there’s a simple solution: 77 percent of nonprofits don’t have a leadership or strategic plan in place. In other words, they’re just winging it. And more than half of those who do have written strategic plans say that they aren’t reviewed on at least a quarterly basis. So, even if organizations have a plan, they may not actually use it to make adjustments and stay on course during the year. This leads to disorganization, unmet goals and, ultimately, a failed nonprofit.

To avoid becoming just another negative statistic, make a well-thought-out, official plan for your nonprofit. Set concrete goals. Create a leadership transition process. Come up with innovative fundraising and management ideas and note them on your document. Then, check in every quarter to make sure you’re staying on track. The more organization and goal-setting you do, the more motivated your nonprofit will be to succeed.

The post What’s the Risk of Starting a Nonprofit? appeared first on Nonprofit Hub.

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