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Why Nonprofits Fail (And How to Prevent It)

By: Brittany Engelmann-- 2017-01-13 3:00 pm --

It’s a hard to run a business when you aren’t creating profit, which may be a factor in why so many nonprofits struggle. Operating a successful nonprofit is hard work, as you’re depending solely on donations and grants to keep it afloat. According to Forbes Magazine, approximately half of all nonprofits are set up to fail. Yet, with the right strategy in place, you can set your nonprofit up for success from the start. Here are some of the main reasons nonprofits are unsuccessful.

They Don’t Plan for the Future

In the nonprofit world, volunteers and employees are constantly scrambling to keep up with their never-ending to-do list. Oftentimes, they don’t have time to think about the future, and they fail to plan accordingly. In a survey conducted by Concord Leadership Group, it found that 77 percent of nonprofits didn’t have a leadership transition plan. The success of any company, be it for-profit or nonprofit, is based on the highly qualified and knowledgeable leadership of superiors.  

Without a string leadership transition plan, many find the transition between nonprofit leaders to be bumpy, and this can set the nonprofit up for failure. Nonprofits need to be sufficiently prepared for all future changes in leadership by ensuring the same processes and procedures are utilized and the transition is seamless.  

They Haven’t Established Their Roots

Nonprofit organizations are naturally much more vulnerable in their early years of operation, and the longer they operate, the higher rate of success they experience. According to Nonprofit Quarterly, the key reason for failure in
 these early years is a lack of capital. The primary struggle in the beginning years is determining how to source the bulk of the capital, but as time progresses, you can hone in on the specific market segments that have supported your success.

Over time, you can gauge whether capital is coming primarily from grants, donations, or retail sales, allowing you to allocate time and labor based on the most critical sources of income. Creating a clear financial plan that details your primary market and how to maintain that market can help a nonprofit organization maintain a healthy flow of capital over the years.