As nonprofits adjust to post-pandemic realities, they face a new world. Many organizations are discovering they need major changes in funding strategies, leadership direction, technology — and in some cases, even their mission. Here are the five top challenges facing nonprofit organizations in 2023.
1. Managing post-COVID revenue
The top cited challenge by nonprofit leaders attending Plante Moran’s 2023 Nonprofit Summit was predicting future funding. While many nonprofits were able to maintain their revenue during the pandemic, they received a significant boost from the large influx of government funding in the form of tax credits or loan programs like the Paycheck Protection Program. Now that the COVID-19 public health emergency has ended, these forms of government funding are coming to a close, leaving some organizations with concerns about funding shortfalls.
Another funding-related issue is the uncertain environment surrounding investment income. Many organizations are rebuilding portfolios after the market downturn in 2022, and they aren’t counting on investments as a source of income in 2023. This is also translating into a loss of funds from some donors that rely on investment income for their charitable donations.
Nonprofits that rely on annual in-person events like galas for a significant influx of funds are experiencing a mixed bag in terms of restarting these events, and there’s some uncertainty about whether potential donors will attend those events to the same level they have in the past. Given that events are typically costly to put on, their future role in sustaining the organization is an open question.
2. Not-for-profit staff turnover and recruiting
One of the top challenges nonprofits are experiencing in 2023 is turnover of staff and the scarcity of talented recruits. The problem is heightened by intense competition with private sector companies that often lure talent by paying higher salaries. Nonprofit work is often emotionally and physically taxing — particularly for organizations in the social service sector — and many exhausted staff have decided on a path outside the nonprofit sector. Other nonprofits — particularly cultural institutions — had to shut down or severely limit their operations during the pandemic, which also caused talent to consider opportunities in the private sector.
3. Succession planning
Succession planning is a hot topic for many organizations this year. With many members of the baby-boom generation retiring or deciding to leave the workforce during the pandemic, many nonprofits are discovering they aren’t well prepared to replace executive-level positions or board members. To make matters worse, many don’t have a proactive plan for replacing key leaders if they leave or retire — only 27% of respondents during Plante Moran’s 2023 Nonprofit Summit knew of a succession plan for their leadership positions.
For those involved in succession matters now, planning considerations include competition in the job market and budget constraints restricting the ability for some organizations to hire replacements well enough in advance to pass along institutional knowledge. Other organizations that do have a good internal pipeline and are training replacements for key positions are experiencing high turnover in those positions, so they’re losing that pipeline in many cases.
Changing requirements for talent are also causing nonprofits to rethink their traditional hiring approach. Coming out of the pandemic, many organizations are looking for different leadership qualities and skill sets. Some are redefining roles — moving away from the traditional executive director function that was strongly focused on fundraising to a CEO model focused on leadership qualities that can inspire the staff and boards and inject new energy into the organization.
4. Nonprofit board engagement
During the pandemic, it was difficult for many nonprofits to keep board members engaged. Post-pandemic, many organizations are undertaking a board evaluation process to examine whether they have the right skill sets on the board and necessary level of engagement to meet their needs during the critical period of recovery. During Plante Moran’s 2023 Nonprofit Summit, 38% of organizations said they don’t currently evaluate board performance. We anticipate this increasing significantly in the coming year as organizations look to better leverage their boards.
5. Technology modernization
Another significant issue for nonprofits in 2023 is the challenge of technology modernization. With the sudden implementation of remote work during the pandemic, many nonprofits discovered their internal controls didn’t work well in remote work scenarios, leaving them a high risk of cyberattacks.
Today, as more software applications move to the cloud, nonprofits are prioritizing improvements to their systems and increasing their focus on cybersecurity. For organizations that are farther along the technology maturity model, data analytics is being adopted to provide unique insights into their data. By using dashboards and benchmarking tools, nonprofit executives are getting an accurate, up-to-the-minute view of their operations and current financial picture to determine whether the organization is meeting its goals and how it compares to peers.
Key nonprofit trends in 2023
While the pandemic has left many nonprofits experiencing sizable challenges in 2023, there are some positive trends emerging. Here are some key areas where organizations are turning challenges into opportunities.
- Innovation, adaptability, and flexibility: After the trials of the pandemic, nonprofits across the board have greater clarity and feel more confident in their ability to innovate, adapt to change, and be flexible in their outlook.
- Increased focus on mission: The experience of the last several years has helped many organizations prioritize their mission and strategic vision. There has also been an overall trend to move beyond a traditional social service focus to include a social justice component. Organizations are thinking beyond how they can simply provide a service in the best way to asking how they can get to the root cause of social challenges and change systems so vulnerable populations are better and more equitably served in the future.
- Operating efficiencies: Nonprofits are finding improvements in operating and capital efficiencies. Organizations are saving costs by finding ways to be more efficient in processes, staffing, and programs — for example, by eliminating programs that don’t add value or combining them with others.
- Joining forces with other organizations: Along a similar vein, organizations are creating efficiencies by joining forces either through the acquisition of another nonprofit’s business, merging entities, or building collaboration on the strengths of another organization to provide efficiencies.
Bottom line
If your nonprofit is undergoing transformation this year, you’re not alone. 2023 provides an opportunity for organizations to reassess, reevaluate, and plan. What kind of leadership will you need going forward? How will you advance your operations and maximize efficiencies? How can you recruit and provide careers to a new generation of workers looking for rewarding work and an opportunity to give back? When addressing your challenges remember that your mission is your North Star — keep it front and center in every meeting, every conversation, and every decision that you make.
