Nonprofit finance in 2021 - setting the new course in the post-pandemic era

Profile picture for user Joan Benson By Joan Benson March 1, 2021 Audio version
Summary:
So this is 2021, and what have we learned? Joan Benson shares the highlights from Sage Intacct's latest research and practical findings that apply across profit and nonprofit alike

Business nonprofit finance concept with chessboard © thinkhubstudio - Shutterstock
(© thinkhubstudio - Shutterstock)

In 2020, we all learned that the only thing we could consistently expect was the unexpected. As the entire world grappled with the economic, health, and social fallout from the COVID-19 pandemic, nonprofit organizations have been balancing the dual challenge of dramatically increased community needs and major delays and disruptions of programming and charitable contributions. As 2021 picks up steam, there are signs of optimism tied to the rollout of vaccines and the gradual lifting of public-health restrictions. But what lies ahead for nonprofit organizations — and what does the post-pandemic landscape look like?

To gain a truer understanding of these and other related issues, Sage Intacct conducted its annual Nonprofit Technology Trends Survey, a comprehensive survey of more than 500 nonprofit finance leaders. The survey report highlighted several specific challenges that lie ahead, including decreased funding, canceled fundraisers, and virtual programming. But there's good news in there, too. Many nonprofits have found new and innovative ways to stabilize finances, adapt to new conditions, and position themselves for continued success.

The common thread? Technology. In response to economic uncertainty and volatility, nonprofits are stepping up their adoption of modern technology. In a sector where dollars mean the difference between delivering or not delivering meals, housing, healthcare, education, and other vital services, the right technology can have an outsized impact on the ability to improve efficiency, achieve compliance, strengthen stewardship, and fully pursue the mission. The following are some of the highlights from this research report.

Revenue shortfalls - not as bad as feared

Unfortunately, most respondents (58%) did report declining revenue in 2020 — hardly a surprise given the widespread economic impact of the pandemic. But there are silver linings to consider. First, more than half of that 58% report that the decrease in revenue was less than 25%, signaling optimism about a faster recovery once we emerge from the pandemic.

Nonprofit finance leaders also report that the biggest decrease in funding stemmed from individuals and corporations — a stark contrast to 2019, when individuals were the source of the largest increase in donations. It's a clear illustration of how hard individuals (and corporations) have been hit by the pandemic and the retrenchments they've made. Fortunately, other sources have stepped up. Nearly one-third of respondents indicated that foundations and government agencies have stepped up their funding in a concerted effort to provide relief where others fell short.

Organizations accepting donations didn't report a change in the size of their donor bases from 2019 to 2020. This year, 76% of organizations maintained or increased their donor base. It's encouraging that we didn't see a big year-over-year decline, despite economic challenges. Similarly, 74% of organizations reported their average gift size remained steady or increased.

The key role for finance

This survey also sought to understand the role of nonprofit finance leaders in telling the mission story to constituents. Nearly three-quarters of respondents (74%) indicated their finance team plays a key role in framing their story (up from 64% in 2019). More than ever before — with scarce dollars and growing demand — visibility, accountability, and automation are crucial to taking the mission to the next level.

Respondents said that the most common contributions from finance included measuring program results and impact metrics, and charting growth. This greater involvement of finance demonstrates how the ability to report on data and key performance indicators helps tell a more powerful story of the organization's mission. Shared stories strengthen stakeholder engagement and attract higher levels of funding.

Those stories can take the form of better reading scores, more meals served, more immunizations, more wells dug. Technology takes the financial information and puts it into a human context. For example, when a literacy-focused nonprofit can report that it spent $125 to enable one child to leap forward three levels in reading, it connects the dots. Donors see the cost and the impact in one meaningful context.

An emphasis on agility

The survey asked leaders "What has been the biggest impact of COVID-19 to your organization?" Nearly half (46%) indicated that innovations spurred by the virtual working environment were a top outcome. More nonprofits have adapted with creative and innovative solutions to meet the growing needs for their services. For instance, food pantries are providing drive-up services. Arts organizations are staging virtual/video performances. And many nonprofits are hosting online galas and auctions to raise funds and build community engagement.

A stronger adoption of technology

The study also asked about the technology solutions finance leaders use to support operations and growth. Financial management and accounting software, a website, and payroll software topped the list. QuickBooks is used by 44% of those surveyed, followed by Sage Intacct, outsourcing to a third-party accounting firm, Blackbaud Financial Edge, and Abila MIP. The functions they viewed as most important were:

Rank

2019

2020

1

Ability to automate financial reporting

Ability to automate financial reporting

2

Ability to automate tracking and reporting of outcome metrics

Ability to integrate with other systems

3

Automated revenue recognition

Ability to manage multiple funds through fund accounting

4

Ability to manage multiple funds through fund accounting

Ability to automate tracking and reporting of outcome metrics

5

Ability to automatically track and bill grantors

Automated consolidation of multiple entities

 

The ability to automate financial reporting remains the most valued functionality. After all, the ability to measure real-time data easily and quickly is key to efficiency and mission impact. But note that the ability to integrate with other systems wasn't even a top five consideration in 2019 but jumped to the No. 2 spot in our 2020 study. This further highlights the shifting of technology needs due to the pandemic. Making more efficient use of technology has been a priority in 2020. Of course, challenges remain for technology adoption, including:

  • Lack of process automation and organization efficiency (38%)
  • Inefficiencies and delays due to multiple, disparate systems (33%)
  • Manual, time-consuming reporting (32%)
  • Lack of real-time visibility into key metrics and performance (29%)
  • Inability to measure outcome metrics (26%)

These were the same top five frustrations expressed in the 2019 survey. The only difference is that "inefficiencies and delays due to multiple, disparate systems" moved up the list from third in 2019 to second in 2020 — a result of technology challenges that already existed but were further exacerbated by the shift to remote work.

In preparation for the post-pandemic landscape, nonprofits have an opportunity to reflect on the tools they need to be successful moving forward. Our survey of 500 leaders clearly shows nonprofits are increasingly recognizing the value that tech can provide and will prioritize those investments because they can accelerate the post-pandemic recovery.

To review all the findings, please download a free copy of the 2021 Nonprofit Technology Trends report.