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Survival of the Efficient: By Ken Cerini, CPA

03 Dec 2014

The nonprofit sector is vital to the social and economic fabric of Long Island. We all rely heavily on nonprofit organizations not only to feed and house the less fortunate, but to entertain us, educate us, care for our health and so much more. Without the sector, we would lose our vibrancy, our support system and our humanity.

With all the benefits that nonprofits provide, they are still businesses, and, as the last few years have made clear, those nonprofits that don’t channel their inner business side will find it more difficult to operate in the future.

So what do nonprofits need to do to retool for 2015 and beyond?

“Create a delivery service system that is responsive to the relevant needs of consumers,” said Theresa Regnante, president and CEO of Deer Park-based United Way of Long Island. “Organizations need to look at the different models that exist and work jointly with their government partners to find ways to deliver program services more effectively.”

For example, the Melville-based Health & Welfare Council of Long Island has been doing significant strategic planning with Suffolk County to help develop a needs-assessment system in order to better guide public and private dollars toward nonprofits in the region. Organizations will need to come together collaboratively to form alliances so that a full continuum of care, which maximizes results, can be created, Regnante said.

More and more agencies will need to explore new relationships with other agencies to “create greater impact and leverage to garner benefits not just for their own agencies, but for the region as a whole,” said Karen Boorshtein, president/CEO of Family Service League in Huntington.

In the broad healthcare sector, the shift by many government funders to more fee-based and managed-care models will place a greater emphasis on better linkage of services to treatment plans to yield appropriate outcomes and more efficient service-delivery models.

“Agencies need to invest in infrastructure, including electronic records, increased technology capabilities and enhanced staff training,” Boorshtein said.

With government cutbacks in funding and an ever-increasing demand for services – 82 percent of agencies responding to Cerini & Associates’ 2014 Long Island Nonprofit Survey identified an increase in demand for service this year – it is important for nonprofits to be able to track and demonstrate their outcomes and overall impact. Not only is this important to show government funders, but also donors who are becoming increasingly interested in social return on investment.

“We are seeing bigger grants to fewer agencies, with an emphasis on more overall impact,” Boorshtein said. “More contracts are looking at measurable outcomes.” As a result, Family Service League just hired a data analytics manager, to allow the agency to better identify and capture measurable data, she added.

“Donors want to know that what they are investing in will result in impact … basically how you were able to positively change the world,” said Ann Marie Thigpen, director of the Center for Nonprofit Leadership at Adelphi University in Garden City.

The need for sustainable discretionary funding is also important for 2015, and beyond.

“Agencies will need to differentiate themselves and make compelling arguments with measurable outcomes in order to stand out to donors,” said Amy Engel, executive director of Sustainable Long Island in Farmingdale, who added agencies will also need to diversify their funding streams in order to remain competitive.

Strategic partnerships with the for-profit community are key, said Bruce Newman, president of mergers and acquisitions at Protegrity Advisors in Ronkonkoma and co-chairman of the Bohemia-based Social Enterprise Alliance of Long Island. Rather than just reaching out for donations, nonprofits need to find ways to work with the private sector to increase their revenues, improve their marketing efforts and attract and retain new staff, he said.

“Those organizations that are effective in selling the value of partnering will be able to generate new, sustainable revenue streams,” Newman said.

Regnante believes organizations are becoming better at developing corporate alliances, pointing at the linkage between NBTY and veterans’ organizations.

“Nonprofits need to tap into a company’s philanthropic mission and find ways to engage them through that connection,” she said.

Consolidation of the industry appears to be on the rise, with 13 percent of the agencies responding to the nonprofit survey indicating they are in the midst of a merger and another 12 percent contemplating one.

“There are many benefits to nonprofit mergers, and some organizations should really consider a merger in order to survive and/or provide better levels of service,” said David Okorn, executive director of the Long Island Community Foundation in Melville. “Organizations when combined can often attain strategic goals more quickly and inexpensively than they would have if the organizations acted alone.”

David Okorn/Photo by Bob Giglione

Survival of the efficient

Merger benefits, as Okorn pointed out, include the opportunity to diversify service lines, vertically integrate the organization, enter new markets, share the risk in innovative projects, stimulate innovation, cut costs and enhance efficiencies.

Okorn warns that a merger must be done carefully and with consideration for the fact that local grassroots organizations are generally more trusted and culturally competent about the needs of their constituents than bigger organizations.

“Mergers should incorporate that important institutional history, relevance and advantage into the overall planning,” he said.

Thigpen advises that smaller community-based organizations “clearly define their niche, identify what distinguishes them from other agencies, clearly articulate outcomes and seek meaningful partnerships” in order to remain relevant and sustainable.

As this year comes to a close and we roll into 2015, the sector will continue to have challenges – in fact, 42 percent of survey respondents anticipated losses for 2014. But the region’s nonprofit organizations continue to show resilience.

“I think the nonprofit sector accomplishes a lot and does incredible work,” Engel said. “Nonprofits are able to stretch dollars and do more with less more effectively than most municipalities, and they know how to collaborate and work together in order to maximize their outreach and impact.”