What's Next for NFP's?

 

This is the time of year when not-for-profit organizations and their boards reflect on their progress, review their missions, realign their budgets, assess where they net out and begin planning for the future. It’s also a time when I post the trends and factors I feel will influence not-for-profits in the year ahead based on extensive client and colleague interaction, my own curiosity, and listening closely to what was discussed at the many events Fist to Five conducted throughout the year. While a few have already taken hold, others are just beginning to surface.

Technology Pushing Transparency

Who would have thought that the day would come when you could accomplish almost everything on your phone? I remember when phones were just used to make and answer calls. Those days are gone and with them went secrecy and ambiguity. With the advent of new technology, not-for-profits are exposed. They can be compared, benchmarked, sliced and diced using your finger and your iPhone. No longer are your “cool mission” or your “great board” enough to draw donors; now your “stats” and how they compare with your competitors matter as well. As technology advances, not-for-profits will be forced to publish more results, which will be closely scrutinized by stakeholders.

Convergence

We are seeing a global push for not-for-profits to behave more like businesses, and for-profits to be more socially responsible. The two seem to be converging and, in some cases, looking a lot alike. Young people are driving this trend as are donors and other stakeholders who are viewing not-for-profits less like traditional charities and more like enterprises, responsible for a ROI to investors.

Millennial Generation Impact

Millennials: An up and coming generation of those who believe that they will “do well by doing good.”

I am not a millennial, but I have four kids who are. I am not a millennial, but I work with many of them. I don’t know if you have found this to be the case (if you are a millennial you can tell me if this is true for you), but I find that the millennial generation wants to make a living and, at the same time, change the world. Millennials comprise about 1/3 of our work force. In five to ten years they will be occupying leadership positions in many organizations. If they are fulfilling their “social mission” through their for-profit endeavor, how will this impact the way they see not-for-profits? Will they begin to question why their organization is taxed while not-for-profits are not – even if their missions may be “sort of” the same?

Earning Tax Exempt Status

Not-for-profits are being asked whether they should be kept off the tax rolls.

Not-for-profits have historically applied for tax-exempt status based upon their missions and, once granted by the IRS, were able to maintain that status unless something went wrong (i.e. they did something naughty). I believe that pressure is coming that will require not-for-profits to continually “earn” their tax-exempt status based upon benchmarks established by a governing body. Therefore, all or a portion of that which was tax-exempt may become taxable depending on how the not-for-profit performed.

This will radically change the not-for-profit world, causing many to fail and some to go bankrupt. While some folks may believe this will never happen, I would challenge you to consider the size of the national deficit (around $18.5 trillion as of Oct. 2015). Most states are floating in the red, and most taxpayers are complaining they are overtaxed. Couple this with the many headlines of not-for-profits abusing the system, and it could lead to tax reforms that affect not-for-profits in the very near future – perhaps as soon as within five years. While I don’t support not-for-profit taxation, I believe it may be inevitable.

 

 

Todd Polyniak, CPA is a Partner at SaxBST and the leader of the firm's Not-for-Profit Industry Services Group. He also leads the firm's signature Fist to Five Live event series, which brings not-for-profits and for-profits together to discover how to improve their bottom lines through the power of positive social impact.