About 22,000 nonprofits will eventually close their doors for good as a result of the current economic crisis, according to new estimates from Candid, a research group.
That figure represents a failure rate of 7 percent among the 315,698 U.S.-based nonprofits whose financial data Candid examined for the study. It’s the “median” of multiple scenarios produced by Candid and assumes the economic downturn will last 24 months. It also assumes that about 4 percent of all nonprofits would close in the absence of another crisis during that time; so the estimate of nonprofit failures is in addition to that “baseline” of failures expected during normal economic times.
The most optimistic or “miracle” scenario was 8,420 nonprofit failures, or 3 percent, and the worst-case scenario was 119,517 nonprofit insolvencies, or 38 percent. (Unlike the median figure, these figures are not relative to a “baseline” of nonprofit failures during normal economic times.)
Candid suggests the data presents a less dire forecast than many experts have predicted. “The majority of nonprofit organizations are positioned to weather this storm,” the report states, although it also notes that it will take years to get a clear picture of the financial impact of the current crisis on nonprofits.
However, Jacob Harold, executive vice president of Candid, also noted that the study excludes most nonprofits with revenue of less than $50,000 a year, so the actual number of nonprofit failures is likely to be higher than Candid’s estimates.
Candid projects that the most nonprofit failures will occur in the area of health, followed by education; human services; and arts, culture, and humanities.
The estimates are based on an analysis of financial data from nonprofits’ Form 990 tax filings. The factors weighed in the analysis include each nonprofit’s revenue mix, expense rate, and cash levels.
One other main variable in the analysis is how long the economic crisis will last. The various scenarios assume nine to 36 months. Other variables in the study include scenarios of reduced revenue from services, cuts in government grants, lost investment revenue, and reductions in expenses.
