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Model Projects One-Third Of Nonprofits Might Close

Editor’s Note: This article originally appeared in The Non-Profit Times.  It is reprinted with permission.  To subscribe to the free newsletter of The Non-Profit Times, click here.

Nearly four in 10 nonprofits could close due to COVID-19-related revenue shortages during the next three years, according to the worst-case scenario modeled by New York City-based Candid, an information resource for global and U.S. philanthropies.

Under that scenario, a 35 percent across-the-board revenue reduction results in 38 percent of nonprofits closing after three years of the coronavirus pandemic. Even under nine “likely” scenarios, an average of 11 percent of nonprofits close due to coronavirus-related revenue drops—seven percentage points higher than would normally be expected.

Candid’s scenarios evaluated nine factors that could impact a nonprofit’s fortune: duration of disruption; service revenue reduction; contribution revenue reduction; investment revenue reduction; sales revenue reduction; government grants reduction; a general across-the-board revenue reduction; and expense reduction. For each, the model assumed several different levels of reduction.

The model’s assumptions, such as the level of drop within each factor, were based on several recent studies. The studies included global- and American-focused research, as well as experienced and expected revenue changes.

“In many ways, we made choices that are conservative in our analysis, so if anything it is more likely we are undercounting,” said Jacob Harold, Candid’s executive vice president.

Human services organizations are projected to have the largest raw number of closes, according to the models. This in part reflects the sheer number of nonprofits in this sector. But the 13 percent of them estimated as closing is only the second-largest percentage. The dubious distinction of being the sector with the greatest percentage of closures belongs to education nonprofits. Arts, culture and humanities institutions ranked third in both criteria.

There are several factors that could mitigate the revenue shortfall-related closures, according to Harold. Donors could prove to be more generous, even amid widespread economic uncertainty. Governments could come through with a higher level of stimulus help than currently anticipated. And nonprofits could take on debt.

Harold admits that projection models become less stable the further out they go. Nonetheless, he justified a three-year horizon for the forecast.

“There is reason to think we could be looking at years of financial impact, even after a vaccine has been created, manufactured and released,” he said.

Candid.org’s write-up of the data is available here.