2026 Nonprofit Sector Trends

Hear what we are seeing in the Nonprofit space in 2026.

Transcript

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Welcome to Navigating Nonprofits with Lightboard Accounting. My name is Amity, and I'll be your captain today as we discuss hot topics around accounting for nonprofits. Lightboard Accounting is an accounting company that works exclusively with helping nonprofits get a float. We cover everything from accounting to tech stacks, to strategic planning, 990s, grants, board development, and staff training. When I speak at conferences or boarding, folks have always suggested to me that I needed my own copycomes to tell my stories and share my experience. So I'm excited to dive right in and to get to some of my favorite topics and share some special guests with you. Hello everyone. I thought it might be fun to take a look back in 2025 and also try to somewhat predict the trends that we're probably going to see for 2026 as well. Stepping back, there's approximately 1.8 million not-for-profits in the United States operating at any time. And a majority of those are in specific states such as California, New York, and Texas. About 40% of those are churches and religious organizations, 15% are civil services, 7% are human services, 14% are humanities, arts, and cultural, and 17% are other services and missions. Now, you may know that there are many types of not-for-profit designations, but the most commonly is a 501c3 publicly supported organization. And when you're a publicly supported organization, there's this calculation that says at least a 33 and a third percent of your support is to come from the general public in charitable operations. And so for out of the 1.8, about 1.5 of those are 501c3 organizations. Now you may not know that the tax exempt status actually began in the IRS in 1913-ish. I say ish because it was a little squishy back then, you know, but it wasn't until 1918 that the IRS actually allowed charitable gift deductions on individual tax returns. In New Hampshire, there's about 13,000 not-for-profits registered to solicit in New Hampshire, and there's about 6,000 to 6,500 registered and operating. Now in New Hampshire, there's a population of 1.3 million people. What's interesting is that in Vermont, there's the same amount of not-for-profits for about 650,000 people. The other interesting fact is that there's the average gifts by state are actually pretty similar, despite Vermont having more non-for-profits per capita. About 30% of small nonprofits rely on donations for a majority of their revenue versus 18% of large nonprofits. Mobile giving is still the largest growing segment for donations. We have seen corporate sponsorship growing really fast. However, right now, towards the end of the year, we are seeing corporations kind of step back on their giving or reducing their budgets due to the economy. Now, the not-for-profit sector is also the third largest workforce in the United States. That's right behind manufacturing and retail. Now, depending on the source that you look at, what's really interesting is that there are that many not-for-profit organizations out there, but at least at a minimum, two-thirds of them operate with a budget of under $50,000 a year. One thing that I hear often from organizations are like, oh, you know, we're only $500,000 a year. We're a small organization. Well, in fact, you're actually up there. You're part of the larger organizations. Less than 10% of all nonprofits are greater than a million dollars in revenue per year. So 2025, I just keep saying, what a year. And 2025 was a year where nonprofits had to do more with less. They were serving a higher volume of people with fewer staff, and then navigating an uncertain funding and policy environment. Even for us, we struggled this year. Every day brought a new challenge, every month brought a different group of organizations that were kind of being picked upon. One month it was the immigration orgs, the next group was the social justice orgs, and then the international aid orgs, and then the farmers and the farm to school programs, and then the food programs. It was just a really tough year for anyone working in nonprofits. And I want to acknowledge that I also want to say thank you for being here and thank you for still being here, admits the uncertainty that we're all kind of facing together. So 2025 in a nutshell, we saw challenges throughout the sector. We saw defunding and regulatory uncertainty. We saw an increased need of services. We also saw that small donors were squeezed, obviously, because the cost of living and inflation is up. And then we also saw a lot of staff fatigue post-pandemic. We were just coming out of one crisis and we jumped right into another. And especially with donors, it's been an interesting year to kind of predict what's going to happen. A lot of the smaller donors have disappeared because they're buying gas and food. Some of those corporate sponsorships we just mentioned were great during the pandemic, and now folks are trying to cut back a little bit. Federal and state grants are uncertain. So, you know, talking about your kind of revenue mix, I have recorded another podcast about this as well. But kind of looking at your mix of donors and your revenue streams and how can you diversify to kind of reduce that risk a little bit. We did see a lot of private foundations step up, thankfully, and a lot of large donors help fill in the gaps or plug a hole with one finger while, you know, there may be another hole emerging somewhere else just to kind of handle all of the changes at once. We did see some wonderful opportunities though. Like I said, private foundations seem to be increasing their support. There's been some phenomenal creative brainstorming by nonprofits for new revenue streams. We've done a lot of budgeting brainstorming too with staff, not just the executive directors and the board. And that's been kind of a great process. And folks have come up with some amazing ideas and had connections that no one even knew about. There's been a lot of collaboration in new operating models. We've seen an uptick in requests for fiscal sponsors and fiscal sponsorships from already established organizations being able to kind of maybe either absorb or help out some of the smaller groups that may not necessarily need to be their own separate nonprofit as well. There's been some phenomenal opportunities for board engagement and for training and for boards to really get involved in the mission, other than just being an oversight model. So if these two words that we could never hear again, I'm sure you're all in the same boat, it would be resiliency and sustainability. We can just wipe those out of our vocabulary for a little bit, because I think we all have a little bit of fatigue around that. So we did a survey at our annual summit this year, and we had asked folks what was your biggest challenge for 2025? And some of the things came up. Biggest one was capacity, worrying about money, time constraints, financial forecasting, systemizing, staying focused, inflation, funding, compliance, unpredictability, hiring. I don't think any of these would come to a surprise to anyone who's currently in the not-for-profit space. Some of the sector trends that we're seeing into 2026 is that strategic plans are being replaced by strategic compasses. It's too hard right now to kind of predict and spend a lot of money on a strategic plan three to five years out, and we don't know what next year looks like from a funding perspective. So a lot of organizations are kind of scrapping strategic plans and going for a shorter-term model until they feel that it may be a little bit safer to do so. We're seeing a lot of organizations reviewing their language and disclosures on the Form 990 in order to be more competitive. A lot of those private foundations are the ones reading your 990, and they are taking time to understand the organizations in a different light than what a federal or state grant would request. Orgs are continuing to evaluate salary and benefits to retain staff and maintain competitive. I think the biggest challenge that we come across is folks that they're competing with other not-for-profits when you're in fact kind of competing with for-profits because a lot of a lot of fatigue is happening in the not-for-profit space. So in order to maintain being competitive and keeping good staff, you really have to look at your benefits model and include anything that's possible. We see organizations adding short-term and long-term disability. We see a lot of organizations doing employee assistance plans, coming up with creative ways to fund health insurance. Budgets are tight. And part of that whole kind of model of budgeting is changing. And folks are also revisiting their revenue streams. So there's a lot of what-if scenario planning happening. A lot of our organizations have asked us for plan A, B, C for budgets in the future years, just kind of as something that's happening that we're seeing as a checktrack trend. There's an increased focus on donor databases and relationships, obviously, because there is going to be a greater strain on donors for the next few years as organizations kind of ask for more help or leg up while they figure out their new revenue models. A lot of organizations are also evaluating and pulling back on core mission accomplishments, or they're pulling back to their core mission accomplishments versus trying to avoid a little bit more mission creep. So maybe in the past they were able to do a little bit more and they're stepping back and saying, hey, you know, let's go back to the basics. Let's get back to our core mission. And anything else is a nice to have while we figure out the next steps. Some things that we're seeing in accounting, we're really looking at lean accounting. I mean, for me as an accountant that works for not-for-profits, I'm always looking into lean accounting. I'm very proud of myself when I can eliminate my own job because there's so much technology and systems out there that can do a lot of the work these days that also take out human error. So a lot of the times when we start working with a new client, we do this anyways, but we're definitely leaning in even more now as folks try to save money. Because for me, I have an endless line of work as an accountant. And so I personally don't feel like I need to keep a certain number of hours on a client if I can make it quicker, faster, more efficient. And then that means that they can use that money to apply it towards their mission. That's the best gift that you can give me as an accountant is that I can give money more back to the folks that are doing amazing things out in the world. So we're reviewing the chart of accounts. Do you really need 50 expense accounts? Reviewing the budget process. What kind of things are you looking at for dues and subscriptions? They're on auto pay, embracing technology and automation. We've been switching a lot of nonprofits, for example, to bill.com because it's a much easier way to get things automated and to us in a faster and more efficient manner. We even have stamps printed for our clients that will read the OCR so that things can be filled in more complete as well. We're looking at grants and restrictions. We're asking for higher indirect rates. I don't know where this middleware out in the nonprofit world came from, other than, you know, it's the federal indirect rate of 10%. What organization, or even better, what business operates with a 10% overhead? It's just not realistic. So we're asking and negotiating higher indirect rates for a lot of organizations. We're asking for more general operating support. And then we're also reviewing activities for restricted gift opportunities. And what I mean by that is that if your organization doesn't have a menu of options for those donors who like to give for a specific purpose or have a specific heartstring or something that they're really passionate about, you may be missing out. You know, Wishless Wednesdays is very popular on Facebook, for example, where organizations post, you know, they need a washing machine this week, or they need this type of tool and equipment and they don't have the funding for it. People love to know how they can support and help you. So if you don't have that menu of options available to them, or maybe they have an idea in their mind of what they would like to do, but it doesn't fit your mission or what you need in your budget right now, giving them options to select from is probably going to be your best friend. And it also allows the team to come together and brainstorm of what items could be on that menu that would be helpful to them as well. Yeah, it's been a year, and I think it's not gonna get easier, unfortunately. But I think that we're gonna all, I'm gonna use the word, we will get more resilient, we will get more sustainable. But the biggest thing is just staying ahead of it, making sure that you have cash reserves and coming up with fundraising plans that are not just, oh, we just need to raise more money, but how are we gonna raise the money? Who are we gonna ask? And look at the reasonability of that benchmark. Some of the things that we're trying to do to help is we have a blog on our website with a bunch of different articles that we're adding to all the time. This podcast hopefully is helpful to you as well. We also have a self-assessment tool on our website that's kind of a risk self-assessment. And it's free. It's about 100 questions and it's a bunch of yes-no questions that pops out a report that kind of aligns what things you should be focusing on and how can you prioritize all of the needs of the organization from an accounting risk standpoint. We also have a strategic compass workbook, which takes about two hours for a board or a group of passionate folks getting together to work through. We have board onboarding and training templates, and we're also going to roll out a short board member training program on our website soon. We have policy templates. We're also driving a lot of our representatives crazy at the state and federal levels, making sure that they know that not-for-profits are important and are a huge voice in this country. We're trying to network and connect our clients as much as possible. Unfortunately, we did have some organizations that did have to close down or re-org or go back to a volunteer base. And luckily, we've been able to place most of those displaced employees with other local nonprofits. So, to my clients, I really appreciate you adopting and taking care of other nonprofits employees and taking them on as your own, too. Definitely look at increasing your communication story on your 990 and any of your marketing materials to really kind of spend a little bit more time on metrics and what's what's the voice and what's your story. And then also, we are seeing a massive uptick in scams and frauds for not-for-profit organizations, which I will do in a separate podcast. Because just the stories alone in the past month, I probably have at least five different instances that I've seen alone. So just making sure that you have good internal controls in place is really important right now. As everything morphs and shifts and changes, it does open up a little bit of risk for challenges in the financial and risk space. So hopefully you all are taking a good break and uh hopefully that you can take a moment to unclench that jaw, take a few breaths, and hopefully it gets a little bit more smooth sailing from here. I wish you all the best for the new year, and I'll see you soon.