Association for Public Policy Analysis & Management

In 1965, Stinchcombe argued that new organizations faced an increased likelihood of failure due to their lack of internal structures and external ties to allies and resources.  Since then, scholars have explored the organizational and environmental factors that inhibit growth and increase the likelihood of financial duress for nonprofit organizations.  Unfortunately, many of these studies stop with the verification of size or youth as a factor, leaving the theoretical and practical extensions unexplored. 

The lack of a dedicated branch of nonprofit scholarship to the subset of small and new organizations is surprising for two reasons.  First, the for-profit sector has long acknowledged the uniqueness of financial management for small businesses (Ang 1991).  Such scholarship is also separate from entrepreneurship studies, which often focuses on the entrepreneur rather than the enterprise, especially in social organizations.  Second, almost all nonprofit organizations spend time as both small and new.  Though the liability of newness could be dismissed as transitory, many nonprofits remain small, often by choice, and will continue to face unique financial management obstacles (Frumkin 2002).

Drawing on a small, but growing number of studies addressing the unique needs of small not-for-profits, this study presents evidence-based practices for small and young not-for-profits on navigating through the hazards of financial stress. Using financial information compiled by the National Center for Charitable Statistics and the models developed in Searing (2012) and Searing (2015), we differentiate between practices appropriate for the sector at large and those beneficial to younger and smaller nonprofits.  Case studies are then utilized to illustrate the recommendations formed from the national not-for-profit dataset analysis.

References

Ang, J. S. (1991). "Small business uniqueness and the theory of financial management." The Journal of Entrepreneurial Finance 1(1): 11-13.

Frumkin, P. (2002). Service Contracting with Non-profit and For-profit Providers: On Preserving a Mixed Organizational Ecology, Institute for Government Innovation, John F. Kennedy School of Government, Harvard University.

Searing, E. A. M. (2012). Determinants of the Recovery of Distressed Nonprofits. ARNOVA Annual Conference. Indianapolis, Indiana.

Searing, E. A. M. (2015). Predicting Financial Recovery in Vulnerable Small and New Not-for-Profit Organizations. Doctorate, Georgia State University.

Stinchcombe, A. L. (1965). Social Structure and Organization. Handbook of Organizations. J. G. March. Chicago, Rand McNally: 142-193.