No matter how worthy the cause, and despite the amount of progress that your NFP makes towards its goals, nonprofits can and do fail to make a go of it. The following is a list of the top reasons why nonprofits fail, along with a few tips to help your NFP avoid the most common mistakes that can increase your chance of failure.

Unqualified Leadership

No matter how large or small your organisation is, it must be led by talented individuals. Qualified leaders not only want to do good and help others, but they also have excellent organisational skills, determination and insight. They also need to have a high level of emotional intelligence that allows them to work well with others and be able to persuade others to put forth their best efforts for the organisation. They should be confident, well-spoken and display a high degree of personal integrity, honesty and sincerity.

It is readily apparent when a nonprofit’s director, CEO or board member lacks these qualities as the news is full of stories of seemingly successful NFPs suddenly folding because its leaders were unqualified and unable to effectively lead.

Disengaged Board

A board of directors has certain functions and responsibilities that it must perform to fulfill its fiduciary duty of oversight and help to keep the organisation on track to sustainable growth. When one or more board members are disengaged, the odds of failure increase sharply. Signs that boards are disengaged include an overall lack of direction and clear vision for the non-profit, as well as a failure to properly plan and budget for the NFP’s operations, projects and opportunities. Board members may also struggle to stay up to date on changing laws and requirements, or overestimate their abilities or the abilities and others and make ill-advised decisions because they lack insight or good judgment.

Lack of Accountability

Your non-profit’s leadership must act responsibly in all of its actions. A lack of accountability opens the door to mistakes that can drain your NFP’s funds and leave it financially unstable. Signs of a lack of accountability include a failure to follow sound accounting practices, poor cash handling procedures, a lack of organised record keeping, and an inability to file paperwork and required disclosures accurately and on time.

Inconsistent or Flawed Fundraising

Just as NFPs are responsible for creating a budget to help them plan for upcoming expenses and revenues, they also need specific, detailed strategies to be able to raise the funds that they need to cover current and future expenditures.

Non-profits should have a comprehensive marketing strategy to raise awareness about their cause and to differentiate from other organisations. As part of this plan, non-profits need to always be on the lookout for numerous ways to market their organisation and to diligently seek out multiple fundraising sources to increase their financial stability.

When NFPs have inconsistent or flawed fundraising, it simply becomes impossible for the organisation to continue to meet its objectives over time. Unless fundraising strategy improves, it is only a matter of time before non-profits must cut back on the services that they offer their community or close their doors altogether.

Failure to Use Resources Wisely

No matter how well a non-profit might be doing, its board must actively make provisions for the future to keep it financially healthy. A common reason why NFPs fail is the inability to adequately plan for the future and to take measures that will build capacity for growth and stability.

Leadership should not only actively plan on how to best use existing resources, but they should also actively work towards building constructive relationships with third parties. Ideally, non-profits will seek to collaborate and partner with others to make the best use of resources and fundraising dollars. This will help avoid duplicating services or placing the long-term sustainability of the organisation in jeopardy by over-extending themselves.

Lack of Talent

Every organisation is only as good as its least prepared member. NFPs need to be able to recruit, train and retain talented people for their staff and body of volunteers. This means that your leadership is responsible for putting into place guidelines and procedures that help them identify ideal candidates, as well as train and equip them to perform their duties well.

Poor planning in terms of recruitment, training of staff and volunteers, and a division of labour can leave non-profits without enough human resources to achieve their goals.

Improper Risk Management and Control

A failure to properly manage risk is a typical cause of NFP failures. Examples of common risks that non-profits face include fraud, theft, and accidents. NFPs must take steps to identify and try to prevent or reduce the chance that losses will occur if they want to survive in the long term.

For example, non-profits should ensure that maintenance and regular upkeep are practised on their properties to reduce the chance of an accident of occurring. They should carry adequate insurance to protect the NFP from loss should someone bring a lawsuit against the non-profit and to reduce the impact of losses of property due to events such as fire and flood. They should take steps to minimise the risk, fraud and other forms of theft such as installing security to protect their systems from cyber attacks and protect their property from physical theft.

Steps should also be taken to increase transparency of the board and its actions to improve confidence in the board’s decisions and governance, and reduce the risk of shady or questionable dealings that could lead to accusations of fraud, theft or bias. A failure to manage any of these risks of loss can drains NFPs of resources and damage the organisation’s reputation to the point it is unable to raise enough additional funds to be able to continue operations.