A Sector Under Pressure
Our communities have long relied on nonprofit organizations to deliver essential services. From housing and food assistance to community development and human services, nonprofits play a critical role in supporting vulnerable populations and strengthening local communities.
However, the system is increasingly showing signs of strain. A growing number of nonprofit closures, financial distress cases, and service reductions all point to a deeper structural question: are there simply too many fragmented organizations competing for the same limited funding, regulatory attention, and workforce? If so, the result can be inefficiency, weakened oversight, and increased risk to both beneficiaries and public funds.
Over time, we have seen steady growth in the number of nonprofit organizations—often formed with similar missions and targeting the same populations. While well-intentioned, this expansion has created a crowded and disjointed system.
I’ve been approached many times with the question: “Can you help me form a nonprofit?” My answer has remained consistent for years: “The possibility of your idea for a nonprofit already being operational is strong. Let’s do some digging into how you can use your talents to strengthen an already established nonprofit.”
Many nonprofits:
- Serve overlapping constituencies
- Operate in the same geographic areas
- Compete for the same grants, donations, and government funding
Instead of fostering collaboration, this environment often leads to competition. Organizations duplicate services, pursue the same funding sources, and operate independently rather than as part of a coordinated system.
I once had a CEO say to me, “There are nine other organizations like mine. We are all nice to each other…. until there is a dollar on the table. Then it’s a battle royale.”
Funding aside, for individuals and families seeking assistance, this fragmentation can be confusing, requiring them to navigate multiple organizations with different eligibility requirements, processes, and service offerings.
Systemic Challenges & Risks
Recent negative press surrounding nonprofits highlights the fragility of the current model.
Organizations have shuttered programs, reduced services, or closed entirely due to:
- Rising operating costs
- Workforce shortages
- Dependence on unstable or insufficient government funding
- Limited financial reserves
In some cases, closures have occurred abruptly, leaving clients without support and communities scrambling to fill the gaps. In other cases, financial mismanagement or weak internal controls have contributed to organizational collapse.
These failures are not isolated; they reflect a broader system where too many organizations operate with limited scale and minimal margin for error.
Every nonprofit, regardless of size, must maintain its own administrative infrastructure, including executive leadership, finance teams, compliance systems, fundraising operations, and reporting functions.
When dozens of organizations operate independently in the same region:
- Administrative costs are duplicated across the sector
- A significant portion of funding is consumed by overhead
- Smaller organizations struggle to achieve operational efficiency
Instead of pooling resources or sharing services, many nonprofits function in silos. This results in redundant efforts in fundraising, program administration, and compliance, often supported by the same public and philanthropic dollars.
Nonprofits are overseen by many and supported by regulatory frameworks that emphasize transparency and accountability. However, often oversight is lacking.
Regulators are facing increasing challenges such as monitoring financial activity across thousands of entities, identifying risks before they escalate into crises, ensuring boards of directors are engaged and effective.
This can lead to a system where oversight becomes reactive rather than proactive, addressing issues only after failures occur.
Many regions, especially New York State, face workforce shortages across the nonprofit sector. When too many organizations compete for the same pool of employees:
- Staffing becomes unstable
- Wages are pressured without corresponding funding increases
- Institutional knowledge is diluted across organizations
At the same time, spreading funding and talent across too many entities limits the ability to achieve scale. Larger, more coordinated organizations are often better positioned to:
- Invest in technology and infrastructure
- Measure outcomes effectively
- Deliver consistent, high-quality services
Fragmentation, by contrast, leads to smaller programs with limited reach and impact.
A Path Forward
Strengthening the nonprofit sector does not mean reducing its importance, it means improving its structure.
Key steps forward include:
- Encouraging mergers and strategic partnerships
- Expanding shared services models to reduce administrative duplication
- Aligning funding with measurable outcomes and financial stability
- Increasing transparency around performance and costs
- Enhancing oversight capacity to match the size of the sector
A smaller number of well-managed, well-capitalized organizations could deliver services more efficiently and sustainably than a fragmented network of under-resourced entities.
Key Takeaways
Nonprofits are essential to the social and economic fabric of our communities. But the current level of fragmentation is undermining their effectiveness.
Perhaps a more coordinated, accountable, and right-sized nonprofit sector would better serve both the public and the mission-driven goals at its core.
If your organization and/or Board would like to learn more, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
