The term “nonprofit” was entirely appropriate in the days when nonprofits were largely staffed by volunteers, had far less people to serve, and were operated through houses of worship or other small operations that basically recycled donated goods through volunteers to people in need. These tended to be small, very local enterprises that served a modest constituency. They also were not a significant component of the American economy.

Today, there are approximately 1.7 million nonprofits doing $30 billion in business. Nonprofits contribute 10% of the country’s economic output. In New York City, the nonprofit sector is the largest in the City. More and more, they have taken over functions formerly conducted by government, meaning they are ever more important in serving people in need. A special report by the National Council of Nonprofits released on August 10, 2009, stated that “The vast majority of nonprofits . . . [are] small, community-based groups serving local needs. . . . These local nonprofits collectively hold vast portions of the social safety net, yet an increasing percentage of them are being strained beyond capacity.”

21st century nonprofit enterprise has become a critical safety net serving millions of people in need. Therefore the assumption that they can be run on a shoe-string budget by volunteers – and the related assumption that programs are separate from administration – is outdated and no longer applies. While volunteers are still critical to our work, in reality, programs cannot exist without general operating or infrastructure support. The belief that they are separate is an illusion, an historical artifact from a very different era.

Study after study, and article after article, describe the destructive effects of the mistaken belief that programs somehow exist apart from infrastructure/administrative support. One of my favorite writers is Clara Miller, C.E.O. of the Nonprofit Finance Fund. I’ve frequently referred to her work in past articles for this newsletter. The results of a survey her agency released this past April revealed a sector in serious trouble and further compromised by decreased funding and escalating client needs. The survey found that “America’s nonprofits, including the ‘lifeline” organizations [such as the Long Island Council of Churches] that many depend on for food, shelter, and other basic services, are strained to the breaking point.”

The economic crisis threatens to decimate the nonprofit sector, which is in “a precarious state because it is continually asked to do more with less. It also brings a long-standing problem into sharp relief,” Clara Miller explained. “Lifeline organizations, 91% of which focus on serving vulnerable populations, simply will not be around to provide critical services if we continue with current practices.,” she added. “We must free the entire sector from the archaic assumptions and harmful constraints that keep many organizations perpetually on the brink of survival, and especially at risk in times of recession.”

One of the most harmful, archaic constraints to which she refers is the mistaken belief that people should give to programs, not to general operating funds. This practice keeps nonprofit agencies in a constant stage of crisis, with insufficient cash flow or financial reserves. The more depleted reserves and cash flow become, the more likely the agency will not stay around to serve people in crisis. It is time to discard the destructive believe that it is better to give for programs than to give unrestricted funds. In the real world they are one and the same. One cannot exist without the other.

To begin the process, I recommend that we retire the term “nonprofit” and replace it with the term “social sector” or an equivalent. “Nonprofit” reinforces the outmoded belief that agencies don’t need to make a profit to survive, essentially forbids agencies to build capital reserves, and makes it impossible for them to expand and sustain successful programs. In the 21st century, social sector agencies MUST make a profit if they are to survive and sustain their mission to serve people in need (social services), nurture the spirit and soul (the arts, cultural institutions), provide essential health care to the uninsured or inadequately insured (healthcare institutions), etc.

Although they will not USE these profits as for-profits do, to be successful, the social sector also needs to be able to hire and retain well-trained, talented people, support constant staff and board improvement through professional development, and build up reserve funds they can draw upon when hard times hit as they are now. The social sector must build financial reserves and increase the cash flow that will enable us to serve the escalating number of clients that depend on us to survive.

The social sector, like any other enterprise, is expected to adopt and utilize such “good stewardship” practices, also called “best practices.” They are a prerequisite for any well-run social sector agency and are the hallmark of successful agencies. Failure to utilize them puts the agency and everyone they serve at serious risk, keeping agencies forever stuck in the “crisis mode” and able to respond only to today’s needs. The infrastructure needed to solve long-term problems has no chance to develop under the current system. Without it, we cannot solve the intractable social problems such as hunger, homelessness and poverty that require sustained efforts over long periods of time. Instead, we will perpetually run in place, and people will always be hungry, homeless, and without access to adequate healthcare.