Navigating the Nonprofit Polycrisis: A Framework for Clarity and Focus in 2025

The second major challenge is the widening gap between community needs and organizational capacity. Even if funding levels were to remain steady, the ongoing surge in demand would continue to strain many nonprofits’ ability to deliver services effectively.

Recent data highlights the scope of this crisis. Homelessness rose by 18% in a single year, with families with children experiencing a 39% increase, reversing nearly a decade of progress. Food bank demand remains well above pre-pandemic levels, even as emergency funding has expired. Mental health services are under significant pressure, with more than half of psychologists (56%) reporting no availability for new patients.

This demand surge extends across service systems. Housing referrals through 211 helplines have doubled since 2019, and in Kansas City, United Way alone recorded a 33% increase, responding to 476,691 contacts in 2024. Looking ahead, 85% of nonprofits expect service demand to grow in 2025, even though more than half (52%) have only three months or less of operating reserves.

The impact is not evenly distributed. Communities already facing systemic inequities are bearing the brunt: Black Americans represent 32% of the homeless population, despite comprising just 12% of the total U.S. population. Hispanic/Latino homelessness increased 32% (56,629 more people) from 2023 to 2024. Low-income households saw wages rise only 7.5% while inflation increased 18.8% from May 2020 to 2024, creating 9.5% less purchasing power.

What this means for your planning: The current surge in demand calls for triage thinking and a clear-eyed assessment of capacity. Attempting to meet every need with limited resources risks both organizational stability and staff well-being. Strategic focus is an act of responsibility, not neglect.‍

‍Key questions to consider:

• What is our actual current capacity? Right now with current staff, current systems, and current funding?
• What percentage of incoming demand can we serve effectively with current capacity?
• What happens to individuals we’re unable to serve? Where can they go, and what are the likely consequences?
• What's our definition of quality service? At what point does volume compromise quality so much that we're not really serving people well?
• What partnerships or referral systems could help us connect people to other resources when we're at capacity?‍

‍Actionable Steps:

• Establish explicit capacity limits based on current resources and communicate them clearly.
• Create a waitlist management system that treats people with dignity while being honest about constraints.
• Build partnerships with other providers to create warm referral pathways when you're at capacity.
• Track and report unmet need as data for advocacy, not as organizational failure.
• Train staff on how to say "no" or "not right now" in ways that don't destroy rapport or trust.‍

‍Reset Approach:

• Release the expectation of serving everyone when capacity simply does not allow it.
• Let go of guilt: limits reflect external realities, not a lack of commitment or care.
• Be honest with your team about what’s sustainable. Transparency builds resilience, not discouragement.

The third crisis is one of organizational sustainability, the gradual weakening of the infrastructure, systems, and human capacity that allow nonprofits to function effectively over time.

The workforce pressures are significant and well-documented. Seventy-four percent of nonprofits report job vacancies, and 64% experienced difficulty filling positions in the past year. Only 41% are able to pay all full-time staff a living wage, and one-third say their compensation is not competitive with comparable roles. Staff turnover affects 76% of organizations, with operations teams particularly impacted.

Leadership fatigue compounds these challenges. Eighty-nine percent of nonprofit leaders express concern about their own burnout, while 58% say burnout has a moderate or significant effect across staff. The burden is often greater for leaders who identify as people of color, women, non-binary individuals, or LGBTQ+, who report experiencing burnout more acutely.

Financial pressures deepen the strain. Thirty-six percent of nonprofits ended 2024 in deficit—the highest rate in a decade. Eighty-six percent cite inflation as a significant cost driver for both organizations and clients, and 65% worry about revenues keeping pace with expenses. In 2024, individual contributions declined more than any other source of nonprofit income.

Implications for Planning: Addressing the sustainability crisis requires intentional investment in infrastructure and people, not only in mission delivery.‍

Key questions to consider:

• What systems or processes in our organization are held together by individual people's heroic effort? What risks arise if that person leaves?
• What is the true cost of turnover, including recruitment, training, productivity loss, and institutional knowledge?
• Are staff compensated adequately to live in the communities they serve?
• What technology or system investments would meaningfully improve efficiency?
• What proportion of our budget supports core infrastructure versus direct program delivery?‍

Actionable steps:

• Conduct a compensation analysis comparing salaries to market and cost-of-living benchmarks.
• Identify the top three systems or processes causing the most frustration or inefficiency and prioritize addressing them.
• Allocate funding for professional development to foster growth and retention.
• Develop a sustainability plan that integrates investments in both infrastructure and people.
• Engage funders in transparent discussions about indirect costs and the necessity of adequate overhead support.‍

Reset Approach:

• Recognize that staff burnout is a structural issue, not an individual failing.
• Reconsider funding relationships that do not account for the true cost of operations.
• Resist the urge to sacrifice infrastructure in the name of “impact” when doing so undermines long-term effectiveness.

The fourth area of challenge is compliance anxiety, the growing concern among nonprofit leaders about potential loss of 501(c)(3) status, IRS audits, or regulatory scrutiny. While these worries are understandable, the actual level of risk for organizations that remain compliant is quite low.

IRS data provides helpful context. Between 2010 and 2017, more than 760,000 nonprofits lost tax-exempt status. At first glance, this appears significant; however, over 99% of those revocations resulted from automatic processes, triggered when organizations failed to file Form 990-series returns for three consecutive years. These were administrative lapses, not enforcement actions.

Automatic revocations do not involve an IRS investigation, warning, or appeal process. Over time, reinstatement rates declined from 33,000 in 2010 to about 2,000 in 2017, with only 13% of affected organizations seeking reinstatement—strongly suggesting that most were inactive or defunct rather than operational nonprofits caught off guard.

In contrast, intentional enforcement actions for substantive violations are rare and publicly reported in the Internal Revenue Bulletin—typically dozens per year, not thousands. With roughly 1.5 million active 501(c)(3) organizations as of 2023, the annual risk of automatic revocation (25,000–36,000 per year) represents about 1.7–2.4%, and applies only to organizations that fail to file. For nonprofits filing on time and operating within their stated exempt purposes, the risk of losing status is well below 0.1% annually, likely closer to 0.01%. Moreover, the IRS audit-based revocation process is extensive and includes multiple opportunities for correction and appeal.

Implications for Planning: The appropriate response to compliance concerns is accurate information and proportionate attention.‍

Key questions to consider:

• Are our concerns based on documented risk or on general anxiety?
• Have we filed Form 990 on time for the past three years?
• Do we maintain the basic governance policies the IRS highlights on Form 990 (conflict of interest, whistleblower protection, document retention)?
• Are we operating fully within the exempt purposes outlined in our determination letter?
• Have we received any formal IRS correspondence, or are our concerns based on secondhand information?‍

Actionable Steps:

• File Form 990 on time each year. Doing so eliminates nearly all revocation risk.
• Review and update key governance policies annually, including conflict of interest, whistleblower protection, and document retention.
• Have your board review Form 990 before filing to ensure accuracy and transparency.
• Fiscal sponsors should document that they exercise genuine discretion and control over sponsored project funds.‍

Reset Approach

• Focus energy on maintaining consistent compliance rather than researching hypothetical risks.
• Verify information before responding to alarming reports or social media claims.
• Strengthen core compliance practices before introducing new or unnecessary protocols.

With four distinct crises identified, you need a way to sort pressures into categories that allow strategic response. This framework is designed to help you differentiate between what requires immediate attention and what can be monitored and managed over time.

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Immediate and Within Your Control

These are the pressures that carry clear consequences if left unaddressed and fall largely within your organization’s ability to manage directly. Focusing on these areas first can help stabilize operations and prevent avoidable disruption.

Financial:

• Ensure timely and accurate Form 990 filing.
• Maintain close cash flow monitoring, aligned with your current burn rate.
• Review government funding contracts for compliance and reporting requirements.
• Conduct reserve assessments and develop scenario plans for contingencies.
• Evaluate payroll sustainability to ensure continuity of staffing.

Governance:

• Maintain required policies (conflict of interest, whistleblower protection, document retention).
• Support strong board fiduciary oversight through regular financial review.
• Ensure audit compliance for organizations exceeding applicable thresholds.

Operational:

• Review staff compensation to support retention and equity.
• Define capacity limits based on current staffing and resources.
• Address critical system failures that hinder day-to-day functioning.
• Verify the adequacy of insurance coverage for organizational protection.

Compliance (Fiscal Sponsors):

• Document discretion and control over sponsored project funds.
• Ensure mission alignment for all sponsored projects.
• Accurately disclose fiscal sponsorship relationships in Form 990.

Priority Action: Develop a 30–60–90-day plan to address these items. These controls are entirely within your organization’s power and form the foundation of stability and compliance.

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Longer-Term Priorities: Plan and Prepare

These pressures are genuine and significant, but they unfold gradually, allowing for strategic planning rather than crisis response.

Financial:

• Diversify revenue streams to reduce reliance on vulnerable sources.
• Assess whether your fee structures reflect true program costs.
• Identify capital or technology investments that would strengthen infrastructure.
• Develop strategies for reserve growth or endowment building.

Organizational:

• Establish succession plans for key roles.
• Invest in professional development and career pathways for staff.
• Plan for technology upgrades that enhance efficiency.
• Update your strategic plan to reflect new realities and priorities.

External:

• Build partnerships to strengthen referral networks and collaboration.
• Develop advocacy strategies to influence funding and policy.
• Conduct community needs assessments to identify evolving service gaps.

Priority Action: Create 6–12-month initiatives that address these areas. They are important, but they benefit from thoughtful, forward-looking planning rather than reactive urgency.

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Emerging Issues to Watch

These pressures may or may not materialize but deserve attention without consuming resources:

Legislative:

• Track proposed legislation affecting nonprofits, understanding that most will not pass.
• Stay updated on state regulatory changes in your jurisdiction.
• Monitor tax policy proposals related to charitable giving.

Enforcement:

• Note any IRS guidance updates or agency policy changes.
• Follow court decisions that may establish new precedents.

Market Conditions:

• Stay informed about insurance market fluctuations or coverage changes.
• Watch for banking regulations impacting nonprofit accounts.
• Track employment law updates relevant to your workforce.

Priority Action: Assign a designated staff or board member to monitor these issues through reliable sources (such as the National Council of Nonprofits, state associations, or legal counsel). Avoid building operational plans around speculation.

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Minimal Risk, High Anxiety (Refocus Attention)

These issues often consume attention without posing significant risk to compliant organizations. Refocusing energy here allows greater capacity for real priorities.

Common Concerns:

• Loss of 501(c)(3) status for lawful advocacy or nonpartisan speech (extremely rare).
• IRS targeting based on mission or values (no evidence of systemic patterns).
• Sudden status loss without notice (only occurs after three years of non-filing).
• Audits for fully compliant organizations (statistically uncommon).

External Factors:

• General political climate and economic uncertainty.
• Natural disasters or geopolitical tensions that fall outside organizational control.
• Geopolitical tensions

Priority Action: Acknowledge these risks but avoid dedicating staff time to them unless they become concrete. If they shift from hypothetical to actual, they can be reclassified into other categories.

Practical Tools for Regaining Control

Understanding the polycrisis is only the first step. The next is applying this clarity through consistent, structured practices.

Tool 1: The Quarterly Crisis Audit

Set aside time each quarter to identify which pressures you’re actively managing.

• What funding is at real risk in the next 3-6 months?
• What's your current capacity utilization?
• Where is the organizational infrastructure most fragile?
• What compliance deadlines are approaching? (Form 990, grant reports, state registrations)

This 30-minute exercise prevents the “everything is urgent” mindset and restores perspective.

Tool 2: The Resource Allocation Reality Check

Review how leadership time is currently spent:

• What percentage of time went to immediate/controllable priorities? (should be 60-70%)
• What percentage went to real but longer-term planning? (should be 20-30%)
• What percentage went to uncertain/monitoring activities? (should be 5-10%)
• What percentage went to imagined/misunderstood concerns? (should be 0%, often is 20%+)

If significant time is going to speculation instead of action, it signals a resource allocation issue.

Tool 3: The Decision Urgency Matrix

Before acting, ask:

• What happens if we delay this for 30 days? For 12 months?
• Is this within our control?
• Do we have enough information to decide, or are we reacting to uncertainty? This tool helps decisions be driven by strategy, not anxiety.

This tool helps decisions be driven by strategy, not anxiety.

Tool 4: The "This Is Why We Can't" Script

One of the hardest parts of polycrisis management is saying no to legitimate needs because you lack capacity. This script helps:

"We cannot [do X / serve Y / add Z] right now because [specific resource constraint: we have three months cash reserves and need to preserve sustainability / we're at 95% capacity and adding more would compromise quality for everyone / we lack the expertise to do this well and attempting it would be irresponsible]."

"What we can do is [realistic alternative: connect you with organization better positioned to help / add you to our waitlist with honest timeline / partner on a smaller scope version]."

"This doesn't reflect our mission priorities. It reflects our current capacity reality."

This naming creates clarity for staff, board, community, and yourself about what's actually happening.

Tool 5: The Control Assessment

For each pressure, write down:

• What do we control?
• What can we influence?
• What is beyond our control?
• Where should we focus our energy?

Example: "Federal funding cuts"

• Control: Our financial planning, scenario modeling, reserve management, program prioritization
• Influence: Advocacy, coalition building, relationships with funders who might increase
• No control: Federal budget decisions, timing of cuts, total dollars available
• Focus energy: Financial planning and program prioritization

This practice ensures effort is aligned with impact, not frustration.

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What Success Looks Like

You’ll know progress is taking hold when:

• You can name the distinct crises you’re managing instead of feeling overwhelmed by “everything.”
• Your team differentiates types of pressure in discussion.
• You make trade-offs based on capacity rather than guilt.
• Compliance tasks like Form 990 filing happen smoothly and without stress.
• Board and staff share a clear understanding of priorities.
• You spend less time reacting to “crisis” content and more time leading intentionally.

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The Path Forward

You don’t have to solve every challenge at once. Begin by taking one concrete, controllable action.

This week:

• Check when your Form 990 is due and ensure it's on your calendar.
• Build a 12-month cash flow projection.
• Review your capacity limits with your team.
• Update your core governance policies.

This month:

• Conduct the Quarterly Crisis Audit with your leadership team.
• Create a 90-day financial scenario plan for different funding levels.
• Update or establish required governance policies (conflict of interest, whistleblower, document retention)
• Have an honest capacity conversation with your team about what's sustainable.

This quarter:

• Build a 6-12 month strategic plan addressing real but longer-term pressures.
• Establish a monitoring system for uncertain-but-worth-watching issues.
• Do a Resource Allocation Reality Check on where leadership time is going.
• Train your board on the polycrisis framework so they understand what you're managing.

For fiscal sponsors specifically:

• Review every sponsored project agreement to ensure discretion and control language is clear.
• Document your oversight activities (approvals, reporting requirements, reviews).
• Verify mission alignment for each sponsored project.
• Ensure your Form 990 accurately discloses fiscal sponsorship relationships.

When the complexity feels too great to navigate alone, seek specialized support—financial systems, compliance guidance, or operational consulting. Strengthening your infrastructure is not a luxury; it’s a form of resilience.

You need financial systems help when:

• You can't easily track restricted funds by project or program.
• Reconciliation takes days or weeks instead of hours.
• You're not confident in the accuracy of your financial reports.
• Your current systems can't handle the complexity of multiple funding sources.

You need compliance guidance when:

• You've received actual IRS correspondence (not imagined scenarios).
• You're establishing fiscal sponsorship for the first time.
• Your organization is growing rapidly and you're unsure if policies scale.
• You're considering activities that might be close to lobbying or political activity limits.

You need operational consulting when:

• Multiple critical systems would break if one person left.
• Staff turnover is creating institutional knowledge loss.
• You're struggling to make trade-offs between competing priorities.
• The gap between capacity and demand feels unmanageable.

For fiscal sponsors managing complex fund accounting and compliance requirements, specialized banking solutions designed for nonprofit fund management can eliminate entire categories of operational risk while freeing up staff time for mission work.

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Conclusion: The Power of Naming What You're Managing

The nonprofit polycrisis is real, and feeling overwhelmed is not a sign of failure. It’s a rational response to multiple intersecting challenges. Yet crisis is not chaos. By naming what you’re managing, categorizing pressures, and focusing energy on what you can control, you move from reactivity to strategy.

You won’t resolve every issue right away, but you can stop treating them as one undifferentiated problem. Each distinct challenge—funding, demand, sustainability, compliance—requires a different response. That shift from overwhelm to clarity, from reaction to intention, is how you regain agency.

Start with one action. Then another. Each step brings you closer to stability, confidence, and control.

If you need to talk through these financial and compliance challenges, or if you're looking for specialized support in managing complex fund accounting for fiscal sponsorship, reach out to the Mazlo team. Sometimes the best way to gain control is to get the right systems and support in place.