Nonprofits differ from for-profit organizations in several ways - some more subtle than others. Yet all businesses are exposed to a number of risks. Every business, no matter its aims, has a unique risk profile. Unlike their for-profit counterparts, many nonprofits lack the appropriate degree of risk management. In fact, less than a quarter of nonprofits have a dedicated risk manager. This is a significant concern, as any number of risks can threaten a nonprofit’s livelihood. If nonprofits want to thrive and carry out their objectives, they need to familiarize themselves with common risks and develop strategies to improve their risk management.
How Nonprofit Risk Differs from Other Sectors
For-profit organizations are in their line of business for the reason their name implies—to make a profit. Nonprofits operate for a cause and do not tend to worry about amassing money. However, this means they often spend their entire budget trying to achieve their goals. They do not have much or any money in reserve to deal with a risk should it manifest into a problem. Nonprofits have a fixed budget and often no margin for unexpected losses.
Nonprofits also encounter unique risks in how they raise money. Many are turning to the internet to bridge their financial gap, but they are neglecting to invest in the corresponding insurance. Receiving money online means an increased need for media liability coverage, cybersecurity, and privacy liability coverage. However, many nonprofits forgo these policies, opening them up to significant risks.
#1 Common Mistake to Avoid
Nonprofits are philanthropic by nature. They want to help, and they do not want to turn away someone in need. However, this altruism can get them into hot water. For example, assume a nonprofit offers psychological aid to children and has all the necessary insurance. Then, a new government regulation opens an opportunity to allow those same nonprofit workers to administer aid to veterans. They will likely jump at the opportunity, but many fail to realize this creates a new risk profile. This means they will need additional coverage, but most neglect to purchase it.
Nonprofits most often find themselves in trouble when they move into sectors that they do not have expertise in. They may have some of the necessary skills to take on a sister project, but failing to understand and address the added risks is a recipe for disaster. If you believe your nonprofit is underinsured or you want to reevaluate your risk profile, SteelBridge can help. Contact us today to learn more.