On Wednesday, October 19th, I was privileged to lead a nonprofit workshop, “4 Keys to Financial Sustainability,” sponsored by the Gulf Coast Community Foundation. Our varied mix of participants included board members, executive directors, finance directors, and development directors. This mix was both enlightening and challenging based on the different perspectives represented by each of these roles. Because, let’s face it, the board and staff are not always transparent with each other. It worked because each participant had a commitment to sustain their own organization and a willingness to share valuable insights with the entire team.
So what are the 4 Keys? They are —
We’ve all heard the persistent whispers — the negative things “business people” say about “nonprofit people” and the negative things “nonprofit people” say about “business people.” It’s a self-gratifying downward spiral with no possible positive outcome. This “mutual superiority complex” only solidifies the misunderstanding and distrust keeping nonprofits and businesses from partnering together to do great things. Breaking this cycle requires, first, the recognition that nonprofit success is dependent on these partnerships and, second, the leadership to change the pattern of negativity.
A budget is a powerful tool as a roadmap for organizational success. And the proper use of a budget requires these two important components.
- Nonprofits need to structure themselves to provide for a reasonable, supportive level of overhead. So often, organizations find themselves in “starvation” mode, failing to invest in people, technology, compliance, and other necessary forms of infrastructure to support their missions. Changing the world requires an investment in the tools to make it happen.
- Nonprofits need to build operating reserves that will carry them through the difficult times ahead (yes, they’re coming — again). “Saving for a rainy day” is sage wisdom, yet most nonprofits don’t even try. A surplus is necessary to create a reserve, and that won’t happen without a plan for it. That’s why failing to budget for a surplus is the number one thing holding back nonprofits.
Nonprofits have a propensity for mission and program “creep” — a tendency to naturally expand in order to do more good. It’s laudable, but it can stretch the funding model beyond capacity. One of the surest warning signs of “creep” is when the board members find it difficult to understand and explain the full extent of the organization’s activities.
Nonprofits are at the front-lines of the world’s most important issues, so they need high aspirations and high expectations. Strained funding will make it harder to attract and retain the best staff, and management will rationalize reduced expectations because the staff is “underpaid.” This vicious cycle leads to mediocre performance, which won’t go very far toward solving the world’s problems.
Even with these 4 Keys, you might be frustrated. “Yes, but how do we make it happen?”
There is no magic bullet for financial sustainability. It’s not about finding one more big donor. Sustainability comes from a culture shift.
A culture shift requires thinking differently about things that are deeply ingrained. It requires all of the stakeholders to embrace it. It requires education, reinforcement, thoughtful strategy, and commitment. It’s difficult and it takes time.
Are you convinced of the value and importance of these 4 Keys? Do you think there’s something missing? Are you up to the challenge, and how will you proceed? Please share your thoughts.
Dan Weiss, founder and President of Counterpart CFO, leads a team of flexible, part-time CFO’s serving nonprofits and for-profit businesses. To read more from Dan, follow him on LinkedIn or subscribe to his blog at www.counterpartCFO.com.