Financial Sustainability: What’s Up With That?
This post is part of our new staff blogging series that will introduce you to the different faces, experiences and expertise of the staff at Youthprise.
We are just emerging from the Great Recession and many nonprofits have folded, are about to disband, and many others are considering mergers. Hundreds of nonprofits are holding onto their boot straps and are in denial about their tenuous financial situation.
This blog is meant to be a wake-up call to nonprofits who are struggling to stay afloat and worry about if there is enough cash on hand to support operations from week to week.
As a sector, nonprofits are unique in that we thrive only if our mission is relevant, our fund development plan is strategic, and our budget includes a surplus or reserve each year to be prepared for that rainy day, like the Great Recession.
Achieving financial sustainability is critical to the vitality and success of any business, and nonprofits are businesses. What are the components of financial sustainability?
- Is your board of directors knowledgeable about its fiduciary duties? Every board member needs to know her or his responsibility as the director of the corporation. Do your board members know what is the “duty of care,” “duty of loyalty,” and “duty of obedience?” The Minnesota Attorney General’s office has published a great handout, which can be obtained here. The Nonprofit Assistance Fund does excellent board training for a reasonable cost, and the Minnesota Council of Nonprofits has ongoing low-cost training opportunities as well. Why is it important for your board members to be well informed? Because “the buck” stops with the board.
- Another important component is the fund development plan. It needs to be realistic and needs to include revenues from a variety of stakeholders. Gone are the days of being able to count on only one governmental unit or federated campaign to support your mission. If you truly believe that your mission is important and vital, then you must look at new and different ways of raising money. In the past, the board of directors led the fundraising efforts. But those were the good old days when Minnesota had dozens and dozens of companies, many of whom made a pact to give back one to five percent to the communities in which they did business. Globalization has changed the landscape markedly. Most of those home-grown companies have been bought up and now do business all over the world and Minnesota is no longer their headquarters. So now it is up to the executive director to work with, not depend upon, the board to meet fundraising goals. So what should a fund development plan include? Government (federal, state and local); Foundations; Corporations; Individuals; and Earned Income. An excellent article on this subject is Financing Not Fundraising by Nell Edgington who is president of Social Velocity. The article is empowering and a fast read.
- Lastly, the budget is a powerful tool for an organization, but only if managers refer to it often and adjust spending accordingly. The budget should not be a secret to be used only by the executive director. Empowering your managers to take responsibility for monitoring program expenses against budget, and adjusting spending accordingly, creates ownership and responsibility for the financial sustainability of the entire organization.
Budgets and financial reports tell the story of the organization. Let your story be financially sustainable.
By Sheila M. Gothmann
Finance and Operations Director at Youthprise