Nonprofit organizations play an essential role in communities. They deliver services, provide advocacy and education, and improve neighborhoods. Financing of the programs, staffing and infrastructure is a critical element for the mission. Behind the scenes, many nonprofits become preoccupied with bringing in more money.
Healthy nonprofit organizations manage their revenue sources in ways that build stability and flexibility. Here are two practices that support their financial viability:
1. They fully understand the cost of programming.
It is common for a well-established nonprofit to continue a long-term business model with its previous funding decisions. Annual awards, although welcome, can tend to support history and hinder new and relevant programming. Successful leaders can transform their organizations from a passive recipient of funds to strategic stewardship of the budget.
How? Asking the right questions is a starting point. For example:
- What are the revenue sources — for example, private funders, government contracts, or foundation grants — and how flexible (or restrictive) are they?
- What is long-term expenses (for example, multi-year leases and funding contracts) my organization obligated to?
- Are there essential programs that are under-funded?
- Are there programs that are no longer fulfilling the mission?
2. They know that not all dollars are created equal.
When considering a new funding opportunity, they evaluate how much it will cost to use the money. They avoid funding sources that provide inadequate compensation, alter their mission, or distract them from what they do well - their competitive advantage.
How? Their leadership team examines a funding opportunity from multiple perspectives:
- The organization’s internal capacity to deliver the program. Are both the staffing and the infrastructure adequate?
- The financial resources needed to run it successfully. How much of the program is actually funded by the source and what does the organization have to contribute?
- Any contractual burdens that are associated with administering the grant such as the schedule and types of required reports, distribution of funds, and cost-sharing agreements.
While it sounds good, diversifying funding sources can be challenging and isn't always a smart move. Different types of income require different systems, structures, relationships, and communications. Financially successful nonprofit organizations have a clear vision of the cost of the programs they offer and make strategic decisions about the appropriate funding resources. Many rely on professional advice from financial advisors to provide financial forecasting and cash flow analysis in the decision making process.
Charles P Myrick CPA is a Washington, DC-based accounting firm that specializes in providing CFO services to nonprofit organizations. We provide nonprofit clients with cash flow and budgeting analysis systems that help analyze spending, and re-balance budgets and/or debts for optimal cash flow. Get in touch today for a complimentary consultation.