When it comes to the objectives that define your organization's ethos, the primary aim of most nonprofits today revolves around their mission to deliver reliable and high-quality programming and services. Financial sustainability is inextricably linked to that mission, so it should be easy to recognize that an organization with a sound financial plan is more likely to achieve that goal. What isn't so obvious, however, is the steps needed to achieve that success, especially given the changes the world experienced in the last three years.
A financial plan aimed at growing revenue for your organization while maintaining continuity, and forecasting for the future, is crucial. If your nonprofit organization needs a gut check on its financial health or steps on how to assess your organization's economic sustainability, here's a list that will help you get realigned.
The unprecedented repercussions of COVID-19 caused nonprofits everywhere to rethink their plans, and strategy shifts reflect our post-pandemic world. Although this new way of thinking presents challenges, nonprofits skilled at strategic financial planning are better equipped to handle surprises - good or bad. While we can't predict the future, the act of planning - based on historical data, results analysis, and financial health assessment - serves as a healthy foundation upon which an organization can base its programming. Strategic financial planning should be at the root of your organization's mission and a guiding light for measuring growth. Without it, it's impossible to measure when or whether you have met this goal.
As you audit and optimize your existing plan, consider asking the following questions:
Incorporating an ERP software built specifically for nonprofits can dramatically improve your organization’s ability to plan strategy, communicate across the entirety of the organization, and then measure whether or not progress is being made. Enterprise resource planning (ERP) systems offer an all-in-one solution that enhances operational efficiency by streamlining business processes like project management, inventory management, and financial management. These ERP solutions help nonprofits manage multiple entities and multiple programs, from donor management to fund accounting, all under a unified platform.
The best ERP softwares for nonprofits also include features for cash management, project accounting, human resources, and more. This allows nonprofits to track expenses, generate financial reports, and manage assets effectively.
Growing your nonprofit organization's revenue is contingent on the specific factors that support your overall mission, including assessing your organization's financial health. Creating a sustainable financial ecosystem should be central to your organization's decision-making process.
A financial health assessment will inform what growth looks like by:
The hierarchy will inevitably differ depending on the structure of your organization specifically and overarching goals.
Nonprofits gain the majority of their revenue from charitable contributions or tax appropriations and measure the efficiency and effectiveness of their operations by the success of achieving their social mission. However, they can face challenges when it comes to operating in a fiscally responsible manner.
With this in mind, the goal of financial sustainability for nonprofits is to maintain or expand services within the organization while developing resilience to occasional economic shocks in the short term (for example, short-term loss of program funds or monthly variability in donations). Good questions to ask when conceptualizing this are:
How you divide your funding sources and channels has an enormous impact on your nonprofit's future and sustainability. Not only can revenue diversification help you mitigate risk, but an intentional plan for it can allow you to engage new donors or investors and deepen your current donor/investor relationships.
In the face of economic downturns and unprecedented challenges like COVID-19, nonprofit organizations have had to reassess their strategies for generating donations. With diversified revenue streams, these organizations have had to evaluate the effectiveness of each source, considering factors such as return on investment (ROI), staff time, and administrative overhead.
An efficient ERP system can facilitate donor and grant management, which is crucial for nonprofits. It helps in creating donor profiles, documenting donor history, and managing grants. This leads to improved financial planning and better control over restricted funds.
For a nonprofit with diversified revenue streams, the economic downturn, COVID-19 shutdowns, and in-person event cancellations have been challenging but have also presented an opportunity for them to reassess how they generate donations and the importance of each source.
Tip: Consider ROI as you evaluate which sources are less effective for your nonprofit. Not every revenue stream is created equal, especially when you consider your staff's time and administrative overhead. Major gifts and capital campaigns are inexpensive from a cost-per-dollar-raised perspective, and special events can get very costly.
If there's one thing we've learned over the last three years, it's that catastrophes can happen; and if they happened once, they could happen again. With this knowledge, we are empowered to make smarter choices with the possibilities that the future can bring. Some organizations establish an operating reserve by keeping cash on hand in addition to their regular bank balances in case the steady cash flow is disrupted.
Since nonprofits depend on multiple sources of income to support their operations, it's essential to plan for financial stability by setting aside additional funds. Reserves can allow an organization to weather serious bumps in the road, such as a sudden decrease in revenue or an unexpected expense and buy them time to implement new strategies.
Since operating reserves are most valuable if they are reliable, an important factor in using these funds is having a realistic replenishment plan. In addition to monitoring regular bank balances, nonprofits should include a line item in their budget for adding to reserves. As circumstances change, such as when income or expenses become less predictable due to internal or external factors, nonprofits should adjust their reserve goals accordingly to ensure they have sufficient cushion.
When it comes to achieving financial sustainability for your organization, thoughtful planning and creating a model for survival and growth are key. By establishing a proactive plan and leveraging practical tools, your organization can reach its goals. Sparkrock can help you achieve this by providing software that enables your organization to thrive. Learn more about how we can support your nonprofit in achieving its financial sustainability goals. Download our guide to Sparkrock 365 for nonprofits.