The road to long term financial viability is different for every organization. Reaching this goal depends on the type and age of the organization, its values, the nature of the competition, leadership, and much more. Some nonprofits are successful risk takers, while others take a conservative approach to finances and build their net reserves each year. Some organizations may focus on building endowments, while others may place a higher priority on meeting programming demands.
Long term financial viability is less a strategy and more the outcome of hundreds of good practices and wise decisions over time. Boards looking ahead to the financial future should focus on these areas:
A clear, well communicated mission and goals. No one wants to give money to organizations whose purpose is unclear or whose successes are not well known. Staying clear on the organization’s mission and major goals also helps a board focus on which revenues and expenses are most appropriate. Chasing after new revenue sources just for the sake of the bottom line may dilute the organization’s mission and end up alienating dues-paying members, donors, and other supporters.
Financial discipline and transparency. More and more, major donors as well as dues-paying members want to know the nitty gritty details about how money is made and spent, what financial controls are in place, what policies govern financial management, and how finances are monitored. The board must be willing and able to share this information with donors and supporters.
Multiple revenue sources. Depending on one or two activities or funders to provide the majority of annual revenue can result in a financial crisis when even one source dries up.
Although some boards think membership dues will always amount to 90 percent of revenues, a membership base creates all kinds of opportunities for providing a service and generating new revenue streams at the same time. Some charities have always depended on mail solicitation, but major donor giving including deferred giving through a planned giving program makes mass mailings a poor strategy for organizations whose mission is directed toward a small group of people or organizations.
Potential Sources of Income
Many nonprofits have found entrepreneurial ways to generate enough earned income that contributed income becomes a pool of extra money for special projects . The challenge is to match the mission to the money.
How many possible ways to generate income does your organization tap? Creativity and alliances with other organizations are necessary for most nonprofit corporations today. Some of the options in Exhibit 47.1 require business partnerships, risk taking, and
legal and tax challenges, but others could be natural, low-risk extensions of what you are already doing.
SUQQESTED ACTION STEPS
1. Board chair, ask the chief executive to develop a chart showing the sources of revenue for your organization over the past ten years and to identify how sources have shifted.
2. Board members, create benchmarks to measure your financial strength.
3. Board chair, periodically invite financial advisers to educate the board on financial trends in the nonprofit sector. Make sure the speaker can translate financial terms and jargon into plain English and is open to answering questions.