Practical nonprofit strategies to improve financial sustainability so you can keep delivering on your mission
There’s a dangerous myth in nonprofit management that leaders should prioritize the mission and programming over the financials. Of course, we get it. Most people don't get into the nonprofit sector because they love spreadsheets and budget forecasts. But while nonprofits are accountable to their community impact and not investors, they still have to be financially healthy to do their best work.
This blog offers practical strategies to improve your financial sustainability so you can deliver your mission in the most robust and impactful way. Sure, you're going to see a few basic best practices from the "business world" on this list, but they apply to nonprofit leaders all the same. At the end of the day, nonprofits are just another type of business.
1. Create an Annual Budget
You might be surprised how many organizations operate without one, but the truth is that you need an annual operating budget, even if your upcoming year has elements of uncertainty. It’s not enough to create individual program budgets or special initiative budgets—you need a full view of how your organization is spending money, and how and where it brings in revenue.
2. Don’t Budget to Zero
If your plan is to make no money, you will probably never make any money. Many grant budgets used to require that grantees always budget their projects to zero and never show a surplus. (Some still do, unfortunately, although the practice is baffling and dated.) We've even met folks who believe it’s legally required that nonprofits never have a profit—this is not just untrue, it’s a wildly damaging belief. In order to weather rainy days, retain talent, and fund new programs, you need to build a healthy reserve. Whether you start small and build in a contingency line or set a reasonable surplus goal for individual program budgets, it’s time to leave the no-surplus life behind.
3. Base Your Budget on Actual Prior Results
Base your annual budget on your actual year-over-year financial performance, not on your prior budgets. We know it can be daunting to forecast when there are so many unknowns, but trust us: it's far more terrifying to see how many organizations take their prior year budget, increase their line items by 5-10%, and call it a plan. Even if your upcoming year shifts dramatically from what you originally outlined, you can still track what happened against your projections and learn for the next period. Plus, you can (and should!) reproject your budget when it makes sense. After all, they're written in spreadsheets, not stone.
4. Separate Startup & Maintenance Costs
The costs involved with launching something are different from the costs of maintaining it, but budgets often don’t reflect that difference. This is one reason why exciting new programs get canceled after their first year—no one planned for longevity, and the program was never given the chance to find its footing over a few years. So, budget accordingly. Startup costs are usually one-time, like hiring an agency to brand an initiative. Recurring costs are ongoing, like a program manager or rental fees for a host venue. If you want your programs to last, create a financial estimate of startup vs maintenance costs over the first few years so you can accurately budget, fundraise, and tell a story that supports the program’s full, long-term potential.
5. Match Resource Investment to Program Growth
Many organizations want to maintain their existing programs and add new programs without first increasing staff or adjusting workloads. This is a sure recipe for burnout and high turnover. Considering that you might already be understaffed (many nonprofits are!), you need to account for all the time it takes to ideate, build, launch, and run a new program. Can you reduce the scope of legacy programs in order to add a new one? Can you reduce their frequency to make room for what's new? If you can’t make these tradeoffs, then you need a plan to increase revenue so you can afford to hire more staff.
6. Treat Your Funders Like Businesses Treat Investors
Your major funders and donors may not hold stock in your organization, but you should treat them like they do. Corporations know how important it is to engage their investors in their long-term vision because top-dollar contacts want to know how their money will have a transformational impact on what they care about. Nonprofits often make the mistake of fundraising for a succession of small programs or independent initiatives without situating them in a clear and compelling story about the long-term vision for the organization. How will your work impact your local community in the next 5 or 10 years? What are you working towards? This type of storytelling can be the difference between a 4-digit donation and a 6-digit one, because it’s aimed at the donors who want (and can afford) to invest in long-term change.
7. Let Dead Weight Go
When people don’t perform in business, they get let go. Nonprofits tend to hang onto folks even though they are not performing well, just because they’re committed to the mission or because they have relationships with key stakeholders. This creates a situation where well-connected but underperforming employees are getting promoted over the high-performing staff (another recipe for turnover). This applies to entry-level positions and to executives. If someone is not doing their job well after you have made reasonable efforts to make it work, it only hurts the organization to keep them around. (By the way: if you often feel you're surrounded by underperformers, you may be struggling to effectively manage your team; consider hiring an HR consultant and using your professional development budget to brush up on your people skills.)
8. Invest in High Performers
Hopefully, this goes without saying after point 5, but we want to be super clear: if you don’t invest in high performers by paying market rates, treating them well, and/or at least demonstrating you are working toward both of those things, they will leave. Then you’ll lose institutional knowledge, momentum, and a ton of time and money searching for and hiring someone new. This is another reason why HR exists: to help nonprofits stay resilient by ensuring you’re treating people well enough that they stick around.
9. Don’t Make Decisions Without Data
It can often feel like nonprofit leaders have to make decisions in the dark, but there is information that can inform those decisions if you know where to look. Sure, you can’t predict what will happen with the market or society (hello, COVID-19) but you can track what has happened and make some educated predictions about what will. Gather data about event attendance, audience demographics, grant awards, staff workload, and program volume—pick metrics that capture what matters to your organization. Create a digestible dashboard of those key data points and track them at least annually. This data will help you make strategic investments that will be more effective in the long run.
10. Take a Guess, Make a Plan, and Breathe
No one knows the future, and it’s natural to be overwhelmed by uncertainty. But when you know how you are performing (by tracking all that great data), you’ll be able to set realistic goals and measure your progress. Make an annual plan, see where you land, and then plan for the following year. Over time, you’ll gather data-backed insights into how your organization performs and create better, more specific strategies. When you can connect your progress on individual goals to your long-term vision, you’ll be able to show how financial stability powers your programs and enables you to deliver on your mission.
If you need support with your next strategic plan or you’re mired in financial data you can’t untangle, we’re here for you. Jackie has 10+ years of experience in financial analysis and organizational strategy, and we’re taking new clients. Schedule a free 30-minute consultation!