Achieve and grow your mission without exhausting your resourcesIn the environmental movement, sustainability refers to utilizing resources without exhausting them. In the nonprofit world, financial sustainability refers to the same principle. How do you achieve and grow your mission without exhausting your resources?
Organizations that don't prioritize financial sustainability risk falling into the so-called nonprofit starvation cycle, a term coined by Ann Goggins Gregory and Don Howard. Here's how the cycle often plays out:
- Funders have unrealistic expectations about how much it costs to run a nonprofit
- Nonprofits feel pressure to conform to these unrealistic expectations, which results in underspending on overhead and underreporting expenditures
- Over time, funders expect nonprofits to do more and more with less and less — a cycle that slowly starves nonprofits
The good news? By developing realistic expectations about how much it costs to run a nonprofit, you can avoid nonprofit starvation and instead achieve the stability and longevity that come with financial sustainability.
Here, we break down the necessary steps for a successful, effective financial sustainability plan.
Understand the key elements
A financial sustainability plan requires three things:
- A supportive organizational culture. This means clear communication with donors, board members, staff, volunteers and key stakeholders.
- A driving mission. Your mission must inform every aspect of your work.
- Clearly defined needs and demands. What do you need to continue to work for your mission? What would it take to expand and extend that mission?
Support the big picture
To ensure that the financial sustainability "big picture" is always kept in mind, even as the necessary minor details are worked out, establish a financial sustainability committee or working group within your nonprofit. This committee should include both staff and board members who have a detailed understanding of the annual budget.
The chief responsibility of the sustainability committee is to balance big picture thinking with the steps necessary to achieve that great vision. This important work starts with a financial sustainability plan, followed by monitoring the organization with the plan's priorities in mind — for example, making sure fundraising efforts continue to serve the sustainability plan.
Develop the plan
A financial sustainability plan should include a description of your current financial situation, short- and long-term financial goals, and specific strategies and timelines to meet your goals.
1. Analyze and project
Begin with an internal audit, clearly identifying current assets and liabilities. Using this audit, project income and expenses every year for at least the next five years.
The audit should address these questions:
- What is your current level of debt? How much is that level expected to increase or decrease?
- What is your current level of savings and reserves?
- What are your sources of income? Which are strong and reliable, and which are questionable?
- What could you trim from your budget without restricting your mission or harming the integrity of your vision?
- What services are absolutely essential to your mission? What is the bare-bones cost of delivering those services?
- What services would you provide if you could (a realistic but more expansive vision)? What is the cost of providing those services?
- What items do you need to acquire to continue operating at the present level (new computers or other supplies, staff, transportation and so on)?
- What resources are necessary to accomplish your organization's vision over the course of five years (or longer)?
- Comparing projections to current status, how far are you from achieving your five-year goals?
2. Set goals and objectives
Identify where your organization should be in five years, in terms of fiscal health, staffing, services and so on. Make these goals manageable. If the gap between current status and projections is too wide, reevaluate and modify. After all, growth is usually incremental. It doesn't happen overnight.
Then, outline a funding portfolio that supports stability and longevity. This will likely include a mix of income sources, such as government and foundation grants, earned income and endowments. Determine the role each of these income sources plays in funding specific projects and services.
Also identify a realistic but healthy level of general reserves necessary to meet your goals — and to weather any unexpected challenges or costs.
3. Take action
It's go time!
- Cultivate the most robust current sources of funding
- Explore and mobilize new constituencies of donors, stakeholders, and online and real-world community members
- Consider creative and nontraditional fundraising strategies, such as crowdfunding and giving circles
- Identify funders that offer operating grants (such as Social Venture Partners or Grantmakers for Effective Organizations in the U.S. or the Esmee Fairbairn Foundation in the U.K.)
- Maintain a balanced fundraising portfolio
Allow for growth
Your financial sustainability plan should change and grow as your organization does, while continuing to serve as a practical reminder of key goals and expectations. With appropriate care and feeding, the plan can become — and remain — an integral part of your nonprofit's operating system.
Stanford Social Innovation Review: The nonprofit starvation cycle by Ann Goggins Gregory and Don Howard (2009)
Community Tool Box: Developing a plan for financial sustainability
National Council of Nonprofits: Nonprofit sustainability
The Bridgespan Group: Ten nonprofit funding models by William Foster, Peter Kim and Barbara Christiansen (2009)