What it really means is answered with a series of questions:
- How much does your organization have in reserves for bad times?
- Does your organization consider the reserves to be AS important as your mission?
- How do you measure reserves?
- How do you build reserves?
Having the opportunity to speak to 500 financial executives in the nonprofit industry, I asked them what was more important: mission or organization? Rest easy … they unanimously answered “mission.” I asked them what their budgets do in times when the economy goes down and the fundraising goes down. As expected, they unanimously said “cut expenses.” When I asked what happens to their organization’s NEEDS when the economy goes down, they unanimously said the mission need goes UP.
- More children to serve.
- More people to feed.
- More people are sick.
- More jobs are needed.
- More stress on the environment.
Translation: nonprofits operate their mission on the ups and downs of the economy. To me, this seems to be upside down. Nonprofits should run based on mission need, and the path to do that takes discipline to commit to a long-term organizational sustainability plan.
How do you build organizational sustainability?
- Budget for sustainability.
- Build a planned giving program that can provide greater resources.
- Build your endowments to sustain your mission.
Organizational sustainability is tied to a budget process. Most often, this process involves making sure organizational revenues are equal to expenses (program, fundraising and admin costs)—“a balanced budget.” The best-case scenario is that you end each year with a balanced budget.
If you make last year’s budget, the organization gets to start the next year in the same place that you began the year before. It’s just like running on a treadmill … all that work, and you are right where you began from a financial standpoint.
Hear this simple truth:
The ONLY way to produce greater reserves and build financial strength for your nonprofit is to achieve surpluses … not to just break even. The best way to achieve surpluses is to PLAN for them. Good years start with good budgets, and good budgets have surpluses.
At Sharpe Group, we partner with many organizations that need outside expertise and industry wisdom to effectively begin an approach towards building sustainability in the right way … one step at a time … with a thoughtful process that works.
By Bob Mims, Sharpe Group CFO