Why Nonprofit Sustainability Means Doing Business Differently

During my tenure as an executive director of a nonprofit, I often heard funders say, “You need to do business differently.” This usually came after funding cuts to an already lean budget. Frustration would follow, as I knew how efficiently we operated and wondered how we could do it differently. Now I train nonprofit leaders and witness how higher expectations by staff and clients force leaders to juggle quality programming with funding shortfalls. Add not being able to recruit to positions, and you have a powder keg.

So, I find myself saying to leadership, “You have to start doing business differently.”

For example, a while back I spent time with a CEO struggling with being short-staffed while at the same time being asked to start up a necessary service. It’s unusual for a nonprofit to turn down new services when they’re needed. However, this CEO did, even after “whatever you need” funding was offered. She said, “Why would we start a new service when we can’t find employees to fill our existing ones?”

This comment and the meaning behind it stayed with me through the years. Why do nonprofits continue to take on more and more without sufficient financial and human resources? Why do they continue to operate very similarly to the ways they did 20 years ago? What is stopping them from exploring creative and innovative ways to deliver service?

If organizations are to provide quality service and meet growing community needs on decreasing resources, stakeholders (funders, clients, boards and staff) need to chart a new course by turning current service delivery on its head. Below, I describe three ways positive change can happen.

1. Funders set deliverables and expected outcomes without getting involved in how the work gets done.

A stumbling block for innovation is the reluctance of some funders to let go of the reigns and completely delegate the responsibility of operations to the contracted agency. However, when I was an executive director for a nonprofit organization supporting people with developmental disabilities in the late 1980s in Alberta, Canada, our government funder encouraged innovation by allowing us to place a percentage of surplus in a reserve fund annually. We accessed this money for leading-edge projects, creative activities and fixed asset purchases like a photocopier. For an organization to adapt to changing circumstances, contracts need to give them the freedom to try new things and use the funds to serve client’s needs without restrictions.

2. Nonprofits evaluate the actual cost of service delivery and make decisions based on what is needed for resources — not just what is offered or available.  

I’ve found dissimilarities between running a nonprofit organization and a for-profit enterprise. Finances, such as budgeting and break-even analysis are two critical areas of difference. Nonprofit organizations work from a balanced budget where expenses and income are equal. They can’t operate where costs are higher than revenue nor should they have surpluses. As long as the budget balances at year-end, stakeholders are happy. For-profit ventures are in business to make money, so the owner breaks down the cost to the lowest common denominator. They know their break-even threshold and consider the ways and mean to generate a profit. When a service isn’t making money, they stop offering it.

For sustainability, nonprofits need to know what a service is costing them — not what a funder is prepared to pay. Every additional client or service taken on without adequate money lessens the organization’s ability to operate and minimize risk efficiently. Breakeven is the point where safety becomes a concern for the client, staff, volunteer or community, where quality service is not obtainable and employees are hired just because they applied.

3.  Nonprofits practice innovation, creativity and problem-solving with an abundance mentality.  

Instead of the typical “We can’t” response, the question is “What if we could?” Instead of “We don’t have the money,” or “Our funders, guardians, stakeholders, etc., will never agree,” opportunities are explored, new relationships are developed with people having different views, and education and knowledge are obtained beyond the world of nonprofit. Organizations step outside of their comfort zones. For example, what if agencies could use technology in new and creative ways to assist in client service delivery? What would it look like? Consider this instead of simply saying “Technology can’t be used in service delivery because it requires people to do the work.”

On a final note, nonprofits work very hard to meet the needs of communities and really appreciate the support given by community members. Donations go a long way, whether they’re $1 or $1 million. Volunteers are essential to the sustainability of every nonprofit. So, if you haven’t joined the ranks, please consider donating time and money to help them out.

Karin Naslund

CEO of Naslund Consulting Group Inc., assisting nonprofit organizations to win at their mission.

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