What would you say if asked, “How confident are you that your nonprofit will be financially stable over the next five years?”
What would you say if the follow-on question was, “What evidence do you have that justifies your response?”
When we asked nonprofit executives, most responded that they were confident or very confident their nonprofits will be financially stable over the next five years. However, none of them were able to provide any evidence that their confidence was justified. Many of them changed their original response to something like, “I hope we will be financially stable.” Others offered a response like, “We have been stable for many years now. I don’t see any reason why that won’t continue.”
We asked to see their financial plans that extended beyond the next 12 months, very few of them had plans to share with us. None of them had a five-year plan. None of them had any donor pledges that extended beyond three years and very few had any donor pledges.
While our economy has made a very slow recovery, it is also one of the longest recoveries on record. Nothing lasts forever. Since no one can predict the next downturn, it is always best to plan for a crisis before it arrives. The next crisis might be an economic downturn, hurricane, fire, earthquake, or some other disaster. Your nonprofit might escape direct contact, and we hope it does. Your donors and other community members may be affected. Without a plan, it will be difficult to respond to a surge in demand, a significant drop in demand, or a decline in support.
Donors are becoming more sophisticated. It is doubtful that a sophisticated, high-value donor will be more than token generous if they discover your nonprofit is unprepared to weather the next five years. Yet the high-value donors are the most important to a nonprofit’s sustainability.
Board members are the ones who are responsible for laying the foundation for a nonprofit’s future. Without a financial plan that extends at least five years, it is easy to assume a nonprofit has a rather weak foundation. It is hard for a sophisticated donor to be confident in your nonprofit if the donor feels more concerned about the future than the average board member. It is hard to imagine that the board’s stewardship of the donors’ funds will meet the donors’ expectations when the board is laying a weak foundation.
Since very few of your board members ever asked about the future of your nonprofit or its sustainability before joining (or after joining), it seems unlikely the next candidate will ask. However, it prompts one to wonder if your board development committee is looking for candidates in the right places. The candidate who asks is certainly a candidate you want. It makes one wonder if a candidate did ask about the future, how your board development committee would entice the candidate to join the board.
Anyone who asks is probably exactly the person you need. It is also someone who cares deeply about your mission’s ability to serve your community for many years. If so, they should be easy to recruit if you can sincerely tell them that they are the person you need to help lead your nonprofit into the future and create a highly sustainable nonprofit.
Is there someone better to have on your board?
The same is true for staff members, especially senior members. If they never ask about the future, they may be more interested in the job itself than your mission or the sustainability of your nonprofit. Short-term thinkers often cut corners to make today a success regardless of the mess that must be cleaned up tomorrow. They are more of a drag on sustainability than a benefit.
Besides your financial plan, here are a few items that will help you have confidence in your nonprofit’s future and sustainability:
Competition – How has the competitive environment changed over the past five years, how well has your nonprofit responded to the challenges, and what changes in the competitive environment can you reasonably expect in the next five years?
Demographics – How have the demographics of your community changed in the past five years, how well has your nonprofit responded to the changes, and what changes can be reasonably expected over the next five years?
Donors – What is the rate of growth of your donor base, donor generosity, and donor loyalty?
Leadership – If your nonprofit has had two or fewer executives over the past five years and there is a high probability that the current executive will continue to serve for the next five years there is a reason to assume your nonprofit will have stable leadership.
Nonprofit – Does the rate of growth in clients served exceed the rate of growth of your community?
Reserve – How fast is your reserve growing relative to the growth in clients served plus the rate of inflation?
Staff – What has been your staff retention trend over the past five years?
Your financial plan and your assessment of the preceding seven areas will provide you with a compelling answer when someone asks you to justify your confidence in your nonprofit’s continuing viability.
Next Step:
Ask your board and staff to help you develop a plan that will ensure your nonprofit is financially stable for the next five years and beyond
Share your plan and the milestones as they are reached with all of your stakeholders so they can answer the questions for themselves and share their answers with others
Recruit long-term thinkers (donors, board, and staff) who are passionate enough about your mission to ask about its future
Having donors who are long-term thinkers is just as important as having board members and staff who are long-term thinkers. Donors who are long-term thinkers are willing to fund foundation laying for the future. They are willing to fund the planning process as well as the plans. They also have higher expectations which will help your nonprofit excel and keep your mission relevant and valuable, and will provide your nonprofit with increasing sustainability
Take It Further:
Remember, it is easier to help someone develop skills that are critical to a job than it is to change the way people think about the future
