In my travels I have had some robust discussion around the concept of treating nonprofits as businesses rather than nonprofits. There are some who are adamant that they are very different, and to assume similarities can be detrimental to the health and vitality of their mission. Others argue that customer service, operational efficiency, financial management, human resource management, and planning are no different, and therefore to not apply good business practices is a detriment to the vitality of the their organization.
Here is one way to look at it: The difference between a for-profit vs. a nonprofit entity is that one has individuals who profit from the efforts of the entity’s work, while the other takes that profit and plows it back into the entity for investment in future works. Well, that is the theory anyway. The setback is that somewhere along the line it became social perception that nonprofits should not make a profit. This zero bottom line mentality means there is NO money left, and therefore no way to plow funds back into the entity for reinvestment. It sets up an automatic non-sustainable future.
It is time to change our paradigm about nonprofits and their profitability. The community created nonprofits to benefit the community. For that benefit to last, the community should pay for what it takes to serve today, and for innovation for tomorrow. This is not a handout, but rather an investment in our community well-being. This social sector is a robust industry comprised of over 1200 entities that generate over $3 billion in revenue1, and nearly $2 billion in payroll2 here in Delaware. Their services care for those in need, give us access to art and history, educate us to get jobs, and care for our health. The fact that profits from this social industry are not going to a few individuals, but benefiting the whole community, is a pretty incredible societal payback.
We, as nonprofit leaders must tell this story; that the cost of benefit includes reinvestment in that benefit. This can include reserves for maintenance and IT upgrades, allocation for talent development and marketing, and funds for future innovation. Nonprofit stakeholders need to understand what it takes to benefit our neighborhoods for today as well as the future, so they have the opportunity to make that investment for the quality of life in Delaware. Not telling that story perpetuates the perception that giving should only be for direct costs expended today, thus slowly starving the very engine that is designed to make living in Delaware great.
So how can you tell that story? First, Board Members and Executive Directors need the right systems to track and monitor the organization. Then, it is having meaningful reports and projections to understand how the organization is currently sustained. And finally, it is determining what is needed for your nonprofit to be sustainable in the future. That is a lot to know, and if your leadership is not up to speed on how to do this, there are resources available. Perhaps a business partner or local accounting firm can offer some time to coach your leadership on how to read financial statements, and offer tips on how to determine long-term viability. DANA members can access financial training webinars developed by Boston’s Nonprofit Finance Fund at a reduced rate. And next Friday, DANA is hosting the Nonprofit Finance Fund for two workshops: the first on understanding the basics of nonprofit finances, and the second workshop will be on financial sustainability. This is an excellent opportunity to hear from the experts and receive very helpful examples of how to financially sustain your nonprofit organization.
The community wants nonprofits to be sustainable and successful. Their ability to do so requires understanding the story on what is needed for that community benefit to prosper. Nonprofit leaders can make that happen with good financial reporting and a plan for sustainability, so your mission can remain a vital component of our neighborhoods today and in the future.
1Urban Institute for Charitable Statistics, sub-industry charitable entities, 2013 2Bureau for Labor Statistics, segment of nonprofit sector, 2012