Beyond subsistence: 8 basic business principles for nonprofit sustainability (part 1)

A recent post here at Generous Matters reminded members of nonprofit boards that its their responsibility to watch over mission fulfillment with economic vitality. Now along comes The Nonprofit Quarterly with a set of basic business principles for moving your nonprofit from a hand-to-mouth existence to long-term sustainability.

Management gurus Kate Barr and Jeanne Bell tease out the differences between financial management and financial leadership, labeling the later as key to “exceptional mission impact and sustained financial health.” You can’t get at their wisdom without a subscription to NPQ (which I highly recommend), but I don’t think the editors will mind if I summarize the principles, along with a bit of commentary of my own (in italics).

There’s so much to absorb, even in sound-bite format,  that I’ve decided to divide the material between two posts. Here are Principles 1 to 4. The rest will follow shortly.

PRINCIPLES FOR NONPROFIT SUSTAINABILITY

  • Align the annual budget to the annual plan. Sounds basic, I know. Yet the majority of budgets that I review have little direct connection to what organizational leaders say they hope to achieve during the year. More often than not, this year’s budget is a down-sized version of that of the previous year.
  • Determine the degree of diversification you need. Barr and Bell challenge the conventional wisdom about putting all eggs in one basket. It’s their view that “the reliability and competitiveness of your revenue streams dictate the degree of diversification that you need.” In fundraising, as in program delivery, there is much to be gained from sticking with the knitting.
  • Make cash flow your priority. It doesn’t matter how much hope went into building the budget. If the money isn’t there, you can’t spend it. Barr and Bell urge CEOs and boards to “insist that projecting and discussing cash flow every month or quarter become routine practice.”
  • Don’t just dream about reserves – plan for them. This principle reminds me of the nursery rhyme about wishes as horses and beggars riding.  Rather than  waiting for a financial windfall, Barr and Bell counsel boards and CEOs to set a goal for a reserve, begin budgeting to make it happen, manage the cushion well, and guard it like a hawk.

So there you have them in sound-bite format:  four principles of financial leadership (with four more to come). How does your organization measure up on each point? What’s your cash flow situation? Are you building reserves? Are your budget assumptions for the year providing realistic?

Don’t fret if you answered no more often than yes. It’s yours to work for a better tomorrow. Lead on.

What's your take on this topic?

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