By Stacey Nelson
August 21, 2018
Whether its driving to work each day or running errands on the weekend, it’s easy to overlook the detailed inner workings of your vehicle. So long as things are running smoothly, we may forget about those regular maintenance checkups—that is, until something goes wrong. Those routinely scheduled oil changes and tune-ups are important to identify concerns before they become large problems and stop us dead in our tracks.
Similarly, a nonprofit should have a detailed plan in place to monitor the sustainability of the organization. When things are going along fine and resources have been sufficient, it can be easy to become complacent. However, when circumstances change and you are hit with an unexpected outlay or the historically reliable source of revenue is not there, does your organization have a plan in place?
With the new nonprofit reporting requirements on the horizon as well as the revised standards on going concern, the time is ripe for reviewing your organization’s views and practices related to liquidity and financial sustainability. The organization needs to be ever vigilant in balancing cash inflows and outflows all while continuing to provide their mission.
What Makes a Healthy Nonprofit?
Let’s start off by reviewing some examples of indicators of a healthy organization. One indicator of a strong organization is revenue reliability or a history of consistent unrestricted donations year after year. The organization will have dependable revenue sources to cover operating expenses as well as the ability to set funds aside when times are good. Some more specific measures of liquidity, at a given point in time, may include months of expenses that can be covered with available cash or current ratio, which measure the entity’s ability to pay your bills as they come due. If your organization owns property and equipment, you may measure your ability to fund improvements and replacements.
Define Financial Stability
The first step in developing your plan is to define what financial stability looks like for your organization. There is no magic formula that will ensure long-term success. Rather, the picture for your entity might look completely different from the nonprofit down the road. Things to consider when identifying your plan include your organization’s long-term vision, dependability of your funding sources, both anticipated and unexpected expenditures and the community or environment in which you operate. This discussion should incorporate management as well as finance committee or equivalent body.
Goals and Tactics
Once you have defined financial stability, the next step is to set goals and map out a plan of how you will achieve those objectives. Communication is essential to ensure that you have support from your key team players. You may have identified a great course of action, but without the proper support and backing, you may struggle to meet those goals.
Don’t Be Static
The final step is to monitor and regularly re-evaluate your plan. As your organization grows or changes direction, you may need to revise your definition of financial stability and the steps you will need to take to get there.
By following the steps outlined above, you will ensure your organization is able to identify those potential challenges along the way before they become larger obstacles. This will help you create a culture of uninterrupted continuation of your mission and making a difference in your community for years to come.