In the current environment, dominated by sector shut downs and business disruption, funded service providers have seen funding maintained, while being able to operate as essential services, while other nonprofit organisations, in the sport and arts sectors have not. Many community organisations have had to face an unpleasant truth in that they have insufficient reserve funds to enable them to operate for more than a few weeks. It is timely to consider the four steps to success in a nonprofit organisation.
Let’s begin by debunking a nonprofit myth. Being a nonprofit organisation does not mean you cannot make a financial surplus. It does mean that any financial reserves must be used to provide service delivery or operate the business; and cannot be distributed to individual stakeholders. Nonprofit is a legal definition rather than a financial definition.
If one lesson emerges from the current environment, hopefully it is recognition that generating a financial surplus is critical in enabling long term viability and sustainability. Generating sufficient revenue does not occur overnight, it takes a plan, time and resources.
There are four steps to success in a nonprofit environment.
- Have great services that enable people to change their lives
- Market to all stakeholders and supporters.
- Build your family of supporters, effective board members, volunteers, donors, funders and people that want to talk about the good things you do.
- Build sufficient revenue to cover all service costs, enable effective operations, pay any applicable taxes and generate a financial surplus for re-investment into even more social impact
These four steps have been adapted from The Cycle, an organisational model developed by Michael Kaiser for nonprofit arts organisations. This framework places long term planning of service delivery and social impact front and center. As a nonprofit organisation this is your product. You sell the benefits to those accessing your services. You sell the benefits to your family of supporters and you generate revenue because people want to support those social impacts.
Many nonprofit organisations deliver great programs, yet they often do not measure the social impact, nor do they plan long term for introducing improved services and greater social impact. This is a significant failure because they then have nothing to talk about in their marketing messages.
There are three reasons why nonprofit organisations fail the marketing test. The first is mentioned above and the second reason is that they fail to plan their marketing and lastly they fail to generate sufficient revenue to enable them to invest at least 10% of their revenue in marketing activities.
All nonprofit organisations have an existing family of supporters. This base often starts with those members, some who become volunteers and board members, which extends into a family of donors and funding bodies. Large national charities have extensive families of supporters that they nurture and communicate with constantly. Funded agencies often fail in this area because they see themselves as being there for the funding agency. This inhibits their capacity to create and provide real social impact.
Lastly, while all nonprofit organisations engage in financial management, where they prepare a budget and end of year accounts, very few engage in long term financial planning. This is strategic rather than operational, therefore it is the domain of the Board or Committee of Management.
Covering financial costs with minimal financial reserve is fine if all is good, and all you want to do is survive. Such a strategy will find you wanting when times are bad. More importantly if you don’t plan how you will generate revenue then you wont generate it. If you don’t plan for reinvestment in greater social impact then you will not have a social impact and if you don’t plan for marketing then you will not engage in marketing.
These four steps to success provide a framework for any nonprofit organisation. They are not a business model, more an activity model. Within these four steps we engage in strategic planning and ensuring operational effectiveness.
John Coxon has more than two decades experience helping nonprofit organisations in Australia and New Zealand. His building blocks suite of assessment tools enables you to identify issues and prioritise solutions. His adaptation of the Four Steps Model provides you with a framework for success. Reach out to John to discuss how he can help your organisation remain viable and sustainable.