April 30, 2015 Meeting:
You can’t save your way to sustainability
For most nonprofits, merely maintaining the financial status quo is generally not viable. Organizations need to develop strategies for long-term sustainability, not only for the organization itself, but for continuity of the mission. Too often, boards and CFOs try to set and meet profitability targets by focusing on the spending side of the budget, but it’s usually growth in revenue and support that provides the most effective basis for ongoing resource mobilization. David Orlinoff, a former nonprofit CFO, led the discussion about the group’s respective experiences with sustainability strategies and how to identify ways we can be helpful to our organizations in reaching stronger financial positions. David has been providing financial and strategic consulting and financial and operating management services for the past 30 years and is a principal at Concord Financial Organization.
Nonprofit Boards, Executive Directors, and CFOs generally focus on cutting expenses when trying to improve the financial viability of an organization. A more proactive and positive approach would be to try to grow income by creating a financial road map. Nonprofit leaders should look at strategies to improve earned income, contributed income, or investment income. David gave the example of a summer camp that he has worked with in attempt to improve their finances. The camp could not realistically save money by cutting staff and other operating expenses – they were already operating on a very thin margin. David advised them to look at growing revenue by conducting a capital campaign to increase its endowment and investment income and to look at other ways to earn income, such as renting out the facilities in the off-season.
It was generally agreed by David and those in the audience that agency management has to look at the long term, at least 3 to 5 years, to strategically plan for ways to increase revenue, while also focusing on the financials for that particular fiscal year. Often, organizations may just try to plug any revenue gaps by arbitrarily increasing the grant or major donor line-item without doing any reality testing. The Board of Directors, Executive Director, CFO, management, staff, and interested members of the community need to understand the mission and business model of the agency and need to be committed to a 5 year growth/sustainability plan for the organization. Investing in a good Development Department is one part of the solution. Getting buy-in for a longer term view will relieve a lot of pressure on the CFO to produce a surplus every year. Sometimes that is not just realistic, but long-term sustainability should be the goal.