Culture of Strategic Planning and Performance Measurement
A financially sustainable nonprofit organization should have a culture of strategic planning and performance measurement. A culture of planning and performance measurement means
FIGURE 2.2 Indicators of financial sustainability.
that an organization reviews its goals and objectives on a regular basis and assesses the short-term, midterm, and long-term outcomes of its programs, projects, services, or activities. With a culture of strategic planning and performance measurement, an organization is always conducting a SWOT analysis to understand the strengths, weaknesses, opportunities, and threats at a given time. The findings from a SWOT analysis are used to take advantage of the strengths to compensate for the weaknesses, seek opportunities, and negate threats. With a culture of strategic planning and performance measurement, an organization is constantly reviewing the relevance of its vision and mission statements, and ensures that they inspire programs that aim to meet the needs of the target population. A culture of strategic planning and performance measurement provides evidence to donors and potential donors that the organization not only knows what it is doing, but also justifies why additional and sustained funding is needed to support its activities. A culture of strategic planning and performance is essential for an organization that is vision and mission driven.
Culture of Stewardship and Accountability
A sustainable nonprofit organization has a culture of stewardship and accountability. This means that an organization efficiently manages financial resources donated to support its vision and gives satisfactory reports on financial information and achievement to both internal and external stakeholders. An organization with a culture of stewardship makes all organizational and program performance information available in a timely manner. An organization with a culture of stewardship and accountability is proactive in encouraging internal and external stakeholders to provide feedback on published reports.
Diverse In-House-Generated Income Greater Than Public Funding
In many cases, public funding received especially through grants is restricted to specific activities. However, funds raised by an organization through fund-raising events, social enterprise, investment, or fees for services can be used for whatever program, project, or service fits the overall purpose of an organization. I call these funds "in-house-generated income," because the organization has control over them. For that reason, such funds should be diverse and greater than public funding: diverse, because this will ensure that the loss of one source does not have systemic effects greater than public funding so that the organization has enough flexibility to reallocate funds if necessary.
Sustained High Profitability (Growth)
Profitability is one indicator of organizational growth. This is not the only indicator. This is not the primary indicator for a nonprofit organization. However, this is a key factor of financial sustainability. Sustained high profitability compared to organizations of similar size will provide a nonprofit organization the latitude to be creative, expand its programs and services to more clients, and make relatively sound financial-planning decisions.
Sustained Increase in Solvency
Although debt is not necessarily the worst thing that can happen to a nonprofit organization, it is a sign that an organization may not be able to further its mission. Therefore, a sustainable nonprofit organization should strive to maintain increased solvency and rely less and less on debt. Obviously, there are healthy debts, like a mortgage or a car loan or a loan on a machine or heavy equipment, which are not necessarily a problem at all because a nonprofit can generate equity from such debts. However, any debt incurred by a nonprofit organization should be reasonable and should not affect the ability to deliver core services.