Sustained Increase in Liquidity
Nonprofit organizations usually serve people who are desperately in need and may not be able to receive help from any other entity. Therefore, the ability to pay bills on time is very critical. It is not enough for an organization to have assets. Liquidity is very important to providing daily services.
Rainy-Day Fund at Least Equal to the 1-Year Budget for Core Expenses
Recessions, which are contractions in the national economy of a country, tend to last 12 to 15 months. A recession affects the ability of companies to keep their employees or hire new ones. Therefore, some people might lose their jobs, and job seekers might not able to find work. Nonprofit organizations tend to be greatly affected by an economic recession, because some of the individual or even institutional donors might not be able to contribute as they would have otherwise. For this reason, I think that a rainy-day fund can be an effective means to help a nonprofit organization overcome the financial hardship that a recession can bring. A financially sustainable nonprofit organization should have a rainy-day fund at least equal to the equivalent of the 1-year budget for core expenses. The core expenses will vary from one organization to the other. Obviously, a rainy-day fund of that scale can be controversial. However, if the board of an organization approves such policy, it should not be a problem. In fact, it should not be controversial if the rainy-day fund is in the form of an investment that provides regular income. Further, there should be approved policies that set the objective conditions under which an organization can tap into the rainy-day funds.
Outstanding Level of Staff Satisfaction and Commitment Equal to or Greater Than 90%
No entity is organizationally or financially sustainable if the staff is not satisfied and committed to its vision and mission. An organization should know the level of satisfaction and commitment of its staff, and develop strategies to increase them or keep them greater than 90%. With that level of satisfaction and commitment, a nonprofit organization may see miracles on a daily basis. With that level of satisfaction and commitment, staff will go above and beyond their abilities to not only provide quality services, but also to attract funding that can help provide needed services over time.
Outstanding Level of Program Efficiency and Effectiveness Equal to or Greater Than 90%
Nonprofit organizations should use their resources efficiently and spend the maximum amount or percentage of funding on its programs. However, this is not always the case for reasons that can sometimes be legitimate. A nonprofit organization may provide a service that requires unavoidable administrative expenses. In that context, it is up to an organization to explain to stakeholders why the percentage of money spent on the program is low compared to other organizations. After accounting for the organizational context, a financially sustainable nonprofit organization should have program efficiency effectiveness ratios that are equal to or greater than 90%. These levels of efficiency and effectiveness are not only great for clients and beneficiaries, but also will challenge donors to continue to support the vision and mission.
Effective and Tested Risk-Management Policies
Like any agency, a nonprofit organization is not exempt from risks or liabilities that can collapse an entire enterprise. Therefore, a financially sustainable nonprofit organization should have detailed risk-management policies. One of the ways a nonprofit organization can manage its risks is to maintain a comprehensive liability policy. This policy will vary from one nonprofit organization to the next. Effective risk-management policies are the ones that successfully undergo stress tests to ensure that they can serve as an appropriate shield for an organization should an unforeseen risk incident occur. The test of a comprehensive liability policy will be the extent to which such a policy can negate any unforeseen event that could force a nonprofit organization to dissolve.
FINANCIAL SUSTAINABILITY IMPLICATIONS IN THE REAL LIFE OF A NONPROFIT ORGANIZATION
Dewan and Sack (2008) published a story about Grady Memorial Hospital in Atlanta, Georgia, which describes various facets of financial sustainability for a nonprofit organization. Grady Memorial Hospital opened in 1892 and was named after Henry W. Grady, managing editor of the Atlanta Constitution. Grady is a teaching hospital for at least two medical schools in Atlanta, and is among the largest public hospitals in the United States. More important, Grady provides charity and emergency care to thousands of uninsured individuals who would not be able to afford much-needed health care otherwise. Such charitable services have contributed to a multimillion dollar shortfall. As Dewan and Sack (2008, para 2) argued in their article, "Grady is operating on a business model that is no longer sustainable." The question is why they think such a business model of providing charity and emergency care is not sustainable.
Elements of responses could be found in various portions of their article. Dewan and Sack reported that Grady did not generate enough revenues to cover all their expenses: "only 8 percent of inpatients fit the privately insured category"; "over the years, the cost of caring for the uninsured has grown while taxpayer support has stagnated"; and "only short-term financial transfusions have kept it from closing its doors (2008, para 3). This explains partly why they have a multimillion dollar shortfall.
Grady was not able to take advantage of social-marketing strategies. In other words, it was not able to market its services, was outcompeted, and was left with uninsured and underinsured patients. Dewan and Sack (2008) reported that Grady has run deficits for 10 of the last 11 years, accumulating millions of dollars in debt. It became difficult for Grady to pay suppliers on time, resulting in shortages in essential supplies. Needless to say that with shortages in supplies, outdated equipment, outmoded tracking systems, stories of corruption and cronyism among managers, lawsuits from patients, stressed staff, and no ability to attract the most qualified staff, Grady has been delivering poor-quality services, ranking among the worst-performing hospitals in the United States. Dewan and Sack (2008) explained that a consultant concluded that Grady needed an organizational transformation through the creation of a new nonprofit organization that would manage the hospital. However, the consultant found that leadership was unable to make decisions needed to transform Grady. In other words, the issue of financial sustainability at Grady hospital involved not only profitability (chronic deficits), liquidity (cannot pay suppliers on time), solvency (unsustainable debt), but also problems of governance (corruption and cronyism), leadership (inability to make tough decisions), strategic planning (short-term infusion of cash to address a long-term financial problems), human resource development (stressed staff), program evaluation (poor-quality services), technology (outmoded tracking system), and other facets (social marketing, community relations, asset mapping, organizational transformation) that may seem not related to finances, but with implications for financial sustainability.