Financial Sustainability Plan

Many nonprofit organizations are faced with a constant challenge to match financial sustainability with their vision and mission statements. Some of the challenge may have to do with how much money they can successfully raise. This aspect can be manipulated by greater fund-raising efficiency and effectiveness. However, the other part is more challenging because it has to do with the nature of a nonprofit organization whose bottom line is value based, and not money based. This chapter will suggest approaches and best practices in developing a financial sustainability plan (FSP) for a nonprofit organization. The chapter will include a step-by-step process to use to develop a financial sustainability plan.

WHAT IS A FINANCIAL SUSTAINABILITY PLAN?

The financial sustainability plan is a document that outlines long-term financial goals, strategies, and action plans that will enable it to sustain unforeseen times of financial hardship. Some may wonder, "Why is a financial sustainability plan needed?" This is a fair question, especially when an organization may already have a strategic plan. However, you need to remember that a strategic plan aims to set the strategic orientation of an organization and tends to focus primarily on programmatic priorities. It is common practice to find some aspects of financial or fund-raising goals in a strategic plan, but this is not its primary purpose. Therefore, a plan that focuses essentially on financial sustainability is very important. The lack thereof is also a statement about the level of emphasis put on financial sustainability in a particular nonprofit organization. A financial sustainability plan forces an organization to engage in systematic analysis about its financial ability to continue to provide services over time. It helps an organization understand whether there will be long-term financial resources to continue to fulfill its vision and mission. A financial sustainability plan focuses on priorities and on how sustainable some priorities may be. Further, with a financial sustainability plan, a nonprofit organization has to make a concrete commitment by allocating budgetary resources to implement an action plan that can engage in or sustain a path for financial sustainability.

ELEMENTS OF A FINANCIAL SUSTAINABILITY PLAN

A financial sustainability plan should include an executive summary, financial sustainability analysis, financial ratios analysis, strategic goals and objectives, action plan, benchmark and outcomes, continuing quality improvement strategies, and budget (Figure 11.1).

EXECUTIVE SUMMARY

The executive summary is a synthesis of the overall financial sustainability plan. It is a single page summarizing the justification for the plan, the main findings from the financial sustainability and financial ratios analyses, the strategic goals and objectives, the key benchmarks and outcomes, the strategies for continuing quality improvement, and the total costs.

Financial sustainability plan.

FIGURE 11.1 Financial sustainability plan.

JUSTIFICATION

The justification of a financial sustainability plan must take into account the short- and long-term needs of the target population, the challenges and/or obstacles to overcome, the strategies and action steps needed to generate or mobilize needed resources and overcome anticipated challenges, and the key partners that can make a significant positive contribution to the process.

As indicated in Figure 11.2, the justification of a financial sustainability plan should include information on the critical needs of the client or the target population, the challenges for the future, the contextualization of what I refer to as an expression of criticality, a call to action, and an overall purpose.

Client needs: Nonprofit organizations are created primarily because of needs in communities or target populations. Obviously, some of the needs are "real need" or serious issues that constitute threats one way or another to individuals or groups in a community. Other needs are simply "perceived needs" or what people may want or desire, although they do not pose a threat to their health or security. Clients can live with their perceived needs, but may not be able to without having their real needs met. It is up to an organization to develop appropriate analytical tools to distinguish between real and perceived needs. A justification of a plan for financial sustainability must provide evidence related to the literature that the needs targeted by such a plan are real needs, and not perceived needs. This is important for accountability and stewardship. The description of client needs must provide background information about the target population to set the overall context of the plan. Information can be found in various sources, such as national censuses, electronic databases, survey reports, scholarly publications, internal data collected from programs, and any other credible source.

Challenges: The justification must describe current trends, issues, or challenges in the target population, and explain the likelihood of such challenges to be part of the reality of the target population. Projections from credible sources should be provided. In the absence of such a projection, there should be an effort to develop projections based on current trends, taking into account internal and external factors that can affect the target population.

Criticality: Organizations are likely to be confronted with challenges, especially financial constraints that can jeopardize their ability to continue to remain in operation. These

Justification statement.

FIGURE 11.2 Justification statement.

constraints must be anticipated to the best of the ability of leaders and managers of nonprofit organizations, and I label that fact "criticality." Criticality refers to a point at which there is a need to acknowledge a sense of urgency. Criticality is a sense of alertness in relation to an organization's ability to secure enough financial resources to continue to provide quality services to clients over time, even in the event of changes in funding sources or a financial or economic crisis.

What If ...

Probability

Severity

Consequences

Low Medium High

Low Medium High

Least likely Most likely

For example, the matrix could contain information like, "What if a major grant is not renewed next year?" Based on the situation of an organization, the probability can be low, medium, or high. The severity of the probability can be low, medium, or high. Consequences from the "What if ..." probability and severity can be least likely or most likely. The criticality describes past and current options to address the clients' needs and overcome challenges, the limitations of the options, and the meaning of inaction.

Call to action: The call to action is basically one or two paragraphs that summarize the rationale for an organization to develop a plan for financial sustainability based on client needs, challenges, and criticality.

Purpose: The purpose is one or more sentences or possibly a paragraph that sets the overall purpose of a plan for financial sustainability. The purpose focuses on (a) what the future financial position of the organization will look like if the plan is successful, (b) what change will look like for the target population when their real needs are met irreversibly.

 
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