How not-for-profits can achieve financial sustainability

Spark Strategy associate director Laura Reed offers tips to not for profits on how to get the most value from their planning process.

As the end of the financial year approaches, it’s a natural time for not-for-profit leaders to think ahead and consider strategic planning.

For those leaders thinking about your organisation’s next moves, here’s our health check on the sector and tips on how to get the most value from your planning process – particularly if diversifying income is on the agenda.

Sector health check

Not for profits in Australia continue to face headwinds: an uncertain funding and policy environment remains front and centre, with greater regulation, rapid professionalisation and the pace of technology change also contributing to upheaval.

NFP leaders report that they see responding to changes in the operating environment, diversifying income streams and clarifying strategic direction as amongst their highest priorities.

However, at the same time, they share that they don’t have confidence in their organisations’ financial strength and perhaps even more worryingly, many NFP leaders feel that making much more than a break-even profit isn’t appropriate and shouldn’t be a goal for their organisation.

Forty two per cent of NFP leaders expect their organisations to break even or make a loss over the next three years.

Self-earned NFP income is declining and the sector’s low appetite for risk and innovation is also having an adverse impact on revenue and social impact.

The sector’s access to investment needs to be improved and innovation in social impact is being stifled in part through government funding being funneled into a handful of dominant NFPs.

As a recent report on Australia’s non-profit sector puts it: “Overall, for the NFP sector to remain as effective as possible and to maximise impact, it needs to continue to evolve and faster than in the past. Something has to change for continued sustainability and that involves a combination of where funding comes from and how it is used.”

While the landscape isn’t particularly rosy, what’s clear is that not-for-profits need to continue to focus on financial sustainability and organisational resilience.

For not-for-profits, financial sustainability means diversifying funding to ensure a good spread of revenue sources, strong cost management and clever optimisation of existing assets, such as intellectual property, data, vehicles, buildings and land.

Organisational resilience means ensuring everything else lines up, the right vision and mission to achieve the desired impact, leadership and staff capability, technology investments and operational plans.

We often talk about the process of focusing on financial sustainability and organisational resilience as an uncomfortable journey, one where NFP leaders ask themselves and their organisational stakeholders some hard questions: Are we generating and spending our funding in the most efficient way? Are we really making an impact with our current program of activities? Do we have the right people on board?

And what better time to ask these questions than as part of your strategic planning process?

1. Planning your next steps

Here are our top tips to ensure you get value from your next strategic planning session and that you consider financial sustainability and organisational resilience as part of the process.

2. Involve your stakeholders

Have you properly mapped your stakeholders? Think beyond the usual suspects and make sure you bring in views from a range of stakeholders: board members, staff, beneficiaries, donors, funders, government, community members.

Ask them what value they think your organisation provides, what you’re doing well and what you could improve on.

3. Ensure you have the right vision and mission to achieve impact

Ask: What problem are we trying to solve? If you can’t clearly articulate this and see an alignment between the problem you are trying to impact and your organisational vision and mission, then this is an area to focus on up-front.

4. Consider external impacts

What are the threats and opportunities facing your organisation from the outside world? Do you know what they are and have a plan to address them? For example, how would changes in government policy impact your organisation? What about an economic upturn or downturn?

5. Imagine what financial sustainability could look like

Instead of just focusing on creating a strategy that maps activities and projects to be delivered against your current level of income, also think about what things could be like if you had additional revenue to play with, how much more impact could you create? What different things would you do?

6. Brainstorm revenue generation ideas

It might seem a little strange for a not-for-profit to be thinking about ways to make profit, but this revenue is critical to ensuring your organisation’s long-term future. How realistic is your current income level if you are to achieve your impact mission? Do you have enough reserves to weather changes, emergencies and to replace assets? Ask your staff to get involved, they may have some surprising insights about where savings can be made and additional revenue generated.

7. Think about what you can stop doing, as well as what you should keep doing and start doing

Have you been doing things a certain way for a long time? Is your organisation spreading itself too thin? Should you have more focus on fewer things? Think about whether you need to do everything. Could you partner with others to get the best use of each organisation’s strengths? These types of questions can help with thinking through your organisational resilience.

8. Communicate your strategy

It’s not enough to just involve stakeholders in creating your strategy; you also need to consider how to actively communicate your plans within and outside your organisation. It’s important to think about how to ensure all staff know what the strategy is about and how they contribute to it in their role.

9. Know if you’re on track

Think about how you will measure your impact early and build it into your strategic planning process. Knowing how you will track and report on your progress means you’re more likely to get value from the process and have insights to feed back into your strategic planning next time around.

To learn more, check out our whitepaper on sustainable business models for NFPs here.

 

Laura Reed is associate director, Spark Strategy. A version of this article was first published on Pro Bono Australia and is republished with the author’s permission.  

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