Financial Sustainability in the Nonprofit Space

Sustainability may be one of the most over-used words in the world right now. It’s used in a myriad of different contexts from the corporate world to home appliances. We use the term sustainability all the time in the social good space – sustainable change, sustainable practices, eco-sustainability – but we never use it in the financial context. The ridiculous pressures of society on the nonprofit world has led us to this place where we are forced into survival mode, constantly relying upon grants and the chance generosity of others to fund the very necessary projects we run.

Conventional wisdom tells us that nonprofits exist out of a selfless, altruistic, you before me attitude that drives individuals to create organizations that can only ever give. This isn’t just, it isn’t empowering, it doesn’t solve problems, and it isn’t possible. This mindset puts an enormous pressure on staff at these organizations to quantify their every thought, to operate solely in the near term, and to close their fists tightly around every dollar. Societal norms are forcing the organizations best equipped to change the world into scarcity frameworks that will never be able to grow or expand. If we’re serious about delivering transformation, it’s time to reset our strategy and change the way we understand financial management of our organizations.

transactional --> investment = sustainability

Our current mindset sets us squarely in transactional models. The idea that we ask donors for X much, which means we can do X much right here, right now, and we can take pictures of it and post them on our social media feeds to prove that X dollars yield one smile… is crazy. It only allows for immediate loss or gain which solidifies the notion that the future is beyond our control and not worth thinking about or spending on. When we run our organizations on transactional models, we will never move into investment quality outcomes. If we’re waiting for the mega-grant/donor to magically appear and offer us the money we’ve always dreamt of to scale our work and multiply our impact, we may as well stop now. In these situations, it’s not the amount of money that matters, but our mindsets when it comes to managing it.

If transactional financial models are about immediate gain/return and using the money in a way the produces the quickest, most tangible outcome, then investment financial models are the opposite. The investment approach says that our organization is more interested in depth of transformation, continuity, endurance, and lasting relationship. When we’re employing the investment approach, we may not see those perfectly quantifiable results that donors love to see in their annual reports – but we’re dealing with big issues, real issues: human beings, animals, and saving the planet. Investment mindsets push us to think beyond next week and imagine how the financial decisions we’re making today are going to impact the communities we serve for the next 5, 10, 20 years. The investment model is built on the principle of sustainability with the core belief that the good we do only matters if it is truly and deeply felt beyond the outcome of our brief transactions.

The concept of transaction versus investment models is a relatively simple one, so what does it mean in practice?

Transactional:

  • Reliance on grants for day-to-day programming
  • Creating a fundraising budget based on the exact needs for one fiscal year
  • Working independently of partnerships with other nonprofits and corporations
  • Total reliance on donations and grants for revenue
  • Barely getting through the week without crying over money

Investment

  • Using grants as seed funding for projects with sustainable financial models built-in
  • Creating a fundraising budget based on needs for current fiscal year and scale/expansion projects set for the next 1-5 years
  • Working with like-minded nonprofits and corporations in the community to share resources and scale in tandem
  • Creating additional membership, marketplace, or sliding scale models in addition to donations and grants for revenue
  • Crying tears of joy over the lasting relationships and impact your organization is able to be a part of

Moving from a transactional model to an investment one does not in any way mean that we should stop evaluating our impact. Quantifying the work we do is important on a number of levels and we have a responsibility to our supporters to communicate the differences being made through the power of our organizations. What we have to be mindful of is the methods we’re using to evaluate impact and the metrics that we are looking at. Transactional models limit us to binary outcomes – getting one child out of poverty, building three wells, curing one type of cancer – but anyone who’s worked in the social good industry for more than five minutes knows that our outcomes reach far past that. We help sixteen-year-old girls work through their unplanned pregnancy, we share food with the family who is hosting us as we build their well, we do our best to empower leaders, we come up with missing dollars, sneakers, desks, water bottles. Our work is love, and love is much trickier to quantify than schools built or koalas saved (but it is possible to quantify, and the best impact evaluators know how).

So to resist another binary, where do you fall in the transactional <> investment spectrum. How is your organization financially structuring itself? If you feel like you’re leaning toward the transactional, Good Done Well is here to help you. We’re here to help you break down what exists, understand where you want to go, and put the financial structures in place so that you can do so sustainably. If you’ve recently moved from transactional toward investment, we’d love to hear from you. What’s worked, what hasn’t, do you have any wisdom for the rest of tribe? Comment, call, email, we love to hear from you.

We see you. We hear you. We love you.

With gratitude, GDW