Despite the size of the $1.5 trillion nonprofit sector in the U.S. - nearly 10% of the economy - nonprofits are subject to rather minimal independent professional scrutiny beyond annual audits.
Publicly traded companies publish quarterly financial reports, are subject to countless regulatory controls, and routinely field questions from (or must answer to) analysts, investors, and the press.
While this process isn't perfect, the transparency and accountability inherent to this system provides the public with the necessary information to differentiate outstanding firms from low performers.
If you work at a nonprofit and want to assess your own performance or if you are an investor looking to give to the most impactful organizations, how can you spot superior performance?
Here is a brief overview of ten things you should look for when determining if a nonprofit organization is a high performer:
- People. The best organizations attract and retain top talent with competitive salaries and a happy, supportive culture. The notion that nonprofit staff should work for pennies is an outdated, unproductive one. Relying heavily on this idea of martyrdom constrains an organization's growth prospects and ability to create maximal social impact.
- Social Return on Investment (SROI). High performing nonprofits don't simply ask for money, they rely on crisp and concise statements of their SROI to raise funds. An SROI statement outlines the organization's area of focus, the changes it seeks to make, proof that those changes are happening, and an understanding of the magnitude of the entire problem it set out to solve plus how much of that problem the organization will address.
- Business Plan. Standout organizations have concise, comprehensive, and compelling business plans built around their SROI statements. These business plans should detail aspirational goals, key performance indicators (KPIs), revenue strategies, 3 to 5 year financial projections, and team expertise/value proposition, among other key elements.
- Dashboard. Organizations that translate their business plans into 1 page dashboards that highlight KPIs around program quality and reach, financial health, and revenue metrics are likely high performers.
- Revenue. The best nonprofits can comfortably forecast how much revenue they expect over the next 12 months and update their revenue pipelines every 2 weeks. Additionally, these organizations effectively leverage all nonprofit revenue domains - individuals, corporations, foundations, government, earned income, and impact capital.
- Financial Controls. High performing organizations develop year-long, month-by-month budget forecasts that include detailed income and expense projections. These types of nonprofits frequently review their budgets to ensure they have a minimum of 6 months' cash in the bank. Additionally, high performers will readily share their balance sheets, income statements, or other measures of financial health when asked.
- Board. Are there at least 3 to 4 people on the board that possess deep experience in business, finance, and/or accounting? High performing organizations ensure that they have the right types of experience in place on the board and that the board practices proper governance and oversight, all while supporting the organization's staff.
- Relationships. The best nonprofits focus on cultivating relationships with current and prospective investors and don't simply appeal for money. These organizations actively share updates on outcomes and explain how specific investments have improved operations and increased the nonprofit's impact. They also take the time to learn what is important to each individual investor and leverage this information to further deepen the relationship.
- Growth. Just like the best businesses, the best nonprofits are growing. They are successfully creating social impact, raising money, and are growing 10 or 20% a year - or more.
- Joy. Joy permeates the best nonprofit organizations. There is nothing better than being part of a high performing organization that changes the world for the better.
KIM LANGENHAHN, Partner at Altruist Partners, brings 10 years of private sector management consulting, startup, and pro bono nonprofit advisory experience to Altruist Partners as the firm 's founding partner of its Washington, DC office. Through her work with healthcare, retail, energy, consumer packaged goods, and international nonprofit clients, Kim has gained a deep understanding of the strategic, operations, and execution issues that confront all organizations, from small nonprofit community hospitals to billion dollar retailers. She earned a joint MBA/MPP from the University of Chicago and a BA from Duke University.
More Like This:
Will Your Nonprofit Go the Distance: 4 Key Indicators of Longevity and Success (blog)
Impactful Programs: A Key to Long-Term Nonprofit Sustainability (video)
Nonprofit Management: Sustainability (Knowledge Base Questions)
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