This guest post is from Richard Brewster, sole proprietor of Nonprofit Leadership, which offers consulting and training services to the board and staff leaders of nonprofits. He is also executive director of the National Center on Nonprofit Enterprise (NCNE).
Have you ever "ghost dialed" someone? You know, when the phone in your purse or pocket accidentally dials a number? Well, that recently happened to me with an accidental call from a board member of a human services nonprofit. We were surprised to be talking to each other but continued. The organization was well known in its community and had been successful, but our conversation ended up being pretty depressing: The nonprofit was in the process of shutting down.
I did some research and discovered that the organization's budget grew from $5 million to $10 million in just five years. Then a crisis came, they lost a major source of revenue, and there followed a five-year, painful decline.
Why did this happen? A little more research into this sorry case and some reflection on others' experience suggest four key conditions of sustainability that need to be met in order to survive a crisis like losing funding:
- Sustainability is not just about the dollars. A nonprofit's programs need to be relevant. The human services group offered only housing, even as other groups began to provide other services to people on low incomes, like day care, that enabled them to keep jobs to earn a living (and pay the rent.)
- Programs have to have real impact. I know an agency that helps people with disabilities survive a crisis, like a health problem. Its activities make an immediate difference, but the same people keep coming back for help, and the lack of any lasting change is beginning to lose them funding dollars.
- A nonprofit has to be adaptable. You need people with the time and skill to plan ahead, build new relationships, and innovate programs. You need the money to pay them and reserves to make sure that they are not diverted by a crisis. The now defunct nonprofit, throughout the period of its growth, had one, part-time, untrained, bookkeeper as its sole financial "manager," and no reserves.
- A nonprofit will be adaptable and achieve real impact and relevance if it has strong, strategic leadership. Specifically, the board and executive director of a nonprofit need to reflect regularly on how relevant and impactful their nonprofit's programs are and how they can keep it adaptable.
These are not academic points. While the human services agency began its decline, a substance abuse nonprofit in the same community also grew rapidly and then hit a major roadblock. A key difference was that it had maintained a strong management team and built up reserves. When their crisis came, they lost $2 million of income out of a budget of $8 million, but still survived. Services in this region for people with substance abuse problems now achieve greater impact and are more secure as a result.
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Here's related resource from our collection:
How much should my nonprofit have in its operating reserve? (Knowledge Base Article)
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