Financial Health“Money’s only something you need in case you don’t die tomorrow,” said Carl Fox in the 1987 film, Wall Street.

Interestingly enough, the same line of thinking can be applied to nonprofit organizations and associations. In a recent article, “How to Mitigate Revenue Losses” financial expert Christine Melendes shared that many organizations experience revenue losses and why it’s crucial to stay on top of your organization’s financial health so you can anticipate them.

Melendes said that whether it’s failing to meet conference attendance goals or advertising projections, it’s not so much if an organization will experience a revenue loss, but when an organization will experience a revenue loss.

As a comparison, take a look at for-profit organizations. They compete in a “survival of the fittest” marketplace. Losing focus of the customer or failing to stand apart from the crowd can quickly lead to a loss of revenue and clients and put the business’ financial health at risk. While nonprofits aren’t subject to meeting expectations of their shareholders and posting quarterly profits, they can benefit from adopting a mindset similar to that of a commercial organization.

Consider the following statistics from the 2018 Nonprofit Standards: A Benchmarking Survey published earlier this year from assurance, tax and financial advisory services firm BDO:

  • Among all nonprofit organizations surveyed, only 46 percent have six months of operating expenses on hand.
  • A little more than 40 percent of organizations say that meeting demand for their services is a challenge, and yet many of them are responding by doubling down on spending.
  • Only 30 percent of nonprofits saw a substantial increase in revenue. One-third of nonprofits say revenue increased somewhat while revenue stayed static for about one-quarter (23 percent), and just 13 percent reported a decrease.

Additional funds give mission-driven organizations the opportunity to increase their impact and expand their reach but also the opportunity to save for the next time they experience a revenue shortfall. Adopting a handful of best practices from the for-profit world can go a long way in ensuring your organization is well positioned for long-term stability and growth.

I’ve spent nearly 30 years helping companies make smart financial decisions that drive the business forward and achieve our long-term goals. Here are a few tips that nonprofits should keep in mind for ensuring their financial health:

1. Greed is…Good?

Well, greed is good when it comes to the greater good. I once read that “Nonprofit is a tax status, not a financial situation.”At their core, every nonprofit has an important mission and constituents to serve. The more money a nonprofit has at its disposal the more it is able to invest in both the change it aspires to make in its community and to further improve the lives of its members and donors.

Driving revenue is as important for nonprofits as it is for their commercial sector peers. There’s no shame in wanting to achieve aggressive revenue goals if it helps you attain your vision.

2. Invest With ROI in Mind

With limited resources, it’s imperative that nonprofits get the biggest bang for their buck. Spend thoughtfully and stay within budget, but also monitor how your spending activities are contributing to the bottom line.

Is a gala performing the way you think it should? Could you invest those same dollars in another way that would drive greater value in terms of fundraising or on behalf of your programs’ beneficiaries? Another way to evaluate performance would be through a cost-benefit analysis, where revenue and associated costs are aligned to provide visibility across all teams – not just at the executive level.

3. Make Data-Driven Decisions

In the commercial sector, data-driven decision making has become commonplace from managing expenditures to understanding new initiatives. The time has come for all nonprofits (regardless of size) to do the same. In a recent report, McKinsey Global Institute found data-driven organizations are 23 times more likely to acquire customers and six times as likely to retain customers.

Nonprofits should lean into the volumes of data coming into their organization to empower smart decisions. For a few examples, check out the nonprofit innovators and leaders we’ve featured who are leveraging data to make smart decisions on how they engage members and donors, drive revenue and ensure the long-term financial health of their organization. Hear their stories.