Nonprofit: It’s Still a Business

I recently had a few conversations that reminded me of one of my principles of fundraising: You may not consider your nonprofit organization a business, but if you don’t run it like a business, you will go out of business.

You may be nodding as you read that statement, especially if you have been part of a layoff when a nonprofit organization simply didn’t have enough money to keep operating at the same level it had been. You know the frustration of hindsight or, as the old saying goes, “closing the gate after the horse has escaped.” Seasoned fundraisers know there is no unlimited supply of silver bullets for raising money fast, and a lack of accepting a financial reality and adjusting accordingly has been the curse of many a fundraising program.

If you’re not sure why “business principles” matter to a nonprofit, consider these three characteristics of an effective nonprofit organization that can withstand the financial ups and downs that can occur seemingly without warning.

Characteristic 1: Leadership
A nonprofit that is running like a business has a board of directors that questions, challenges and sometimes says “no.” While a rubber-stamping board may sound like a dream, the reality is that, as employees, we can get myopic when viewing our organization, forgetting that we can’t control the actions of our donors, the media, staff turnover, government regulations and the many other things that can impact our bottom line. The board needs to be engaged and to set the course for long-term stability, not just short-term sizzle.

I was recently talking to an executive director of a growing nonprofit that was established about a decade ago. I asked how their board changed as the organization grew from a start-up. The reply was, “The board stopped counting pencils and started leading.”

Characteristic 2: Financial Sense
In a blog entitled “Ten Characteristics of a Successful Business,” Neil Ducoff wrote:

“Financial literacy is a non-negotiable skill in business. This doesn’t mean that the owner needs to be an accountant or have the skills of a bookkeeper, but it does mean that the owner knows how to read and understand financial reports and use them to make the best possible business decisions.”

I recently had a conversation with someone who was talking about some very real challenges with cash flow. Yet, in the midst of these lean times, other staff members were talking about moving staff from part-time to full-time. An organization that is looking toward a long, successful future knows that sometimes “not now” is the best answer when confronted with an opportunity—no matter how great—that will increase expense. Lost opportunity may cost, but running out of money brings a price that may be far steeper.

Characteristic 3: Systems and Procedures
Managing your nonprofit organization or a department, no matter how small or large, means keeping one eye firmly affixed on the future. But it also means making sure you have a strong structure today. This means contracts or letters of agreement for everyone who provides a contractual service, job descriptions, expense policies, etc.—all conforming to best standards.

I have heard some nonprofit employees use “less-than-market pay” as a reason why staff policies are loose or personal relationships as an excuse for not having an agreement in writing with a contractor. Having a structured system in place should not deter employees or service providers. In fact, they should be welcomed as they make clear what is expected on both sides. Again quoting Ducoff, “Anything less than a deliberate and structured approach to business infuses mediocrity into all activities. Mediocrity never wins in business.”

So what can a fundraiser do if his or her company lacks the basic business structure that is attributed to successful companies? The bottom line is to control what you can control. You may not be able to write policies for the entire organization, but you likely can:

• Set standards and institute procedures for your own team—even if the “team” is only you.

• Determine to operate at all times within budget and avoid committing to an impossible goal simply because “we need the money.” When you have no choice, be polite, but firm about why you believe that to be unattainable. End by saying that you will work as hard and as smart as you can to achieve it.

• Prepare reports to the board that give short-term results, but also lay out a strategy that is focused on the future. If the board wants to “count pencils,” don’t argue, but also invite them to step up to leadership through thoughtful communication that generates discussion of eventual opportunities.

Winston Churchill, the British Prime Minister who brought his country from the brink edge of defeat to victory in World War II, said, “Success is not final; failure is not fatal. It is the courage to continue that counts.” This old dog encourages you to accept that instilling business best practices into your nonprofit organization may not happen overnight, but if we truly believe in the work we do, it’s a charge worth leading.