It feels important to begin to answer this question by noting that I have never been a staff member or board member who watches the organization’s health by watching the budget. I have always been much more focused on how well we are meeting our mission by serving our target population. While I am paying attention to human costs and benefits, I have been dependent upon colleagues to identify and flag monetary costs and benefits. Together, we develop a complete picture that moves us towards sustainable and resilient operations.
Over twenty years of working with nonprofit organizations of various sizes and in a wide range of capacities, I have never met an organization that was not constantly reviewing its budget. Comparing a projected budget to an actual budget on a regular basis is more than a mathematics exercise. It is an opportunity to bring awareness to current financial reality in a way that allows staff and board members to consistently review their assumptions and expectations. Resilience lies just beyond this process of review. Financial resilience hinges upon the organization’s willingness to acknowledge an unexpected outcome, tolerate a certain level of risk, and change direction when needed.
In a larger non-profit organization where I worked over a decade ago, financial sustainability was achieved with a wide view lens. Some programs operate at a loss by design while others generate revenue that allows them to operate. In fact, several programs were absolutely dependent on the continued success of a singular program that operated at a profit. A challenging year for the profit-generating program would impact the organization’s capacity to offer many of its other programs. The organization was aware of the risk and had protected against it by developing a large endowment. This feels like a common strategy in large non-profit organizations and it is probably an effective band-aid over short periods of time. The reassurance of a savings account or an endowment is not, however, the same as resilience.
In several smaller nonprofits, the most resilient aspect of an organization’s budget directly ties program expenses to program revenue. In this “fee for service” model, programs cover little or no organizational overhead and do not generate revenue that can be used in other programs. These programs become low-risk neutral line items that neither contribute to nor detract from financial goals. They do, however, allow the organization to meet its mission related goals.
I am currently on the Board of Directors of a small, young nonprofit organization and a staff member at a slightly older and slightly larger organization. At both organizations, the primary expense is staff. And, in both organizations, there is very little excess cash on hand for weathering financial challenges. There is no”operating reserve” and no endowment. Most programs generate little, if any, excess revenue that contributes to general organizational expenses.
Both organizations do, however, have resilient dispositions. Staff and board members regularly and honestly assess current operations in light of constantly shifting external and internal circumstances. This assessment of the organization’s current and near-future situation is an opportunity to evaluate risks and change directions when needed. These organizations are prepared to add, eliminate and modify programming and staffing to meet changing realities.
Resilience allows us to adapt to changing circumstances — and circumstances will always change. It sounds trite but it is true. Change is the only constant. Organizations that are both strong and flexible, adaptable and certain, build responsiveness and readiness into their programs and budgets.