What is the financial health of your organization? Recently, the Boston Foundation (TBF) report “Passion & Purpose” raised concerns about the nonprofit sector. According to TBF, nonprofits rightfully focus on mission – but they need to manage financially to deliver on their mission.
At the conclusion of the report, TBF suggested innovative strategies to improve the sector: 1) consolidation and restructuring, 2) repositioning, and 3) reinventing and reinvesting. While we would suggest you evaluate your financial health first, before reaching for these “medicines,” we will talk about some of these strategies in the future.
With our MCS clients, we emphasize financial goal setting as part of the strategic planning process. We were particularly interested in measures TBF used to determine the health of our sector. One of the indicators they used was profitability. (What?! When were nonprofits measured on profitability??!!).
Profitability is probably a new concept for most organizations. According to the TBF report, you should have a surplus margin in your budget to maintain health. The TBF report indicated that
Using the TBF report, you might check your organization’s financial health against those of others. “Grassroots Organizations” with a budget from $0 to $250,000 appeared to be more likely to meet the surplus margin recommendation of 2% to 5%.
For “Safety Net Organizations” (revenue of $250,000 to $50 million), the median profitability was 0.7%, well below the recommended 2% to 5%. These organizations need to plan even more effectively since they have larger staffs and often buildings to be maintained. If your organization is in the very broad range of $250,000 to $50 million, you can find more detail by sub sector in the report.
| Median Profitability |
Recommended Range |
|
| Grass Roots Orgs – budget $0 to $250K |
Surplus Margin 5% |
2-5% Minimum |
| Safety Net Orgs – budget $250 to $50M |
Surplus Martin 0.7% |
2-5% Minimum |
What about organizations which are in poor health? What if they can’t budget their way to health? In a future blog, we will focus on clients that have successfully used the strategies recommended by TBF
