Financial strength and resiliency are more than just sufficient liquidity, operating reserves, and understanding risks. Nonprofits are facing a complex mix of challenges which require strategic leadership and adaptability. Effective adaptability depends on organizational structure and culture. Clear policies and procedures provide clarity and a strong foundation by clarifying expectations and essential internal controls, making it easier to adapt to changing circumstances without compromising accountability. A culture that promotes continuous learning supports a safe environment where everyone is empowered to share ideas, adapt to changing circumstances and innovate as needed.
Agility
A good starting point is understanding revenue streams. Nonprofits that rely heavily on a single funding source are particularly vulnerable to market fluctuations, policy changes, or shifts in donor behavior. Different grants and donations, however, come with different funder expectations, reporting requirements, and staff and administrative costs. It is essential to focus on revenue streams that match the nonprofits mission without funder restrictions.
Reserves are another agility tool that strengthens sustainability. Governance can build reserves aligned with the key needs of the organization. An operating reserve is a common designation. Other reserves may include program reserves or capital replacement or repair. Governance should create a written and approved policy to document guidelines for determining the reserve size and guidelines for use.
Learning Culture
An agile learning-sharing environment sparks curiosity and ongoing learning to effectively identify and respond to shifting community needs, changing regulations, and emerging technologies. When leadership fosters a learning culture and employee engagement, community needs are continuously assessed and staff learning and innovation are encouraged. Using data to guide decision-making facilitates proactive responses that maintain focus on mission while remaining flexible in strategy. Leadership resiliency also includes succession planning to ensure continuity when key individuals transition out of the organization.
Getting trapped in the short term often leads to focusing on survival thinking of how to do more with less resources. During the pandemic nonprofits saw how thinking both long and short provided courage to push through the immediate challenges without compromising the long-term purpose driven vision.
The benefits of thinking long and short include
- Avoiding trap of status quo while offering opportunities to build resiliency as circumstances change
- Experience in adapting in order to navigate around obstacles
- Builds capabilities to think and adapt
Governance
In addition to providing financial oversight engaged governance provides critical insight and expertise. Organizations that utilize a board matrix to ensure diverse skills, competencies, and experiences are more likely to have a board equipped to effectively optimize mission impact and effectively respond to changing needs. Effective nonprofit boards make informed decisions, communicate transparently, and inspire confidence in staff, donors, and community partners.
Assess Your Organization’s Financial Resilience
Understanding financial resilience starts with knowing where your organization stands today. Use our Nonprofit Financial Resilience Self-Evaluation below to take a quick look at key areas including governance, strategic planning, mission impact, risk management, cash flow, operating reserves, financial policies and procedures, and financial planning.
Score your organization in each area and use the results as a starting point for identifying strengths, opportunities for improvement, and areas that may need additional attention.
Final Thoughts
The challenges facing nonprofits continue to reshape the sector. Resiliency and adaptability are critical for organizations to continue their mission impact, but building that resilience requires intentional planning and an understanding of where additional attention may be needed.
Join me on September 16 for the free webinar, Is Your Nonprofit Financially Prepared for Change? During this virtual session, we’ll explore the characteristics of financially resilient nonprofits, discuss practical tools for adapting to change, and look at how financial reporting and planning can help organizations assess long-term sustainability. We’ll also walk through the self-evaluation above and discuss what your results may mean and where to focus next.
