Far too often the term "non-profit" denotes a variety of negative financial images: low salaries, precarious financial states, poor fiscal controls. Non-profits can be viewed in the business world as the lone minnow swimming among a sea of sharks -- easy prey. The organizations themselves often devalue their assets and underestimate their own worth, leaving themselves open to exploitation. An endless cycle of poor operating and financial decisions can ensue, all under the guise of mission fulfillment and "non-profit" status. However, this paper will seek to assert that operating an organization utilizing basic business principles is in fact not contradictory to the term "non-profit." Through a discussion of four actions, this paper will conclude that business thinking can in fact help a non-profit meet its goals more efficiently, expand its work to reach a broader audience and, ultimately, fulfill its mission in a more dynamic manner.
Invest in those who invest in you
This premise may seem very simple, but is one that many non-profits seem not to take advantage of. While most non-profits may not have the operating budget of the brokerage house down the street, the funds they invest into the community within which they operate are worth more than what initially meets the eye. Many times non-profits derive revenue from either membership or sponsorship of the organization. More times than not, this revenue is crucial to non-profit operations as these funds are unrestricted in a way that foundation grants or donor dollars are not. So it's in an organization's best interest to garner as many of these funds as possible. One method for increasing membership/sponsorship revenue is reciprocal investment. For example, a non-profit will obviously choose a bank in its community to do business with. One would assume that in the process of choosing a bank, the non-profit would also work out either a membership or sponsorship opportunity for the organization from that bank. In these tough economic times, non-profits should evaluate potential vendors who show the potential to support their organization through either financial or in-kind means.
Protect your assets
Another bad habit of many non-profits is that since they are not selling a product per se, they, instead, give away the entire store. Too many non-profits de-value their intellectual, relational, or human capital. Membership lists are given away, staff time infringed upon by outside interests, innovative ideas not properly guarded. In the for- profit world, actions such as these would lead to business failure. Undoubtedly, these actions can and will lead to non-profit failure as well. Since the organization itself is usually at fault for this, the best course of action a non-profit can take to reverse this type of behavior is to establish a policy in which one person (usually the executive director) is responsible for guarding the information and staff of the organization. The executive director should ensure that all involved in the organization are clear that all requests for information or staff time should be approved via this person. Creating a centralized structure for the flow of information can minimize leaks and protect the capital of the organization.
Further, the creation of strict guidelines for the receipt of services provided by the non-profit are important. Because they are not specifically dependent on a profit, many times organizations are less cautious about who receives their services. For example, an organization may be membership-based and active members may receive benefits such as a newsletter, discounts on services, etc. However many times, those individuals receiving these benefits are not closely monitored and thus continue to receive the benefits long after their membership has expired. Additionally, because non-profits are community-based organizations they may feel obligated to provide honorary or reciprocal memberships to those in the community. These memberships may go unchecked for years, long after the relationship has faded between the organization and the individual. Examples such as these highlight the necessity for accurate and timely record keeping, as well as the necessary follow through by the organization.
View every opportunity in terms of cost-benefit
Frequently when a new grant, potential alliance or an opportunity to raise revenue presents itself to a non-profit, the organization subsequently jumps at the opportunity. The potential for cold hard cash outweighs adherence to mission, the cost of staff time or even the ultimate feasibility of the action. Non-profits will shift their missions to apply for a grant to bring more funds into the organization or they'll hire a costly events planner to run their annual fundraiser -- the entire time ignoring the cost associated with these actions. Getting a non-profit to see every action it undertakes in terms of cost-benefit analysis will lead it a more stable financial foundation, and ultimately preserve its longevity.
Watch every cent you spend
Seems like the obvious? Well, it's not. While one might expect a non-profit to be overly cautious when it comes to spending, they are notorious for not paying attention to cash leaks. This may be because many non-profits do not have the rigorous financial infrastructure of a for-profit company. There are traditionally less checks and balances for smaller purchases within a non-profit, where as in most companies every cent has to be properly documented. When organizations do spend, they should be cautious, thrifty, utilize their non-profit status to garner discounts, and negotiate hard for favorable deals. Moreover spending should adhere to the budget set out at the beginning of the organization's fiscal year. That, if nothing else, should serve as the organization's biggest check and balance.
Managing a non-profit is never easy. Frequently non-profits face a variety of challenges that for-profits do not face. Tighter budgets, less resources, and simpler infrastructures can make work at a non-profit more demanding. That said, non-profit work can be extremely rewarding and it is beneficial to the community within which it works. Non-profits are a vital part of the societal fabric within a democracy. Encouraging non-profits to perform at their highest level can only further enrich the impact they can make. Strengthening financially is only one step to high performance, but it is undoubtedly a crucial one. Achieving that, a non-profit will have the freedom to work towards becoming an organization operating at its greatest capacity.
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Revised: August 14, 2003 TAF
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