Nonprofit Sustainability Planning: 3 Questions Your Board Should Ask
A nonprofit sustainability plan identifies what and how resources will be generated to implement strategic and annual goals. The sustainability plan is the long-range income side of a nonprofit’s budget: a goal (sustainability) and strategies (types of sources of funds) that demand the board’s understanding and commitment as part of its fiduciary duty of care.
This month’s column offers three questions a board can ask to ensure that its mission can be accomplished. The short and long-term source of funds matters to the board for this purpose.
Sustainability Planning: Executive vs. Board Disclaimer
I want to assure nonprofit executives that I do not believe that nonprofit boards do instinctively know the ways of financing a nonprofit’s work. I believe this knowledge is the domain of the executive.
At the same time, as I stated in the overview of this column, I do believe that a board has the responsibility for understanding how the nonprofit will be financed and, going a step further, endorsing this plan with the recognition that they may well be needed to ensure the plan’s implementation.
A Board’s Sustainability Plan Questions: Fully Informed
Here are three questions a board should ask about a proposed sustainability plan. These questions, of course, should be used repeatedly in the review of the progress on the plan (a dashboard). The questions I propose will help provide confidence that planning goals and strategies are feasible.
Q1. The market question: What sources are available to support what we do? This question is best answered through a review at the broad and specific types of financing sources, likely through a process of elimination. A second part of this question: What and how is the competition doing in pursuit of these sources? Competition can limit possibilities or open up possibilities to do together what may not be as effective by a nonprofit going it alone.
Q2. The history question: What does the organization have going for it programmatically and in the pursuit of financing options, particularly in reflection of what we have done best?
Q3. The capacity question: What resources, including board members, are needed and possessed by the organization (e.g. access—board members) to pursue optimally identified opportunities? An alternative to the question: What, if any, role can the board play in the attaining of funds, noting that access to many sources of funds is relational and may also take multiple years?
As part of the strategic planning process or during an annual plan discussion, these three questions can provide a board with a higher level of confidence that mission activities will be secure, not just annually, but over time. And to provide a big-picture view of what sources might be included in a sustainability plan, I have provided the following primer.
The Sustainability Marketplace: A Primer
To help inform a board’s lens, it is helpful to consider what the possible sources of income (aka revenue) are. I count three big-bucket sources of nonprofit money. Donations that can come from:
• Individuals who are believers in the mission or cause—someone connected to a board member or staff, or as former or current beneficiary—makes a gift either by coming to an event, through an annual donation, as a special or infrequent “major” gift, and/or as a planned gift.
• Foundations (community, private or corporate) make grants, can make a social impact loan (investment) to identify and test solutions to agreed-upon challenges or support a solution to reach specific populations and sometimes for buildings or general operations.
• Businesses. Corporate and small businesses sometimes have giving programs that serve the interest of marketing or employees, and sometimes the general community (toward positively positioning the business), or even to solve a commonly community agree-upon problem.
• Government—federal, state, county and municipal—all to achieve publicly agreed-upon outcomes with financing in the form of grants, contracts and bonds.
• Civic and service organizations (e.g. junior league) to support the interests of the members and organization.
• Faith institutions that support the mission, but, again, with connections.
• Federated or collective sources, like United Way payroll deduction or Collective Impact.
• Earned, which can also come from all the sources identified above and as a payment for services or products, either directly or through a third party, like the state or an insurer, which reimburses for delivered services. I believe that more nonprofit services are delivered to the state on a contract, fee-for-service basis than as a grant.
• Unearned. Built originally and predominantly from individual’s planned gifts and/or annual surplus, and gets put aside and in bulk generates interest.
A sustainability plan is the essential tool that guides the board and staff to ensure that there are enough funds to pay for pursuit of mission. The board has a fiduciary role in understanding, taking action in considering and endorsing, likely playing some role in the implementation of the plan, and monitoring progress. Questions by the board about market options, history and capacity will provide members with confidence that the plan is feasible and will succeed.