BizWorld Lesson #1: Running Your Nonprofit More Like a For-Profit Business

Running a nonprofit organization (NPO) is all about making a positive impact, which is why many people exit the for-profit sector and dedicate themselves to a career that prioritizes social impact over the bottom line. Not surprisingly, some of the most successful nonprofits use the same strategies that big businesses use to not only stay in the black but also grow exponentially. With more money and resources comes the opportunity to make a bigger difference.

Have you considered ways you can run your nonprofit more like a business? We asked two prominent figures in the southern California nonprofit sector for help answering this question:

There are many fundamental differences between nonprofits and businesses, not least of which is that nonprofits’ objective is to make a difference, not make money. That said, there are some valuable lessons that can be applied to nonprofit management that can translate into a more efficient, stable and successful organization which can have a greater impact.

At their core, nonprofits operate with two bottom lines: social impact and fiscal success. Impact may trump the bottom line, but when the two work hand in hand, it’s easier to make wider strides toward social good.

Some nonprofits who run their organizations like a business have stopped using the term “nonprofit” altogether. “We have started using ‘social impact organization’ in its place,” explains Melissa Beck, ‎CEO of Big Brothers Big Sisters of Orange County. “I am incredibly conscious of my ‘profitability’ and hold us to being financially sustainable just as I would a business.”

Others are subjected to the kind of heavy scrutiny that accompanies many nonprofit operations. “The accountability for nonprofits increases every single year,” says Carlos Leija, the Chief Development Officer for Orangewood Children’s Foundation. “You might hear about nonprofits in national news stories that aren’t operated well or where there might be wasteful spending. We are really truly heavily scrutinized and we should be.”

Over the next several months we will explore the following lessons from the business world and look at how they can be applied to nonprofits, regardless of size, shape or scope of the mission:

Lesson 1: Manage capital wisely to ensure profitability

A focus on impact over earnings is typically the main reason professionals choose to work at a nonprofit. In reality, financial resources are a big part of being able to fulfill a nonprofit’s mission, so it’s wise to take queues from for-profit businesses in regards to managing capital appropriately and ensuring steady revenue. In short, it takes money to raise the money you need to make a difference.

“I am fully aware that I need to remain net revenue positive, and instead of transferring money to retained earnings at the end of the year, I get to make a larger impact by re-investing those funds into my operations and serving more children,” says Beck.

Because fiscally responsible nonprofits can make a bigger impact, organizing financials with strategic insight becomes critical. The backbone of any organization’s financial success is a solid budget. Create an annual budget plan and revisit it regularly. Your budget will tell you how much money is allocated for every expense category – such as administration, merit increases, fundraising, events, advertising, etc. If you run into any discrepancies throughout the year, refer to the budget and the organization will be more likely to stay on-track financially.

The Right Investments

Working capital is calculated as the current assets minus the current liabilities. Try to manage your working capital with a focus on ROI. Reduce unecessary expenses whenever possible, but also make sure to understand risk versus reward and remember that the right investments are key to making your nonprofit a success. The right investment might include:

• New or updated technology: Are you still using Windows XP? It might be time for an update because Microsoft has stopped supporting it. Other investments in technology could include:
  • Donor management software – still using Excel to keep track of your donors and their contact info? It’s 2014 people! You’re missing out on so many incredible tools!
  • Email service providers – still BCC-ing your mailing list? Please don’t. Email marketing software is inexpensive and will dramatically improve how often your emails are opened and clicked on (Donate now!)
  • Mobile-optimized website – Mobile now exceeds PC internet usage, which means your donors need to be able to use your website on everything from an iPad to a smartphone.
    
  • Payment collection – Do you accept credit cards? How about PayPal?
  • Mobile bidding – Still using physicial big sheets? If so check out these sweet templates. 🙂
• Adding a new position: Expand your team to meet the demands of today’s marketplace. Hire someone to manage your blog and tell your story or find a Social Media Manager to expand your online following and increase exposure. If financials are your weak spot, recruit a motivated individual from the corporate world to help you streamline operations and cut costs.
• Host a new event: Events are one of the best entry points for new donors. Maybe you have your eye on that venue downtown that’s just a little expensive or you can expand your fundraising efforts during other strategic times of the year.

Cutting Costs

Reducing expenses or “cutting the fat” is also a crucial part of running a healthy organization. This might include basic changes like printing black and white versus color, or big changes like eliminating redundant positions.

“Over time we’ve looked at not just how our dollars are being spent but how are we’re delivering our services to our youth,” explains Leija, “But to a greater degree it’s the internal look of how we operate, making investments in cost saving strategies and bringing it to the attention of our staff. I remember when the economy tanked 6 years or 7 years ago and we had educational meetings about cost savings and how we can be more efficient and effective within our organization. Something as simple as the difference between purchasing yellow post-it notes versus accordion style neon pink post-it notes. Or the difference between doing random runs to Staples and consolidating our efforts to make larger orders. It was so eye opening to see the difference in costs by streamlining something as simple as what we’re purchasing and how we’re purchasing it. It may seem kind of trivial, but those are some of the things we did from an organizational look inward so that we’re not only doing the right thing but also maximizing our donor dollars.”

Financial professionals can make a world of difference for nonprofits when it comes to crunching numbers and managing money. They can provide the expertise necessary to see the big picture, helping ensure long-term success. Large organizations often hire one or more people to manage finances – that might even include a CFO. Small-to-medium sized nonprofits might not have the budget to hire a full-time employee, so they might opt for bringing in a part-time person or hiring a financial firm on retainer. If there is a board member with experience in business finance, this person might volunteer to help manage the charity’s money and revenue flow. Just make sure any volunteers your recruit have ample time and the appropriate expertise needed.

Do you have any insight on managing capital that you’ve gleened from the corporate world? We’d love to hear about it in the comments below!

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