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Nonprofits Need a Bottom Line: 5 necessities for running a sustainable nonprofit

When most people hear the word “nonprofit”, they think of many small initiatives that profess to support a cause. Not-for-profits indeed provide a mission that will drive the activities of the business, but this should not be translated into not paying attention to the business details. The motivation and mission may be more philanthropic as compared to a for-profit company, but the need to run a fiscally sustainable business remains the same.

Although the methods used for a nonprofit’s business activities can include more documentation than that of a for-profit business, the results remain the same – effective and efficient process and implementation of the product or service that can remain sustainable.

The bottom line is necessary for sustainable business growth, whether it be for profit or nonprofit. Sustainability continues by creating long-term value in the business without exhausting the finite resources. By on-going investing into the potential and capabilities of the business, continual growth and profitability can take place. It can be seen in the following five areas:

1. FUNDING

Creating a unique product and brand isn’t enough. It takes repeatable sales processes to create a scalable business. Nonprofit organizations typically fund their efforts through donations, grants, sponsors and fundraising events while for-profit organizations need to obtain loans, make sales and interest investors for their products or services.

2. CUSTOMERS

A two percent increase in customer retention can have the same effect as decreasing a company’s costs by 10 percent. To put it another way, reducing customer defection rates by just five percent could increase by 25 percent to 130 percent, depending on the industry. Nonprofits look for donors, volunteers and sponsors to support their mission while for-profit companies will develop relationships with their customers to develop product and services that can maintain or increase their market share.

3. LEADERSHIP

Companies go through constant change, and leaders have to be agile enough to lead through transition. It requires introspection, self-awareness, and a strong understanding of short- and long-term strategy. A nonprofit develops a Board of Directors to balance the financial sustainability with the continual support of the social issue of the mission. For-profit companies create an Executive Leadership team that often have a financial stake in the success of the company through bonuses or profit-sharing.

4. TAXES

Tax changes impact wages, jobs, cost of capital, distribution of income and the overall size of the economy. Nonprofits have special tax exemptions that allow their services to be recorded as a public good. Individual donations are also considered to be tax-deductible. For-profit companies do not have these exemptions.

5. STAFFING

When a business knows exactly what they want and need to get their product or service completed, putting the right human resources toward accomplishing those tangible goals can make the difference. Nonprofits rely heavily on a volunteer staff to keep the cash flow and breakeven point in check with the outcomes of their mission. For-profit companies will consist mostly of paid employees and calculate their impact through a breakeven analysis that looks to obtain a profit.

 

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About the author

Debra Salsi, MBA, DM

Debra Salsi, MBA, DM became an MBA convert when her life and income doubled just by putting "MBA" on her resume. It was at that time when she gave up her life as a legislative aide, UN speechwriter, and copywriter, and instead began promoting MBA programs in the United States and abroad. She continues to publish and present worldwide.