Section 1. Developing a Plan for Financial Sustainability

Learn how to plan for the financial stability of your organization, including tips from folks who have been doing this work for a long time.

 

Sometimes, it seems like community work has a high price tag, and no one wants to foot the bill. There is so much change we want to see happen, but our finances are in such a sorry state that we're just trying to maintain what we've done so far. Staff is underpaid, overworked, and burning out; necessary programs are dropped or scaled back because there's no money; and closing the organization's doors is a constant fear in the back of everyone's mind. This goes on for years for many nonprofit groups; for others, the doors really do slam shut.

Sound familiar? Our question in this section is, how can this be avoided? Or, if this is the reality your group is faced with, how can it be changed?

Earning money - and as staff of nonprofit organizations, we do earn every grant dollar or other bit of funding we obtain - isn't a mystical process. It's not something that can only be understood by a chosen few. It's a process almost anyone can do. And with enough time and effort, it's a process that can be richly rewarding.

However, it's something that can't done well haphazardly. "If we need it, it will come," isn't a safe philosophy for members of community groups to live by. Many groups will say, "This is really important. Let's do it, and worry about the money later." Later, unfortunately, ends up meaning headaches and frustration, and being in the red.

In this section, we'll look at the basics of planning for the financial sustainability of your organization. We'll discuss what it means, why do it, and how to do it. Finally, we'll close the section with some tips from the field from folks who have been doing this work for a long time.

What is a plan for financial sustainability?

So what do we mean by a plan for financial sustainability? Simply put, such a plan is a tool used to help the organization or initiative - and more importantly, its goals - thrive. And allow it to continue thriving over the long term.

Although it might seem otherwise, a plan for financial sustainability is not just about getting money. Now, part of your plan might well be to raise some dollars. In fact, it probably will be an important part. You may raise money through donations, grants, user fees, or all of the above, to name a few examples.

But that's not the whole story. A financial sustainability plan will also include other types of resources you might obtain, such as in-kind support, volunteer staff, or shared resources from other organizations. It may even include convincing another organization to take on a project you started.

A simple rule to go by: If it helps keep your organization or its work going, and if it's something you would have had to pay for if it hadn't been a donation, then developing it fully will be part of your financial sustainability plan.

Like any other type of plan, a plan for financial sustainability includes objectives, strategies, and action steps to get and keep these resources. All of this should be made very concrete as part of your plan.

For example, a partial list of what your plan will probably include:

• A list of all items and needs of the project
• The amount required to sustain each item
• Current resources
• Required resources
• Potential matching and funding organizations or individuals, and
• Amount that will be requested from each organization, individual or funding source
• How it will be requested (and by whom, and when)

Your plan will also look at all of these things on a long and short term basis. That is, it will help you to consider your finances for six months from now, but it will also ask you to consider where you would like your organization to be in, say, six years.

Before we move on, a last important note here is what your financial sustainability plan is not. It's not the reason you are in business - it's not why you get up in the morning. If you had wanted your focus to be money, you would have gone into banking or something similar.

Planning for financial sustainability, then, is just one part of your overall plan for institutionalization. It lets you concentrate on your real purpose, whether that purpose is helping children live healthier lives or helping adults on their spiritual path. It allows you to "do more mission," in the words of author Peter Brinckerhoff.

So, while it's important to take care of the money, don't allow yourself to get so caught up in it that you forget what you are really trying to do.

Why should you complete a plan for financial sustainability?

One thing a plan for financial sustainability will take, if done right, is time. It's a long process. At least in the short term, it will take quite a bit of effort on the part of project staff. What are the advantages of taking that time and effort when you already feel overwhelmed?

By developing such a plan, your finances should become more secure, which means:

• An increased focus on your real work. You can do more of what you set out to do, because your focus can be on the mission, not just on day-to-day survival.
• Becoming more competitive in your field. For example, more money allows you to hire more and better staff, which, again, allows you to do more to obtain your mission.
• Easier transitions. A plan can assist your organization in successful transition when current funding is depleted or dries up.
• Following guidelines. Sometimes, you don't have a choice. For example, some funders require the development of a plan for financial sustainability as a condition of their grants. By having a plan already developed, you start a step ahead.

When should you develop a plan for financial sustainability?

The short answer is: it's never too early to start planning. If you need money, and you plan to be around for the long haul, you should do this from the start. Planning should take place as soon as the project begins.

Even if your organization has been around for a while and is going strong, it still makes sense to periodically dust off your plan and make sure it is still viable. Such a "check-up" might occur on a yearly basis.

On the other hand, if your organization isn't where you want it to be financially and the organization doesn't appear to be headed in the right direction, it might be time for a complete overhaul.

How do you plan for financial sustainability?

Every organization is unique, and each will have its own way of doing things. Planning for financial sustainability is certainly no different. For most groups, however, a process like the following can be very helpful. Try it on for size, and modify it to fit your own needs.

However, before you get started on your plan, it's important to think about what you really need and want in terms of financial sustainability. Ask yourself, "Because our initial grant was for $100,000, do we need to have another $100,000 for next year?" Think creatively about what you have done and will do. Just because the program ran last year, is it worth doing again next year? Should your organization or group continue to do it, or should you try and get a different agency to take on a program?

Also, think about what taking money or earning money in different ways will say about your organization. Funding in and of itself does not guarantee success or failure - poor groups may flourish, and rich ones may falter. The way funding decisions are carried out, however, can make very different organizations. For example, if your group has a high membership fee, will those who can't afford to pay it find your group elitist? If your group has a lot of money and a beautiful facility, will some of the people you are trying to help feel uncomfortable using your services?

The lesson here? Think broadly about your funding needs from the start. With that in mind, let's look at a step-by-step method for how to develop a financial sustainability plan.

Decide who will develop the plan

If you have developed a financial sustainability committee, as suggested in the previous section, these are the folks to do the work. If you don't have such a committee in place, you might consider forming one, or at least a temporary working group. Board members are often key members of this type of committee. Developing a plan is easier, more enjoyable, and more effective with shared leadership.

Let everyone know what you are doing

Let staff, Board members, and your funders know what's going on. There are two reasons for this. First, they might have some excellent suggestions your working group wouldn't have considered. If so, your plan will be even more effective than it would have otherwise.

Second, it helps build an atmosphere of trust and mutual respect. There aren't unanswered questions, rumors in the office, or feelings of being "left out of the loop." Open communication is a very important part of any organization. Especially where money is concerned, people get antsy. Putting your cards on the table can take care of problems before they occur.

Conduct an internal audit

That is, find out what resources and expenses your organization has right now. You can't decide where you are going if you don't know where you are now. You need to know:

• How much money you currently have
• How much money you expect to have in the coming year, two years, etc.
• Where it is from
• What you do with it - how much money goes to programs, staff, etc.
• How much debt you have

You probably already have this information in your annual budget. If so, now is the time to dust it off. Make sure that all of the information is correct, and that everyone working on your financial sustainability plan understands it. If you have money coming in but haven't taken the time to write out a budget, now is the time to do so. If your project or initiative doesn't yet have any funding, of course, you can simply go on to the next step.

Determine how much money you need

This is really very similar to doing an internal audit, and you will probably use a lot of the same information. The difference is this step really asks you to think about what can be cut from what you are doing; if you absolutely needed to tighten your belt, what could you afford to lose? What would a bare-bones budget look like?

This step breaks down into two parts: listing what you are currently doing that is essential to your mission, and then looking at what each of these things costs, as well as at your general organization costs.

What you are currently doing

Make a list of what your group is doing now that is:

• Essential to your mission
• Something that your organization should be doing

The first of these points is more obvious, although there may be some disagreement as to what is essential to the mission. For example, if your group is trying to reduce teen pregnancy, is an after-school club (to keeps busy during "unsupervised" time between three and six) essential?

Decisions on what is essential will mean different things to different groups - there's not a set formula for making them. Because of this, an idea of what is necessary should be made as a group, with everyone working on the plan giving their input. It should also be clear to members that even if something a group is doing is decided to be "non-essential" to the mission, that doesn't mean it will necessarily be cut. What you are doing is trying to get an absolute base cost for your group's work.

The second of these two points - are these activities your group should be doing - is an important step that's often forgotten by community groups. Some of your activities may be very important to reaching your goals. At the same time, however, maybe they are activities that should really be done by someone else.

For example, if your group is a coalition trying to revitalize the neighborhood you live in, an important part of your project will probably be to develop a job training program to make neighborhood residents more "marketable" to employers. However, should coalition staff itself run such a program? It might make more sense, for example, for the coalition to partner with the local community college or a "jobs for young adults" program who already have a structure for this training, as well as a lot of experience in doing it.

Before you make your list of "essentials," then, be sure you have pared it what really is the minimum. You can always add to what you are doing, as money becomes available, but this list will give you something to start from.

What each of these things costs

Now, figure out how much it costs to continue doing these activities. Consider both programmatic and staff costs as you figure out this base amount. Again, this part will be very similar to your annual budget.

Along with program costs, there are also expenses that are independent of programs you are doing. Costs such as office rental, utilities, and the organization's newsletter are three examples of bills that need to be paid that are not necessarily associated with any one of your programs. Be sure to add these in as well.

Decide how much money you want

This step is the opposite of step four. There, we suggested you figure a bottom dollar amount you could live with. Now, we ask you to go to the opposite extreme, and come up with a top dollar amount you would like to have.

In short, this is where you get to dream. Think about your long-term goals - what do you really want to do? If money weren't a problem, what would you like to see happen?

In this step, you will want to go outside of your planning group to get ideas. Talk with other staff members and clients for their ideas of where they would like the group to go - what they would like to see occur. The group as a whole, or members of the coordinating council, might make initial recommendations on which of these ideas are worth pursuing.

Also, even if your organization didn't add any new work or programs, chances are there are still things you would like to find money for - a copier, a full-time administrative assistant, a computer. Be sure to add these items for the organization to your wish list as well.

Next, make those dreams more concrete. What it will take (in terms of resources) to accomplish these goals? Will you need more staff, and/or better trained staff? A new building? Write down a list of what you would need over what period to make your vision happen. Then, next to each item, write down an estimate of what that would cost. Break the list down into first year costs, second year, etc. You might want to write this down over a five year period of time, or even longer.

Compare the amounts set out in the previous three steps

How far are you from your goals? On an annual basis, how much money will you need in the next five years to reach all of the goals you have set out?

Set objectives

Now, look at the information in front of you and decide how much funding it may make sense to go after at this point.

If your organization already has all of the money it needs (or is very close) this step might be very easy. You might set objectives to earn every dollar that you came up with a use for in your ideal situation.

On the other hand, however, if there is a huge gap between how much money you have and the ideal amount, you may want to make choices, so that all of your time isn't spent doing fundraising. In this case, you might look at which goals it makes most sense for you to pursue right now.

From these choices, you can set specific funding objectives, both short and long term. For example, a short term objective might be increased funding next year for two more positions; more long-term funding goals might include the development of an endowment, or buying (instead of renting) office space.

Consider the available possibilities

Brainstorm available funding possibilities.

What are different ways to obtain resources that make sense to your organization?

• Leveraging shared positions and resources
• Becoming a line item in an existing budget
• Incorporating activities and services in organizations with a similar mission
• Applying for grants
• Using existing personnel resources
• Soliciting in-kind support
• Fundraisers
• Using third-party funding
• Developing a fee-for-service structure
• Acquiring tax revenues
• Securing endowments and giving arrangements
• Establishing membership fees and dues
• Developing a business plan
• Creating a for-profit corporation to help pay for the nonprofit side
• Have programs be "picked up" by other organizations

Another way to look at it: Finding funding from partners

Most of the possibilities listed above are things your organization can do on its own to try and raise money. However, most community groups work with other community agencies to reach common goals. And different groups have different resources available that might be shared. A good bet, then, is to work with other groups in your community to see how things can best get done, and what resources they can obtain for your group.

For example, if you are doing a violence prevention program, the police department may be able to get money your group is not eligible for directly. However, they might share those resources with you to get the job done. The local school district may have money available for substance use prevention programs, and so on.

What possibilities exist in your community?

Decide which funding possibilities you will follow up on

Now, consider which of these possibilities make the most sense for your organization. Questions that might help shape your decision include:

• What will be easiest for us to do?
• What possibilities hold the highest likelihood of success?
• What would we enjoy doing?
• How would any of these funding strategies change what we do?
• What is most in keeping with our mission?

Strategize how to get what you want

Who will you need to work with to implement your funding strategies? What would make them want to help you? What can you do for them?

Sometimes, we'll complain that everyone just wants to know, "What's in it for me?" Those of us working in the nonprofit sector often have the idea that there shouldn't need to be anything in it for them - that donors should simply give from the goodness of their hearts.

When you think about it, though, that attitude might be a little naive. All of us have reasons for the things that we do, or we simply wouldn't do them. Those reasons may be simple - to make us feel better, to avoid negative consequences, or just out of habit. But however simple they might be, those reasons do exist. When planning for financial sustainability, we can't afford to expect potential donors to be any different. Many want recognition; others want to spread their values or interests in the community; other might simply want to feel good about what they are doing.

Find out what potential donors want and how you can give it to them. For example, foundations often say they are most upset to receive applications from people who have clearly not read their guidelines. Knowing this, you can be sure to follow granters' guidelines to the letter.

By knowing what potential donors want, you will have a better idea of know what you will ask for, know how to ask for it, and understand what you can offer in return. See Tool #2 at the end of this section for ideas of what potential donors might want and how your group can give it to them.

Develop a timeline

The timeline should indicate the various actions to be taken, when they should occur, and who should do them.

Develop a draft of your plan

This draft should incorporate all of the information you have compiled so far, including:

• Your current financial situation, including you annual budget
• Your long and short term financial goals
• The broad strategies you will use to carry out those goals
• The timeline with specific actions
• A one page "executive summary" at the beginning of the document summarizing your work
• An executive summary is used for many types of business plans. It serves as a "cheat sheet" for anyone who is reviewing what you have done, and gets the facts out front so people don't get lost in the detail. It should be simple and concise.

Incorporate feedback on your plan

Document in hand, you're ready to get some opinions on what you have done. Key groups to have review the plan include:

• Staff members
• Board members
• Clients
• Key community leaders
• Current funders

Representatives from all of these groups can comment on the plan and make suggestions for improvement. Getting feedback at this point can be very helpful for at least two reasons. First, suggestions may be made that will make you plan stronger than it would have been otherwise. For example, something you have suggested might be impossible, and one of the reviewers might pick that out; or reviewers may have suggestions to build on your ideas.

Also, by allowing those who will be involved in implementing the plan the chance to modify it, it becomes theirs. Generally speaking, people are more willing to work on something that they created or at least believe in.

When asking folks to look at the plan, however, be sure to explain what the numbers mean. Misunderstanding financial information can lead to frustration and anger among people who are looking at it. For example, if a staff member earns $22,000 a year and sees that the annual budget is $500,000, (s)he may become very unhappy with his /her salary is (s)he doesn't understand where the rest of that money goes. Likewise, a program coordinator may be very angry about proposed cuts in her program if she doesn't have a full understanding of why they are necessary. On the flip side of the coin, if your organization carries a lot of debt, members may be led to think you are at the verge of financial collapse, and that they should be dusting off their résumés, even if that isn't the case.

The lesson here? Make sure those who are reading your plan have a full understanding of what it means. After everyone has had the opportunity to comment on the draft, the original working group can incorporate the suggestions as they see fit.

Implement your plan

With the revised plan in front of you, it's time to go do the work that has been decided on!

Monitor and evaluate your progress

When pieces of your plan have been implemented, however, you're still not done. As long as you are still in business, there is evaluation to do, monitoring of your progress, and tweaking or flat out changing things so everything works better.

Remember: planning never stops. It is ongoing, changes with the organization, and will need to be constantly revisited. This is true for all of our work in the nonprofit field. Earning money is no different.

Tips from the field

Financial sustainability is an uphill battle, and the challenge to get to the top can be one of the biggest frustrations we face in our work. Below, we have gathered a list of tips from people who have been through this process.

• It always helps to network, to keep informed about what's going on, and to develop connections with others.
• It helps to have someone in your organization who will take on the task of scouting and tracking those opportunities that might be available to you.
• If you can possibly afford it, you might consider hiring someone to do the work of writing grants for you. This can be worth the expense if your grant-writer is good, and especially if he or she is willing to work at least partly on commission. One next best alternative: find a sympathetic local professional with background both in grant-writing and in your content area to review your proposal for form and content; follow his or her advice.
• You can often find some other like-minded tax-exempt group or organization to make a formal grant application for you, if tax-exemption is needed and you are not tax-exempt yourself. That same group, often called a lead agency, may also manage grant funds received.
• If you do enter a similar arrangement, be sure and work out the relationship beforehand. Everyone's roles and responsibilities should be made very clear, as should what advantages both groups will receive from the arrangement.
• Successful fund-raising also depends upon your being in the right place at the right time, over and above the actual merits of you proposal. And funding deadlines are often short. These are even more reasons to stay connected with possible funding sources, and to have ideas and action plans developed so that you can be ready to move quickly when the right opportunity comes your way.
• Get to know your local politicians (legislators) well enough so that they return your calls, and make sure that they and other politicians understand your issue and its importance.
• Diversify your funding, so you aren't completely dependent on any one form of support.
• Continuity is important. Stick to your mission, keep doing what you're doing. It's helpful to have consistent people, consistently going out doing the same consistent thing. People know what you're all about, and it helps create the local base of support discussed in the last bullet point.

Some of these tips have been adapted from The Spirit of Coalition Building.

In Summary

Developing a plan for financial sustainability, as with any plan, takes a lot of work to be done right. It's intricately linked with the idea of institutionalizing your organization and its programs as a whole. By creating an effective financial plan, members of your organization will be able to do more to make your vision a reality and have your mission accomplished.