Now, more than ever, not for profits need to be financially strong to drive their long-term goals. This was a key finding from the recently released 2016 NFP Governance and Performance Study from the Australian Institute of Company Directors, along with highlighting the need to have a long term strategy and the importance of collaboration across sectors (see our whitepaper Partnering for Purpose).
Profit in the social sector is no longer a dirty word. Not for profits (NFPs) can and do make profit, and without it, an organisation’s capacity to deliver its impact will shrink moving forward. But practically how does this profit-dream (or surplus-dream if that’s easier to swallow) become a reality in a long-term sustainable way?
The report finds that over a third of directors, from organisations of all sizes and sectors, believe a profit of 10 per cent or more is appropriate for NFPs. Although most NFPs are not achieving this and close to half report that their income for the coming year is highly variable or uncertain. And at the same time, half say they rely on donations and grants to replace assets, which together are strong indicators that many NFPs are not sustainable.
Entering into the final quarter of the year, it is the perfect time to be thinking ahead into next year about your organisation’s financial sustainability. Sustainability is not a year-to-year proposition, but by its very nature is a long-term pursuit with short and medium-term actions needed to set up for future impact.
Here are 16 steps that will help NFP leaders start their organisation along the path to sustainability:
1. Embrace the fact that this is a journey with the potential of a surprising outcome.
2. Start to seed the view in the organisation that the mission is more important than the organisation and its structure.
3. If there is not a laser clear focus on the current mission, value proposition and business model, get one.
4. Clarify and distill target service recipients (the focus of the mission), their attributes, what drives their demand for your services, and how they consume the organisation’s services.
5. Identify and analyse those that consume the services and resources who may not be target recipients and understand the cost of servicing them. Critically explore how serving them meets the mission and conversely discuss whether retiring these recipients would better equip the organisation to pursue the core mission. Explore potential revenue streams in switching models for these non-core recipients.
6. Develop a clear view as to the future for target service recipients. Go longer rather than shorter. This is often the hard bit for executive teams and gets written off as speculation. Stick with it.
7. Develop a view as to the optimal modes of interaction and service delivery for target segment in this future period.
8. Construct the best pathways for how to reach the segment and how they will access services.
9. Develop a future value proposition for the future core and the adjacent segments.
10. Begin the development of income and revenue models. First, step away from funding and grants and explore other revenue modes.
11. Turn to the value proposition and construct, from the ground up, a business that is focused on delivery of this value proposition. Flesh out the activities and resources the business will perform and need. Acknowledge that some of what is done today, won’t be done tomorrow.
12. Critically assess activities and seek out networks, partnerships and alliances that could possibly do these activities really well, maybe even better than is currently done by the organisation.
13. Develop up the cost model based on these activity, resource and partnership models.
14. Now turn to funding and grants.
15. Next, articulate the culture and leadership required to implement these models.
16. Finally, create the program of work that is required to change the organisation from today’s structure and model to the one developed. Be open to some of the great thinking about incentives for executives and the open remuneration models that will encourage talent into the model.
Leaders searching for sustainability must look to the horizon, be flexible and encourage creativity to prepare their organisation for the future. It will take time and will fundamentally change the organisation, but there is everything to be gained from engaging in this process. It will put the organisation on the path to true sustainability and ensure its impact can be delivered long into the future.