Core argument
Financial sustainability is not achieved by chasing more revenue, but by building the capability, trust and focus that turn resources into impact.
The warning signs of financial distress appear years before they reach the accounts. Sustainability is not a finance problem. It is a systems problem. Oh and it’s not only about money anyway!
I don’t believe any NFP has a right to exist. That may sound harsh, but it is the starting point for a different conversation about financial sustainability.
Over the past three decades, I have watched the not-for-profit sector awaken to diversified income and then pursueit almost unquestioningly in the name of financial sustainability. Too often, sustainability has become synonymous with organisational survival; as though the primary purpose of an NFP is to sustain itself rather than to create impact.
NFPs hold a social license, not a birthright. That license is earned through their proven ability to address social problems through evidence-based practice, research, advocacy and service delivery. If an organisation can demonstrate meaningful impact, then the pursuit of sustainability becomes worthwhile, because it enables greater impact, not because it fills gaps and guarantees the organisation’s survival for another year.
Looking through the wrong end of the telescope
Somewhere along the way, the sector’s conversation about sustainability lost this distinction. As funding loses the race with the cost of delivery, pressure rises, and sustainability becomes the refuge leaders run to. Increasingly, the discussion centers on financial gaps, diversified income streams and commercial opportunities.
Sustainability should not be understood as the pursuit of revenue. It is the pursuit of sufficient and reliable resources to build the capability, trust and focus required to fulfil an organisation’s purpose. Too often, the conversation is reduced to a far simpler question:
“How do we fill our operating deficit?”
It is rarely a funding problem. It is a capability problem.
The organisations that achieve long-term sustainability are not simply those that secure more income. They are the ones that build the conditions that allow resources to become impact: a clear value proposition, an effective delivery model, strong stakeholder trust, capable leadership, disciplined governance, and the courage to make difficult choices.
Revenue alone does not create sustainability. Organisational health creates sustainability.
Financial fragility emerges long before it appears in the accounts. Loss of focus, declining efficiency, weak capability, poor governance, unclear strategy and deteriorating trust undermine sustainability years before cash reserves become a concern.
This challenges several assumptions that have become commonplace in the sector. That:
- Every organisation can entrepreneur its way to sustainability;
- Sustainability can be built cheaply and quickly; and
- Diversified or untied income is a strategy in itself.
None of them explains why some organisations thrive while others, similarly funded, struggle.
A lag indicator, not an objective
Financial sustainability is better understood as a lag indicator of organisational health than as a standalone goal. Sustainable organisations create reinforcing relationships between trust, impact, capability, efficiency, leadership, governance and income. As these strengthen one another, financial resilience follows. The organisations that struggle are not always those with insufficient income — more often, they are those that have lost the ability to consistently convert resources into impact.
For boards and executive teams, this requires a shift in the conversation away from “How do we generate more money?” toward “What organisational conditions are preventing us from creating greater impact with the resources already available to us?”
Four questions worth sitting with
If you are a CEO, executive or board member, I would sit with these:
- What are we delivering that we can no longer afford to deliver in the same way?
- Where are we using cross-subsidy to avoid a harder decision?
- What would need to be true for us to create more impact within the funding available?
- What are our finances telling us about our strategy, capability and trust?
Ultimately, financial sustainability is not a finance problem. It is a capability problem, a focus problem, a trust problem, a governance problem and, above all, a systems problem.
The organisations that become sustainable are not funded into sustainability.
They are led into it.
Sustainability is not achieved by wanting more money. It is achieved by building an organisation worthy of the resources it needs and disciplined enough to turn those resources into impact.
That is the harder work. And probably the only work that matters.
Read more about sustainable not for profit here
George is the Founder and Director of Spark Strategy and brings 30 years of experience in the strategic development of not-for-profit and public sectors organisations. He is one of Australia’s most experienced sector strategists and facilitator. George excels at helping organisations move from complex challenges to clear direction. He combines deep sector knowledge with genuine, long-term partnerships that drive meaningful and lasting impact. George is passionate about developing strategic thinking in leaders and boards and is the author of Spark Change, a practical guide to building strategic capability in the social sector and was a Business Book of the Year finalist.
Credentials
- 30+ years strategic advisory and facilitation experience
- Founder & Director, Spark Strategy
- MBA, Melbourne Business School
- GAICD
- Seasoned Board Chair