There has never been a better time to consider the sustainability of your program activities and take action to address unsustainable programs. Whether your organization is in an unusually strong financial position because of COVID relief funds or in an unusually precarious financial position because of the disruption caused by COVID, you should take advantage of this moment to move the organization forward by identifying and discontinuing unsustainable activities. Start with this question:
Can your not-for-profit organization survive and thrive in its current form?
That’s the core question of sustainability for not-for-profit organizations, and it’s coming up increasingly often. But how does one answer such a question? And why is having a response so important? What if the answer is that your organization (or some part of it) is not sustainable?
Let’s start with “the why.” Articulating an answer to this question at your not-for-profit organization is important because:
My guess is that you can think of additional reasons why it is worthwhile or even critical to pose the question “Can our not-for-profit organization survive and thrive in its current form?” I’ll assume you’re on board with why this question should be asked.
Now on to the task of responding to the question. Consider the following:
This is not a purely financial analysis. But to really address these questions, you need to have a financial reporting process that gives you a useful and realistic sense of your organization’s programs’ financial performance. Do you have information on programmatic activities that generate a financial surplus, those that break even, and those that operate at a deficit? Ideally, you can go beyond just the bottom-line financial results of the program, but also have statistics such as the cost and revenue for providing each unit of service or, even further, the cost to achieve certain desired programmatic outcomes for a program participant as well as how much revenue you generate for achieving that outcome.
To the extent you don’t have this information readily available, it is worthwhile to spend a little time to at least identify programs that are generating financial losses, even if you can’t quantify those losses in detail. However, the inability to report financial results in a useful manner could be a sign, in and of itself, that your organization’s sustainability is questionable.
At this time, there are some unique challenges to evaluating a program’s financial viability. Many not-for-profits have obtained material amounts of government COVID relief funding. These non-recurring funding arrangements may serve to mask operational deficits generated by programs. Be sure that the effect of this COVID relief is understood and that the true recurring or expected go-forward financial results of each program are incorporated into the sustainability evaluation.
For those program activities that generate financial losses, articulate how you have historically managed to cover those deficits. Consider if there is something more effective you could do with the funds you expend covering the losses in these programs. Brainstorm ideas for improving financial performance.
Set aside your ego and ask others in the organization to do the same. Your people likely take great pride in these programs as well as a healthy amount of ownership or stewardship. Objectively considering sustainability may feel like giving up. But this process should be looked at as helping to ensure the greater success of the overall organization.
For this exercise, having a trusted advisor who brings an independent, objective point of view to the discussion is of great value. People within your organization, including yourself, may not be able to objectively look at the programs and activities they hold close to their hearts. Ask someone you trust or an advisor with experience in this type of analysis for help.
Start with measurable and quantifiable metrics. Organizations should also consider measurable elements other than the financial bottom line when evaluating programs, including statistical data like number of people served, units of service provided, or data on the people “graduating” from your program because they no longer need your services. Understand what these statistical measures say about your program sustainability.
Elements such as your organization’s impact on the overall community, community-wide health outcomes, and levels of poverty, literacy, or overall quality of life, are of less direct importance to a program sustainability analysis because they are harder to relate directly to any one program activity. Articulating an objective consideration of these factors is worthwhile but is typically not a driving factor relevant to sustainability.
Most not-for-profits have a mission statement that summarizes and supports the organization’s reason(s) for being. This can serve to give the organization and your people a sense of “who we are.” But don’t let this limit your aspirations to be sustainable as an organization. The sense that every organization must stay within their specific programmatic focus is no longer practical and, in some cases, limiting your organization to its traditional focus is by itself a threat to the organization’s sustainability.
So, what if you go through an evaluation of sustainability and conclude that the organization, or a program of the organization, is not sustainable? Be brave. It’s not easy to acknowledge that a program activity is no longer viable. Consider these steps:
Throughout these conversations, remind people that the point here is to ensure the organization’s larger mission continues by discontinuing activities that are not sustainable. It’s the kind of Spring-cleaning exercise that can pay dividends for many seasons to come.
Jeff Paille is a CPA and partner at the Bonadio Group and has consulted with tax-exempt organizations for almost 30 years.