How to Lead a Nonprofit: Profitability

It's easy to think that profitability doesn't apply to nonprofits. After all, it is actually called a “non” profit. But if we, as leaders, don't keep an eye on finances, we won't be able to help anyone over the long run. 

Profit is simply the difference between the amount of money kept and the amount spent in pursuit of goals. If an organization runs consistently using more cash than what is available, it will fail. No one can, over an extended period of time, operate an enterprise spending more than they are taking in. 

That's why it's so important for nonprofit leaders to have a good understanding of basic finance. You don't need to be a CPA, but you do need to be able to read financial reports and be able to draft a "rough and ready" cash flow projection. Having increasingly reliable forecasting tools will help shape your priorities and planning. 

For example, if you project cash reserves to take a dip during the summer because of an anticipated decline in giving and you have lots of fall spending planned for new initiatives, then you will need to figure out a way to handle this by building up reserves, cutting expenses, raising new money - or a combination of all the above. 

Grasping key financial indicators empowers you as a leader. Projecting a need months ahead of time gives you the ability to adapt before the situation becomes dire. How many lay-offs or failed program roll-outs could have been avoided by more realistic financial models? 

There is one word of caution for nonprofits with large cash reserves. For the few organizations with sizable endowments, protecting the money can become the functional mission of the organization. One simple way to test this is to look over the board agendas to unearth what has taken the bulk of discussion and energy. Has the focus been your purpose as an organization or has it be protection of your resources? 

Wisdom in using finances is not the same as hoarding. Miserliness (a.k.a. greed) is expressed in nonprofits as an over-concern for conservation of capital to the degree that the mission is compromised. By having a good grasp of finances, the leader can battle this challenge by showing that spending to advance the mission is prudent and produces the impact the organization was founded for. 

Profitability matters to a nonprofit as much as to any other human organization. The wise leader keeps an eye on this gauge as much as the others of people, policies, priorities, promotion, and products. 

In addition to the above, here are some other reasons why profitability is important for nonprofits: 

• It empowers nonprofits to be more sustainable in the long term. 
• It enables nonprofits to have more flexibility to respond to changing needs. 
• It equips nonprofits to invest in their mission and programs. 
• It energizes and retains top talent. 
• It engenders trust with donors and stakeholders. 

If you're a nonprofit leader, take a close look at your finances. Make sure you have a good understanding of your income, expenses, and cash flow. And use this information to make informed decisions about how to allocate your resources. By doing so, you can help ensure that your organization is financially sustainable and able to achieve its mission for years to come. 

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