Do Your Sources of Income Make Your Not-For-Profit Sustainable? Staying Afloat — or Better
Barbara A. Miller, CPA
In the wake of the novel coronavirus (COVID-19) crisis, many not-for-profits are facing rough waters as they maneuver to remain financially viable. Organizations with only one or two sources of revenue are particularly shaky.
Time will tell which not-for-profits will weather the storm. But, it is not too late to evaluate your revenue streams to make sure they are sufficiently diverse as you head into the future.
Multiple lifesavers are crucial
Relying on a single source of revenue can leave you with empty coffers if that source dries up. Tough economic times can hurt major gifts, corporate giving, individual donations and foundation grants. In addition, not-for-profits dependent on government funding may suffer if government agencies begin reducing, suspending and even eliminating grants. Additionally, if you sell goods or services, you might see sales dry up as potential customers are forced to cut back on personal spending.
Navigate toward diversity
In contrast, stable not-for-profits generally have a good mix of revenue sources, with no one source accounting for more than 25% or 30% of the budget. The following practices can help you achieve that goal.
Get an accurate reading on where your income originates before you attempt to broaden your revenue stream. In your initial evaluation, include a review of your organization’s plans for the next five years and their anticipated expenses. Present the board with multiple scenarios where those costs are compared to revenues with and without the current revenue sources. Boards of directors may be reluctant to pursue new revenue sources but visual aids — such as pie charts — can help them understand the need. Seeing how eliminating a revenue stream could jeopardize your not-for-profit’s mission may be the nudge that reluctant directors need to embrace diversification.
Select your destinations
After deciding to pursue new revenue sources, keep everything on the table as you begin that process. Consider a wide range of potential sources, weighing the pros and cons of each. Include implications for staffing and other resources, accounting processes, unrelated business income taxes and your organization’s exempt status.
In addition, assess how well-aligned potential sources are with your mission. For example, does the company that has proposed a joint venture engage in practices akin to your values?
While you do not want to put all your eggs in one basket, you also do not want to depend on too many baskets. Each new revenue stream will require its own strategy and executing too many implementation plans can strain resources.
Each plan should include initial and ongoing budgets, as well as any new systems, procedures and marketing campaigns that will be needed. It should have a timeline with milestones to help with monitoring.
Adjust course accordingly
Once your new sources of income are in place, take the time at the end of every month to closely review each revenue source. Is it living up to expectations? Is it costing more than expected or is it falling short of revenue projections? If a source fails to deliver over time, do not feel tied to it. Your ORBA CPA can offer advice.
Entrepreneurial Mindset More Important to Giving Than Gender
Kevin Omahen, CPA
The economic impact of the novel coronavirus (COVID-19) crisis has heightened not-for-profit’s fundraising needs. The findings of a new Fidelity Charitable study are one of many pieces of information you might want to keep in mind as you launch your next fundraising effort.
The study found that both male and female entrepreneurs report higher rates of charitable giving than their non-entrepreneur peers. The analysis examines, through a “lens of gender,” how entrepreneurs with a business of $1 million or more in revenue approach philanthropy.
Both male (78%) and female (82%) entrepreneurs say charitable giving is “a critical piece” of who they are. But men are more motivated by their legacies, while women care more about the causes themselves. Similarly, men volunteer to boost reputation and women volunteer to improve leadership skills.
Will turnover projections come true?
A pre-COVID-19 survey taken in late 2019 by Nonprofit HR, a for-profit human resources consultant, found that 45% of responding not-for-profit employees will look for new or different employment in the next five years. The survey of more than 1,000 employees spanned the United States.
Of the respondents who plan on searching for other opportunities, 23% said that not-for-profits would not be among the types of organizations they would pursue. The top reason cited (49%) is inadequate pay, suggesting organizations should re-evaluate their compensation packages. In addition, 19% said not-for-profits do not offer good long-term career opportunities. Of course, how the COVID-19 crisis may affect turnover remains to be seen.
Organizations largely lack whistleblower policies
The Nonprofit Times reports that a majority of not-for-profits do not have a policy to protect employees who blow the whistle on fraud or other illegal practices. The publication examined almost 330,000 Form 990s in the Internal Revenue Service’s Business Masterfile and found that only 41% of filers indicated they have a written whistleblower policy.
As the Times notes, an organization’s exempt status does not hinge on checking the whistleblower policy box on its Form 990, but several federal laws include not-for-profits in their whistleblower provisions. For example, the False Claims Act, Sarbanes-Oxley Act, and Dodd-Frank Wall Street Reform and Consumer Protection Act all extend protections to whistleblowers in nonprofits.