July 17, 2017; Associations Now
The recently completed Abila Nonprofit Finance Study indicates a continuing trend of nonprofits seeking organizational growth, however they define it. While scaling up is a goal for about 80 percent of the nonprofits surveyed, the study identified some common considerations that should be taken up before engaging in serious growth, such as the accompanying baggage of increasing administrative complexity, difficulties with risk management, and ensuring compliance. As NPQ has seen repeatedly, how nonprofits navigate growth while simultaneously dealing with these obstacles can make or break an organization.
For instance, as funding awards and opportunities increase, the administrative burden on the organization necessarily increases, as each program must be properly accounted for and evaluated and the unique requirements of each funding source addressed. These are called transaction costs. It’s not sufficient to account solely for the supplies for the program itself; overhead costs, like keeping the lights on, space rental, and volunteer recruitment, are part of the cost of doing business even if the funding source does not cover them. Failing to adequately plan for this administrative burden has caused many nonprofits to lay off staff or close their doors during gaps in funding or the loss of funding altogether.
Further, as the number of programs and clients served increases, key activities of leadership turn from program generation and expansion to riveting issues like personnel and risk management. According to the Abila study, “Evaluating and managing risk are pivotal functions for nonprofit finance professionals at organizations looking to grow. Nonprofit managers at growing organizations look to build capacity for a number of risk management activities, such as creating contingency plans for future funding uncertainty, maintaining compliance with funding requirements, actively assessing internal controls, and training employees.”
And then there is the dread issue of liquidity or cash flow: Are you able to serve that good, even under circumstances as extreme as the Illinois budget standoff?
This, then, is an inflection point that must be carefully considered. Does the organization want to have its leaders deployed this way or another? What will that shift do to the culture of the organization, to leaders’ connections to its community? Will bureaucracy take center stage in a short-sighted rush to get bigger?
Given the multiple barriers that nonprofits must overcome, often simultaneously, for an organization to successfully grow, NPQ has looked at several rapidly growing organizations to learn from their successes and failures. Organizations that failed seemed to have been unprepared for the barriers associated with growth. For instance, Make a Stand received unexpected publicity and funding when the campaign launched, but then struggled to sustain that level of activity. In an interview with David Rivel, CEO of the Jewish Board of Family and Children’s Services in New York City, the makings of a successful growth plan start to come together. A methodical approach to risk assessment and identification of organizational weak points while proactively determining solutions in these areas appears to have contributed to the organization’s success. With growth in the sights of many nonprofit organizations, taking the time to evaluate the organization’s ability to overcome the obstacles identified in the Abila study is a good starting point.—Sheela Nimishakavi