Balancing the Mission Checkbook

Personnel costs are the number one expense for most nonprofit organizations. Many of our clients have made some very difficult choices in the last few years to reduce expenses, including reducing staff, cutting wages or eliminating some benefits. These emotionally-difficult changes can have serious impacts on services, but may be necessary for the long-term health of the nonprofit.

The second-largest expense in most organizations is spent on rent or mortgages and related costs.  Facility expenses can sometimes evoke nearly as much emotion as staff costs, but often generate less examination and conversation at the board or community levels. In tight times, there are some critical issues to keep in mind when thinking about space.

• Your space can impact your mission and vice-versa. Some organizations are very tied to a neighborhood or even to a specific building. Planning for the costs to stay in an area is a priority for some organizations where others may be less tied to a community and could move for less-expensive rent. If you are restricted to a space (through a long-term lease or ownership), changes in your community over time may force your mission and programs to shift.
• Ownership isn’t right for everyone. Many nonprofits consider the idea of buying space as a great way of locking in costs and gaining equity over time, but owning real-estate requires a different set of commitments and management, and can distract from mission-related questions. Buildings may even lose equity if the organization doesn’t reinvest in the property (ask us about funding depreciation in your reserves policy!).
• The costs of a move can outweigh the costs of staying put. A five-percent increase in a lease may seem unbearable in a market with lots of vacancies, but if your nonprofit can make the decision to move, it’s best to understand all costs involved. Compare your current costs against the prices of moving. Think about all the additional expenses that add up such as running new phone lines and data cabling which can consume potential savings. To help you plan ahead, IFF offers nonprofits templates to consider costs for your current space, future space, or a move.

Many other factors can impact what is the right space at the right time for your organization and your mission. Join us at the Minnesota Council of Nonprofits Annual Conference for a break-out session on facilities costs. We’ll be joined by brokers from Northmarq to talk about professional representation in space decisions. Sneak peek: your landlord will often cover the costs of your broker to get professional advice without breaking the bank. Stay tuned — learn more ways to cut down on facility costs at the conference!

Nonprofits can suffer near-allergic reactions to discussions about business models. It seems so distant from mission, so stoic compared to the services delivered in our communities, so … well… business.

Leaders in the business of impact are often passionate about talking in terms of measurable outcomes. A child attends a quality pre-school and goes on to succeed in elementary school. A newly renovated house is sold and surrounding houses spruce-up their yards. A new artist finds an audience in a public space where art has been absent. These outcomes inspire nonprofit leaders to do what we do.  But how we pay for and leverage this impact doesn’t have to be afterthoughts. They can be integral to making change happen.

Every nonprofit, whether consciously or not, has adopted a business model. An all-volunteer scout troop has a business model. Scouts use recruited volunteer time to provide leadership training and development to young people. The small dollars involved are resolved through fundraisers (cookies or popcorn, anyone?), voluntary fees paid by families and the like. A multi-million dollar job-training program has a different business model. With a mix of revenue from state contracts, employer-training fees and general operating support, the program provides services to people seeking work.

Each model has a different scale, requiring different management, but both must share common themes of sustainability and impact. If the scout troop folds prior to the next group of young people joining, their business model isn’t sustainable. If the job-training program can’t help people find work, they are not meeting their mission outcomes. In both examples, the business model doesn’t work and something needs to change.

Nonprofits Assistance Fund offers more detailed information about Transforming Nonprofit Business Models. To make this conversation less jarring, we suggest easing into the language. Many nonprofit leaders are comfortable talking about a theory of change because we enjoy telling stakeholders how our work will impact the world:

• How do low-cost bikes improve options for youth in a targeted neighborhood? We can answer that question – it’s our theory of change!
• How do we balance a mix of earned and donated revenue to hedge against risk and ensure sustainability? Well, maybe we can’t answer that one as quickly.

A business model is a model of change that explains how a nonprofit mission is sustainable and creates impact. The next step is determining how we can aggregate our impact not just into short-term outputs (how many kids went to an after-school program?) but also into long-term outcomes (how many families are self-sustaining?). United Front 2011 will continue this conversation about collective impact.

To quote Aristotle, while “the whole is greater than the sum of its parts” it is also important for individual nonprofits to understand their own model of change in order to be ready to contribute to a larger collective impact.