Financial Management
Your nonprofit isn’t a baby anymore. It’s gone through the initial growing pains of a start-up. You’ve mobilized supporters, formalized governance and centralized management by forming a board of directors and hiring an executive director. You’ve launched some programs and brought in some volunteers. So what’s next?
Does your mission need tweaking?
The growth stage — beginning two or three years after formation and continuing until maturity at around age 7 — isn’t without challenges. But this period also comes with a sense of accomplishment and the opportunity to refine and expand your organization.
It may have seemed impossible when your organization was in its earliest stages, but it might adjust its mission during the growth stage in the face of new circumstances. Changed demographics, economic developments or simply greater knowledge could make it appropriate to revise the organization’s purpose.
Your organization can home in more intensely on a subset of the original mission or it may shift its focus to another area. For example, a literacy organization that started out helping underprivileged U.S. citizens improve their reading skills might expand to include teaching English as a second language to immigrants. The organization may then develop a strategic plan to incorporate the changes to its mission.
Does your board’s focus include the future?
Perhaps the most common marker of a not-for-profit in the growth stage is the change in the focus of its board of directors, from day-to-day operations to governance. While the board will usually continue to be active in operations to some degree, it also must begin to work on strategic matters — the policies, planning and evaluations necessary to pave the path to sustainability.
The board’s composition is likely to change during this time, as founding board members move on. The result could be a larger and more inclusive group of individuals, preferably with a wider range of skills, talents and backgrounds. Former or current volunteers or clients may ascend to board positions, propelled by their passion for the cause.
Boards also can establish committees at this time. Some organizations implement a three-committee structure, with committees for only internal affairs (for example, finance, HR and facilities), external affairs (for example, fundraising, PR and marketing) and governance.
Are you expanding your staff?
As the demand for services builds and the board expands programming, staffing will naturally progress as well. Adding to staff in the growth stage will help avoid burnout. Your nonprofit should design a clear organizational structure and hire experienced managers.
At this juncture, the not-for-profit also should develop formal job descriptions, with greater job specialization. Employees will now be expected to work under formal systems, following policies and procedures and in a more efficient manner than seen during and after the organization’s launch. The executive director is still the primary decision maker, although he or she may not have time to be as involved in every area of the organization.
Are you augmenting your funding base?
Growth-stage organizations are generally in a more comfortable financial position, with less uncertainty. But, for nonprofits, that uncertainty never completely evaporates.
Although nonprofits in the growth stage already have developed good relations with their key funders, there are still challenges in securing the necessary funding (and cash flow) to support current programming. Thus, nonprofits in this stage should look into ways of maintaining growth. These could include diversifying revenue sources, managing cash flow and developing solid budgets. You should work with your financial advisor to identify, monitor and respond to appropriate financial metrics, such as cost per primary outcome, cash reserves and working capital.
Unfinished business
Other goals will need to be accomplished in the growth stage. For instance, formalizing your organization’s administrative and operational systems, including those in accounting and finance, should be a priority. Contact your CPA if you could use some professional help with this endeavor.
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