Should nonprofits act more business-like?

Photo by Arty Smokes

Yes. In my opinion, they should. Now, this doesn’t mean that I think a nonprofit organization should operate like a for-profit business in every way, but I do think there are some business practices that could help nonprofits:

Making a profit. Pretty much all businesses try to make a profit every year. This is a standard that nonprofits should have as well. Nonprofit organizations should be budgeting for a surplus that should be put into a reserve. There are many numbers that are thrown around about how much a nonprofit should have in its reserves, usually ranging between 6 months to 2 years of operating expenses. Now, once a nonprofit has an appropriate reserve, then they should no longer budget for a surplus, and use the money to fulfill their mission. But, I have seen too many nonprofits that have had a bad year or lost a grant and had to cut or significantly reduce a program.

Succession Planning. This is a term you rarely hear while working at a nonprofit organization. Most do not train their employees to advance, they often look outside their organization to fill senior positions. This is a mistake. One of the top reasons cited for turnover is lack of promotion and career development opportunities. And most people know that turnover is expensive. In fact, turnover is so expensive that studies have calculated the cost to be 150% of that person’s salary. That means that if you are paying your Development Director $40,000 per year, it will cost you $60,000 to replace them. Instilling a practice of succession planning will prepare your organization for when your senior management leaves and can help provide continuity. ManagementHelp has some resources for succession planning.

Sarbanes Oxley. Many nonprofits are slowly moving to adopt these practices, but some are not. Since nonprofit organizations receive donated funds, they have a high level of accountability for those funds. Adopting Sarabanes Oxley practices will help further a culture of accountability. Sarbanes Oxley practices include: having a written conflict of interest policy (that is signed every year by both board and staff members), having an external audit and changing auditors every 5 years, forming an independent audit committee, having a whistleblower policy, and having a document destruction and retention policy. These are just a few ways to adopt Sarbanes Oxley practices for your organization. Email me for sample policies.

Nonprofit organizations are not for-profit businesses. They exist to satisfy their mission, but in some ways acting more like a business can help the organization and its constituents.

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