Do your sources of income make your nonprofit sustainable?

In the wake of the novel coronavirus (COVID-19) crisis, many nonprofits 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 nonprofits will weather the storm. But it’s not too late to evaluate your revenue streams to make sure they’re sufficiently diverse as you head into the future.

Relying on a single source of revenue can leave you with empty coffers if that source dries up. For example, nonprofits dependent on state funding in the late 2000s had to scramble as states across the nation began reducing, suspending, and even eliminating grants. 

Of course, government funding isn’t the only source that could unexpectedly disappear. Tough economic times can hurt major gifts, corporate giving, individual donations and foundation 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.

In contrast, stable nonprofits 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. Nonprofit boards of directors sometimes are reluctant to pursue new revenue sources, but visual aids —such as pie charts — can help them understand the need. 

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. Seeing how eliminating a revenue stream could jeopardize your nonprofit’s mission may be the nudge that reluctant directors need to embrace diversification.

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 don’t want to put all your eggs in one basket, you also don’t 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 also should have a timeline with milestones to help with monitoring.  

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, don’t feel tied to it. Contact our professionals for advice.