5 Key Strategic Considerations for the Nonprofit Sector

By Jonathan Miller, on February 14th, 2024

It is no secret that nonprofit organizations have a lot to think about as they navigate the post-covid world. The current nonprofit landscape is riddled with challenges including the talent shortage, inflation, high interest rates, and a declining donor base. So, how do you act strategically in a continually evolving market? Below are five key considerations for nonprofits to be aware of as they develop and implement their strategic plans.

Review Your Risk Profile

Nonprofit organizations must leverage opportunities while simultaneously taking risks. In other words, organizations should take calculated chances.

While risks like cybersecurity and compliance often take center stage, the ultimate risk for any organization is survival itself. Organizations too afraid of risk can end up hurting themselves even more.

Below are four “musts” that organizations should consider as they review their risk profile and leverage opportunities:

  1. Must be proactive in assessing opportunities—Create a culture of identifying opportunities, collaboration, and planning for various scenarios.
  2. Must understand trends and environment—Governance and leadership must be informed on the current marketplace in order for them to understand the risks.
  3. Must set benchmarks and targets—Take calculated risks that are well-thought-out but set accountability measures of benchmarks and KPIs.
  4. Must have strong governance—Governance must have the requisite and well-rounded skill set while being engaged and involved.

Revenue Diversification

Another key area for nonprofits to consider when planning is revenue diversification. Organizations should diversify their revenue around core mission activities.

There are three key areas to consider when diversifying your revenue: Opportunity, Strategy and Alignment. When looking at opportunity, ask yourself if there are opportunities for partnerships, affiliations, or mergers. Or perhaps there is a new geography to enter. For strategy, consider how governance fits into your long-term vision. What is the impact on your core services? Is it sustainable? Lastly, for alignment, be sure to build on your strengths to create a more stable and adaptable business model.

Optimize Performance

In order for any organization to thrive, it must be run efficiently and effectively. Are your organization’s administrative services running efficiently? Are you streamlining your internal processes? Are you investing in and utilizing advances in technology?

Once you have implemented the programs to improve your operational efficiency, it is important to consider their effectiveness. Are you measuring and evaluating program outcomes? What are their costs? Are you allocating the appropriate resources?

Lastly, consider how you can continue to improve. Optimization is a never-ending cycle. How can you further develop and invest in your employees? Do you have a culture of feedback?

Strategically Align

A strategy will only work when everyone in the organization is moving together.

The first step to achieving strategic alignment is setting a strategy. It is important that organizations have a strategy, whether it is a robust plan, a positioning paper, or a North Star. Leadership must commit to this strategy—not just with their words, but by their actions.

Communication is another crucial step in achieving strategic alignment. Nonprofit leaders should be continually communicating and reinforcing their plan, vision, and values of the plan along the way. It is also important to consider how the success of the strategy will be measured. Have you defined KPIs in programs, operations, and financials?

So, you’ve set a strategy, committed to it, communicated it, and set forth a plan for measuring its performance… now it’s time to gather feedback. Nonprofit organizations should create a culture of continuous improvement and feedback. While the groundwork may be done at this stage, there are likely hundreds of ways to refine the process.

Informed Decision-Making

Making informed decisions is a key strategic skill for any organization. Below are six factors to keep in mind to promote informed decision-making.

  1. Understand Costs—Understanding costs is crucial for optimizing resource use in nonprofits
  2. Contribution Margin—Contribution margin in nonprofits represents the net income generated by programs after variable costs, crucial for financial sustainability
  3. Budget—Matches the strategic priorities and utilizes program outcomes and operational metrics to drive the financial budget
  4. Cash Flow Management & Capital Planning—Nonprofit financial sustainability relies on adept cash flow management and strategic capital planning
  5. Multi-Year Financial Forecast—Development of a multi-year financial forecast that agrees with the strategic priorities and incorporates scenarios and sensitivities
  6. Iterative Financial Analysis—Financial, operational, and budgetary data as feedback to iteratively enhance strategies, ensuring ongoing improvement in the organization’s financial impact

In the coming months, we will be exploring each of the above areas in depth, so stay tuned! And if you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

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