New Canaan: Many essential services in every community are provided by local nonprofits. In fact, our economy is like a three-legged stool, a balance of three sectors: for-profit (businesses that exist to earn a profit), public or government (municipal, state, and federal) and nonprofit organizations (mission-driven businesses that provide a community service and meet a social need). All businesses operate under different goals but with similar means, to have more revenue than expenses. A nonprofit organization uses its surplus revenues to achieve its mission, rather than distributing income to the organization’s shareholders, because it exists to meet a societal need, to fulfill a charitable purpose.
While well-managed nonprofits may make money as a result of their activities, their end-goal is to accomplish this social good and not to make a profit. Their income is essential to the organization’s survival and surplus is reinvested in the nonprofit, benefiting the whole society.
All nonprofits rely on a variety of income sources to fulfill their mission, and the distribution of revenue varies by type of organization:
- Fees for goods or services
- Individual donations
- Corporate contributions, including matching gifts
- Foundation grants
- Government contracts
- Interest income
While there is no single “ideal” mix, combining diverse sources to achieve balanced sustainability is best practice in the sector. Some types of nonprofit organizations have limited opportunity to charge fees, like a public library for example, while others such as museums or theaters are paid for admission. Schools receive tuition and hospitals are reimbursed by medical insurance. The commonality is that all nonprofits need charitable donations to make their business model succeed. Simply put, individual donors make the meaningful work of the nonprofit world possible.
Nonprofit leadership is inherently a dual task. Beyond the demands inherent in simply accomplishing their mission, nonprofit leadership faces an additional burden of attracting charitable resources to fund their mission. Some organizations are challenged to raise enough money, and are hindered by unclear strategic direction, an inability to show the impact of their work, or lack of sufficient organization infrastructure.
The best nonprofits, the ones that compete successfully for charitable contributions, have key things in common, regardless of their specific service model.
Clear purpose and model for achieving desired results
Nonprofit organizations exist to meet a social need, so unlike for-profit organizations, nonprofits can’t simply use their financial bottom line to measure success. Achieving their mission is not just about having a financial surplus. To attract resources, a nonprofit must articulate what they exist to do. A clear vision allows a nonprofit to demonstrate how they turn community support into improved lives.
Strategic plan and goals that are built on this vision and guide the day-to-day work of the organization. This overarching plan should be compelling and inspiring, and result in real solutions to social problems. The plan allows a nonprofit organization to articulate their contribution to their larger community and create organizational objectives around that knowledge.
Nonprofits are businesses and they must understand the price tag associated with their vision and goals and how to bring in enough money to finance that plan. A well-run business analyzes all potential sources of revenue, lays out a clear road map for bringing that money in, and integrates the securing of financial resources into the other work of the organization.
Nonprofits need revenue, which helps provide services and also capital, money to build the organizational infrastructure. Some nonprofits simply raise revenue, while leaders in the field recognize the need to seek investments to build a stronger and more effective organization. These monies are considered capacity capital. The best nonprofits know that you need an infrastructure behind the service delivery model and savvy donors invest this capacity capital to take organizations to the next level.
With support from donors, nonprofits grow stronger, more effective, and better able to tackle the problems facing us all. These organizations have the building blocks in place and will grow together with donors who provide essential charitable support. Nonprofits welcome investment from supporters who care about their mission and their efforts to improve the world, and in New Canaan those of us in the nonprofit sector are especially fortunate to have so many generous residents who contribute to our work.