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Jun 16, 2011

Six Factors that Adversely Impact Nonprofit Sustainability

A reader noted to me that I have been talking a lot recently about what nonprofits should be doing. The reader felt I was suggesting that all the burden of dealing with nonprofit problems fell on the shoulders of the nonprofits. That is certainly not how I feel and I often speak  before foundations and other funders’ groups on how they can make their grants more positive contributors to nonprofit sustainability. In response to this reader I am going to embark on a four part series in my monthly columns on how funders can be more helpful. As readers of my blog, I want to give you a short crib sheet on the topics.

I find that there are six areas in which philanthropy can be counterproductive, that is their approaches to grant-making can reduce either the impact of their grants or weaken the health of the nonprofits receiving their grants. This isn’t all the fault of philanthropy because many nonprofit executives, fundraisers, and boards , often inadvertently, contribute to their own weakness by encouraging these practices. Here is my crib sheet on six factors that adversely impact nonprofit sustainability, with suggestions for further reading on these areas in my two books, Linking Mission to Money, Second Edition and More Than Just Money. See if from the reading you can anticipate what my suggestions to philanthropists will be!

1.  Budget Balance
“Balance is almost always the wrong policy for sustainability.”
Linking Mission to Money, Second Edition Chapter 16 More than Just Money pp. 209-212

2. Reserves
“Sustainability will be disrupted if grants don’t fund reserves to address  liquidity,  cashflow,  inadequate maintenance, and  unanticipated building system failures.”
Linking Mission to Money, Second Edition Chapter 16 More than Just Money pp. 73ff

3. Endowment
“Endowment is the most volatile income source a nonprofit can have.”
Linking Mission to Money, Second Edition Chapter 16 More than Just Money pp. 89-96; 177-179.

4. Return on investment
“Return on investment measures can create a bias against high-mission nonprofit activities.”
Linking Mission to Money, Second Edition Chapters 3 and 8 More than Just Money pp. 97-99

5. Project review and payment
“Oversight creates nonprofit overhead, and payment by reimbursement erodes nonprofit liquidity.”
Linking Mission to Money, Second Edition Chapter 19 More than Just Money pp. 173-175

6.  Matching, start-up, and restricted grants “Matching, start-up, and restricted grants create a bias toward profitable, low-mission activities and reduce the nonprofit’s bang for its buck.”
More than Just Money pp. 161-164, 181-192.

Happy reading!