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Non Profits Need to Operate Like a Business

By Doug Zeisel, TCV Growth Partner-

“Hey, we are a non-profit organization so we are not subject to the same rules as a “for profit” business. We provide critically needed services, so why should we need to operate like a business whose whole purpose is profit driven?”


Non profit organizations that don’t see the need to run their operations profitably will soon find themselves in trouble. Here are some things that executives of Non-Profits need to consider.

Operate profitably – First and foremost non-profits need to generate sufficient revenues to cover expenses and end up with at least a small surplus. Whether the revenues are from donations, from grants or from some other activity, if the entity does not generate enough money to cover costs – guess what? – the fairy godmother will not bail you out. This means that as a Non profit executive you absolutely must have a budget that holds your staff accountable for their performance.

Budgeting - a critical success factor. You need to know how much you are going to spend in expense categories such as rent, salaries, professional services, marketing, etc. Just as important, you need to monitor actual results vs. budget on a monthly basis to ensure you are on track, not overspending and that your overhead allocation is correct.

Understanding overhead allocations – If you are providing services under grants then you absolutely need to understand your overhead rate. This is the same as what contractors need to update on a regular basis. Sure you may be allowed a certain percentage of grant money for overhead, but is it enough? And is the timing of the money coming in sufficient to cover your expenses?

Forecast Cash Flow – Although you may have enough future money coming in to cover your anticipated expenses, what is the timing of cash coming in vs. actual expenses? If you are providing services under a grant, is the grant money arriving in a timely manner to cover the expenses of the people providing those services? Just looking at your check book balance is never enough.

Marketing is Vital – So who really are your customers? Hopefully you know that your real customers are the entities that provide funding, not the entities to which you are providing services. Your marketing efforts need to be aimed at ensuring that your funders know how valuable your services are to the persons or entities that receive those services. Basic business concepts such as Value Proposition and Positioning apply here. You need to ensure you are making sure present and possible funding sources are aware of you, understand your value is to the community you serve and you must build trust that their money is being well spent. You do this with clear communication of your successes.

Corporate Culture – So your marketing program is communicating your success in delivering your services. But internally, do each of your employees love their contribution to that success? Do they understand how vital they are to achieving the organizations goals? For that matter are they aware of the mission of the organization? Creating a positive and motivating culture is vital to the success of any organization. Hopefully all employees are aligned with the mission of the organization and work as a team to achieve the organization’s purpose as communicated to outside entities.

Team Building and Leadership – Building a great culture requires leadership awareness of the importance of a strong culture. Without a sound and positive culture the work atmosphere can be toxic and non-productive. As the Executive Director, it is your job to communicate the company’s mission to all employees and ensure that they are aligned. Communication needs to be a two way street which shows respect for opinions whether the employee is correct or not. If not, then a good leader will inform the reasons for the differences and why the policy or process is the correct one. And employees who show disdain for others and their managers must be cut loose as quickly as possible to ensure smooth operations.

Accountability – Using your budget and establishing quarterly goals and objectives that are well communicated provides the Executive Director the tools that are needed to both reward performance above expectation but also help poor performers understand what they need to do to become super stars. Leaders from the Executive Director down to department heads need to have well defined goals and objectives and communicate these to the responsible employees. This is done via weekly and quarterly performance reviews, just like in a well-run for profit enterprise.

Operating Efficiently – Do you have systems and processes in place that are cost efficient and deliver the results you need on time and within budget? Or do you assume that your employees know what has to be done and will work to achieve the objectives that they may or may not be attuned to? Are your operations “by the seat of your employees pants” or by well-established procedures? Efficient operations are the key to success in any enterprise whether it be for profit or not.

Is your non-profit operating like a well oiled machine and producing positive cash flow? If not, we can help. Contact Doug@TCV-Growth.Partners for more information.


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