Can You Afford the Cost of Innovation?

A small nonprofit I work with is looking to add new programs. The organization is a rarity in that most of the revenue is earned through fee for service. Fee for service or earned income is the desire of many nonprofits today given the decline in contributions.

Unfortunately the senior staff and the board don’t realize there is a limit to what the organization can do with the fees it earns. Over the last several years new initiatives have been added without adding new revenue streams. Today the current revenue stream doesn’t adequately cover costs. There are no funds to cover innovation.

It’s a scene I see repeated over and over again because nonprofit leaders and their boards don’t understand what it takes for the organization to operate. This failure to understand is the combined result of inadequate orientation of new board members, insufficient explanation and presentation of critical financial data, and lack of a rigorous review of existing programs as to their contribution to profitability and achievement of the organization’s mission.

What can you do to fund innovation? With your board and senior staff:

1. Review your sources of funding. It may be necessary to conduct a refresher on how to read your organization’s financial statements. Use internally generated statements that show information by program and/or department. Internal financial statements need to be prepared in a format that ensures all revenues and expenses are recorded in the correct accounting period.
2. Evaluate the contribution to profitability of each program. If a program doesn’t produce revenue then other programs will have to generate enough revenue to cover the costs.
3. Review how each program aligns with the mission of the organization. Before you launch a new initiative it is advisable to understand if and where current programs are falling short of the organization’s mission. Ending any of these programs will free up funds for new programs.
4. Research grants that might be available to cover new programs. Only do this after you have completed the above steps. Innovation could lead to mission-drift even if it adds to cash flow and profitability.
5. Approach potential donors who are known to fund the area/topic. You will need to be articulate about your organization, its successes and failures to achieve the mission with previous programs and how this one program will hit the mark. For that matter, if your board is on-the-ball hopefully they asked you to explain it to them prior to authorizing moving forward.

What else would you do to find funds for innovation?

Susan C. Hammond (principal of scHammond Advisors) consults with nonprofit organizations on board governance, strategic planning, improving financial intelligence, and the formation of advisory councils. She is a consultant, speaker, facilitator, and author. She previously served as the CFO for a museum and other nonprofit organizations. Susan is the author of the Advisory Board Kit: A Comprehensive Guide to Establishing an Advisory Board.

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