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Financial Management in Nonprofit Organizations

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This research paper focuses on the characteristics or actions that make a non-profit organization more resilient and sustainable. For a nonprofit organization to survive, it must be able to respond to the community and environment around it. I will primarily focus on smaller, community-based service organizations such as the Omaha Children’s museum, but I will also cite examples of a variety of nonprofit organizations that have successfully weathered significant changes in their surrounding environments and circumstances. My research will support three main arguments. First, a non-profit organization must respond to the community that surrounds it such as demographic make-up, political views, or circumstantial changes. Next, a non-profit organization must be able to be creative in funding in an ever-changing economy, knowing that the surrounding community may or may not be able to financially support the organization even if the community supports it through the use of the organization’s services. Finally, shared leadership and partnerships between organizations can help nonprofit organizations be more resilient to change, particularly smaller organizations that may not be able to fully respond to change as effectively on their own because of the limited human or financial resources. In order to be sustainable, nonprofit organizations must respond to surrounding change, be creative in funding, and take advantage of shared leadership and partnership opportunities with other organizations.

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My first argument is a non-profit organization must respond to the community that surrounds it such as demographic make-up, political beliefs or circumstantial changes. A community-based organization needs to know their target audiences so their services match what the surrounding communities need and would likely support. A nonprofit organization must create a relationship with their stakeholders in order to ensure effectiveness throughout the organization. Studies do suggest that well run and successful non-profits consistently check in with stakeholder groups and will manage to keep the relationship with them. One way to do this is for the organization to establish a strong mission that communicates the purpose of the organization and for the organization to connect to the community it serves so the organization and the community share a common commitment. “Resilient organizations have a clear mission statement and organizational members share in a deep belief in the value of the organization’s purpose”. To do this, an organization should seek to know the stakeholders it serves. An example of a nonprofit actively seeking stakeholder input is the Children’s Home Society of Florida. When getting ready to rebrand and possibly shift their purpose, the Children’s Home Society of Florida held one-on-one interviews with key stakeholders and clients. By doing this, the organization was responding directly to their clients and stakeholders in planning out the direction the organization would go. “One of the best things about the rebrand is that we’re really respecting our clients and who they are”. Additional studies on nonprofit organizational effectiveness show that how well an organization manages its relationships with its stakeholders and how well it communicates with its stakeholders makes that organization seen as more effective by its stakeholders.

As far as political beliefs of the surrounding community, research studies support the connection between the services offered and the purpose of nonprofit organizations and the political beliefs of the surrounding community. In one research study, Democratic districts appear to support missions such as community improvement, youth programs, and disease prevention. Republican districts seem to be more in support of education, arts, recreation, and housing missions. “There is good reason to believe that the nonprofit mission might evolve with community ideology” .

The nonprofit’s ability to respond to circumstantial changes of their surrounding communities or stakeholders is key to its sustainability. The role of nonprofits in many communities has become to provide aid and support to their communities, especially emergency support in times of crisis. Nonprofit organizations have been led to restructure their traditional roles to meet the immediate needs of their surrounding stakeholders. In addition, how a non-profit is able to respond to change when a crisis hits within the non-profit is critical to the organization’s survival. The non-profit organization that goes by the name of “Susan G. Komen for the Cure” faced a crisis that involved a controversial decision to take away funding for another non-profit with a similar mission. The organization angered a large portion of their donor base with this decision and donations dropped. The lessons learned from this crisis were that communication channels must be used wisely, leaders need to think ahead about how actions or decisions might affect primary stakeholders, and every crisis can be used as an opportunity to renew and refocus on the original mission of the organization. “Organizational leaders who clearly understand the demographics of their target audience are omr likely to produce messages that keep followers in the fold”.

An example I have experienced with a non-profit organization who has exemplified understanding their target audience would be with the Omaha Children’s Museum. At the museum, their focus audience is children. The Museum must be able to respond to current children’s interests to create exhibits that will excite them and keep them engaged. A counter-argument might suggest that through time, children’s interests might not change very much and children are going to be interested in the same things they have always been interested in, so no change needs to happen. This is very misguided because children today are not going to be interested in the topics that once interested children from 10 or more years ago. It is the responsibility of a community-based organization such as the Omaha Children’s Museum to engage with their stakeholders to stay relevant to those stakeholders.

Community-based organizations have a central role to play in creating and affecting public policies that contribute to social change, especially in diverse democracies, and especially for disenfranchised populations and other communities. CBOs employ strategies related to shared leadership, innovation, the ability to create, facilitate, and maintain relationships among group of stakeholders.

My second argument is a non-profit organization must be able to be creative in funding in an ever-changing economy. The interdisciplinary characteristics of nonprofits between economics and sociology make managing nonprofits a challenge, so they have become a major focus of marketing research . One sociological theory that has been a focus of research is resource dependency. This theory looks at the relationship of institutions and their environment. “The issue of resource dependency is of obvious interest to NPOs which are so dependent on donors and do not have recourse to capital markets for funding” . The techniques of financial management in nonprofit organizations might have some similarities to those used in for-profits, however, their reliance on donors and often fluctuating governmental funding makes nonprofit financial management very unique.

One of the main aspects of NPO marketing is the need to market products and services to a wide range of target groups. Marketing strategies help to attract resources as well as to allocate resources. In the for-profit sector, which faces multiple targets as well, this is usually a minor problem because success in marketing to customers serves the interests of most of these publics. 

Ultimately, marketing strategies that work for for-profit organizations don’t work the same way for nonprofit organizations. The for-profit world enjoys more clarity and stability when it comes to financial issues. This is not true for nonprofits. “That is because the types of funding that fuel nonprofits have never been clearly defined.”  Nonprofits are faced with an unstable economy and decreasing donations, so they have to find ways to cut costs and gain donors.

Many nonprofit organizations are finding ways to cut costs and keep as much donor or grant money available as possible. The usual downsizing of workers or cutting programs are options but can risk preventing the nonprofit from meeting its mission. However, nonprofits can find other creative ways to cut costs such as sharing workspaces and employees or no longer holding fancy fundraisers and instead holding virtual online fundraising events or low cost fundraisers. Through ongoing research, several funding models have been identified that can allow nonprofits to be able to respond to the changing economy around them.

These researched nonprofit models are shown to support growth of nonprofit organizations and help them stay true to their mission. An example of one of these nonprofit models is the Heartfelt Connector model. “Some of the more popular causes are in the environmental, international, and medical research areas…Heartfelt Connectors often try to build explicit connections between volunteers through special fundraising events”. An example of a nonprofit using the Heartfelt Connector model is the Susan G. Komen Foundation. This foundation is working to eradicate breast cancer as a life-threatening disease. This organization raises millions of dollars. They create fundraisers such as races, and during these events, encourage volunteers to get involved with the activities. “The foundation’s mission has a deep resonance with many women, even though its work may never benefit them directly”. This model is proven to be successful for this organization that connects its mission on a personal level with its stakeholders.

An example of a nonprofit successfully responding to economic change by finding new funding sources is the University of California Cooperative Development Center. This particular organization demonstrated the ability to bounce back after losing state funding by finding new funding sources instead of accepting the loss of funding as a reason to disband. The University of California Cooperative Development Center was created in an effort to create jobs for people wanting a better quality of life. State funding was eliminated for the organization in 2004, and it looked as if it would end. Through dedication and passion for their nonprofit, staff at the co-op reorganized apart from the university and sought different funding sources.

We get federal funding through Socially Disadvantaged Group Grants (SDGG). The primary objective of SDGG is to fund technical assistance for socially disadvantaged groups, working through cooperatives and cooperative development centers. This year, the program provided $3 million nationally for such work.

The organization also gets project-based money, grants, and donations. The organization is continuously climbing higher and higher and is increasing the number of projects it is being involved in. Even though they are still struggling to get money from the state, they have found new and creative ways to get funding for their organization.

My third and final argument is if an organization participates in shared leadership and partnerships with other organizations, it will create a stronger ability to respond to change. Shared leadership is a model where employees at all levels within an organization have a part in the decision-making within the organization, and different skills and talents of the employees within the organization are developed and encouraged to be part of the expertise of the organization. The idea of shared leadership is not one that comes naturally to many organizations. The traditional norm is for organizations to have a strong executive leader who has the authority to make or approve decisions. In organizations with the single executive leader model, clear structures and processes can ensure consistency and quality in carrying out the organization’s goals, but this model can also limit the organization from being able to grow or adapt to change. “Individuals learn early upon joining the organization that decisions made without executive input and approval will be met with resistance and/or negative consequences …Staff might note how this approach constrains their ability to do their work and fulfill the mission of the organization”.

Times have gotten more and more challenging for most nonprofit organizations with social changes and funding becoming more and more difficult to secure. Research studies show that “Teams and organizations that use shared leadership have been shown to better serve client needs, improve innovation and creativity, adapt to change more quickly and effectively, and navigate the ebbs and flows of turbulent environments more proactively and efficiently.

Family Recovery, a residential drug treatment center for adolescents, is an example of a community-based nonprofit organization whose administrator decided to change the organization’s management style to a more shared-leadership approach. The nonprofit was faced with the same challenges as many nonprofits, and the shared leadership approach allowed the organization to become stronger and more efficient with the resources they already had in place. The steps they followed to transition to a shared leadership model included committing to change, forming a committee to facilitate the change, turning staff into decision-makers, sharing information, forming collaborations, and continuing the process. Individual members of the organization had to take on more responsibility, but the process of committing to the change and clear communication within the organization help the organization adapt, become stronger, and also set a standard for other nonprofit organizations to change as well.

Partnering with other organizations is another way for nonprofit organizations to become more able to face changes due to social and economic factors. Partnering allows both nonprofits and the partnering organization to mutually benefit from shared knowledge and resources. “Partnerships can be designed, structured, nurtured, and maintained in a manner that will enable them to contribute to solving pressing social problems and to fulfilling important strategic objectives for companies and nonprofits”. The nonprofit’s need for going beyond traditional sources of funding can be met by partnering with for-profit businesses, and the for-profit business’s need for showing more social responsibility can be helped by the nonprofit whose primary mission is typically social in nature. A study of a partnership between the ANZ National Bank and the Cancer Society of New Zealand revealed that the for-profit bank felt supported in their ability to demonstrate their commitment to social responsibility by partnering with the non-profit Cancer Society, and the nonprofit Cancer Society received necessary resources and support from the bank business to move forward with their social mission. Strategic partnerships between nonprofits and universities can also provide mutual benefits to both organizations.

Strategic partnerships between nonprofit organizations and universities are one way to address the staff recruitment and development challenges of nonprofit organizations and provide meaningful and relevant learning experiences for students. While there are numerous ways to approach such partnerships, one model was the creation of a course to meet specific needs of both the nonprofit sector and the university. 

In this scenario, the course that was created was “Introduction to Community-Based Research in the Nonprofit Sector”, and was offered to upperclassmen at the university. The objective of the class was for students to implement a research study project with an organization that would create a way that was reasonable and practical to improve the organization of their choosing. This course allowed students the opportunity to gain knowledge about real-world nonprofit function and meet curricular requirements of the university, and the nonprofit organization itself benefitted from the research and possible solutions that the students developed in their project. This is very similar to what the University of Nebraska at Omaha is currently doing. I am participating in an internship this next year that allows me to work with a nonprofit organization. I will be a Collaborative Manager at the Omaha Children’s Museum. The University is benefitting in that its students are given real world experience in a field that is related to their major, which creates a stronger academic outcomes for their students. The Omaha Children’s Museum in turn will benefit from having a Collaborative Manager to implement projects to increase effectiveness of the organization at no cost to the organization.

In conclusion, for a nonprofit organization to be resilient, it must be able to respond to the community that surrounds it, it must be able to be creative in seeking funding, and it must move toward a structure of shared leadership within the organization and building collaborative partnerships with other organizations. Nonprofit organizations must know the community they serve and continually be willing to respond to the needs of that community by seeking stakeholder input and having a clear mission to assure their purpose matches the needs and characteristics of the community. Likewise, nonprofits must be willing to seek other ways to fund their mission by responding to changes in the economy and their surrounding community. Traditional fundraising events may need to be restructured and funding sources explored that go beyond the donation base such as grants. Nonprofits must also be willing to restructure traditional single director led models into organizational models that tap into skills and talents found in members from across the organization and allowing those members to share the leadership in the organization while also forming mutually beneficial partnerships with other organizations, including traditional for-profit businesses. If a nonprofit organization is willing to trust that sticking to its central scope and mission might also mean allowing that scope to widen enough to stay in tune with the surrounding community, to look beyond traditional funding sources, and to share leadership within the organization while partnering with outside organizations, then that nonprofit organization can be on its way to becoming an even stronger and more resilient organization in the future. 

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