SUSTAINABILITY ASSESSMENT & PLANNINGMarch 17, 2015

Agenda

1.  Introductions2.  State of the sector3.  Overview of terms4.  Pillars of Sustainability–  Operating Environment –  Leadership–  Finance/Admin–  Program/Impact

In 2013, 41% of organizations said “achieving financial sustainability was a top challenge”

YET…•  More than half have less than 3 month of

cash on hand•  28% ended the year with a deficit•  Only 9% have real open conversations

with funders about developing a reserve for operating needs

Nonprofits are taking action to survive and succeed

•  49% collaborated with another organization to improve or increase services

•  48% invested money or time in professional development

•  40% upgrade technology to improve efficiencies

•  39% conducted strategic or financial planning

Nonprofits are important businesses…

•  Nonprofit share of the GDP is 6%•  1.5 million registered with the IRS•  9% of the economy’s wages/10% of all

jobs

What does sustainability mean?

Sustainability is more than revenue

Nonprofit sustainability requires a complete change of thinking, a revised approach to nonprofit leadership and a total mindset transformation.

I see sustainability as an integrated approach to remain vital and relevant in the community

Lifecycle of an organization…at what point is sustainability?

Nonprofit Sustainable Business Model

Operating Environment Leadership Financial &

AdministrativeProgram &

Impact

Nonprofit Sustainable Business Model

Operating Environment Leadership Financial &

AdministrativeProgram &

Impact

Nonprofit Sustainable Business Model

Operating Environment Leadership Financial &

AdministrativeProgram &

Impact

Nonprofit Sustainable Business Model

Operating Environment Leadership Financial &

AdministrativeProgram &

Impact

Financial metrics are critical for understanding your business model and sustainability

•  Summarize organizational performance•  Snapshots that are easy to understand•  Used in benchmarking•  Helpful in identifying trends•  CAN BE HELPFUL IN MAKING

DECISIONS

Key Ratios

•  Days of cash on hand–  How many days can the organization operate without receiving

additional funds or having to liquidate investments.•  Burn Rate

–  The value of expenses that your organization uses every month.•  Current Ratio

–  The ability of the organization to cover current liabilities with current assets.

•  Aging Payables and Receivables–  Both metrics are important for determining cash flow

•  Debt Ratio–  Measures liquidity and the proportion of assets to debt

•  Liquid Unrestricted Net Assets–  The portion of funds that an organization can use to start building a

reserve

Financial Reports are key to leadership understanding

Breaking even is never enough, budget for a surplus

All organizations need to cover their operating expenses PLUS

Opera&ng  Expenses  

Fixed  Asset  Addi&ons   Deprecia&on  

Working  Capital   Reserves   Debt  

Principal  

Do you know the fully loaded cost to deliver your organizations’ services?

What’s in a $3, 12oz. Starbucks Latte?

$2.23, 300% markup/profit

$.32 Espresso shots$.20 Steamed milk (extra for soy)$.15 Cup, Lid and stirrer$.05-$.10 Rent, Labor, utilities

Sustainability Matrix

Financial Sustainability

Mis

sion

Impa

ct

Nonprofit Sustainable Business Model

Operating Environment Leadership Financial &

AdministrativeProgram &

Impact

A concise capture of mission and impact framework

Strategic vs. Business Planning. Do I need both?Strategic Plan•  Provides overall

direction and focus for the organization

•  Usually 1-5 year timeframe

•  More strategic in nature, overall sustainability

Business Plan•  Usually a new start up

venture or specific program

•  Primarily 1-2 years•  Viability of a business

opportunity-provide tactical and operational components

Nonprofit Sustainable Business Model

Operating Environment•  “Well versed” on policies

and regulation affecting its mission and clients.

•  Actively assess, responds to, and stimulates internal and external changes.

•  Incorporates the latest technology and field innovations into management and program delivery.

Leadership•  Board understands their

fiduciary and governance roles.

•  100% of board members contribute financially.

• Meaningful staff performance metrics are implemented and reviewed annually.

•  Staff actively engage in professional development activities.

•  Succession plans are in place for key leadership transitions.

Financial & Administrative•  3-6 months of liquid

unrestricted reserves are secured.

• No more than 50% of funding is derived from a single source.

•  True cost of delivering services is known and carefully considered when applying for funding.

•  Key financial reports are produced regularly and reviewed by leadership.

•  Technology infrastructure is current and maximized to its potential.

Program & Impact•  A strategic framework is in

place and reviewed regularly.

•  A theory of change with impact measurements is utilized.

• Organization have a solid business plan that outlines key assumptions.

• Communication about outcome data is shared with stakeholders.

Resources/Articles

“Collapse of Famous Hull House”https://philanthropy.com/article/Collapse-of-Famous-Hull-House/157181

“Sustainability, not a myth but not what you may think”https://nonprofitsassistancefund.org/blog/2012/11/sustainability-not-myth-but-not-what-you-may-think

“Operating Reserve Policy Toolkit”http://usaswimming.org/_Rainbow/Documents/6e294a6c-4cd5-49f8-81f8-84b9f0098e54/Operating%20Reserve%20Policy%20Toolkit.pdf

Nonprofit Starvation Cycle http://www.ssireview.org/articles/entry/the_nonprofit_starvation_cycle/

Nonprofit Assistance Fund-Variety of Financial Resourceshttps://nonprofitsassistancefund.org/

Studio WatershedAmy Gudgeonagudgeon@studiowatershed.com773.485.1155www.studiowatershed.com

Studio Watershed helps organizations find that break through moment - by building sustainable business models, guiding informed strategic decisions and identifying a path to growth.

Services focus on helping social sector organizations build fiscally sound, sustainable business models.•  Business and growth planning•  True cost analysis •  Building financial capacity (coaching, budget support, dashboard

development)•  Sustainability analysis (assessing organizations on leadership, operating

environment, business model and impact)