Staying Afloat, or Better - Do Your Sources of Income Make Your Not-for-Profit Sustainable?

In the wake of the COVID-19 crisis, many not-for-profits are facing rough waters as they maneuver to remain financially viable. Organizations with only one or two sources of revenue are particularly shaky.

Time will tell which not-for-profits will weather the storm. But it’s not too late to evaluate your revenue streams to make sure they’re sufficiently diverse as you head into the future.

Multiple Life Savers Are Crucial

Relying on a single source of revenue can leave you with empty coffers if that source dries up. For example, in the late 2000s, not-for-profits dependent on state funding had to scramble as states across the nation began reducing, suspending and even eliminating grants.

Of course, government funding isn’t the only source that could unexpectedly disappear. Tough economic times can hurt major gifts, corporate giving, individual donations and foundation grants.

Additionally, if you sell goods or services, you might see sales dry up as potential customers are forced to cut back on personal spending.

Navigate Toward Diversity

Stable not-for-profits generally have a good mix of revenue sources, with no single source of revenue accounting for more than 25% or 30% of the budget. The following practices can help you achieve that goal.

Get an accurate reading on where your income originates before you attempt to broaden your revenue stream. Not-for-profit boards of directors sometimes are reluctant to pursue new revenue sources, but visual aids — such as pie charts can help them understand the need.

In your initial evaluation, include a review of your organization’s plans for the next five years and their anticipated expenses. Present the board with multiple scenarios where those costs are compared to revenues with and without the current revenue sources. Seeing that eliminating a revenue stream could jeopardize your not-for-profit’s mission may be the nudge reluctant directors need to embrace diversification.

Select Your Destinations

After deciding to pursue new revenue sources, keep everything on the table as you begin that process. Consider a wide range of potential sources, weighing the pros and cons of each. Include implications for staffing and other resources, accounting processes, unrelated business income taxes and your organization’s exempt status.

In addition, assess how well-aligned potential sources are with your mission. For example, does the company that has proposed a joint venture engage in practices akin to your values?

While you don’t want to put all your eggs in one basket, you also don’t want to depend on too many baskets. Each new revenue stream will require its own strategy and executing too many implementation plans can strain resources.

Each plan should include initial and ongoing budgets, as well as any new systems, procedures and marketing campaigns that will be needed. It also should have a timeline with milestones to help with monitoring. 

Adjust Course Accordingly

Once your new sources of income are in place, take the time at the end of every month to closely review each revenue source. Is it living up to expectations? Is it costing more than expected or is it falling short of revenue projections? If a source fails to deliver over time, don’t feel tied to it.  

For assistance, contact us. We are here to help. 

© 2021

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Sara Dempsey

Sara Dempsey

Partner-in-Charge, Government and Not-for-Profit Services

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Sara Dempsey, CPA, who leads Weaver's practice serving governmental and not-for-profit entities, has 17 years of public…

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