Sounds like a simple question to answer, but in reality, financial sustainability is a spectrum and tricky to assess in the nonprofit context. Strong programs and demand for services do not automatically equate with adequate funding—to the contrary, success typically means more demand, so money is often needed. For a mature organization, you’ll be looking for a stable funding mix that isn’t overly reliant on a small number of funders, enough cash on hand to weather an unexpected storm, and robust financial reporting systems that support sound financial management. If the nonprofit organization is less financially mature, you might have more questions than answers. So ask yourself: Do the leaders seem to have a reasonable plan to achieve financial stability (and the necessary capabilities to put that financial plan to work)? Don’t be surprised if you yourself (and your support) are part of that plan.
- How strong is the potential grantee’s financial management?
- Does the financial management team have the requisite experience and judgment?
- Does the organization have systems in place to evaluate its financial progress?
- Does the organization have a solid strategy to raise revenue?
- What percentage of costs is covered by reliable funding sources?
- What restrictions have donors placed on their funding?
- How concentrated are revenue sources?
- What plans, if any, does the organization have in place to become financially sustainable (if it is not already)?
- Does the organization have enough cash on hand to weather an unexpected storm?
- "How to Research a Nonprofit’s Financial Strength—Deep-Dive Approach"
- "Researching a Nonprofit's Financials: Financial Resources"
- "Researching a Nonprofit's Financials: Financial Audits"
Check in next week for six red flags to look out for when researching a nonprofit’s finances.