Like most small businesses, nonprofits are born out of passion and the desire to make a difference. While the financial goals of nonprofits and for-profits seem different on the surface, they're actually both striving for the same thing: to generate revenue and then distribute it.
That's why leaders of nonprofits might want to take a closer look at the for-profit world of business: There's much to learn about running their organization like it's a small business. Here are four key lessons:
1. Plan To Succeed
Profitable businesses begin with a business plan, and successful nonprofits should adopt the same strategy. "It's important to have a plan to show you have clarity in what you're trying to do, why it's important to you to do it, and to communicate to the other stakeholders where the value lies and why it's relevant in today's environment." says Diana Leon-Taylor, president and CEO of The Nonprofit Roundtable of Greater Washington. And in the competitive world of fundraising, Leon-Taylor says investors want to be sure there's a strategy in place for thoughtfully spending what they donate.
2. By The Book
When it comes to managing any business, for-profit or nonprofit, meticulous bookkeeping is a critical component of keeping up with the bottom line.
"It's important to demonstrate the value of what you're doing," Leon-Taylor says. "When you can show how you're taking these funds and maximizing those funds and having an impact, you're able to demonstrate that you [can] handle your books ... it builds confidence externally for further support."
There are times when nonprofits can be tempted to push good bookkeeping to the back burner while handling what seems to be other issues that are more immediate, Leon-Taylor notes. "Even though it's not urgent, it's very important," she says. "If your books aren't in order, you'll have to take away your resources at some point and invest them in bringing your books up to order, and it's more much difficult to go back in time and build a story."
Most nonprofits have strong books, she adds, and it's worth staying on top of it.
3. Surround Yourself With Good People
All small businesses, whether they're for-profit or nonprofit, rely on a team of people to get things done. For nonprofits, that team centers around the board of directors. Leon-Taylor says in the beginning, many nonprofits are run by friends of the founder.
"As a nonprofit grows and evolves and changes with the environment, the board becomes a lot more sophisticated. In today's environment, they're becoming very sophisticated because they're given fiduciary duty and have responsibility to the organization," Leon-Taylor says.
What types of people should be on the board? Leon-Taylor suggests adding a legal expert who can review documents and a marketing expert who can help with promotion. A board member with government expertise can be an asset as well.
The bottom line is, the board wants to know where the money is going and if it's being used for maximum impact—exactly what a stakeholder in a for-profit business would want to know as well.
4. Look Ahead
Nonprofits should be planning for future success by constantly evaluating the surrounding environment and remaining flexible to potential changes in the marketplace. "The organizations that do that have the highest likelihood of surviving," Leon-Taylor says, "because they remain relevant. Once you're relevant, that's when you become sustainable. If you're not relevant, no one is going to fund you."
And, she adds, one way to stay relevant is to partner with other nonprofits and make your mission that much more attractive to investors. For example, a nonprofit that aids preschool children by providing clothes and another that assists that same target market by providing food could join forces. When they do, supporters can feel good about contributing to more than one good cause at the same time.
"From the investor's perspective, it maximizes their investment because they're able to invest in two nonprofits and get something greater on the return if the two are working together," Leon-Taylor says.
Just like their for-profit cousins, nonprofits are businesses that were founded with the purpose of redistributing the money they collect. For that reason, they should be guided by a business plan, dedicated to proper accounting, run by a savvy team and managed with an eye toward the future.
Doing good in the world requires more than just a dream. Successful nonprofits understand that the dream involves hard work and a commitment to successful business practices.
Carla Turchetti is a veteran print and broadcast journalist with a passion for money matters and the stories behind the world of small business and personal finance.
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