I was speaking to a group of nonprofit leaders in Pittsburgh last month about how to Move From Fundraising to Financing and there were some parts of the presentation that raised eyebrows and (sometimes) controversy. And it usually happened around the topic of the nonprofit board.
I strongly believe that the board of directors is a nonprofit’s most critical financial asset. A board that is actively engaged and has the specific skills, experience, and networks required to deliver on the organization’s strategy can make the difference between a nonprofit that is just getting by and a nonprofit that is truly creating social change. And money is an inextricable part of that. Therefore, a nonprofit’s board cannot avoid its money role, or the organization and its mission will suffer.
Is your board avoiding their money role? Here’s what it looks like when they are:
The Board Isn’t Raising 10% of the Budget
I know it’s heresy, but I believe that a board should be charged with raising at least 10% of a nonprofit’s annual budget. But that doesn’t mean they all have to write personal checks (or get their friends to write them). Rather, there is an endless list (here and here) of ways board members, who are fundraising shy, can bring money in the door. Because why should the entire financial burden be left on the shoulders of the staff? That’s just not sustainable. And if you can’t get your board to step up to the financial plate, how will you have any hope of getting others to do so? There are really so many reasons why your board should take on more money responsibilities.
The Board Doesn’t Enforce a Give/Get
So to reinforce the idea of complete board involvement in the financial engine, you need to make it a practice. And that’s where the give/get comes in. A give/get requirement is a minimum dollar amount at which each individual board member must either “give” themselves, and/or “get” from somewhere else. Every single member of the board must understand and contribute to how money flows to the organization. They cannot argue that money is the purview only of the staff or a subset of board members. Money has to be part of the ENTIRE board’s job. Until you force the board to really participate in creating and maintaining an effective financial engine, you won’t be able to have substantive conversations about or get real engagement in raising or spending money.
New Program Decisions Ignore Money
It is not enough for a board to approve new programs or program expansion by only analyzing the potential impact on the mission. The board must also understand how a new program will or will not contribute to the long-term financial sustainability of the organization. The board needs to analyze all of the costs (including set up, opportunity costs, and ongoing operating costs) of the program and whether the program can attract enough money to at least cover those costs. And if not, whether the new program can be subsidized by other activities already in the mix. But the board cannot blind themselves to the financial downfalls of a sexy new program.
Real Conversations About Money Happen Only in Crisis
Most board meetings include an update on a nonprofit’s budget, which is the extent of any money conversation. If there is a problem (expenses are too high, or revenue is not flowing as budgeted) a long conversation will ensue about the crisis. But bigger, regular discussions about the overall financial strategy of the organization are scarce. If the board is to be the financial steward of the organization, they have to spend time analyzing and developing their nonprofit’s financial model — where revenue should flow and how money should be employed to meet the mission. Money is a tool. But to effectively wield that tool, the board needs to think, talk, and act strategically about it.
For a nonprofit to be truly effective and sustainable, its board — the entire board — must embrace its money role. Because their is no mission without money. And no successful board turns a blind eye to the financial engine of their organization.
If you want to find out more about developing a sustainable financial model for your nonprofit, download the Develop a Financial Model Bundle. And if you want to learn how to create a more effective board, download the Build an Engaged Board Bundle.
Photo Credit: Luis Miguel Bugallo Sánchez
Great article – scarily on point. Article title makes it a bit awkward to forward to board members but the content is soooo relevant.
Thanks Toby. Perhaps you could just change the title and then forward it! Ha!
Spot on information. Thank you
Thanks Rose!
Nell, next time I’ll write when I agree with you on something.
So, I’m thinking about a major human service provider that was one of my clients and trying to apply the 10% rule you’ve created. (P.S. I’m wondering what data/evidence about nonprofit effectiveness you are using to back up this dictum).
This particular organization has a budget of $99 million dollars, virtually all of it through program service revenue, most of that government. It raises $443 million dollars through staff-directed fundraising activities such as grants, and federated giving campaigns.
I’m having a very hard time imaging the board of directors, which includes mostly clinical type folks with a few business leaders, being charged with raising $9 million.
Or I’m thinking about Save The Children and its $667 million dollars of reported revenues and trying to imagine its board, which is pretty prestigious, raising $68 million dollars.
Surprisingly, in their study, how Nonprofits Get Really Big, put out by the Bridgespan Group, the type of income that was the dominant funder for the FEWEST number of large nonprofits received, is the one that one might be more inclined to find board members participating in,individual giving of large gifts.
In my 30 years of experience, the most sustainable organizations financially are those that rely little on their board of directors for their financial success.
I just wonder why it is that these governing volunteers, who are charged with so many more weighty responsibilities for sustainability,are held to such a double standard when it comes to revenue development.
Imagine the absurdity of you pronouncing: The Board of Directors must be responsible for managing at least 10% of the organization’s programs.
Cheers,
Gayle
Gayle,
Thanks so much for your comments. It’s great to hear from you again!
Let me be very clear. I am not at all suggesting that board members contribute 10% of the financial bottomline by bringing individual major gifts in the door. As I have said many, many times I think we need to define bringing money in the door much more broadly. I think there are countless ways that a board member can be involved in the financial engine of their nonprofit far beyond major gifts, for example: opening doors to government contracts, thanking a donor, negotiating a lower cost from a vendor, providing intelligence on prospects, writing or reviewing a business plan for an earned income venture, the list is really endless. The point is that board members should not be allowed to ignore the financial realities of the organization, and it is impossible to ignore something when you have a responsibility for a piece of it. In the examples you give, I would wager that if you calculated board involvement in a much broader way you would find that at least 10% of that money could be attributed to board involvement. And if not, yikes! Because that means it is all resting on the shoulders of the staff, and that simply is not sustainable. The board must be much more supportive of the nonprofits they serve, and in my mind that means they need to show up, and show up in a significant way, to the financial engine of their organization.
Nell,
I still don’t agree with you.
First, it would be completely impossible to associate light board touches to actual dollars received. Yes, they might need board members to testify before their state legislature or Congress about their programs or even general funding streams. But does the testimony or letters of a few or even a lot of board members count for 10%? Or 90%? or 100%
In very brief, the role of the board as governors is to ensure that the organization is delivering on its mission, that it has a business model that supports its ability to deliver its social impact and that the organization has a human resource and operation plan to make that happen. That it is trustworthy and worthy of support. This is the absolutely best fundraising work that they can do.
Boards are totally within their governing role to decide that the way to meet the organization’s revenue needs is hire professional staff and have them do what they are in fact trained to do. I would hypothesize that organizations that do that are more likely to successfully achieve their revenue goals (actually, there is research data to back this us -see “Nonprofit Fundraising Study” of Nonprofit Research Collaborative 2012 ) than the wishful and largely unmeasurable objective of 10% standards pulled out of a hat.
BTW, I don’t understand why it is unimaginable to say that the board is responsible for delivering 10% of programs, or 10% of operations, if you set up a standard of attributing 10% of revenues? What makes one different from the other in terms of sustainability or professional expertise?
Gayle, I completely agree with how you characterize the role of the board (“to ensure that the organization is delivering on its mission, that it has a business model that supports its ability to deliver its social impact and that the organization has a human resource and operation plan to make that happen. That it is trustworthy and worthy of support”). However, the missing link (so very, very often) in nonprofit organizations is that the board thinks that showing up to meetings and hearing the development report is enough. Raising money requires that the board take an active role. And that active role means opening doors, making connections, providing intelligence, offering insight. This can actually also be true in delivering programs — the board should not only help provide the overall program strategy and theory of change for the organization, but also help to open doors and make connections to key decisionmakers, advocates, or others outside the organizations walls who are critical to effective delivery of the organization’s mission. In all of this, I am simply asking that the board step up and take an ACTIVE role, as opposed to a passive role of “hiring professional staff and have them do what they are in fact trained to do.” There must be an effective partnership between the board and staff in developing and executing on a robust financial model, just as this partnership between board and staff must exist in delivery on mission, because at the end of the day there is no mission without money. Maybe 10% isn’t the right number, but I believe you have to set a significant goal if you truly want the board to take notice and actually step up. And to your question about how you measure the 10% number, I encourage organizations to set their own standards for what counts and doesn’t and be liberal in your definitions. Make it easy and engaging for the board to be involved, and it can transform how active they are in the financial model.