While companies in the private sector depend on sales to make a profit, organizations in the social sector rely on voluntary contributions from governments, foundations, corporations, and individuals to sustain their missions. While striking the right balance of these income sources varies for every organization, there is growing consensus that diverse revenue streams are critical to mission success.
While the revenue models of organizations substantially differ by sector, there are usually opportunities for organizations to adjust this by expanding some sources. Look to peers doing similar work in your sector and see if they break the molds of their categories’ revenue models. With fundraising and marketing strategies that loosen the constraints of your income model, you can break into viable or diverse revenue streams, like individual giving, that are measurable and should improve along with improvements in donor engagement.
Many organizations realize the need to establish and maintain operating reserves, which are becoming increasingly standard in the nonprofit sector. These are rainy-day funds of cash set aside for losses or special expenses occurred. When confronted with any unexpected disruptions or cash shortages, operating reserves allow organizations to continue providing key services and effectively steward donations and grants.1 No different from an individual or family’s emergency fund, operating reserves increase your ability to weather unexpected storms; they can often be budgeted for within an annual campaign, or even within longer term projects like capital campaigns.
In addition to reserves, organizations should annually conduct an audit of their financial position. Typically conducted by an external auditor, a clean audit can communicate your organization’s financial responsibility while also communicating that your organization is transparent and ethical. Within the report, auditors walk through your financial statements to determine whether they adhere to generally accepted accounting principles, or GAAP.2 An audit that reveals an organization’s good standing can not only inspire your board’s confidence in the sustainability of your organization, but also enhance donor trust as these documents become public records.