EMH Insights

Non-Profit Financial Sustainability

The topic of financial sustainability is particularly relevant for New Orleans non-profits. The surge of funding post-Katrina led to a boom in activity in the non-profit sector within the city, with the majority of these organizations relying on grant funding. Now, a decade after the storm, and as highlighted in our latest whitepaper, funding resources have significantly diminished, and these organizations must continue to strive to accurately communicate impactful and differentiated value propositions, or else find other sources of revenue to sustain themselves.

Many of our non-profit clients engage us to help them achieve financial sustainability, with the goal of increasing earned revenue, thereby reducing reliance on grant funding. While many non-profits aspire to full financial self-sufficiency, this is far from feasible. For some non-profits, there are may be options for earned revenue such as fee-for-service activities or product offerings that are aligned with the organization’s mission, while for other organizations, there are fewer opportunities for earned income that are relevant. In their HBR article “Should Nonprofits Seek Profits?,” Bridgespan Group partners William Foster and Jeffrey Bradach argue that, for the majority of non-profits, earned income in and of itself is “not a pathway to financial health or mission accomplishment.” Instead, they believe that non-profit leaders should primarily focus on the organization’s ability to successfully meet its mission and develop sources of earned revenue only when supporting the organization’s mission. When we at EMH engage with a non-profit client to improve financial sustainability, we not only review opportunities to increase earned income in ways that are mission-aligned, but also look to improve operational efficiency and help the organization communicate its value to funders.

In a later article in the Stanford Social Innovation Review, Foster, along with Bridgespan consultants Peter Kim and Barbara Christiansen, outlines ten different non-profit funding models. Their categorization is a useful framework for non-profits to better understand their operating model and develop strategies for financial sustainability. In this article, the authors describe three non-profit operating models that utilize earned income in addition to funding from grants and donations. These non-profits must not only solicit funding by communicating the impact that they provide to their communities, but also seek to maximize earned income in such a way that adheres to the organization’s mission. When we work with non-profits that desire to develop or expand their earned income strategy, our goal is to identify as many sources of earned income as possible for the non-profit, and then evaluate each income source’s ROI and fit with the mission.  One example of this type of work was demonstrated through our engagement with Café Reconcile, a New Orleans non-profit that trains at-risk youth through a combination of life skills and workforce training for the hospitality industry. At the time of our engagement, the organization earned revenue by operating a restaurant (staffed with program participants) that served lunch on weekdays. In our engagement, we developed an expansion plan for their real estate, commercial operations, and program reach. We evaluated the return on investment of rehabilitating and expanding their physical location to develop a commercial kitchen dedicated to catering and culinary skills development while adding on the additional services of increased restaurant operations, catering services, and event hosting. These changes were also designed to help the organization expand the reach of their program by increasing student capacity and community engagement. Café Reconcile has implemented a number of our recommendations, leading to increased earned income, operational efficiency, and program impact.

Not all non-profits have relevant opportunities for earned income. The Bridgespan consultants, in their article in the Stanford Social Innovation Review, also describe seven operating models for non-profits that rely solely on grants or donations for revenue. For these types of non-profits, financial sustainability is achieved by establishing a strong brand and communicating value to funders and donors. There are many competitors that non-profits face for funding, and those with strong brand recognition, a clearly defined mission for impact, and proven effectiveness will be more likely to secure these resources, be it from the government, foundations, or individual donors. For these types of non-profits, we at EMH help our clients refine and articulate their mission and vision, develop their brand concept, and communicate their impact effectively. For example, the Emeril Lagasse Foundation sought to develop a national culinary garden and teaching kitchen program in schools across the nation. This program would rely on donations to foundation from individual donors. The program would compete with a number of similar programs for donations from individuals and organizations. Thus as a large part of our engagement, we helped the foundation, in a collaborative process, to articulate the value and quality of their program in the wake of many others who aspire to a similar impact.

As exemplified by the diversity of EMH’s work with non-profits, there is no “one-size-fits-all” when approaching a non-profit’s strategy for financial sustainability. Non-profits must understand their operating model, and with this understanding develop feasible goals for financial sustainability. For those with opportunities for earned income, all possibilities should be explored, but ultimately the products or services offered should align with the organization’s mission. Once the goals of an organization are in place, a strategy for increasing grant funding, donations, and earned revenue can be developed.