We are all striving for financial resilience in the nonprofit world, whether it’s something your organization has been chasing after, or it’s become a recent focus. With substantial scrutiny in the sector on financial ratios, especially program expense allocation, it can be hard to take financial risks for fear of negative publicity, but risk is what can lead to financial freedom.

Conducting a risk assessment to identify where your organization is willing to take risks is the best place to start. From there, a risk profile can be developed and eventually contingency plans. The risk profile can help with short-term planning and transparency between organizational leadership, the board and donors. The risk profile may also include strategies for how your organization will approach areas like funding and investments, program efficiency ratio or human resource management. Eventually, the risk framework should also be used to plan for emergencies. It can be difficult to think about what you would do if the stock market crashed or a natural disaster were to occur in your area, but planning can help your organization endure the most difficult circumstances.

Saving for a rainy day is arguably the least risky thing you can do as an individual; for nonprofits, it can feel like jumping off a cliff. Many organizations think they should be spending that money on programs or additional staff members for the fundraising team — but if disaster strikes, having an in-person gala planned will not save your organization, emergency funds will.

A case study

Let us look at a Washington nonprofit, Old Dog Haven, as an example. Old Dog Haven is a 501(c)(3) nonprofit that cares for senior dogs and has achieved roughly $2 million in overall revenue in 2019. They have a cash reserve large enough to pay for veterinarian care and medications through the end of life for all the canines in their care. It was a risk to not invest unexpected bequest funds that the organization received, but going into the pandemic, the organization prepared for how they would support the roughly 300 dogs in their care.

Another area that is key to financial resiliency is revenue diversification. To diversify or not to diversify has been the age-old question for nonprofits, but a combination of both may be the answer. First look at your primary source. Are there ways to diversify within that source? For example, if your organization primarily relies on government funding, can you expand to include federal, state and local government support? It’s also smart to keep a smaller secondary source, but if you are pursuing half a dozen or more ways to bring in revenue, you may be burning staff out and still not achieving the return on investment desired.

It may be cliché to say “no money, no mission,” but if you do not plan for financial difficulties, you may find your organization simply cannot survive the next catastrophe.

Tara Masella is a 2022 graduate of the Master of Nonprofit Leadership and Management program at Arizona State University. She is a human resources professional who has worked and volunteered in the animal welfare, healthcare, and human services subsectors over the past 14 years. Tara is currently a Talent Consulting Director for Providence and a Foster Parent, Court Appointed Advocate and Old Dog Haven volunteer in Washington state.

Learn more: Fundraising and Sustainable Financial Management Certificate

Gain additional knowledge and skills in fundraising, strategic planning, board governance, financial management and more with this certificate program from the ASU Lodestar Center's Nonprofit Management Institute. You'll be equipped to lead and manage the fundraising efforts for a nonprofit organization.

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