SUSTAINABILITY ASSESSMENT & PLANNING March 17, 2015

Agenda 1.  Introductions 2.  State of the sector 3.  Overview of terms 4.  Pillars of Sustainability –  –  –  – 

Operating Environment Leadership Finance/Admin Program/Impact

In 2013, 41% of organizations said “achieving financial sustainability was a top challenge”

YET… •  More than half have less than 3 month of cash on hand •  28% ended the year with a deficit •  Only 9% have real open conversations with funders about developing a reserve for operating needs

Nonprofits are taking action to survive and succeed •  49% collaborated with another organization to improve or increase services •  48% invested money or time in professional development •  40% upgrade technology to improve efficiencies •  39% conducted strategic or financial planning

Nonprofits are important businesses… •  Nonprofit share of the GDP is 6% •  1.5 million registered with the IRS •  9% of the economy’s wages/10% of all jobs

What does sustainability mean? Sustainability is more than revenue Nonprofit sustainability requires a complete change of thinking, a revised approach to nonprofit leadership and a total mindset transformation. I see sustainability as an integrated approach to remain vital and relevant in the community

Lifecycle of an organization…at what point is sustainability?

Nonprofit Sustainable Business Model

Operating Environment

Leadership

Financial & Administrative

Program & Impact

Nonprofit Sustainable Business Model

Operating Environment

Leadership

Financial & Administrative

Program & Impact

Nonprofit Sustainable Business Model

Operating Environment

Leadership

Financial & Administrative

Program & Impact

Nonprofit Sustainable Business Model

Operating Environment

Leadership

Financial & Administrative

Program & Impact

Financial metrics are critical for understanding your business model and sustainability

•  •  •  •  • 

Summarize organizational performance Snapshots that are easy to understand Used in benchmarking Helpful in identifying trends CAN BE HELPFUL IN MAKING DECISIONS

Key Ratios •  Days of cash on hand –  How many days can the organization operate without receiving additional funds or having to liquidate investments.

•  Burn Rate –  The value of expenses that your organization uses every month.

•  Current Ratio –  The ability of the organization to cover current liabilities with current assets.

•  Aging Payables and Receivables –  Both metrics are important for determining cash flow

•  Debt Ratio –  Measures liquidity and the proportion of assets to debt

•  Liquid Unrestricted Net Assets –  The portion of funds that an organization can use to start building a reserve

Financial Reports are key to leadership understanding

Breaking even is never enough, budget for a surplus All organizations need to cover their operating expenses PLUS Opera&ng   Expenses   Working   Capital  

Fixed  Asset   Addi&ons  

Deprecia&on  

Reserves  

Debt   Principal  

Do you know the fully loaded cost to deliver your organizations’ services?

What’s in a $3, 12oz. Starbucks Latte? $2.23, 300% markup/profit

$.32 Espresso shots $.20 Steamed milk (extra for soy) $.15 Cup, Lid and stirrer $.05-$.10 Rent, Labor, utilities

Mission Impact

Sustainability Matrix

Financial Sustainability

Nonprofit Sustainable Business Model

Operating Environment

Leadership

Financial & Administrative

Program & Impact

A concise capture of mission and impact framework

Strategic vs. Business Planning. Do I need both? Strategic Plan •  Provides overall direction and focus for the organization •  Usually 1-5 year timeframe •  More strategic in nature, overall sustainability

Business Plan •  Usually a new start up venture or specific program •  Primarily 1-2 years •  Viability of a business opportunity-provide tactical and operational components

Nonprofit Sustainable Business Model Operating Environment

Leadership

•  Board understands their fiduciary and governance •  “Well versed” on policies and regulation affecting its roles. •  100% of board members mission and clients. contribute financially. •  Actively assess, responds to, and stimulates internal •  Meaningful staff performance metrics are and external changes. implemented and •  Incorporates the latest reviewed annually. technology and field •  Staff actively engage in innovations into professional development management and activities. program delivery. •  Succession plans are in place for key leadership transitions.

Financial & Administrative

Program & Impact

•  A strategic framework is in place and reviewed •  3-6 months of liquid regularly. unrestricted reserves are •  A theory of change with secured. impact measurements is •  No more than 50% of utilized. funding is derived from a •  Organization have a solid single source. business plan that •  True cost of delivering outlines key assumptions. services is known and carefully considered when •  Communication about outcome data is shared applying for funding. with stakeholders. •  Key financial reports are produced regularly and reviewed by leadership. •  Technology infrastructure is current and maximized to its potential.

Resources/Articles “Collapse of Famous Hull House” https://philanthropy.com/article/Collapse-of-Famous-Hull-House/157181 “Sustainability, not a myth but not what you may think” https://nonprofitsassistancefund.org/blog/2012/11/sustainability-not-myth-but-notwhat-you-may-think “Operating Reserve Policy Toolkit” http://usaswimming.org/_Rainbow/Documents/ 6e294a6c-4cd5-49f8-81f8-84b9f0098e54/Operating%20Reserve%20Policy %20Toolkit.pdf Nonprofit Starvation Cycle http://www.ssireview.org/articles/entry/the_nonprofit_starvation_cycle/ Nonprofit Assistance Fund-Variety of Financial Resources https://nonprofitsassistancefund.org/

Studio Watershed Amy Gudgeon [email protected] 773.485.1155 www.studiowatershed.com Studio Watershed helps organizations find that break through moment - by building sustainable business models, guiding informed strategic decisions and identifying a path to growth. Services focus on helping social sector organizations build fiscally sound, sustainable business models. •  Business and growth planning •  True cost analysis •  Building financial capacity (coaching, budget support, dashboard development) •  Sustainability analysis (assessing organizations on leadership, operating environment, business model and impact)