If we want nonprofits to run more like a business, how should they measure success?
A successful business is defined by profit. If a business does not continue to make a profit year over year, they soon become extinct. A successful nonprofit, however, is defined by its level of impact. Impact that can only be sustained if you are able to support your true costs of operation.
The sum of your nonprofit’s direct and indirect costs are therefore your break-even point; What year-after-year becomes your goal and the line by which you measure success. The reality is, however, that the vast majority of the time, nonprofit grants and awards do not get you to your break-even point alone. Although the new Uniform Guidance has established a 10 percent de minimus rate for nonprofit organizations that do not have an indirect cost rate, with the average indirect cost rate between 25 to 35 percent, you will still come up short.
So, how do you get beyond your break-even point? And how do you make sure that your impact is as great as it can be?
By looking at your nonprofit like a business. When you think about it…most businesses wouldn’t survive if their end goal was to break-even, right? Could you imagine pitching that to Mark Cuban on Shark Tank? If you establish a business model that focuses on impact, and a growth strategy that involves making a greater impact every year, your nonprofit is a lot more likely to be sustainable.
The first step toward this is to know your operational costs and establish an indirect cost rate that is truly reflective of your organization. This will give you the insight to make the best current, and future, grant funding decisions. Knowing what is achievable, and then making sure it is in alignment with your mission and organizational strengths, is critical.
In summation, profit is to business as impact is to nonprofit organizations. With the new Uniform Guidance focusing on performance, the key to maximizing your impact first starts in knowing your true costs—your break-even point—and then ultimately achieving greater impact (profit).
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