The term “nonprofit” can be problematic. Sure, it stands for the proposition that an organization is driven by mission instead of money, but it also can distract from leadership’s obligation to run a tight ship. Because a successful nonprofit is less likely to see the inside of a courtroom, I counsel my clients about how to lead sophisticated businesses in service to their mission.
What does a sophisticated nonprofit look like? There are entity formation compliance obligations, such as satisfying the State Corporation Commission, IRS, and Virginia Department of Agriculture and Consumer Services. Compliance, however, is only part of the battle … a lesson for-profit companies tend to grasp more readily than nonprofits.
I encourage nonprofits to look to the for-profit world to get a sense of what it means to succeed. Our for-profit friends tell us that a successful business:
- is thoughtful about having diverse (if mission-consistent) revenue streams. For-profit companies understand that they exist for the financial benefit of owners, members, or shareholders, and they work to develop and diversify potential sources of income. Nonprofits exist to reinvest in their missions but sometimes fail to appreciate that a narrow revenue stream equals a fragile organization.
- has operational discipline. Much like a for-profit company, a healthy nonprofit has: an organizational chart with position descriptions and defined reporting relationships; technology guardrails; thoughtful financial oversight including a budget, fund acceptance and investment policies, and third party reviews or audits; and a management system for tracking and maintaining internal and external deadlines and requirements.
- moves strategically pursuant to a plan. For-profit businesses dedicate significant resources to determining where they want to be and the steps necessary to get there. Fulfilling a nonprofit’s mission on a day-to-day basis can be so consuming that it is easy to neglect critical thinking about the organization’s trajectory and long-term goals.
As you consider your existing or dream nonprofit, I encourage you to remember that a strong infrastructure – informed by the lessons learned from the for-profit world – is critical for the fulfillment of your purpose and the minimization of time spent fixing stuff in your lawyer’s office.
