No Margin, No Mission: Favorite Sayings for Nonprofit Leaders.

1. “Nonprofit is a tax status, not a business model.”

Can a nonprofit generate a profit? Absolutely, and over time it must. Nonprofits range in size from small organizations that run on a shoestring, to billion-dollar organizations such as Harvard University or Mass General Brigham health system. In order to be sustainable, income must exceed its expenses; otherwise it will starve or go under.

While a nonprofit can generate a positive bottom line, it cannot distribute its profits to individuals, board members, or owners. The profits must be reinvested to further the organization’s tax-exempt mission.

2. “It’s all about financial altitude.”

How much does the organization need in the bank? At any given time it needs enough “financial altitude” to withstand a seasonal fluctuation in its cash balance, plus enough to build future capacity, plus a cushion for unexpected events. A simple way to determine cash needs is to start with the current cash balance and project the net gain or loss by month or quarter, for the next 6-12 months. Here’s a worksheet that might be helpful, from the Boston Business Mentors’ website’s “Resources” pages. Will you have enough projected cash -- financial altitude -- to withstand unexpected turbulence? If not, determine what’s needed to get there.

3. “Look forward, not back!”

Financial planning is uncomfortable because it’s based on uncertainty about the future. But it’s critically important. How to do it? Historical revenue and spending are often useful starting points for baseline projections, plus or minus the impact of known changes, such as inflation. Major strategic decisions, such as adding or dropping a program, can be evaluated in isolation and then added to the baseline, to see if it will be sustainable in the bigger picture. Here’s a link to a budget worksheet on the BBM website. On that worksheet, the “Other” lines, for revenue and expense, can be developed in parallel for each new program under consideration. Done correctly, strategic planning and financial planning are two sides of the same process.

4. “We’re not in it for the money -- but without it we can’t do anything.”

We create or join a nonprofit because we believe in its mission. Whether its budget is in the tens of thousands or tens of billions, it is the responsibility of the organization’s leaders to ensure that it is financially healthy enough to be able to accomplish this mission.

Author: Steve Saudek has worked with dozens of nonprofit organizations, and currently serves as a board member and treasurer for two. He is a founder, co-chair and mentor for Boston Business Mentors.