Submitted by: Ken Wesler, Development Director, Deaf-Hearing Communication Centre
The breadth and array of the nonprofit sector has grown exponentially over the past years. A simple Google search will reveal all the statistics that anyone could want. There is a debate about why the nonprofit sector has grown so much, with a debate about the normalization of demand for service based on population demographics, and enough studies to keep the most hardcore wonk occupied for a lifetime.
Less common is a discussion about how the man on the street can examine a nonprofit’s activities and understand why they should, or should not, receive a donation. The “Case for Support” in nonprofit parlance.
There is a range of difficulty in this endeavor. Some nonprofits have a relatively easy case because they have no fee component to their budgets. They are completely contributed-income, rather than earned-income, driven.
Far more problematic are the nonprofits, which range from small theatres to massive universities and hospitals, who have both earned and contributed income sides to their budgets.
The challenge arises from the tension created by funders’ desire to see responsible management and the most critical component of the nonprofits’ Case: need.
In other words, there is constant back and forth over whether a nonprofit should generate a surplus (profit) each year. Those that do are often punished by a decrease in support since there are so many other nonprofits who either have a flow of earned income insufficient to balance the books or no earned income at all.
Even more challenging is the reality that there are multiple viewpoints amongst funders, all of whom have studied the issue and arrived at different conclusions!
The Deaf-Hearing Communication Centre (DHCC) is a nonprofit which, when founded forty-seven years ago, relied on contributed income. Over time, responsible management has resulted in the growth of fee-based services to the point where the budget was balanced almost entirely on earned income. However, there is so much demand for other services which do not have a fee component, that a recent strategic planning effort resulted in a shift. While the fee for service programs will remain as they are, there will be a new emphasis on programs which require contributed income for implementation. Educating the funding community, and even the people most interested in DHCC’s mission has required the development of a careful communication plan since there is so little understanding of how these things actually work.
Let’s take a look at this matrix.
The vertical axis represents the Mission of any nonprofit organization. The horizontal access represents revenue, which comes from any number of sources based on the nonprofit: hospitals collect payments, universities tuition, theatres sell tickets, etc.
If a potential donor wants to understand how any given nonprofit works, they would need to fit all of their activities into one of these matrix boxes. The upper right corner represents high mission and high dollar programs. For example, DHCC is paid fees for providing interpreters and communication is a core part of our mission. Therefore, it has both high mission and high dollar values.
A program in the upper left corner is high mission and low dollars and is designed for support. It is not a failure to have programs, or even whole nonprofits, that exist within a paradigm of a completely contributed income budget model as long as that is the design.
The lower right corner is a program that is low mission and high dollars. A gala to raise money, or cookie sales, or tickets to a show that has little to no artistic value all are examples of programs that generate money but have little mission orientation.
Finally, the lower left represents failure. Programs which were in the upper left and failed to achieve their mission objectives slide down into this quadrant. Programs in the lower right which were designed to generate revenue but did not, slide left into this quadrant.
What is the point of all this? When examining whether a nonprofit, whether it is DHCC, a university, hospital, theatre, youth group, etc., is worthy of support, a simple assessment based on whether the budget is balanced, or a surplus or deficit (profit or loss) is generated, removes the most critical component. Nonprofits are granted their tax-exempt status based on the idea that they are “lessening the burdens of government” in providing services to their communities. All other analysis should exist within that context. The design of the nonprofit, and how it achieves that design is the key metric, and indeed, the only logical one.