You Can’t Break Even: 4 Truths
After a recent presentation to a diverse group of nonprofit executives, one of the CEOs approached me, lamenting his organization’s circumstances. “I’m not very interested in making a profit, but it’s too difficult to break even, so we lose some money each year.” When he asked for my opinion I told him “trying to break even will hurt your organization.”
While the mission of a nonprofit executive is generally different from that of a for profit CEO, they share some common truths that are tied to human performance.
- Most people working in nonprofits are inspired to create something bigger than themselves, including the overall success of their organization. When the organization operates in a profitable manner it allows the organization to more sustainably serve the mission. Otherwise, you risk shooting far too low and creating a culture of poor performance.
- Financially successful nonprofits tend to attract donors, grants, and contracts in the same way financially successful for profits tend to draw better loan terms and investment capital. You don’t have to create a huge surplus, but positive cash flow is rewarded in most nonprofit marketplaces.
- Financial literacy and open book management are practices of many effective nonprofit organizations. In those environments it is very rare to encounter someone advocating “break even” thinking. Why? Because it makes little or no sense to nonprofit managers who understand that nonprofits need to operate in the black to create value for the organization and those people who are served.
- Those receiving benefit from the nonprofit, whether a theater company or disability service agency, have some hope and expectation that you will continue to provide the service or product. If you don’t operate with at least a modest surplus and cease operations there will be sadness, but also anger about your stewardship.
Leading a nonprofit can be both difficult and rewarding, especially given the diverse constituencies that may be involved. Many CEOs who have been executives in the nonprofit and for profit world indicate that the nonprofit role was the most meaningful and the most challenging. The meaning came from a commitment to a larger community cause. The challenge came from developing a common goal that was better than breaking even.