What Some Folks Don’t Understand About the “Business” of Nonprofits

To insure that the ever-growing needs of our community will be met, Reigning Grace Ranch looks to the present to secure its future financial health.

Since this is my first article for RGR, allow me to introduce myself. I am Mechelle Moore and have had the recent privilege of joining the Board of Directors for Reigning Grace Ranch. I have long loved this organization and the mission behind it. The dedication and passion of its leadership is inspiring and such an example of what God can do with a big dream and a leap of faith. Part of the reason I was asked to join the Board was due to my background in business ownership, ministry leadership, and nonprofit experience. I was a business owner for many years, and when that business was sold, I went back out into the workforce as an accountant, eventually joining the nonprofit sector where I have been for the last fifteen years.

When I reentered the small business world as an employee, I remember being surprised by the attitudes of my coworkers towards the business’ owners. There seemed to be this sentiment that the owners “made all the money” and the staff “did all the work”. My experience as a business owner helped me to understand that yes, business owners often earn more than the staff, but they are also the ones that take all the risk. The owners are responsible for the health of the company, of making sure that the business is profitable so they can stay in business. If something goes awry, the owner is accountable, the buck stops with them.

When I moved into the nonprofit sector, there were similar misconceptions about nonprofit leadership, but also about nonprofit finances. As an accountant by trade, I know that not everyone understands the financials of a business. I mean to most, the financials are the boring part of business, but the financial wellbeing of an organization is the essential part of business. I often hear push back when someone mentions a nonprofit and profitability. The focus of a nonprofit should be on its mission and not on making money, right? While this is true in sentiment, it cannot be true in practice. Organizations that do not focus on a profit (or a positive net margin as it’s called in the nonprofit world) are doomed to fail. A nonprofit organization must operate in a way that is profitable or it is not sustainable.

An organization that has revenue that exceeds its current expenses will not just continue on but will also have the ability to grow and have its impact continue to expand.

Let’s think about nonprofits versus for profit organizations for minute. First, I would argue that both are businesses first. They both must have revenue sources to pay operational costs. Both will have overhead and products/services costs. Both will have staff — the largest cost for almost all organizations. Staffing means the organization must have the revenue to support paying good people to do good work. Any manager knows that it does nothing for an organization to pay people for subpar work. That means organizations need to be able to pay competitive wages with competitive benefit packages in order to hire good people to do good work. This is especially true in the nonprofit sector because the work of the organization is done by fewer people due to income constraints. I think this is what folks do not understand about the ‘business’ of nonprofits.

Many people do not see nonprofits as actual businesses, but nonprofits must be business minded to have a sustainable organization that can have an impact in our communities. If they are financially mismanaged, underfunded, or inadequately staffed, they cannot fulfill their mission no matter how passionate the organization is. There seems to be a viewpoint that all products, services, and programs that a nonprofit provides should be free, because well, they are literally not-for-profit organizations. I challenge this sentiment. Of course, many who seek services or take part in nonprofit programs cannot afford to pay fees and we do not want to hinder anyone from receiving services and participating in these programs. There are, however, programs through outside agencies that are designed to provide funding to other organizations so services/programs can be provided and charging fees to these organizations is entirely appropriate. I would also say that it is appropriate to charge fees to those who do have the ability to pay without hardship.

I would ask you to consider the business side of the nonprofit the next time you question why another fundraiser/donation drive is being done, or when a service, resource, or program has a fee. Without financial viability, without multiple revenue resources, without some sort of “profit” each year, a nonprofit cannot endure. Revenue that equals the expenses of the organization keeps the organization afloat, but it cannot grow and cannot make any larger of an impact than it is already making. An organization that has less revenue than expenses will not ever have the reach it hoped for because, at some point, it will cease to exist.

An organization that has revenue that exceeds its current expenses will not just continue on but will also have the ability to grow and have its impact continue to expand. Isn’t that what we ultimately want from the nonprofits we support, an impact that is ever reaching outward and making a difference in the lives of those in our communities that need it most? I know that’s what I want for the nonprofit organizations I support. I want financial viability and growth. I want financial viability and growth for RGR and fully support and encourage fees where appropriate. I want this organization to succeed and am so excited to see the footprint of RGR continue to grow and change lives not just here in Rio Verde, Phoenix, and Arizona, but on into eternity.