Inflexible or Limited Revenue Streams (Copy)
Building off of last week’s blog on overreliance on endowments, this week we examine the lack of flexible or diverse revenue sources and how it can leave organizations vulnerable when a crisis affects their limited revenue streams. For universities, when a recession strikes and their endowment value falls, enrollment dips, and the demand for financial aid increases, it is clear that a diverse revenue stream is essential for survival. In this blog, we examine other types of nonprofits and how developing diverse and resilient revenue streams regardless of the financial climate is paramount for maintaining a dedication to mission success and financial sustainability. Along with increased financial stability, organizations can use that financial stability as an outward sign to attract new donors and make long-term plans to support the community.
Looking back to March, many organizations were hit hard by the distinct effects of the pandemic. Many communities required more help than ever but traditional forms of fundraising were immediately halted. The pandemic required sheltering in place and brought an end to large gatherings; this eliminated galas, ticketed entertainment like shows or galleries, trivia nights, and any other fundraising events that involved bringing large groups together. Simultaneously, nonprofits needed more cash on hand than ever as they worked to help communities facing spikes in joblessness, crowded hospitals, psychological distress, and many more pandemic-related challenges. Without a diverse revenue stream, many organizations lacked flexibility as well as the outward attractiveness of financial stability. Donors, especially large ones, want to give their money to organizations they believe can provide exceptional services and can do so sustainably and responsibly. By illustrating financial responsibility and sustainability with a diverse and robust revenue structure, nonprofits express their ability to use resources to serve effectively at the moment while also sustaining their role for many years to come.
Cultural centers, like museums, faced challenges of their own. Relying on ticket sales, merchandise sales, or in-person donations from museum visitors, many museums faced a drop in revenue while still facing ongoing expenses. In this Thursday’s blog, we will examine how the Fine Arts Museums of San Francisco, a venerable and successful cultural center, faced serious challenges because of the limited structure of central features of their funding system. It is easy to fall in love with a steady stream of substantial revenue, but this creates a concentrated risk capable of seriously damaging an organization when interior or external circumstances change. In addition to increased stability, exploring different revenue sources can lead to increased revenue and growth over time as multiple streams of revenue mature. Broadening revenue sources is where organizations can get creative and try new approaches to fundraising, create new service offerings, as well as explore new geographies and digital spaces. Institutions like the British Museum, the Smithsonian network of museums, and even google brought galleries, collections, and historical sites online to continue providing cultural and artistic educational experiences to isolated individuals. For many organizations, this opened an avenue for donations that did not previously exist and serves to attract new visitors when travel is once again safe.
The Bottom Line
Developing a flexible and diverse revenue stream is essential for nonprofits that traditionally run on thin margins. Now, more than ever, communities need healthcare, educational, basic need-focused services as well as the parks, community centers, and cultural centers that offer safe and stress-relieving pastimes. When a nonprofit risks its important role in communities by making poor financial decisions, they fail theirduty to responsibly serve, leaving many needy individuals without essential care or support. While the act of serving is often the focus, taking the time to develop a financially responsible system of funding and committing to sustainable spending is just as important to mission success as the act of serving communities in need.
Ready to take a step toward developing a long-term plan to maximize your organization’s ability? Reach out to us today to learn what our 30+ years of executive experience and data-driven approach can do to support your mission.
