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RESE A RCH REP O RTFinancial Sustainability for Nonprofit Organizations A Review of the Literature Lisa M. Sontag-Padilla Lynette Staplefoote Kristy Gonzalez Morganti • • Sponsored by the YMCA of Greater Pittsburgh HEA LT H and RAN D ED U CATION The research described in this report was sponsored by the YMCA of Greater Pittsburgh and was conducted within RAND Health and RAND Education, divisions of the RAND Corporation.
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The YMCA (Y) of Greater Pittsburgh, which encompasses 19 Y branches in the Pittsburgh area, is interested in improving the programmatic and financial sustainability of its urban branches.
The United Way of Allegheny County, already a significant funder-partner in the Y’s work and recognizing the challenges faced in sustaining the Y’s urban programming, agreed to provide critical funding for a strategic assessment of one of its less-resourced branches. The assessment was to include an evaluation of current operations and to identify opportunities for improvements, with a focus on identification of flagship programs and models of sustainability in nonprofit organizations.
As part of this strategic assessment for the YMCA of Greater Pittsburgh, RAND Corporation researchers conducted a literature review of financial sustainability for nonprofit organizations.
Using a combination of academic search engines and the broader Internet, we conducted a systematic literature review on financial sustainability for nonprofit organizations, with an emphasis on urban and lower-resourced organizations. This review is not intended to be an exhaustive overview of the literature but, rather, to identify and discuss key themes and findings that may inform operations and decisionmaking related to improving sustainability in nonprofit organizations, like the YMCA of Greater Pittsburgh, that serve communities with higher needs.
The information contained in this review should be of interest to a wide range of stakeholders within the nonprofit sector, particularly those involved in operations of nonprofits that serve high-need populations. This review will help stakeholders understand common challenges of financial sustainability for nonprofit organizations and provide recommendations to address these challenges.
This work was sponsored by the YMCA of Greater Pittsburgh using funding it received from The United Way under contract No. YMCA_05.24.12. The research was conducted in RAND Health and RAND Education, both divisions of the RAND Corporation. A profile of RAND Health and RAND Education, abstracts of their publications, and ordering information can be found at www.rand.org.
iiTable of Contents
Chapter One: Introduction
The Link Between Financial Sustainability and Organizational Functioning and Success
Defining Financial Sustainability for Nonprofit Organizations
Balancing Financial Sustainability with Organizational Mission
Objectives of the Literature Review
Approach to Literature Review on Nonprofit Sustainability Challenges
Organization of Review on Sustainability Challenges for Nonprofit Organizations
Chapter Two: Challenges and Promising Practices of Financial Sustainability in Nonprofit Organizations
Risks of Reliance on External Funding Sources and Streams
Develop a Coherent Fundraising Plan
Incorporate Innovative Fundraising Techniques
Foster Relationships with Investors
The Nonprofit “Brand”
Develop and Define the Organizational Mission
Identify and Address Mission Drift
Develop a Marketing Plan
External Expectations of Partnerships
Establish High-Impact Collaborations to Offset Competition
Use Partnerships to Build Capacity to Achieve Financial Sustainability
Demonstrating Value and Accountability to Funders
Use Program Evaluation to Demonstrate Value
Use Annual Reports to Demonstrate Accountability and Communicate Results
Promoting Community Engagement and Leadership
Establish and Engage Community Board Leadership
Establish and Maintain a System of Community Volunteers
Chapter Three: Implications for Financial Sustainability in Nonprofits Serving Low-Income Populations
Raising Funds in an Economically Challenged Community
Defining a Social Mission with Competing Financial and Cultural Priorities
Expectations of Partnerships in the Face of Nonprofit Competition
iii Limited Capacity to Demonstrate Value and Accountability
Promoting Engagement in a Community with Competing Priorities
Chapter Four: Conclusions
Appendix: Financial Sustainability Challenges and Promising Practices References Categorized by Literature Review Themes
Literature Review Results for Financial Sustainability for Nonprofit Organizations
A Conceptual Model of Financial Sustainability Challenges and Promising Practices for Nonprofits Serving Low-Income Populations
Financial sustainability for nonprofit organizations (nonprofits) has long been of interest to nonprofit organization leaders, current and potential funders, and the communities that nonprofits serve. However, nonprofits face a myriad of challenges in establishing and maintaining financial sustainability. In an effort to improve the sustainability and performance of its less-resourced branches that serve high-need communities, the YMCA of Greater Pittsburgh asked the RAND Corporation, a nonprofit institution that helps improve policy and decisionmaking through research and analysis, to conduct a strategic assessment of the Homewood-Brushton YMCA branch, one of several urban, lesser-resourced YMCA branches in the greater Pittsburgh area. This document presents the literature review that was conducted as part of the strategic assessment effort.
The literature review was designed to inform financial sustainability in nonprofit organizations, identify major challenges of financial sustainability that are common among nonprofits, and discuss the implications for nonprofits that serve higher-need communities. We identify and discuss major challenges of financial sustainability for nonprofits and synthesize key lessons learned and promising practices to overcome these challenges. This literature review is not intended to provide an exhaustive overview of the literature but, rather, to identify and discuss key themes and findings that may inform operations and decisionmaking related to improving sustainability in nonprofit organizations, like the YMCA of Greater Pittsburgh, that serve communities with higher needs.
Balancing financial sustainability with organizational mission is a core challenge for most nonprofits. Evaluating activities and operations based on profitability and mission impact, as well as the interaction between these two dimensions, may allow nonprofits to develop strategic plans to manage short-term financial challenges while maintaining long-term mission goals.
Below, we highlight key challenges and promising practices of financial sustainability for
• Risk of reliance on external funding sources and streams. In contrast to for-profit organizations, nonprofits in the United States depend on diverse sets of funding sources and streams of funding to sustain their operations. Most nonprofits receive funds from multiple sources (e.g., government, foundations, private donors) and streams (e.g., grants, contracts, membership fees). Substantial cutbacks in both government and foundational funds suggest that nonprofits should develop or revisit their fundraising plans to support financial sustainability. Additionally, nonprofits may wish to consider innovative fundraising techniques, such as giving circles and fostering relationships with investors, to address financial challenges.
• Creating a nonprofit “brand.” Much like for-profit organizations, nonprofit organizations depend on marketing and branding efforts to help promote and sustain their vi programs and services. However, branding considerations are often overlooked in the nonprofit sector. Defining and developing the organizational or social mission, identifying and addressing mission drift, and developing a clear marketing plan will help communicate a nonprofit’s social mission to funders and the community in which it resides. A brand that clearly and consistently communicates a nonprofit’s social mission may build trust between the nonprofit organization and its constituents, and may ultimately insulate it from competition from other organizations (Renz et al., 2010).