These days, the news is full of reasons your nonprofit needs a financial safety net. From government funding cuts to an uncertain economy, it’s undeniable that nonprofits must prepare for the impacts of these challenges.

The best way to do so is to prioritize financial sustainability—strategic efforts to build and protect your organization’s finances long-term. We’ll help you get started by covering the following topics:

• What is Financial Sustainability?
• Benefits of Financial Sustainability for Nonprofit Organizations
• Common Roadblocks to Financial Sustainability
• Key Components of Financial Sustainability for Nonprofit Organizations
• How to Create a Nonprofit Financial Sustainability Plan

Achieving financial sustainability is possible for any organization. Armed with the right knowledge, bank accounts, cash management strategies, and support, you can build a thorough plan that paves the way for long-term sufficiency and financial success.

What is Nonprofit Financial Sustainability?

Financial sustainability for nonprofit organizations means being able to maintain financial health and mitigate risks long-term. Sustainable organizations have strategic plans to earn, protect, and grow their funds so they can do the most good for their missions.

There’s an important distinction to make between financial stability and sustainability:

• Financial stability refers to short-term financial success and self-sufficiency. You might consider your organization to be financially stable now, but what happens when giving suddenly declines or the government pulls its grant funding? Stability means you feel secure in your current financial position, not necessarily your future financial circumstances.

• Financial sustainability involves ongoing, strategic efforts to maintain your nonprofit’s long-term financial health. Sustainability doesn’t stop when your nonprofit is stable and has enough money to operate right now. It entails creating resilient systems that allow your nonprofit to survive and thrive through economic fluctuations, leadership changes, shifting donor priorities, and other challenges.

Stability is important, but you can’t maintain it in the long run without a nonprofit sustainability plan. This plan helps you build a solid foundation for financial success now and in the future.

Benefits of Financial Sustainability for Nonprofit Organizations

When your nonprofit is financially sustainable, your organization can more easily:

• Weather economic downturns. Recessions, market fluctuations, and other sudden changes to the economy can decrease donations and increase program costs. When you have backup plans and funding in reserve, it’s easier to keep operations running smoothly.

• Face unknown challenges with resiliency. You never know when your organization may face a crisis, whether that’s a natural disaster or a disruptive regulatory change. Clear plans for financial sustainability help you stay prepared for whatever comes your way.

• Further your mission long-term. The better your nonprofit’s financial standing, the more you can do for your mission. By remaining financially sustainable, your staff can devote more time, money, and energy to their work without worrying about losing funding.

• Maintain donors’ trust and faith in your nonprofit. Supporters want to know that you have your nonprofit’s best interests at heart and plan to continue your work for generations to come. Sustainability plans prove that you’re thinking long-term and stewarding funds responsibly.

• Reduce financial management headaches. Managing all your organization’s assets can be overwhelming, especially if you don’t have established protocols and guidelines. Becoming more financially sustainable includes ironing out your management practices, which leads to better outcomes and less stress for staff members.

Ultimately, the work you do now to bolster your organization’s financial plans and strategies will pay off for years.

Common Roadblocks to Financial Sustainability

Today’s organizations face many challenges, and taking extra time to shore up their finances can feel like an additional hassle. This is especially true when they have to make substantial changes to how they operate. We’ve seen nonprofits struggle with roadblocks like:

• Over-dependence on one funding source
• Leadership turnover and lack of succession planning
• Low financial literacy among staff
• No avenue to accept non-traditional large donations (like stocks)
• Difficulty managing multiple bank accounts
• Insufficient FDIC coverage for their reserves
• Limited knowledge of nonprofit investing strategies
• Reserve funds losing value due to inflation

Each of these roadblocks is normal, and our financial experts have helped nonprofits of all stripes get past them. We’ll address how you can account for common issues in your nonprofit sustainability plan below.

Key Components of Financial Sustainability for Nonprofit Organizations

Now that you understand its importance, let’s break down what financial sustainability actually looks like. Typically, it starts with having the following key components:

Mission and Community Alignment

Before establishing any new financial practices, ensure that your organization’s mission and values are solidified. Every financial decision you make should align with your cause and the values of your community. Otherwise, you risk alienating your donor base and losing support.

For instance, say that you start an endowment for your nonprofit. Align the endowment’s investing strategies with your organizational values. You might set a higher annual distribution rate, for example, or specify that donated funds should be invested in line with certain ethical standards.

Diversified Assets

Diversification is the key to attaining financial sustainability for nonprofits. Relying solely on one source of funding or too many restricted revenue sources can leave your organization vulnerable.

To mitigate these risks, prioritize several different funding opportunities. These might include:

• Recurring giving: Encourage recurring or monthly donations to provide a steady stream of revenue. Cultivate relationships with individual donors through personalized appeals, donor stewardship, and engagement activities.

• Non-cash giving: Expand revenue opportunities by accepting high-impact non-cash gifts like stocks and cryptocurrency. Our recent report showed that non-cash giving has grown 135% over the past decade, so it’s likely your donors are interested!

• Corporate grants and sponsorships: Seek out corporate sponsors and partners that align with your organization's mission and values. Tap into corporate philanthropy programs, employee giving, and cause-related marketing collaborations.

• Foundation and government grants: Use grant databases to research and apply for grants from private foundations, community foundations, and government agencies. Tailor grant proposals to match funders' priorities and demonstrate the impact of your programs.

• Investment income: Investing your nonprofit’s reserve funds in low-risk, highly liquid holdings is an important part of financial stewardship. Give your funding the potential to grow over time while keeping it accessible.

When you have income from several different sources coming in, you’ll be in a much better position if one suddenly falls through. Even better if the majority of your funding is unrestricted, as this means you can spend these funds in whatever way best serves your organization’s needs.

Healthy Reserve Funds

Every organization should have a reserve or rainy day fund. This is an amount of money that you set aside for emergencies, such as losing a large grant or needing urgent repairs to your facilities. Ideally, this fund should include enough money to cover 6-12 months of your nonprofit’s operating costs.

If you don’t have this much money in reserve yet (or you don’t even have a reserve fund), don’t worry. Everyone has to start somewhere, but building up your reserve fund should be a top priority.

To keep your reserve funds healthy, it’s also important to store them in the right type of account. Traditional savings accounts (even high-yield ones) won’t outpace inflation, and you can only access FDIC coverage up to $250,000 in a single account. That’s why we recommend opening a brokerage account that uses a sweep program to increase coverage up to $5 million. More of your money will be protected by the U.S. government, and you’ll get to keep everything in one place.

Steward reserves to maintain financial stability and resilience in the face of unforeseen challenges. Establishing and adhering to reserve policies and guidelines can help ensure that reserves are used strategically and sustainably.

Financial Reporting and Oversight

You can’t maintain financial sustainability without oversight. It’s crucial that your board of directors has policies in place to monitor, review, and report on your organization’s financial performance periodically.

For instance, your board may suggest seeking opportunities to generate positive yields on investments and reserves without compromising liquidity or risk tolerance. This may involve diversifying investment portfolios, exploring low-risk investment options, and periodically reviewing investment strategies to adapt to changing market conditions.

Leadership should also establish key performance indicators (KPIs) and metrics to track the effectiveness of your cash management strategies. Use data-driven insights to identify areas for improvement and make informed decisions about resource allocation and investing.

Long-Term Strategic Planning

You must think about the long term to establish financial sustainability for your nonprofit. Consider your goals and vision for your organization’s future. Then, take forward-thinking steps like:

• Budgeting based on revenue forecasts. Develop more realistic budgets that align with your organization's strategic priorities and revenue projections. Monitor actual performance against budgeted targets regularly and make adjustments as needed.

• Creating financial risk management plans. Use scenario planning to predict potential risks and proactively address them. Outline detailed plans for how you’ll reduce the likelihood of risks occurring and mitigate issues as they arise.

• Developing your staff’s financial planning skills. Invest in professional development opportunities for staff to enhance their skills and knowledge. This not only improves job satisfaction and retention but also increases organizational capacity and effectiveness.

Planning for your nonprofit’s financial future is much easier when you have experts on your side. Consider working with a registered nonprofit investment advisor who can educate you on industry best practices and make sure that your sustainability plans truly serve your organization’s interests and long-term goals.

How to Create a Nonprofit Sustainability Plan

Ready to create a financial sustainability plan for your nonprofit? Start by following these steps.

1. Assess your current financial situation.

First, get the full picture of your existing finances by evaluating your organization’s annual costs, income, and reserves. Explore the financial data in your CRM, bookkeeping software, and recent reports to ensure your understanding is accurate.

Then, note any information that stands out or needs immediate action. What conclusions can you draw about your current situation? For instance, do you have enough incoming revenue to build a reserve fund? Do you need to identify ways to reduce program costs? Should you hire a full-time bookkeeper to clean up your records?

2. Solidify fundraising plans.

Outline steps to address any issues you identified, then review your annual fundraising plans to see if they align with your financial sustainability goals. Do they involve raising money from diverse revenue streams? Do you have reporting procedures established? Adjust your plans as needed, or add new fundraisers to your calendar to fill in the gaps.

Additionally, consider any technology you may need to better manage and grow your finances long-term. For instance, you might invest in solutions like accounting software, non-cash donation platforms, or productivity tools that streamline operations and improve efficiency.

3. Plan for investment and financial growth.

Financial stewardship is essential to operating your nonprofit sustainably. Your leaders are obligated to act as custodians of your organization's financial resources, ensuring they are protected, optimized, and utilized responsibly.

Part of that means responsibly investing funds. Typically, this involves:

• Safeguarding funds in FDIC-insured accounts. Ensure that your funds are deposited at financial institutions that are FDIC-insured. This provides protection against bank failures, keeping your assets secure and accessible when needed.

• Partnering with a nonprofit investment advisor. Professional fiduciaries like those at Infinite Giving have the financial and nonprofit expertise to manage your portfolios responsibly according to your organization’s goals and preferences. They can recommend opportunities, provide oversight, and support your sustainability journey.

• Prioritizing low-risk, highly liquid strategies. Nonprofits should focus on investments with minimal risk, gradual returns, and high liquidity (meaning you can access funds quickly when you need them). Often, these strategies include treasury bills, mutual funds, and CDARs.

You can do all of this easily with the help of the nonprofit financial advisors at Infinite Giving. We offer tailored, conservative portfolios designed to build financial sustainability for your organization, along with management, oversight, regular reporting, and an intuitive platform to provide maximum transparency.

From your dashboard, you can see updates on all of your portfolios and endowments at any time. Get an overview of your total returns, net deposits, and earnings.

Plus, we can help diversify your revenue streams with our easy-to-use non-cash donation page. In 2024 alone, we processed millions in asset gifts for nonprofits like yours, with an average stock donation of over $33,000. Contact our team to learn how we can help your organization thrive.

4. Align with your team.

With your new plans and strategies in place, update your entire team on the next steps. Get everyone on the same page about the future of your nonprofit’s finances, and update documentation as needed.

For instance, you might add information about financial stewardship to your strategic plan, outline new responsibilities for board members, and make your investment policy accessible for all relevant team members.

5. Report on finances transparently.

Finally, regularly report on your financial standing to key stakeholders like staff, grantmakers, donors, and the wider public. Stay compliant with all IRS reporting requirements, and publicize your reports to show donors that you’re open about your finances. This will generate more trust and showcase your organization’s progress towards sustainability.

Wrapping Up

Financial sustainability is a journey, not something you can just check off your list. With strategic planning and a proactive mindset, your nonprofit can strengthen its financial footing and better serve your community for years to come. Use this guide as a starting point to evaluate your own practices and begin shaping a more resilient organization.

Want to learn more about how you can improve your financial practices? Check out these resources from our team:

• Cash Management for Nonprofit Organizations: Basics + 8 Tips. Need a refresher on the basics of responsible financial management? Read this guide and discover the latest best practices for nonprofits.

• Working with Nonprofit Investment Advisors: FAQs and Tips. If you’re wondering what it’s like to work with an investment advisor and whether it’s worthwhile, this guide is for you. Explore FAQs and tips for making the most of the relationship.

• Nonprofit Brokerage Accounts: Guide, FAQ, & How to Open One. A brokerage account is essential for protecting your reserve funds and giving them opportunities to grow. Learn how to open one for your nonprofit here.

‍