Monday, June 27, 2011

Non-profit doesn't mean no money

There's a myth out there that non-profits have no money. They slave away doing the public good like a character in a Dickens novel with a hungry stomach and threadbare clothes, but with a smile in their heart and a song on their lips. Sounds almost romantic. However, it just isn't true.

If non-profits were in fact so poor we wouldn't have so many of them. There's 45,000 in Ontario alone. While many are high profile charities like a big university or hospital most are in fact middling sized and financed. They somehow make a living without any money. So what gives?

I believe that non-profits don't suffer from a lack of  money. They instead suffer from inconsistent funding. In some years they do in fact have no money, but in other years they do. Compared to the for-profit sector the financing of non-profits is a roller coaster ride. And that's why it appears that all non-profits are always poor. At one time or another, almost all of them are.

That's the key to understanding the many challenges the sector faces. Non-profits have infrastructure problems with IT. They take a "feast or famine" approach to marketing (see the 2010 Non-Profit Marketing Year-in-Review). They have skills shortages. They often lack strategic vision. Can all of these be explained by inconsistent funding? It makes sense to me.

The answer then is clear. The sector needs long-term funding. If that is impossible, it needs to stop using the same "expansion and contraction" budgeting that for-profits use. A retailer can hire and then fire without as many long-term negative impacts as a non-profit. The retailer doesn't have to ask people for money or to volunteer.

So, the next time someone tells you that non-profits have no money tell them they are wrong.

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