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12 ways to enhance financial performance through SBA

RFP
Faced with declining funding, stiff competition for unrestricted dollars and rising health care costs, many not-for-profits are struggling to deliver acceptable financial performance. In order to balance financial results and mission-driven outcomes, nonprofit leaders are performing strategic business analyses (SBAs) to transform their operating models and bottom line financial health.

Clearly, there have been ongoing efforts by most nonprofit managers to improve financial performance. However, as “low-hanging fruit” remedies have already been identified and addressed, reducing costs is no longer a matter of enhancing procurement and going out to bid on long-standing vendor contracts. The task at hand now needs to be more strategic and is thus more challenging, with every decision coming with trade-offs, complexities, politics and implementation issues. As a result, in their search for more substantive, less incremental opportunities to enhance revenues and decrease expenditures, organizations are conducting analyses in a more sophisticated, integrated, strategic and inclusive manner.

Here are 12 techniques that can help your organization enhance its business results through the execution of a successful SBA:
  1. Engage in upfront communications with the entire organization. Let them know that this effort is happening, and that it will be challenging. Being transparent about the fact that all constituents will be affected and that the organization is pursuing a well-rounded and inclusive strategy lets everyone know this process will be fair, even if it won’t be easy.
  2. Establish and empower a steering committee. Gone are the days of making decisions behind closed doors. These tough choices need to be made together by representatives of all affected constituencies to minimize implementation roadblocks. While involving constituents in the analysis and decision-making process may initially slow things down, it will ultimately lead to tangible and implemented solutions as opposed to continuous pushback and divisive behavior.
  3. Seek creative solutions. Avoid pursuing potentially community-destroying initiatives and programmatic compromises. Leave no stone unturned to generate revenue-enhancing and expenditure-reducing concepts that will allow your organization to stay true to itself and its constituents. Have you looked at outsourcing a noncore function or starting a for-profit subsidiary? While no solution will be a silver bullet and all will involve some kind of trade-off, avoid decisions that compromise your culture, mission or relationships with constituents — shore up your bottom line through other means.
  4. Don’t ignore revenue-enhancement opportunities. Steer clear of focusing solely on cost reduction. While reducing expenditures may seem like a sure thing and may have a short-term impact, taking the time to consider investments that can generate revenue over the long-term will reinforce employees’ understanding that management does not want to adversely affect the organization or its mission.
  5. Put everything on the table. Sparing specific areas due to sensitivities of certain populations is counterproductive; your employees want a fair and transparent process. There should be no sacred cows or pet projects left unexamined. Have you assessed that program whose participation has fallen dramatically since its heyday? As we all know, it’s much easier to start a program than to stop one, even when the initiative has run its course. Generating a complete list of ideas will underscore your commitment to an open and honest assessment.
  6. Avoid reliance on benchmarks. Assessing and transforming operations is challenging, and there will inevitably be “that guy” on your steering committee who wants to take the easy way out by relying on benchmarks to make decisions. But operating in line with benchmarks is not necessarily a best practice. Each organization has its own unique situation and circumstances. “More or less” is not necessarily better or worse, and regressing to the mean is unlikely to serve your organization well. Further, don’t assume that others have good data or are operating under optimal circumstances — aligning with others’ performance is desirable only if they have been verifiably effective and successful. As a result, extrapolating benchmarked metrics onto your unique situation can be a dangerous proposition. Instead, successful organizations approach their situation strategically and treat challenging financial performance as an opportunity to make holistic changes that serve their constituents and mission over the long haul.
  7. Examine inflows and outflows. Follow the money as it comes into, moves through and leaves your organization. Understand where an incoming dollar goes, what areas are not self-sufficient, and what departments and programs are healthy. Work on responding to identified opportunities, either by making investments in areas that are performing better than expected or by focusing remediation efforts on weaknesses.
  8. Establish assessment criteria upfront. It is natural to be protective of one’s own areas and to take a “not-in-my-backyard” approach to generating and supporting enhancement ideas. To combat this bias, create a set of agreed-upon criteria to filter through identified opportunities and serve as decision support for the steering committee. These criteria should support the organization as a whole — not just special interests or fiefdoms — in order to enable your SBA initiative to generate ideas and facilitate decisions that will enhance performance of the entire enterprise.
  9. Examine your budget. Reducing specific expenditures on a one-off basis will prove to be of limited value — it’s like playing Whac-A-Mole, as new unfunded expenses are sure to arise in the future. Ineffective budgeting processes and systems will inevitably lead to suboptimized deployment of organizational resources, wasted funds and missed opportunities. Instead, make sure to analyze your budgeting process and tools in conjunction with identifying opportunities for cost reduction and revenue enhancement to achieve long-term financial success.
  10. Focus on implementation. While generating actionable ideas and obtaining support from across the organization is important, it’s hardly the end goal. Creating a “pretty report” only to let it collect dust is not a success. Invest resources in implementation and monitoring, not just idea generation, in order to make a quantifiable difference.
  11. Communicate to show progress. Making certain that the organization stays afloat is in everyone’s best interest. Because many will hope that the SBA effort simply goes away, reminding them of its progress and leadership’s ongoing support is critical. Further, holding the organization accountable for the end-to-end project and the achievement of actual financial improvements will ensure this isn’t yet another “flavor of the month” effort announced by management with minimal attention and lack of tangible results.
  12. Make an ongoing commitment to change. An SBA is practically guaranteed to be hard. Given the effort required to improve results and the extent of parallel investments in socializing the importance of performance improvement, an SBA effort should not be a one-shot deal. True improvement comes from establishing processes and a culture that continues to monitor and improve performance — even in good times — so that every dollar is optimally invested in the organization’s mission-driven performance.

See the full report: The State of the Not-for-Profit Sector in 2015