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Nonprofit Expansion: 4 Signs You’re Financially Ready

If you’re a leader at a small to mid-sized nonprofit, you’ve probably considered expanding your organization and its programs to better serve your community. You may have even started developing your expansion strategy and thinking about how to get your organization’s team and stakeholders on board. But how do you know if it’s the right time to finalize and implement your growth plan? 

Successful expansion requires a solid financial foundation so that you can continue covering your day-to-day costs as you take on the risks required for growth. 

To help you determine if your nonprofit is financially ready to grow, this guide will walk through four signs to watch for, including: 

  1. Sustainable Revenue Sources 

  1. Reliable Grant Funding 

  1. Strong Cost Analysis Results 

  1. Scalable Management Systems 

While these factors are a good starting point for deciding on an expansion timeline, they can be challenging to identify within your own organization. Consider working with an external professional like a nonprofit accountant or strategic financial advisor to get an outside perspective on whether your organization meets these criteria and figure out how to proceed. 

1. Sustainable Revenue Sources 

Many nonprofits think about their fundraising goals in terms of how much money they can raise, which is helpful when considering individual initiatives. However, when you’re planning for growth, you need to think more holistically. Rather than just maximizing your funds, your goal should be to generate revenue sustainably. 

To have a sustainable funding model, your nonprofit needs: 

  • Multiple ongoing revenue streams. Your organization probably generates a lot of revenue during fundraising events and at the end of the year, but you also need to have steady funding coming in between those major campaigns. Allow donors to set up automatic monthly gifts through your online donation page, and create other ways for donors to contribute throughout the year, such as by joining a membership program or buying merchandise from your online store. 

  • A high donor retention rate. While you’ll need to acquire some new donors in order to grow, keeping your existing donors involved with your nonprofit creates a solid foundation of support you can rely on and build upon. As of 2023, the average year-over-year donor retention rate in the nonprofit sector was about 35%, so aim for a rate at or above this number before you expand. 

  • Strong major donor relationships. Your major donors will be incredibly important to your expansion plan as they’ll fund many of the new projects and initiatives you’ll launch. In addition to deciding what areas of your growth strategy you’ll ask each donor to contribute to and how much money you’ll request, consider running your expansion plan by your major donors to secure their support early on. 

When you can fundraise sustainably, you’ll ensure you have the capacity to grow and the ability to maintain donation revenue throughout the process. 

2. Reliable Grant Funding 

Once you’ve future-proofed your individual donation strategy, you’ll need to create a solid foundation for securing the grants that will make it possible to fund specific new programs or planned projects. Ask yourself the following questions to ensure your nonprofit is prepared to receive future grants: 

  • Do we have a strong track record of winning grants? 

  • Have we kept in touch with past funders who might be willing to consider another grant application from our organization? 

  • Do we either have skilled grant writers on our team or the ability to hire a consultant who can help us write standout grant proposals? 

  • Do we have a robust grant management system that we can reuse or revise to support our next grant? 

Additionally, note in your expansion plan which activities you’ll pursue grants for to guide your grant-seeking efforts. First make sure you’re in a good place to receive additional grants in the near future, then start looking for funding opportunities so you’re ready to go when the time comes to implement your plan and submit grant applications. 

3. Strong Cost Analysis Results 

In addition to determining whether your organization brings in reliable revenue, you should also examine your current cost structure and anticipate how growth could impact it. According to Jitasa, there are three functional categories of nonprofit expenses, all of which are likely to change as your nonprofit expands. These include: 

Three overlapping circles that break down the categories of functional expenses for nonprofits, all of which are likely to change with nonprofit expansion

  • Program costs. This term refers to any expenditures directly related to furthering your organization’s mission. Consider the cost of launching new offerings or increasing service delivery rates in your community before you grow your nonprofit. 

  • Administrative costs. These expenses are necessary to operate your organization. If you expand your facilities or bring on new staff members who need to be onboarded and compensated as part of your expansion plan, these costs will increase. 

  • Fundraising costs. These are the upfront expenses associated with revenue-generating initiatives, such as event planning, marketing, and purchasing specialized fundraising software. You need to fundraise more to grow your nonprofit, so you’ll need to figure out how to do so within your budget. 

In general, nonprofits should spend the majority of their funding on their programs and keep administrative and fundraising costs low by comparison. Of course, if you find that your projected expenses for your growth plan are much higher than you can manage, hold off on implementing it. But if your costs are just a bit too high, see where you can cut expenses from those two categories. 

For instance, Getting Attention’s guide to free nonprofit marketing tools recommends a variety of solutions you can use to promote your fundraisers without increasing your marketing budget. Or, if you need to bring on new employees but don’t have the money to hire them and get a bigger office, you could have some team members work remotely or on a hybrid schedule so you can stay in your current office. 

4. Scalable Management Systems 

Scalability means that as your organization expands, your internal systems will support that growth by handling the additional complexities associated with a larger nonprofit. This is especially important with finances because you’ll need to manage a greater volume and diversified types of funding during and after expansion. 

To ensure your financial management system is scalable, make sure your nonprofit: 

  • Leverages accounting software. Many organizations start out tracking their transactions in a spreadsheet for easy data entry. However, switching to a specialized platform allows you to keep different types of revenue and expenses organized, as well as generate and analyze more complicated reports of your financial data. 

  • Uses the accrual accounting method. Another way small nonprofits make financial management simpler for their team is by using the cash accounting method, in which they record revenue when it’s received and expenses when they’re paid. As your organization grows, you’ll likely need to track more pledged revenue that hasn’t yet been received and more incurred expenses that haven’t been paid, which is best supported by an accrual accounting system. 

  • Has a dedicated bookkeeper and accountant. Small organizations often delegate bookkeeping duties to a staff member who has many other responsibilities or ask local accountants to donate their time. While this saves money in the short term, a growing organization needs dedicated financial professionals to sustain it.

If hiring a bookkeeper and an accountant is too expensive, or you don’t yet have enough work to warrant bringing on two new team members, consider outsourcing these responsibilities to a nonprofit-specific accounting firm that can scale their work alongside your organization’s growth. 

Even if your nonprofit meets all of the above criteria, expanding an organization is challenging. However, when you go into the process with a solid expansion plan informed by the work you did to get your organization up to these standards, you can set your nonprofit up to increase its impact in your community.