Nonprofit Expansion: 6 Signs You’re Financially Ready

The majority of nonprofits want to grow their programs and services to increase their impact on their communities. However, many don’t know if now is the right time to implement an expansion plan or even how to go about creating a growth strategy.

One of the most important signs of growth potential is your organization’s financial standing, so you’ll need to make sure yours is steady and predictable before moving forward. Your financial team should always give the all-clear before you decide to grow. If you’re not financially ready, you could find yourself in a tough spot where attempting to grow actually causes major setbacks for your nonprofit.

At Jitasa, we work with nonprofits of all shapes and sizes to ensure their finances are well taken care of. This means we’ve seen it all! We know the ins and outs of nonprofit finances as well as the hardships associated with growth.

So how can you tell that your nonprofit is financially ready? You’ll need to ask yourself a number of questions, including: 

1. Do you have reliable donation sources? 
2. Do you have a solid foundation to receive grants? 
3. Have you analyzed your cost management? 
4. Does your nonprofit have effective leadership? 
5. Have you created programs and management systems with growth in mind? 
6. What does your expansion plan look like? 

When the time is right, your nonprofit will be ready to expand and make the biggest impact possible. But, it takes patience and hard work to get to that point. Let’s explore those readiness indicator questions further.

1. Do you have reliable donation sources? 

In order to grow effectively, your nonprofit should be confident and steady in your current financial standing. This means you’ll probably need to weather the current storm a little longer. Before expanding, you should also be confident that your nonprofit’s donors can support your financial needs in the future. 

Ask your nonprofit accountant to pull your nonprofit’s statement of activities also called an income statement. This report will show data about your organization’s earned revenue, restricted and unrestricted income, and other activities from both before and during the crisis. The report will give you an overview of the different types of donation revenue your organization currently earns. You can also pull this report for different periods to understand donation trends over time.

Note: Pay attention to the restricted income on your statement of activities. This revenue is earmarked for specific aspects of your nonprofit and shouldn’t be factored into other aspects of your growth plan. 

Some of the other metrics your nonprofit should pay attention to regarding your nonprofit donations include: 

• Your donor retention rate. The average donor retention rate for nonprofits is right around 44%. If your rate is lower than this, you may consider focusing on strengthening your relationships with donors before attempting to grow further. 
• Major donor relationships. Major giving is incredibly important for growth strategies. Double-check your CRM and your financial documents to see who your major donors are and how large an impact they have on your financial success. You may consider running your expansion plan by these donors to ensure continued support. 

Your nonprofit fundraising makes up a large chunk of your overall revenue. Make sure you have the fundraising capacity to grow and maintain donation revenue for a successful growth plan. 

2. Do you have a solid foundation to receive future grants? 

Just as you need to make sure that your fundraising capacity is scalable, your nonprofit also needs to make sure you’ve laid the foundation to win future grants. We recommend ensuring your nonprofit is prepared with resources such as: 

• Grant management software. Resources like Foundant will help your nonprofit organize your various grant opportunities, manage deadlines, and catalog responses. 
• Effective writers. Make sure you have faith in the writing ability for your grant writers. Specific grant-writing positions should be filled by qualified staff members. 
• History of grant success. If your writers have won grants before, it will be helpful for your team to also win them in the future. Make sure they have a successful history winning grants in the past, especially winning them specifically for your nonprofit. 

After you’ve crafted your expansion plan, identify the single cost items on your list that a grant could potentially fund. 

For example, let’s say your nonprofit’s programming provides admission to community educational resources (like museums, zoos, etc.) for children who otherwise couldn’t afford them. Part of your expansion plan might include partnering with an additional museum. Instead of relying on your annual fund to finance this aspect of the expansion, your nonprofit could consider looking for a grant to back the partnership. 

Of course, when you craft partnerships like this or work with other organizations, you should make sure they’ve also bounced back financially before implementing expansion strategies including their services. 

When it comes to grants, your nonprofit should make sure you’re in a good place to receive additional grant funding in the future and analyze strategic opportunities for grant funding in your growth plan. 

3. Have you analyzed your cost structure? 

Before you consider expansion for your nonprofit, it’s important you examine your current cost structure and anticipate how growth could impact it. For instance, you should make sure to analyze: 

• Fixed expenses. These are expenses that are steady from month to month. They could change in the long-term depending on what your growth plan includes. For example, rent is a fixed expense for nonprofits. If you grow your team and need additional office space, your rent and utility expenses could grow as well. 
• Staff expenses. Nonprofits who grow their staff will see additional expenses crop up in the form of salary and benefits. Plus, make sure you take into consideration the costs associated with hiring and training new employees. Growth plans should accommodate these expenses. 
• Program costs. As your nonprofit expands your program offerings, the cost of those expenses will also increase. Be sure to factor in the variability of these expenses as you plan for growth. 
• Other flexible expenses. Flexible costs associated with your nonprofit’s overhead may include travel fees, event costs, and fundraising expenses, which will increase as you grow as well. For instance, in order to raise more money through fundraising, you’ll need to invest more time and money into your strategy. 

Using a variable cost analysis will help your nonprofit better take into consideration the increasing expenses in terms of resources and labor associated with organization expansion. 

If you’re unsure if your nonprofit will be able to handle this change in organizational expenses, talk to an accountant who has experience with nonprofits. According to Jitasa, working with a nonprofit accountant can help your organization to ensure financial stability and make educated growth decisions based on fiscal capabilities. 

4. Does your nonprofit have effective leadership?

In order to be in an effective position for nonprofit growth, you need to make sure your nonprofit has the best leadership team to manage your staff and strategy. 

If you’re like many other nonprofits out there, you may have had to furlough valuable employees or cut staff salaries. You’ll need to completely recover in your organization’s leadership and staff before considering moving forward with expansion. Otherwise, you’ll risk overworking limited staff and exhausting your team. 

Then, you’ll need to be sure your board members and executive staff are all in agreement regarding your nonprofit’s expansion. By ensuring everyone is on the same page, it’s easier to make financial decisions regarding this strategy down the line. 

Plus, effective leadership leads to more effective staffing decisions at your nonprofit. Most expansion strategies include plans for team growth. Therefore, you want to make sure your leadership team is prepared for this growth with regards to: 

• Employee compensation. According to Astron, experts in nonprofit human resources, competitive compensation in the nonprofit sector is key to boosting and maintaining employees in the long run. The last thing you want is for turnover to increase as you’re trying to expand. Make sure you’re compensating employees at a competitive rate, especially if they see an increase in workload during this timeframe. 
• Project delegation. Ensuring your leadership has the ability to delegate work effectively among staff members is vital when it comes to growth. For instance, if your leadership has historically taken ownership of major giving, you may decide to delegate that responsibility to a major gift office as they take on more responsibility themselves. 

Effective leadership goes a long way for nonprofits. Effective leadership leads to effective hiring and delegation. When leadership is running efficiently, you’ll feel confident that your nonprofit is ready to expand from the top down.

5. Have you created programs and management systems with growth in mind? 

Scalability is important for your nonprofit’s programs and management systems. If these elements of your organization aren’t scalable, it will be much more difficult to help them grow in a sustainable way. 

Scalability means that your nonprofit’s day-to-day activities are: 

• Well documented. Make sure all of your team members have access to instructions about the different processes in place. For instance, be sure all team members could find out more about the automated outreach process for donor stewardship through effective documentation. This means that if you need extra hands in that department, anyone can go in and accomplish the tasks at hand. 
• Replicable. Going hand-in-hand with documentation is the replicability of tasks. When the expertise of different parts of your business is individualized, it means that only one person can accomplish that task. However, if that person is out sick or leaves the nonprofit, someone else will need to step in to accomplish the task at hand. 
• Transferrable. Ensuring you have processes documented is a great way to make sure two people can accomplish the same task. However, it also ensures the same process can be used for two different aspects of the organization. For example, you should apply the same email guidelines for those reaching out to your donors as your volunteers in order to drive relationships further. 

Scalability is important for nonprofits with growth in mind because it minimizes additional training costs to get everyone up to speed. It provides additional flexibility in the day-to-day activities at your organization so that you can accomplish necessary tasks at the organization no matter the circumstances. 

You can also outsource different aspects of your nonprofit to ensure scalability. For example, outsourcing your accounting services to a professional firm will ensure you get effective services and professional attention no matter the size of your organization. You can read more about this option, here. 

6. What does your expansion plan look like? 

Once you’ve determined whether or not your nonprofit has fully recovered from the current economic climate and is ready for expansion, you can start creating this growth plan. According to BCG, there are three primary types of expansion: 

• Steady state. This is a linear type of growth. This type of growth tends to be predictable but runs the risk of failing to match the nonprofit’s needs. It’s also hard to take into consideration the economic and political contexts beyond nonprofit control with this model. 
• Ramping up. This model of expansion provides nonprofits with additional time to create scalable solutions and identify weaknesses in current strategies. However, it requires more patience in the onset of the growth strategy. 
• Accelerating. Accelerating growth allows nonprofits to take advantage of a short window of opportunity for growth. It’s great for especially ambitious nonprofits. However, this is a difficult model to accomplish if your nonprofit doesn’t have an excess of funds already at your disposal. 

Carefully consider where your nonprofit stands currently and what the best growth model will look like for your organization. Then, create a detailed plan that takes into consideration all of the above financial indicators of growth. 

Growing a nonprofit is hard, especially given current events. However, when you’re prepared with the best analysis, leadership, and expansion strategy, you can drastically increase the impact your organization has on your community. 

This blog is an original work of the attributed author and is shared with permission via Foundant Technologies' website for informative purposes only as part of our educational content in the philanthropic sector. The views, thoughts, and opinions expressed in this text belong solely to the author and do not necessarily reflect Foundant's stance on this topic. If you have questions or comments, please reach out to our team.