Just like startups, nonprofit organizations are used to doing more with less. When you’re responsible both to donors and the communities you serve, you have to be judicious with your spending. While this need leads many organizations to be resourceful and efficient, it’s important not to skimp on infrastructure, talent, and sustainability in order to reach your full potential.
Smart spending is all about investing in what will help you achieve your mission. The best organizational budget is not necessarily the one that spends the least, but the one that best uses your existing resources to move your cause forward. Nonprofits should aim to be lean, not cheap, when creating a budget or making buying decisions.
Lean Not Cheap
One common definition of “cheap” is “not costing a lot of money,” which fits with how most nonprofits approach budget decisions. The problem is that “cheap” also means “of low quality, not worth a lot of money.” This is why the cheapest option is not always the best one, even for a nonprofit where money is tight.
For example, in the long run, it makes more sense to buy a $60 pair of shoes over a $20 pair if you know the more expensive ones will last for many years and the $20 pair will only last a few months. Nonprofits don’t wear shoes, but the same principle can be applied to supplies, tools, and even staffing decisions. If your organization doesn’t offer a competitive salary, you will not be able to attract and retain the best candidates. You will probably spend even more in turnover costs for recruiting, onboarding, and training the next person.
For several years, entrepreneurs have rallied around the concept of “lean startups.” The idea behind the term is that young businesses should be efficient, agile, and not wasteful. In other words, the organization’s entire budget works like a muscle to power the business forward and avoids “fat,” or the kind of expenses that don’t accelerate growth. This is also a smart mindset for social impact organizations to adopt because it encourages them to focus on strategic investments that maximize their impact.Read More: 5 Reasons New Nonprofits Are Just Like Startups
A lean nonprofit takes care to identify how to spend their money where they will see high returns. But to find these high-return solutions, lean nonprofits have to be willing to take some risks. For example, you might be tempted to put all your money into an existing program because you know it is creating some level of impact. But investing in an experimental program could reveal a new solution that makes a much bigger impact over the next couple of years. Because you don’t know for sure how a new initiative will work out, it’s important to do your research, draw hypotheses for the results, and test new ideas. You can then evaluate the results, compare them to other investments, and decide which programs to support and expand.
Where to Save Money
When you look to cut costs, it may seem easier to consider small expenses like your office supplies or communal coffee. Unfortunately, “do more with less” all too often leads to cutting corners that stress and inhibit your staff. While you should keep day-to-day expenses in check, look to your big ticket items, such as your CRM, rent, and events for lean budgeting opportunities.
For example, many of your costs as a nonprofit are products and services that are periodically up for renewal. While these expenses are necessary, your renewal window is an opportunity for renegotiation. Let’s say you’re getting ready to sign on for another year of phone and internet service. Are you using all the features you’re paying for? Have you compared your contract to prices at other providers? At the very least, ask your provider if they can give you a better price or if they have a discount for nonprofits. Keep in mind that your landlord, providers, and suppliers all want to hold onto their clients—they may be more flexible than you think.
Another important part of being a lean organization, whether for-profit or nonprofit, is discontinuing programs, products, or events that aren’t advancing your mission. This can be a little painful. When you think a program is going to make a big impact and it falls short, ending it can feel like admitting defeat. But this is an instance where you lose the battle in order to win the war. You can’t keep pouring resources into an initiative that isn’t helping your cause. The same goes for an engagement or fundraising event. Recognizing failure is just another step toward success. When you know what doesn’t work, it’s like finding a clue or eliminating an answer on a multiple choice test. Even if you don’t yet know the perfect answer to your problem, you now have a little more information to work with.
Nonprofit organizations are used to operating with a scarcity mentality. Unfortunately, the pressure to minimize overhead keeps many organizations from investing in their infrastructure and long-term success. Run your nonprofit like a lean startup by being cash-conscious, but weigh expenses against their ability to help achieve your mission. Each time you face a budget or buying decision, don’t ask “What is the cheapest option?” Ask “What is the smartest option?”