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Chapter 2. Financial Sustainability

This chapter explores the dimensions of financial sustainability as well as the principles needed to manage a nonprofit organization that can generate continuous funding through diverse sources in order to support its vision and mission in a way that is socially and environmentally sustainable. The chapter discusses the inherent, collateral, and environmental factors of financial sustainability in nonprofit organizations. Further, the chapter describes key indicators that can reveal whether an organization is financially sustainable or is on the path for financial sustainability.

ABOUT SUSTAINABILITY

Sustainability is the ability of a business, an organization, or a project to fulfill its vision and mission, meet its goals, and serve its stakeholders over time. In that context, sustainability can be assessed in terms of the organization itself, the services provided, and its finances. Organizational sustainability refers to the capacity of an organization to (a) develop a strategic plan, (b) secure, (c) and maintain resources that enable it to provide services over time. Service sustainability concerns the ability to provide quality services to clients independent of cycles of funding. Hart and Milstein (2003) developed the sustainable value framework as a strategy to assure business shareholders about the value of global sustainability. The framework addresses two major challenges represented by two axes:

1. A vertical axis, which is related to the challenges for businesses to be proactive regarding the creation of future technology and markets while managing today's business.

2. A horizontal axis, which represents the challenge for businesses to infuse external perspectives and knowledge without jeopardizing organizational growth, skills, and capabilities.

The interrelations between the vertical and horizontal axes create four quadrants or strategies for business sustainability:

1. Quadrant 1: Pollution prevention intended for cost and risk reduction

2. Quadrant 2: Product stewardship to secure reputation and legitimacy

3. Quadrant 3: Clean technology for innovation and repositioning

4. Quadrant 4: Sustainability vision as growth trajectory

Hart and Milstein's (2003) framework is based on sustainability for businesses and for-profit corporations. Therefore, it has limited application to nonprofit organizations. However, it is insightful about the relevance of sustainability for all organizations.

SUSTAINABLE BUSINESS

A sustainable business strives to have minimal negative impact on its global and local environments by linking all business decisions and operations to sustainability principles, supplying environmentally friendly products or services, and doing everything possible to adequately address the current environment in the process of making a profit. Sustainable business works to reduce or possibly eliminate environmental harms caused by production and consumption of goods and services. Environmental harms are measured by the carbon footprint or the amount of carbon dioxide necessary to support the consumption of products. To reduce environmental harms, sustainable businesses use various strategies such as:

- Innovation and technology that eliminate products and services with potential environmental harms

- Collaboration or partnership with other sustainable businesses

- Continuing quality improvement in evidence-based sustainable practices Sustainable reporting to document benchmarks, progress, and ensure greater accountability

 
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