reference

1 Walker, J. C. (2017). Solving the World’s Biggest Problems: Better Philanthropy Through Systems Change. Stanford Social Innovation Review.

2 Lilly Family School of Philanthropy (2023). Giving USA: Total U.S. Charitable giving declined in 2022 to $499.33 billion following two years of record generosity.

3 Candid (2023). “More foundations expect giving to decrease in 2023, survey finds.”

About the authors

Evan James Consulting, founded in 2023, is a New Orleans-based, Black-owned management consulting firm committed to solving problems that matter. We work with changemakers advancing equity and justice to accelerate and sustain their impact.

ResourceFull Consulting was a key partner in developing our framework for financial sustainability. ResourceFull is working toward a vision of every child growing up knowing her power to create and fulfill her dreams and contribute to her community.

Conclusion

Financial sustainability doesn’t have to be a black box. Like any company, an organization needs to develop a strong financial sustainability plan that aligns with their approach and mission and put the infrastructure in place to execute it.

Philanthropic leaders can support their grantees to be stronger than they were when they found them by helping them analyze their costs and develop financial sustainability plans. Going further, they can provide technical assistance that helps them implement those plans—making it much more possible to bring about the change they seek to create.

You can begin your own financial sustainability journey today by taking a financial sustainability self-assessment at evanjamesconsulting.com.

For a consultation for your nonprofit organization or to develop a custom project for your grantees, contact Evan James Consulting at: contactus@evanjamesconsulting.com.

Case Study: Sustaining Pathways to Careers

Assessing and Planning

Working in partnership with a national foundation, Evan James conducted a project between 2019 and 2023 in which we analyzed costs and revenues of nine grantee intermediary organizations, each working to dramatically improve the conditions in which young people of color and low-income young people access high-quality career pathways. The funder wanted to gain insight into the cost and revenue models of these organizations, and wanted to learn what financial sustainability meant for them at various phases of organizational maturity. Its goal was to more deeply understand how to target its investments in order to create a healthy and growing ecosystem of organizations influencing systems change.

Evan James conducted a financial analysis of participating organizations in order to understand the total costs required for the operation of various pathway models and then supported many of the intermediaries in developing and implementing plans to strengthen the financial sustainability of both the intermediary organization and its career pathways ecosystem (e.g. school districts, employers, workforce boards). Each grantee received a bank of technical assistance hours to use following the development of plans targeted at strengthening their financial sustainability. Evan James’ consultants worked directly with grantee leadership to develop customized scopes of work that would address shortcomings in their financial sustainability and leverage their strengths

ELEMENT Example Technical Assistance
Visibility & Credibility
Developing strategies to boost stakeholder engagement and positioning
Financial Management & Liquidity
Developing dynamic financial models to improve projection accuracy and inform decision-making
Revenue Diversity & Capacity
Making targeted recommendations and plans for staffing, technology, and process changes to facilitate revenue goal achievement via philanthropy, government, or earned revenue
Organizational Capacity
Developing plans for staffing, succession, and scale
Model Viability & Agility
Developing theories of change or plans for adapting a program based on emerging circumstances

Figure 3. Example technical assistance supports.

This analysis and subsequent planning and support enabled Evan James to gather key insights into how the funder’s grantees—and other organizations of similar type—strategized regarding financial sustainability, and which supports were most helpful and effective. Further, Evan James was able to report on themes across the cohort in terms of which funding streams were promising, what types of staffing and technological infrastructure were commonly needed, and shared challenges in developing visibility, strengthening revenue diversity, and other areas of financial sustainability.

In many cases, tools and recommendations developed for one organization were helpful for other organizations in the cohort, which allowed the funder to leverage technical assistance across its grantees.

Example: A Growing Profile

In working with one organization, Evan James discovered key facts about its financial health. (1) The organization enjoyed relative stability year over year, but limited growth. (2) The organization experienced challenges in growing its own donor base due to its position as “one of many” departments throughout the institution of which it was a part. This made it difficult for the organization to retain top talent and plan for expansion of its programs. (3) The organization had a number of core strengths available to leverage, including a motivated, well-regarded, and rising star Executive Director.”

I know if I put my energies into this [sustainability plan], I can work it. That’s liberating for me. It has been a critical part of our growth and development and the positioning of us as a solid organization.” 

– Nonprofit leader

Evan James worked with the organization to develop a tailored financial sustainability plan, with strategies that strengthened its visibility & credibility, particularly its positioning within the institution while improving its working relationship with key internal stakeholders. Further, the plan called for diversifying revenues by improving the organization’s processes for researching and securing federal funds, and developing a stronger prospect list of aligned funders.

When the position above her opened up, the executive director of the organization was promoted, enabling her to boost its visibility within the institution and scale these improvements to other departments while she worked with Evan James to plan for the organizational capacity needed to ensure continued strength of its career pathways programming.

‘I know if I put my energies into this [sustainability plan], I can work it. That’s liberating for me. It has been a critical part of our growth and development and the positioning of us as a solid organization.‘ – Nonprofit leader

Other technical assistance Evan James provided to the organization included developing a strategic plan, revamping its branding and communications strategy, building a federal funding prospect list and application process, and creating a staffing plan.

Her work and focus paid off. In the time since the plan was developed, the organization:

  • doubled its number of funders
  • increased its revenues by 50%
  • increased its team from 8 to 13 staff
  • secured a $1.4M federal grant (its first ever), and
  • dramatically improved its visibility within the institution.

Generating Results

The organizations Evan James worked with implemented all or portions of their financial sustainability plans, with some making pivots and adjustments along the way as needed. Evan James re-assessed the five elements of their financial sustainability at the conclusion of the project.

Overall, the organizations were stronger than they were several years prior, despite having experienced significant challenges due to the COVID pandemic. In particular, organizations that created a sustainability plan and worked that plan consistently were particularly effective in strengthening their financial sustainability. Additionally, many leaders were able to build buy-in around their financial sustainability through engaging their

You need to provide technical assistance in addition to the funding. We wouldn’t nearly have gotten where we’ve gotten without the technical assistance. I’d have taken half the money in order to get the technical assistance because of the foundation we’ll have to be able to move forward.

– Nonprofit leader

Stakeholders in the planning process, and developed a discipline around keeping the plan present and taking action. Unsurprisingly, keeping an eye on the big picture sustainability of the organization led to significant results. In some cases, organizations attempted a strategy for revenue generation, did not see results, and pivoted to focus on their other strategies—but having made a plan in the first place gave them more confidence in those decisions.

For the nonprofits, participating in the Evan James process supported them on their journey to advance financial sustainability. Some highlights of what various organizations achieved over three years:

grow annual revenues by 67% over a three-year period

expand public funding by more than 25% over three years

establish a robust C-suite and management structure

double number of funders over a three-year period

hire four additional roles over three years

secure first federal grant of $1.5M

In addition to positioning their grantees for ongoing impact, the process yielded several key results for the foundation that funded this work:

  • The financial sustainability assessment and planning process enabled the foundation to provide targeted technical assistance to their grantees, which strengthened the organizations’ ability to secure resources to continue their mission.
  • It gave the foundation and the field a much stronger understanding of the cost drivers of the systems change work they were attempting to grow, and a sense of which types of organizations to focus on to effect that change.
  • It accelerated the foundation’s strategy development, helping inform the next round of their investments.

I would not have gotten to conclusions as quickly without your support. You were able to flex and meet partners where they are, getting in deep relationship quickly. This has helped me think about what these organizations really need, and expanded my and my team’s minds about this work.” 

– Foundation program officer

A Holistic Approach to Financial Sustainability

Assessing and Planning For Financial Sustainability

Financial sustainability, which we define as “the ability of a nonprofit organization to secure the resources needed to advance its mission,” is about much more than just fundraising. In our work with nonprofits, we have identified five elements that impact sustainability:

ELEMENT KEY QUESTION
Visibility & Credibility
To what extent is the organization visible to and respected by funders, peers, participants, and other stakeholders?
Financial Management & Liquidity
To what extent does the organization manage its funds in a way that ensures a reliable and/or increasing operating surplus with enough unrestricted cash to maneuver?
Revenue Diversity & Capacity
To what extent are the resources developed by the organization diverse in and/or within type, insulating it from vulnerability to change in any one particular source and with capacity to grow and scale?
Organizational Capacity
To what extent does the organization reliably develop, retain, and grow the human resources (board, staff, & volunteers) to execute their mission?
Model Viability & Agility
To what extent are the programmatic operations of the organization operated consistently, arranged sustainably, aligned with best available practice, and able to adapt to unexpected change?

Figure 1. Elements of nonprofit financial sustainability.

Each of these elements requires attention, resources, and strategy in order for an organization to develop in a balanced way and thrive. Based on our 15+ years in nonprofit leadership and development, and refining our model over the past 4 years, we have found that focusing on these elements has a significant positive impact on the nonprofits with which we have worked.

To strengthen financial sustainability, Evan James conducts a repeatable process:

  1. Reviewing documents to assess historical financial and programmatic performance and developing future projections
  2. Interviewing key stakeholders to gain insight into the organization’s strengths, weaknesses, opportunities, and threats
  3. Analyzing this data to rate each element of financial sustainability from 1 (very low) to 5 (exceptional)
  4. Co-designing a path to increased sustainability with leaders of the nonprofit, grounded in a strong understanding of its financial realities and holistically leveraging the various elements shown in Figure 1
  5. Providing customized technical assistance and coaching to address and leverage specific elements of financial sustainability (see Figure 3)

Figure 2. Sample Financial Sustainability Assessment.

Conventional Views of Financial Sustainability

Nonprofits

Most nonprofits operate in a state of continually raising money to fund their budget. Their board approves an annual budget, assuming that the nonprofit will be able to win a certain percentage of grants that will then cover their annual expenses. Often, their budget is an incremental adjustment of their prior year budget, and the nonprofit is planning to renew current grants and ask its existing funders plus new ones to initiate new ones. They generally make a plan that involves minimizing expenses (if they struggle to have a surplus) or maximizing fund development, as opposed to developing a holistic approach to strengthening their business model or positioning themselves strategically to secure new and more reliable revenue types.

Foundations

Foundations, for their part, make annual investments in a slate of organizations, that they screen with varying levels of rigor. They ask applicants to share “plans for sustainability,” which vary from a couple of sentences about how the organization will explore new funding sources to complex multi-year projections. Organizations vary significantly in their financial management and analysis capabilities, meaning that the projections they provide are equally wide-ranging in accuracy and rigor. Then, when the organization doesn’t meet its financial sustainability goals, the foundation has to choose between not renewing a grant and thus negatively impacting the organization’s viability (because the organization hasn’t diversified funding) or maintaining funding despite seeing a lack of progress.

The end result is that the nonprofit-to-funder relationship is often missing a shared understanding—or at least a shared agreement—of how to improve the financial sustainability of the organization. As one might expect, limited progress may be made in the financial sustainability of a foundation’s grantee cohort from year to year—which is understandable given that the problems nonprofits are working to address have been deepening for decades or centuries. But without a roadmap, dependence on grant funding deepens, and sector knowledge of the investments that are truly needed to change systems does not advance. Funders who bring a non-punitive, progress-focused mindset to this relationship tend to be able to work more collaboratively with their grantees and develop a more authentic shared understanding over time.

Widening the frame on financial sustainability through adopting a learning mindset, conducting holistic analysis, and collaborating on planning presents a major opportunity to improve organizational health, funder expectations, and strategy to make the most impact possible.

Challenges IN Financial Sustainability

As philanthropy works to invest strategically in organizations that are changing the conditions and systems impacting communities, it needs to widen its scope on financial sustainability.

First of all, though it is easy to measure outputs of a program, it is hard to measure all of the administrative resources, specialized knowledge, and other intangible inputs it takes to bring about said outputs. It can be even harder to tell what it costs to achieve the community or systemic change that organizations and funders are after. Without this understanding, philanthropy may not be targeting their investment at the right projects or organizations. They may be funding a particular project or program, but what the organization really needs to improve its financial sustainability is a new staff member in the development department, or support to build a new earned revenue stream. Second, we know that achieving financial sustainability is a long-term endeavor, taking much longer than even a multi-year grant period. It also requires unrestricted funds, which allow leaders to make investments in core infrastructure like marketing and communications, resource development, and financial management. Without these resources, nonprofit
leaders can get stuck in a cycle of raising their annual budget, with less of a view of the big picture for how the ecosystems they engage with can contribute to sustaining change. There are two consequences to this:

  • Projects get funded, but nonprofits don’t get more sustainable over time.
  • Philanthropy invests, but doesn’t make the systemic change they desire.

These consequences matter. Philanthropy, and society, needs nonprofits to become more sustainable over time, so that they can reliably deliver programs and services to their clients while pushing for more effective systemic change.

An organization can have the most charismatic leader, or even a very generous set of early stage donors, but if it can’t retain high-quality staff, or its program isn’t agile enough to adapt to emerging circumstances, then the change it sets out to make won’t last. If it has great revenues, but those revenues are bogged down with restrictions, the organization may not be able to innovate or secure its core business operations. In these scenarios, everyone loses—especially those who are most impacted by structural inequity and marginalization.

Evan James’ approach to financial sustainability planning takes a holistic view in shoring up an organization’s position and capacity, unifying its strategic investments and increasing the results of its development and advancement activities.

Investing Wisely to Sustain Change

Making the most of philanthropic resources

The fundamental question that all foundations contend with is the same: “How can I use the limited resources I have to make the biggest change possible?”

Most philanthropy professionals understand that to truly support an organization to grow its capacity to fulfill its mission, they will need to commit for more than a check and a grant period. However, there are always more organizational needs than there are accessible dollars, and program officers are always balancing the question of how to keep their existing grantees succeeding and growing while investing in proven and innovative new approaches that align with their most current strategy. The wise foundation program officer generally wants to make investments that (1) promote the deepest and widest change possible and (2) leave the nonprofit strong enough to build upon the grant awarded and secure additional funding from other sources.

Given this eternal challenge, it seems natural that leaders in philanthropy would seek to evolve their approach. More and more, philanthropy—particularly large national and regional foundations—are shifting from a one-to-one funding approach (e.g., funding one organization to do a thing) to a one-to-many or many-to-many approach (e.g., joining with other funders to fund a group of connected organizations to leverage their combined skills to move the system in a new direction). This approach, often framed as systems change and/or collective impact, has been used to make meaningful change in education reform, public health, and justice reform.

In making these types of investments, funders are asking themselves:

  • Do organizations exist that can contribute to the change we desire? If yes, which organizations are best positioned to make the most significant change happen? If no, what is missing?
  • What does it cost to make this change happen? What other revenue streams or partner contributions can help pay for it?
  • What types of investments and shared experiences will leave them stronger, more collaborative, and more effective while building buy-in with other parts of the ecosystem?

 

These are vital questions. Meanwhile, nonprofit leaders are working to balance the system-wide change that their funders are seeking to create with the individual pressures that face any organization:

  • How will I secure enough revenue to fund my budget this year? Next year?
  • What new revenue sources do we need to cultivate, and what’s it going to take?

 

At a time when overall philanthropic giving decreased for just the fourth time in 40 years, foundation giving is expected to stay the same or continue decreasing, COVID-era government funding is expiring, and inflation is outpacing growth in giving, these are questions that require good answers. Over the past four years, Evan James developed an approach that helps leaders in philanthropy work closely with—and support—their grantees to address all of these questions. In the process, these leaders are generating more learning for the field and fostering stronger cohorts of grantees. [2]