Best practices to help build operating resilience at foundations and public charities

Jennifer Bahus is vice president of philanthropic consulting at Fidelity Investments^®, where she provides philanthropic counsel and strategic planning support for a wide range of donors looking to create more meaningful impact. She manages a diverse portfolio of clients, from Fortune 500 companies and major private foundations to individual donors and nonprofit organizations. Here she shares her insights on some best practices that nonprofit organizations can adopt to prepare for future challenges.

If the past few years have shown us anything, it is that circumstances are unpredictable, and adaptability is critical. This is especially true for nonprofit organizations. Even in the best of times, nonprofit organizations often find it challenging to find the financial, technical, and human resources needed to consistently fulfill their missions. When times are tough or uncertain, these challenges are even more pronounced. So, what steps can private foundations and public charities take to create a strategic plan while also preparing for the unknown?

There are a few best practices that nonprofits might consider.

Engage in philanthropic scenario planning

Most nonprofit organizations have a strategic business plan. This is an invaluable document that articulates the organization's growth and/or impact goals—generally over the next three to five years—and how it plans to achieve them. But many strategic plans do not go deep enough. In addition to, or as part of, the strategic planning process it is important to engage in scenario planning.

While we typically never know what the next challenge may be, scenario planning allows an organization to model effects of certain internal and external risks and opportunities. What if your funding takes a hit, or on a more positive note, what if you receive a significant gift or your investments overperform? What if a natural disaster affects your physical operations? What if you must change your program delivery model due to staffing shortages or other factors? By considering various scenarios and their operational and financial impact on the organization, nonprofit organizations can be better prepared to weather challenges.

Maintain cash reserves

A best practice for nonprofit organizations is to ensure it has three to six months of operating cash reserves. Operating reserves are an unrestricted fund that nonprofit organizations can use for planned or unplanned needs but should not be relied upon to plug a regular budget shortfall. Instead, the funds should only be used when there is genuine need. Given this, it is important for organizations to understand their current liquidity and review their investment strategy and portfolio regularly.

To ensure the funds are used appropriately, put in place policies that govern why, when, and how much operating reserve can be used in each situation. These policies might also stipulate who can authorize use of the reserve funds. Deliberate management of the reserve funds can help your organization successfully ride out financial fluctuations.

Establish a succession plan

Leadership is crucial for any organization. Still, for many nonprofits, succession planning is often overlooked or put off. It might be uncomfortable for senior leaders to contemplate their departure, but many funders expect to see solid succession plans that ensure the long-term sustainability of the organization. This applies to both staff and board leadership. A thoughtful, intentional succession plan builds confidence in the organization and can serve as a major step toward continued stability.

Recruit a talented, diverse board

A nonprofit organization has a board of directors or trustees to ensure proper governance of the organization and to provide guidance and support. Therefore, a board can be a tremendous resource for an organization. Board members should be well-versed on their responsibilities and understand that they have legal duties of care, loyalty, and obedience. They are also expected to strengthen the organization by providing expertise, connections, and in most cases, financial support. A board should be comprised of well-connected professionals, passionate advocates, and experts in relevant fields. The board should also have representation from the community or constituents the organization serves. The organization should provide clear and accessible training for all board members on a regular basis and should ensure that new board members are properly oriented to their roles.

The organization should also have a board recruitment plan in place. Consider the entire composition of the board, including skill sets that are present or lacking; industries represented; diversity in age, background, and experience; community connections; and varied perspectives and spheres of influence. A diverse and well-run board ensures that your organization has a broad slate of expertise and connections to draw on no matter the circumstance.

Conclusion

Planning for the future amid uncertainty is challenging. But by keeping in mind some of these best practices, your nonprofit organization will be more resilient and better positioned to weather whatever circumstances arise.