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This post originally appeared on the Stanford Social Innovation Review's blog. It is reposted with permission.
Scaling is critical to any nonprofit looking to increase impact—but of course, it is easier said than done. In addition to gaining board engagement around your strategy and building a focused business plan, organizations must secure sufficient capital—funds that they can raise only if potential donors have a clear enough picture of their growth plan and financials to invest with confidence.
According to a recent study on the state of scaling impact, conducted by the Social Impact Exchange and Veris Consulting, only 24 percent of nonprofits currently scaling have started fundraising and only 42 percent have a growth business plan. When it comes to scaling, many nonprofits are trying to “build the plane while flying,” when a more disciplined approach is required.
Here are some questions that can help test your organization’s scale savvy:
1. Are you raising capital beyond your operating budget? If not, you should. Organic growth to serve greater numbers is different than scaling, which often requires expansion or a new model—opening new locations, setting up affiliates, adoption through alliances, or building a social movement. Many nonprofits underestimate what it takes to scale. It requires strategic alignment with the mission, thorough due diligence, a detailed fundraising plan and the right resources.
2. Have you tested your model and conducted due diligence? Surprisingly, only 39 percent of nonprofits that are scaling or intending to scale have evaluated the impact of their work, and 59 percent of those are still self-reporting. In our metrics-driven world, this approach is increasingly ineffective. Donors often reserve investments for nonprofits that have proof of results, making outcome measurement an important precursor. Providing donors with numbers verified by an independent third party signals that your organization has an understanding of financial accountability.
3. Is your board enthusiastic and willing to be hands-on? Scaling is a team effort, and your board can make or break your success. It takes a significant amount of visioning, evaluation, planning, and financing to effectively scale. You need a committed board with hands-on involvement, coupled with an understanding that scaling takes dedicated time and resources. Many nonprofits rely on experienced board members who have successfully scaled organizations in the past to actively partner with management through this process. In fact, 78 percent of nonprofits scaling see their boards as the number one resource for informing their scaling strategy.
Related questions: Have you conducted a board assessment? It can be useful to determine the experience and contacts required to reach your scaling goals and recruit any missing expertise. Are board members aligned with their role? Set up a scaling committee with a subset of the board—one that is willing to dedicate time between meetings to guide management through the scaling process. Effective boards are hands-on and enthusiastic, willing to lend expertise, and make introductions—all without micro-managing day-to-day decisions.
4. Have you surrounded yourself with scaling expertise? To further your success, ask yourself: Does our internal staff have the scaling expertise we need? If not, look to hire consultants knowledgeable about scaling impact, who can inform your business plan development, financial model and forecasting, and fundraising. Notably, 58 percent of nonprofits that scale leverage consultants to inform their strategy—and it goes up to 72 percent for nonprofits with budgets over $5 million. This firsthand knowledge will accelerate your learning curve and help avoid costly mistakes.
Scaling starts with adequate pre-planning. There are a wealth of resources to help, including the Social Impact Exchange’s business plan competition, where nonprofits go through a process to evaluate feasibility to scale, evidence of social impact, and capacity for growth and sustainability. And not to be overlooked is the importance of financial intermediaries, such as Nonprofit Finance Fund, which facilitate capital campaigns and access to investors.
5. Are you “managing risk” for your donors? In the past, frequently only boards were privy to the inner-workings of nonprofits; today, there is a great deal of detailed nonprofit information online and available to all. Thanks to sites such as Charity Navigator and Guidestar, your financial performance has never been more transparent. This makes it easier than ever for donors and investors to conduct due diligence on your financial effectiveness. Savvy donors routinely check to see if a nonprofit completed its last fiscal year audit, look for any red flags on the audit and 990 tax return, and investigate how the organization spends its funds.
Audited financial statements are an organization’s report card—they can demonstrate inherent discipline, substantiate numbers, and showcase financial health. Before fundraising, make sure that you have your financial house in order—reliable and healthy numbers provide donors with a high degree of confidence. (Check out these GuideStar and National Council of Nonprofits guidelines to see how your nonprofit is doing.)
For more on how nonprofits view their scale readiness and a look at current scaling strategies and the challenges ahead, read our recent report, “The State of Scaling Impact.”
John Gillespie is managing director of the CFO Practice at Veris Consulting, a financial management firm that helps nonprofits and social enterprises take control of their finances and advance their missions. He is also co-author of "The State of Scaling Impact: Results of a National Study of Nonprofits"—a recent study with the Social Impact Exchange on the state of nonprofit scaling.