Financial sustainability has become something of a buzzword in the NGO sector.
With ‘donor fatigue’ in rich nations and increased confidence from developing countries, more and more people are talking about local NGOs standing on their own two feet, and becoming more financially sustainable.
But what does financial sustainability look like? Is it always a good thing for an NGO to strive for? And how might an NGO go about achieving it?
There is no agreed definition of what financial sustainability is, but it is about being able to be there for your beneficiaries in the long term. It is the opposite of having to cease your activities simply because you have run out of money. Here is one definition...
An organisation is financially sustainable if its core work will not collapse, even if external donor funding is withdrawn.
It is not automatically a good thing for all NGOs to be sustainable! Some NGOs are set up for specific purposes and close down afterwards, job done. Other NGOs exist simply to keep themselves in existence. For NGOs working in emergency relief, it is not realistic.
However, for most NGOs working in a development context, meeting the needs of its beneficiaries in the long term and in a sustainable manner is an important strategic objective.
Indicators of financial sustainability
Learning from organisations that have managed to achieve financial sustainability to some extent, the paths to success include:
- Developing and maintaining strong stakeholder relationships, including beneficiaries, staff and donors
- Obtaining a range of types of funding, including unrestricted funds
- Building financial reserves
- Assessing and managing risks
- Strategically managing and financing overhead costs
Case study of an NGO's financial collapse - UK 2002
A strategic plan sets out the organisation's strategic objectives for the next 3-5 years with an accompanying budget for how much it is likely to cost. A financing strategy sets out how the organisation plans to bring in the funds to cover those costs. The financing strategy is an integral part of deciding what opportunities and activities your NGO will pursue.
A financing strategy document could contain four sections, including:
- Where are we now?
- Where are we going?
- How are we going to get there?
- Key policies (eg ethical policy and cost recovery policy)?
These are covered in more detail in Developing a Financing Strategy.