By Woods Bowman
Does your nonprofit have too much or too little financial capacity?
An article in the spring issue of the Nonprofit Quarterly will include two checklists nonprofits can use to assess their “financial capacity quotient” and determine whether they are using their capacity productively – whether they are a “just-right” organization.
Having a little “slack” in your nonprofit budget is healthy, but too much can make you dull and lazy, while too little can strangle you.
It’s too bad the concept of slack, though well understood by business, is focused on so little by nonprofits and their funders because budgetary slack is the financial aspect of organizational capacity.
Slack reduces risk. It cushions an organization from economic shocks. It permits a nonprofit to maintain service levels in the face of temporary reductions in income.
Slack also allows for innovation and research and development and for some degree of autonomy from funders.
A “cold” organization — one without sufficient reserves – is frail, unable to adapt to changing needs of its constituents, unable to invest in training and new technology, and unable to take advantage of opportunities.
It is stale though not yet failing. It has ideas but does not have sufficient capacity to implement them.
A “hot” organization is one that is extremely successful – at least financially. It has a big portfolio and yet money keeps rolling in.
These fortunate nonprofits are an exclusive club, but there is a dark side to their success.
Paradoxically, some organizations that have the greatest capacity to do research, experiment, and innovate are restrained by their wealth. “Don’t mess with success,” could be their motto.
It is easier to say how much financial capacity is too little than to identify the threshold where it becomes too much.
The idea that a point exists where financial capacity passes from being merely large to being excessive is based on the observation that people, and organizations, tend to lose their edge when they are sated.
The financial capacity quotient is designed to challenge organizational denial and complacency and to give all organizations a to-do list.
It is also the first time that anyone has tried to help any kind of organization quantify their degree of slack and their ability to use it properly.
Woods Bowman is an associate professor in the public services graduate program at DePaul University in Chicago. This column is adapted from an scheduled to be published in the spring 2007 issue of the Nonprofit Quarterly.