How to effectively apply business principles to a nonprofit organization
Business principles can easily be assimilated into a nonprofit organization. While nonprofits and for-profits may have some fundamental differences in their core goals and philosophies, from an operational standpoint, the two types of businesses have much in common.
Despite the divergence between nonprofits and for-profits in terms of ideology, the day-to-day and long-term strategic planning needs are very similar. Many of the traditional and modern business principles that profit-generating companies utilize to meet organizational goals can be applied in the nonprofit setting as well.
Establish an identity
It is vital for a nonprofit organization to establish a mission statement and determine the purpose of the business, whom the organization serves and what the overall objectives are that need to be met in order to succeed. These primary business principles are essential in order to clearly define purpose, focus and intent. A nonprofit mission statement clarifies the objective and how the organization intends to make an impact in society.
Goals and strategic planning
Organizational vision is one of the attributes that helps bring any company to fruition and leads to success. Any organization, whether working to generate a profit or to fulfill a societal need, has to utilize careful planning in order to fulfill its primary mission.
This can be accomplished through setting goals and developing strategic planning. This way, managerial decision-makers can set benchmarks and then follow progress to see what practices are working and what practices are not helping to meet established objectives.
Finances and accountability
While nonprofit organizations do not strive to generate profits to distribute to shareholders, these types of companies still need to earn revenue in order to support their organizational vision and run the processes necessary to accomplish their mission. Revenue is an important factor for nonprofits as, without an incoming stream of income, the organization cannot effectively operate.
Basic financing principles and accounting procedures easily assimilate into the nonprofit environment. Nonprofits must use budgets to effectively manage cash flow, pay expenses, cover overhead costs and pay for other operational needs; they must also be able to show accountability to interested stakeholders and demonstrate how the organization is doing financially.
In addition to standard business accounting, there are also the fundraising and governance associated with raising money for a cause. The Minnesota Council of Nonprofits outlines the importance of financial management for nonprofits. Without solid accounting practices, nonprofits would have a hard time functioning and, as a result, be unable to meet accountability and governance requirements.
Human resources
The Small Business Administration outlines in its Human Resources Management publication that nonprofits have six personnel issues that need attention: assessing personnel needs, recruiting, screening, selection and hiring, training and acclimation, and compensation.
Integrating human resource processes in the nonprofit is not unlike doing so in the for-profit environment, except for the added need of perhaps recruiting and managing volunteers. Nonprofits have a need to manage employees, and if volunteers are required to execute the organization's mission, they will need direction as well. Utilizing standard human resource practices is beneficial to any nonprofit.
Inc. Magazine writes: "Staffing decisions are among the most important decisions that nonprofit organizations make. Just as businesses and organizations of all sizes and areas of operation rely on their personnel to execute their strategies and advance their goals, so too do nonprofit groups."
Marketing
Marketing is an essential process for the nonprofit as investing efforts in promotion help bring awareness, exposure, gain clients/volunteers and attract benefactors who may be willing to give endowments. Marketing, regardless of the organizational objectives and missions, is something all businesses can use to help increase visibility.
Nonprofits and for-profits can both use many of the same tools and methodologies to gain awareness and draw attention to their respective organizations; all can benefit from utilizing various channels of distribution including, television, radio, print, Internet ads, e-mail marketing and social media.
Business ethics
Establishing integrity is an objective any organization, regardless of their foundation, should strive to achieve. Operating outside principles that are generally considered ethical in society typically leads to problematic issues for an organization. Nonprofits that operate in an ethically accepted fashion are more likely to gain acceptance and support.
While the end rewards may differ for nonprofits, principles considered to be standard in the for-profit business environment can easily be applied in the nonprofit setting as well. Integrating these principles in the nonprofit structure can help bring about a well-run operation.
