The entire spec­trum of finan­cial management

Income from donations, legacies, member management, fundraising expertise, liquidity planning and investment strategies in a nonprofit organisation: running an NPO in a financially sound manner requires comprehensive financial management knowledge.

The NPO sector should actually be looking forward to a bright future and be finan­ci­ally sound. The funds are available for this: since 2008, income from dona­ti­ons has risen steadily from 1.1 billion Swiss francs to 2.5 billion Swiss francs, with few excep­ti­ons. Zewo’s dona­tion statis­tics set a new record in 2022, with 420 million Swiss francs for Ukraine contri­bu­ting to this result. But this also reve­als the chall­enge that dona­tion beha­viour poses for NPOs. Because after the pande­mic and escala­ting climate change, Ukraine is just the latest issue to heavily impact public percep­tion and encou­rage people to donate. Howe­ver: ‘Anyone who doesn’t fit this pattern may suffer considera­ble losses,’ says Profes­sor Georg von Schnur­bein from the Center for Phil­an­thropy Studies at the Univer­sity of Basel, explai­ning the problem. Orga­ni­sa­ti­ons are suffe­ring because public and media atten­tion is curr­ently else­where. ‘They may be working well, but they’re falling through the cracks,’ he says. ‘They’re retai­ning their regu­lar donors, but finding it hard to get their messa­ges across.’

On a stable footing

These chan­ges can leave NPOs facing finan­cial diffi­cul­ties. But Georg von Schnur­bein main­ta­ins that most NPOs are not poorly mana­ged. On the contrary: they record fewer insol­ven­cies than compa­nies in abso­lute and rela­tive terms. Owing to the lack of share­hol­der controls, howe­ver, NPOs are requi­red to estab­lish and comply with their own controls. Diver­si­fi­ca­tion can be one way of achie­ving finan­cial stabi­lity. Accor­ding to Georg von Schnur­bein, his own rese­arch data shows that diver­si­fy­ing the sources of funding brings stabi­lity for orga­ni­sa­ti­ons that perform consis­t­ently. The advan­tage of this is that it is possi­ble to offset the loss of one source of funding with another. But this state­ment doesn’t apply to an orga­ni­sa­tion that aims to grow. In this case, it is worth focu­sing on just a handful of sources. As Georg von Schnur­bein explains, every source of funding requi­res speci­fic exper­tise. Diffe­rent know­ledge is needed to fulfil a state perfor­mance mandate than to successfully submit an appli­ca­tion to a foun­da­tion. Focu­sing on just a small number of sources enables you to have advan­ced know­ledge of these sources. 

‘An NPO should ask itself what the right legal entity is for it.’

Georg von Schnur­bein, Profes­sor CEPS

System change

Georg von Schnur­bein has just published a book on this subject, titled ‘Finanz­ma­nage­ment in Non-Profit-Orga­ni­sa­tio­nen’. It reve­als how NPOs can remain finan­ci­ally sound and the possi­ble reasons for fail­ure. The book is the result of ten years of rese­arch. During this period, not only have dona­ti­ons risen, but state funding for NPOs has also increased. In addi­tion to dona­ti­ons, this is an important source of income for many NPOs. Howe­ver, the condi­ti­ons for public money have chan­ged and conti­nue to do so. As a result of the New Public Manage­ment model, govern­ment agen­cies now require more complex report­ing and audits. And system change is curr­ently a key issue in the social sector, moving away from project funding towards indi­vi­dual funding. For exam­ple, an orga­ni­sa­tion for disab­led people no longer recei­ves a finan­cial contri­bu­tion, but the person with the disa­bi­lity them­sel­ves is invol­ved in deci­ding from whom they wish to receive which bene­fit. Encou­ra­ging inclu­sion results in higher costs for orga­ni­sa­ti­ons, because a bene­fit can be divi­ded among diffe­rent provi­ders. State funding is not immune to these issues either. For its foreign aid prio­ri­ties for 2025–2028, for exam­ple, the Bundes­rat is propo­sing to deduct the funds for the undis­pu­ted aid for Ukraine from the aid for the Global South. Nevert­hel­ess, these deve­lo­p­ments do not change the assess­ment that these funds contri­bute to stabi­lity. Because they are usually long-term and ther­e­fore predic­ta­ble. Georg von Schnur­bein also iden­ti­fies another aspect: ‘State funds are usually secure and there are rarely any defaults.’

Nonpro­fit – or not

This is important for NPOs. Because short-term bott­len­ecks pose a parti­cu­lar chall­enge for them. Unlike compa­nies, they are unable to take out short-term loans. An NPO is unli­kely to receive a bank loan because it cannot offer anything in return. ‘Liqui­dity plan­ning is ther­e­fore extre­mely important,’ says Georg von Schnur­bein. But not every NPO needs to accu­mu­late large amounts of money. Robust plan­ning can also encou­rage stabi­lity. Georg von Schnur­bein sees addi­tio­nal poten­tial in asking another funda­men­tal ques­tion: an NPO should deter­mine its correct legal entity. This ques­tion is asked far too rarely nowa­days, he says. Nonpro­fit status and tax exemp­tion make finan­cial manage­ment easier and hardly any taxes need to be conside­red. On the other hand, they result in limi­ta­ti­ons that usually receive less atten­tion. Access to the finan­cial market is gene­rally denied. Depen­ding on the NPO’s area of acti­vity, this can be a disad­van­tage when procu­ring capi­tal. A private company can raise capi­tal at just a few per cent inte­rest. ‘The cost of fund­rai­sing is 25 to 35 per cent,’ says Georg von Schnur­bein. And adds: ‘The youn­ger gene­ra­tion of phil­an­thro­pists, in parti­cu­lar, ther­e­fore invests differ­ently and is extre­mely commit­ted to social invest­ments.’ They have inhe­ri­ted money and want to invest this in social projects, rather than making instant dona­ti­ons. Such funding models are curr­ently used in deve­lo­ping count­ries in parti­cu­lar. This is a new invest­ment market. Which is why Georg von Schnur­bein says: ‘Nonpro­fit status can be an obsta­cle to acces­sing the entire spec­trum of the finan­cial market.’

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