A few weeks ago, I had lunch with my mentor who leads a wealth management firm that is a significant investor in many Maine nonprofits. I asked him what is the one thing that he thinks nonprofit leaders need to learn more.

“Accounting. Financial management skills. How to run like a business.”

This might sound harsh. After all, many people engage in the nonprofit sector because they want to make a difference in the world and improve people’s lives. Not because they want to focus on a profit and loss statement. And this holds even more true for businesspeople who volunteer as nonprofit board members: I have seen those very businesspeople leave their skills outside the nonprofit boardroom door so that they do not come across as anything other than charitable. But the truth of the matter is that unless a nonprofit focuses on business fundamentals (including financial management but also such topics as branding, marketing, and cash flow), it runs the risk of squandering its limited resources and failing to make the impact it seeks.

As a nonprofit consultant, I am usually engaged by nonprofits to address their financial management issues, but they never frame it that way. Most of the time, there is a presumption that if only they could improve their fundraising, they would have the resources they need for their work. However, that presumption assumes that the organization is efficiently managing its expenses – which may not necessarily be the case.

Any successful businesses manager will tell you that there are three ways (not one) for an organization to be financially successful:

• Sales. In the case of a consultant, this is when a client hires me. But in the case of a nonprofit, it is when a grant is received, or a donor makes a gift.
• Profit. This is the difference between what an organization takes in and what it spends. For nonprofits, they need to be focused not just on what the mission requires, but also on what they can afford.
• Tax efficiency. In a business, there are numerous ways to keep more of the money that is brought in through tax incentives. But nonprofits are tax exempt, so this one does not really apply. They may find other types of efficiencies, such as in-kind donations.

Drawing from reserves or an endowment can help an organization navigate those times when expenses outpace revenue. Leveraging those resources can be a saving grace in an emergency – but if expenses outpace revenue for several periods, the organization must investigate whether it is spending beyond its sustainable means and determine how to tip the balance back towards profitability.

Speaking of profitability, I would also like to clear up a significant misunderstanding about the nonprofit sector. A “nonprofit” does not mean that an organization cannot earn a “profit” (where an organization generates more revenue than it spends on expenses). No, a nonprofit means that no individual can personally “profit” from the organization; that the profit cannot be distributed to individual shareholders. In the case of nonprofits, there are no “shareholders” because there are no personal owners, only trustees of the entity. It is sound business practice for any organization to generate more money than it spends and to invest that money for future needs.

Another misconception in the nonprofit sector is that charitable organizations cannot invest their money in the market, that they must put their funds in a bank account and earn simple interest. This error means that some nonprofits are not effective stewards of the money that their donors invest in them, as money in a bank account does not generate the same returns as it might in the market. To mitigate risk, nonprofit organizations often engage an investment committee or a financial advisor to help them select those offerings that will generate the maximum financial return with minimal risk of loss. Doing anything other than investing money that is not needed immediately signals to donors that a nonprofit is not doing all it can to maximize the resources it has at its disposal to achieve its mission. Investors or donors will want to be reassured that the organization into which they are investing is already being smart with the money it has on hand before they give it more of their own.

Just like for-profit businesses, nonprofit businesses should view the revenue that they generate as an indicator of whether there is a sufficient market for their product or service. The product that a nonprofit business “sells” is their approach to solving a social problem and the market is comprised of those people who are willing to provide funding to that nonprofit to spend that product to advance the stated mission. If a nonprofit fails to raise enough money to cover the expenses associated with their product, that means that there is an insufficient pool of people who are willing to buy that product or that potential customers aren’t convinced of the need to provide more money to that organization. Unfortunately, many nonprofits assume that if only they could raise the profile of their organization to people who are willing to pay for their products, if only more people inside their organization could become more proficient fundraisers, if only they could secure a large donation from an angel. If only, if only, if only…

I also hear nonprofits try to explain how managing their finances is challenging since there is no way to accurately predict what donors will give in an upcoming year. For-profit businesses face the exact same problems. They don’t have any greater insight to predict whether customers will buy their products or services, but they are informed by past performance and can hedge that risk by investing in branding, marketing, customer insights, incentives, product modification, etc. There is no reason a nonprofit cannot use the same risk hedges to bring their product to their customers.

Business issues like these are more critical than ever, especially considering the seismic changes the federal government has implemented. Cuts to federal grants, a reorientation away from diversity initiatives, and the proposed elimination of AmeriCorps have meant that nonprofits can no longer do business as they had in the past. There isn’t sufficient private philanthropy to make up for the loss of federal funding. Changing mission statements in light of the pushback away from diversity means that organizations are changing who they are out of fear. And without AmeriCorps service members, many communities across the country will struggle to find the human resources they need (and can afford) to get the work done.

While these changes may feel painful or even cruel, they may be exactly what the nonprofit sector needs in the United States to ensure that the work they are doing is supported by a coalition of the willing rather than being propped up by the U.S. Government that cannot afford to do business as usual, either. As of May 2025, total federal debt was approximately $36.2 trillion – not including any deficits that are likely to arise from the FY2026 budget. While there are many more business issues I could elucidate, the best thing a nonprofit can do is invest the time and resources to behave more like a business. Remember that many of your donors are people who made their money in private business and their optic for assessing value in a nonprofit may be guided by the nonprofit having a business approach. Here are several things you can do to hone your nonprofit’s business orientation:

• If you don’t have a financial or legal professional on your board, recruit them right away. While you still will need to hire someone to manage your accounts receivable and payable, prepare your profit and loss statements, and file your taxes, having someone with a financial background on your board can be another set of eyes to ensure that the financial reporting makes sense. Additionally, having an attorney on your board can help you navigate other risks such as those associated with human resources and liabilities. Both professionals meet one of the core functions of any nonprofit board: risk management.
• Take a business class. If you are fortunate to have a tuition benefit at your workplace or live near a university or community college with affordable tuition, register for a business class right away. However, if finances are tight, you may want to explore free or inexpensive courses online, including nonprofitready.org and Coursera.
• Make sure your organization has a business plan. If you’ve ever watched Shark Tank, there’s always a shark who grills the entrepreneur about their business plan. What is the cost per unit? How much revenue did they generate in the past year? What differentiates their product from other similar ones in the market? These are all questions that are addressed in an effective business plan. And as a business, a nonprofit should be able to answer such questions as how much it costs to run their business, the cost of service per client, etc. A business plan helps an organization allocate resources efficiently and effectively and assures donors (investors) that the organization is not flying by the seat of its pants.
• Do not leave your business skills at the door. If you are a banker, business owner, or other executive in our community, you have valuable skills that many organizations are willing to pay good money to access. If a nonprofit board recruits you, be ruthless in using those skills. Approach board meetings the same way you do work meetings – they are not intended to be feel-good social hours. Don’t be afraid of being the “bad guy” or “the person who asks all the questions” – in the end, you may be saving the nonprofit you are serving a lot of money or headache.

To borrow from Dionne Warwick, it may be tempting to believe that what the world needs now is love, sweet love, to address the challenges our community faces. However, I believe that the best advice for nonprofits comes from the 1980s band The Flying Lizards: your love won’t pay my bills – I want money. Our community needs nonprofits who don’t leave their business sense at the door.