When we talk about financial sustainability, the first thing that comes to mind is the endowment. Well, the endowment is important, but it is not everything that the concept of financial sustainability in the charitable sector means! Even with endowments, the charitable organization faces two major challenges: First, it works for communities with growing needs, and second, it operates in a competitive sector where both old and new seek their share of the pie. The importance of discussing financial sustainability lies in the fact that most charitable organizations rely on external funding sources such as governments, grant-making institutions, and merchants, and these sources, despite their generosity, are not guaranteed in the long term.

Financial Sustainability is defined as the financial state in which a charitable organization can continue to achieve its charitable mission over the long term, and from here the importance of financial sustainability becomes clear as a condition for the survival of the charitable organization itself and its ability to create the desired change on the ground; money is the lifeblood of the charitable organization. While financial sustainability is a prerequisite for the sustained existence of the charitable organization in general, the charitable organization is required to balance between achieving financial solvency and fulfilling its charitable mission. This is indeed one of the challenges facing the charitable organization; focusing on enhancing the financial status of the organization should not come at the expense of fulfilling the charitable mission for which the organization was established, and vice versa. Therefore, the leaders of charitable organizations and their executives are called to adopt a strategic model that integrates financial and capital performance efficiency for their organizations.

Despite the importance of the concept of financial sustainability, it is actually just a result of the organization having what is called financial capacity, and the concept of financial capacity includes the organization’s possession of the tools that give it the ability to expand into available opportunities, deal with unexpected risks, and at the same time manage its usual operations. Financial capacity has several internal and external aspects; one aspect of internal financial capacity is that the organization has income generation sources such as endowments, investments, selling goods and services, memberships, and others. An example of external financial capacity is having a diverse support base for the organization. Experts believe that 60 percent of a charitable organization’s budget should come from at least five different sources as an indicator of its financial health.

Financial capacity extends beyond the aforementioned financial tools to include non-financial tools such as the organization’s possession of marketing know-how, as financial sustainability and marketing cannot be separated. For a charitable organization to attract generous donors, retain them, and grow them from donors to advocates, it must have a high level of marketing knowledge and capability. Among the non-financial tools for financial sustainability is the extent and depth of the organization’s integration into the community; the more the organization’s roots are embedded in the community, the more capable it is of building a broad and stable support base in the form of donors and volunteers.

In truth, achieving financial sustainability is a long road, as it has an operational dimension that penetrates the daily operations of the organization, and another strategic dimension related to long-term goals. It requires the organization to have a financial plan that works in parallel with the strategic plan, and for the leadership of the charitable organization to show a high level of interest and commitment, and for the charitable organization to go beyond traditional methods in marketing and fundraising.

If we wanted to draw a simplified mathematical equation for financial sustainability, it would be as follows:

Financial Sustainability = Internal Income Generation Sources + Diverse External Support Sources.

Note: Financial sustainability does not mean self-sufficiency; the charitable organization is a tree in the community whose fruits are eaten by those in need, and whose roots are nourished by donors, and the need of donors is no less than that of those in need!

By: Ibrahim Suleiman Al-Haidari

December 31, 1969 - 22 Shawwal 1389 AH

Source: Saudi Economic Newspaper