Alongside accounting principles and the importance of the concept of generating surplus to achieve financial sustainability and its essential pillars, putting in a lot of effort and teamwork remains necessary to reach the goal of financial sustainability. This may also require a change in mindset at the organizational level, given that it relates to generating a surplus in income, which contrasts with what are usually considered effective methods for steering nonprofit organizations.

The six main requirements to achieve financial sustainability in organizations are:

1. Long-term commitment.

2. Leadership.

3. Investment of time and money.

4. Work plan.

5. Effective management team.

6. Workforce.

Let’s clarify these requirements by giving an example:

A certain organization needs to raise 50,000 riyals annually to cover its administrative budget and avoid deficit; therefore, it proposes selling t-shirts as a means to achieve financial sustainability, using an initial investment amount estimated at 10,000 riyals obtained through a grant, and expects a profit of 200% as a result.

In other words, the institution plans to achieve profits amounting to 20,000 riyals and recover the estimated capital of 10,000 riyals. However, even if this organization achieves the desired result, it still needs 20,000 riyals to cover its budget. For simplification, let’s say it resorts to cutting costs to avoid deficit and use the 30,000 riyals generated from t-shirt sales. If all these conditions are met, it will achieve a balance of “0”, in other words, neither deficit nor surplus.

Unfortunately for this organization, despite the successful sale of t-shirts, its goal was to achieve annual revenue, not just for one year. Since the earned funds have been spent, this institution no longer has more money to produce other t-shirts to sell the following year and has not progressed toward its desired goal: financial sustainability.

If the organization decides to use only part of the generated income to cover its budget and make an annual investment exceeding 5,000 riyals compared to the previous year, how long will it take to reach its goal of generating 50,000 riyals annually? To answer this question, let’s assume the organization continues to achieve a 200% profit annually and that the production and sales costs amount to one riyal, while the selling price is three riyals, keeping all external variables constant, such as inflation, demand, costs, etc.

Under these ideal conditions, it would take four years for the organization to generate 50,000 riyals on an annual basis, as its total income in the first year amounts to 30,000 riyals. Since the initial capital investment was a grant—classified entirely as profits—it can use all the profits except what it expects to reinvest in the next year. In this case, it would have an amount of 15,000 riyals (10,000 riyals + 5,000 riyals surplus each year), and this equation would continue to repeat until the fourth year, leading the organization to generate 75,000 riyals with an investment of 25,000 riyals, leaving a difference as the anticipated target of the 50,000 riyals.

If all variables remain constant, the organization can continue to generate 50,000 riyals indefinitely, using an investment of 25,000 riyals to produce and market the t-shirts.

All successful institutions you see around you required long-term commitment to achieve success, as executing projects of any size does not happen overnight; it takes some time to generate income. In this case, it took four years to achieve the expected sustainability goal, and in the meantime, the organization had to make sacrifices to resist the temptation to spend money instead of investing it in producing more t-shirts.

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