May 2, 2022 | Blog

Five Stages of Financial Well-being for Social Purpose Organizations

By Gordon Holley, President and CEO of Humanity Financial Management

Consider these questions for a moment:  How is your organization’s financial well-being? Is your organization financially healthy? Is your organization financially sustainable? What about your annual financial performance compared to your peers? 

Many organizations would struggle to answer these questions. If their budgeted revenue for the current year is enough to cover expenses and they’re getting timely and accurate financial reporting, all is good from a financial perspective.


We think organizations who view finances solely from this point of view may be missing out on a huge opportunity to use finances strategically to improve annual financial performance and increase the financial health and sustainability of their organizations.  It’s all about setting and achieving financial goals in addition to the programmatic and organizational goals we might have in our strategic plan. 

Organizational financial planning has much in common with strategic planning and strategic frameworks.   We start by identifying where we are today and agreeing on where we want to be in three, five, or twenty-five years.  We then implement strategies and a plan to make this happen. 

To understand “Financial Well-being,” it can be useful to start with some basic financial questions: 

    • For our organization, what does good annual financial performance look like (aside from meeting our budget)?  
    •  What does it mean to be financially healthy?  
    • Or financially sustainable? 

Through our work with many social purpose organizations, we’ve come to classify organizations in one of five stages of financial well-being, divided into two overall sections (Financial Compliance and Financial Liberation).  The five stages are as follows: 

Financial Compliance 

1. Financial Crisis 

    • Running out of money  
    • Not getting timely, accurate financial reports 
    • Behind in regulatory or funder reporting

2. Financial Fragility 

    • Minimally meeting financial budget, cash flow, and reporting needs 
    • May not have robust, efficient, and effective financial systems 

3. Financial Stability 

    • Robust, timely, and accurate financial compliance reporting 
    • Documented, efficient, effective financial systems, policies, and procedures 

Strategic Finances 

4. Financial Strength 

    • Setting and achieving strategic goals for financial health, financial sustainability, and financial performance 

5. Financial Liberation 

    • Abundant and unrestricted funds 
    • Own-source revenue 
    • Financial health and sustainability 
    • Financial growth, independence, and control 
    • Actively working on mission achievement instead of symptoms of broken systems 

Many organizations can get stuck at Stage three, Financial Stability, and may not move on to treat finances strategically.  As a result, they don’t spend time planning their finances or setting and achieving specific goals for financial health, financial performance, and financial sustainability.  That’s fine if you are content with the status quo, but if you aspire to financial abundance and financial liberation, it takes an investment of time and resources to undertake financial planning and then to monitor and evaluate progress toward your goals. 

Organizational financial health and performance can be measured in many ways: 

    • How many months of expenses does the organization have in cash and liquid unrestricted net assets? 
    • How dependent is the organization on short-term, restricted donor funding? 
    • What percentage of the organization’s funding is long-term, own-source, or unrestricted funding? 
    • Is most funding received in advance of spending, or following spending? 
    • Is the organization able to pay market rate compensation, benefits, and pensions comparable to for-profit organizations? 
    • Does the organization expect significant overtime from its employees, or has it adopted a reasonable work week? 
    • What percentage of revenue is spent on salaries compared to the organization’s peers? 
    • What percentage of revenue is from government or foundation sources? 

When we start thinking about financial sustainability, we start asking more complex questions: 

    • Given the impact that we want to have, do we have the right business model and funding model? 
    • What core fundraising capacities should we develop? 
    • Have we considered our return on investment?  How much effort is needed to attract each source of funding? 
    • Do we have the best funding mix for our organization with respect to short-term vs long-term funding and with respect to restricted and unrestricted funds? 
    • Do we have an appropriate level of diversity within our funding streams? 
    • Are we attracting funding from the best sources, given our cause?   
    • Are there other sources of funding that we should be considering?  
    • Are we using the right strategies to attract those funding sources? 
    • Have we considered how we might develop plans to generate our own sources of revenue and reduce our reliance on external funding sources? 
    • Do we have an effective case for support that makes our case compelling to our potential funders? 

Every social purpose organization is unique and needs to answer these questions for their organization.  The right answers at any given time will depend on the nature of the organization’s work, which stage of financial well-being they are currently in and what stage they are at in their non-profit Lifecycle*. 

Benchmarking is another useful process that can be used to compare our organizations and our financial performance with those of similar organizations.  The Canada Revenue Agency (CRA) makes all the financial information that is filed on the annual T3010 Registered Charity Information Return available publicly, so benchmarking against peers and similar organizations can be done. You can also request the financial statements for any registered charity from the CRA and they will mail these to you.  

If this topic is of interest and you want to learn more about strategic financial planning and the Five Stages of Financial Well-being for social purpose organizations, listen to our recent Vantage Point podcast: The Five Stages of Financial Well-being. 

*The Non-Profit Lifecycles model assesses what stage of development your organization is currently at and how to expand your organizational capacity to reach the most relevant goals for growth. A Lifecycles self-assessment can be completed in our workshop Understanding Capacity. 

Related Posts

Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from our team.

Communications You Would Like To Recieve

You have Successfully Subscribed!