Exploring Stage 3: Financial Stability

Welcome to the fourth of a series of six articles intended for:

• leaders of Canadian charities and non-profits, including Board Directors;
• those serving a financial function within the social purpose environment; or
• people who steward a First Nation government or an Indigenous community.

Our inaugural post was an introduction to a developmental paradigm that, we contend, can clear the pathway to financial liberation: bringing the numbers to life for all stakeholders; advancing your group’s case with funders; and materializing the impacts that your organization envisions. Each subsequent post takes a deeper dive into each of the 5 Stages.

Our last post detailed the characteristics of Stage 2: financial fragility; and suggestions for moving organizations to the next Stage: financial stability.

Read on for a deeper dive into the realities of Stage 3: financial stability.

Stage 3 – financial stability… brace for (positive) impact!

In our last instalment, we suggested that if Stage 3 has a ‘sound’, it’s whistling while we work. If Stage 3 has a ‘feel’, it’s confidence. In this edition, we’ll give a more detailed snapshot of life at Stage 3

Organizations at Stage 3 (Financial Stability) are no longer at Stage 2 (Financial Fragility). They are receiving the financial reporting that they need – on time – in order to clearly understand where the organization stands, and make solid decisions to strengthen their organization.

Financial job descriptions, policies, processes, and procedures are now documented and up-to-date, assuring stability in the event of any turnover in financial positions.

The Stage 3 organization invests in and leans on a robust donor database such as Donor Relationship Management (DRM) software or a Contract Management System (CMS). This choice will depend on the nature of the organization’s main funding source (donors or funders).

Revenues are either at a satisfactory level to achieve program wins, and therefore community impacts; or sound financial practices have yielded opportunities to attract additional funding injections.

In a nutshell, an organization at Stage 3 benefits from:

• timely, accurate financial reporting, for all stakeholders
• the right finance team members with the skills to meet their organization’s needs
• efficient and effective financial compliance systems
• well-documented financial policies
• internal controls to prevent theft, fraud, and embezzlement
• useful financial processes and procedures
• solid preparation for their annual audit, with few adjustments made by the auditor
• compliance with their regulatory environment, and
• the financial literacy needed, to maintain status quo.

Moving from Financial Stability (Stage 3) to Financial Strength (Stage 4)

Many organizations get nice and comfortable at Stage 3. And stay there! Traditional number crunchers tend to be delighted with the safety, control, and predictability that they establish at Stage 3. In most cases, they’ve worked hard to get to this point in their financial development.

But this is just the beginning! In fact, for many of us who entered the community sector with an aspirational vision of what we wanted to achieve, financial compliance isn’t enough.

Organizations at Stage 3 now have the space needed to shift the financial focus from reporting on the past to proactively using financial information and insights to make predictions about the future.

Groups moving out of Stage 3 and into Stage 4 begin to engage the entire organization.

At Stage 4, the door begins to open to a new landscape. Organizations pivot from using financial information primarily to report on the past; to utilizing financial information to proactively steer towards making impacts and achieving their mission.

Shifting to the fourth stage marks entry into a ‘second tier’ of financial wellness, in which scarcity is consciously abandoned in favour of abundance. The second-tier stages of four and beyond are strategic stages in which organizations improve financial performance, financial health, and financial sustainability to achieve their mission.

When Board members ask, ‘are we in a good place?’ or ‘how resilient are we?’, organizations in these stages can answer confidently, in the affirmative. The improvement at second tier is noteworthy and qualitative.

Stay tuned for future newsletter editions, which take a deeper dive into each of the 5 Stages of Financial Wellness: including ways to identify where your group is on the pathway to financial liberation, and how to accelerate impacts by moving through the stages.

We invite your feedback on whether the patterns that we’ve observed in the field – and our recommendations – align with your experience. We’re interested in enhancing our theory, using feedback from readers like you.

About Humanity Financial Management Inc.

We are activist accountants, working alongside fearless leaders in service of others, across Canada.

Our primary goal is to build or supplement internal financial capacity for our clients, which include:

• charitable organizations,
• Non-Profit Organizations,
• First Nation governments, and
• Indigenous communities.

We actively engage the organizations that we serve, to move beyond reacting to financial challenges; and activating regenerative thinking and strategies.

Collectively, we fight for something bigger and better, including social justice, environmental sustainability, and economic inclusion and equity.?

Our office is based in West Vancouver, British Columbia, Canada; and we serve change makers across the nation.