Labor Day welcomes the well-known transition from summer to fall and simultaneously requires us to adapt from summer's casualness to fall's academic formality. One of the many reasons we consent to this transformation is due in part to the period following Labor Day: The fourth quarter.
It is widely understood that the fourth quarter, or the sprint to the line, represents the proverbial "make or break" for the business and nonprofit sectors. The financial performance of companies and organizations during this period provides one of the truest assessments of the state of our economy.
For the nonprofit community, the fourth quarter occupies a unique place in our psyche: It is a time when year-end giving is solicited with gusto and grant awards from our philanthropic community are announced. And once every four years, the Presidential election and the new makeup of Congress determine future funding levels for programs that support our nation's greatest needs.
A closer examination of the practices and priorities of the for-profit and nonprofit sectors reveals an uncanny set of similarities. It is important to note that the performance of a private company or nonprofit is really determined by a set of factors that have taken place long before the beginning of the fourth quarter. These factors are critical to the strategic planning and to the health of organizations, and businesses would do well to consider them as they review their performance over the past year.
1. An economic and social scan. The evolving forces of globalization and emerging competition from the Brazil, Russia, India and China (BRIC) economies will test the long-term performance of corporations in today's economy. Policy decisions and economic trends in one part of the world have the potential to affect our entire system. It is critical for corporations to navigate and understand that a more globally complex and competitive world will affect earnings and profitability. Similarly, for nonprofits, dedicating time and resources to collecting the latest data available on the central issues related to mission is also critical. Without an understanding of the critical trends, nonprofits will not be positioned to make the best possible case for funding support.
2. Remain competitive by being unique. Corporations and organizations must constantly re-examine their position within the marketplace to remain competitive and profitable. Every organization has a DNA that is unique to them. Strategists argue that there is something inherently unique about every successful organization. This uniqueness has led them to the success they experience today. It is imperative that leaders leverage their organization's uniqueness to increase competitive advantage. A nonprofit should remain focused on mission and what makes its different than others. A distinguished mission, combined with a deft approach at marketplace positioning of its brand and purpose, is an essential ingredient for remaining competitive and subsequent success.
3. Innovation. Innovation is the key to survival in today's economy. Whether a for-profit or a not-for-profit, it is critical to constantly seek ways of adjusting programs or products to maintain a for-profit's market share or a nonprofit's hard-fought place within the funding community. The constant, innovative positioning of an organization within the marketplace will produce a successful fourth quarter analysis.
4. Sound financial judgment. Leadership in all forms and contexts must have an understanding of their financial statements and balance sheets to be effective. It could be argued that the financial crisis of 2008-2010 was largely attributed to the leaders' complete lack of understanding of the financial position of their companies. This is a fatal flaw. This inherent danger also applies to nonprofits. We must understand and be able to explain the financial details of our organizations in order to identify our critical fault lines and realize how to fix them. An understanding of the financials allows for improved risk management, better planning and a more strategic execution of business goals.
5. Maintain the gap. The "Scissors Effect" refers to the gap between revenue and the cost associated with generating income. Theory suggests that the gap between the two variables must remain as wide as possible. If the gap narrows to alarming levels, then there is trouble. Sustainability is therefore not solely measured on the revenue that is generated, but the cost of running the business, also known as the cost of resources employed. The challenge that confronts both for-profits and nonprofits relates to the need to secure income from a variety of sources while carefully managing expenses. The fourth quarter and period preceding provides a critical window through which revenue targets must be realized.
The sprint to line will shortly commence, however, the importance of preparation and planning cannot be understated. The realization of fourth quarter earnings and fundraising goals by our corporate and nonprofit sectors will invariably be determined before the quarter even begins.