Effective nonprofit auditors think of the customers served to understand risks

One of the main reasons running a nonprofit is very challenging is that it is really difficult to tell who the customer is. Without a good sense of who the customer is, it is difficult to define a clear value proposition and to have a sustainable business and corporate strategy. Why the mention of strategy, the most important risks are strategy risks, all others follow from it in my experience. It may not be obvious but I would also add that without this perspective nonprofit auditors may find themselves speaking an entirely different language from nonprofit executives. Very simply put revenue matters, else there is nothing to really talk about.

So who is the nonprofit’s customer?

Is it the donors that provide the resources and funds needed to carryout the nonprofit’s mission? If so what are they getting out of it? Most donors only have a limited understanding of who receives services. Is it the beneficiaries or clients served by the nonprofit’s mission? These clients pay nothing or less than the costs, so in what way are they the customers? Are the communities and local governments whose populations nonprofits serve the customers? It is true they give the social or even legal access to the populations served but they don’t pay for the services or directly receive the services. Nonprofits in effect do the work that communities and local governments should have done. There is also the question of volunteers, they can be thought of as customers too, they too offer their time and in some cases expertise.

There is no simple answer to the question who is the nonprofit’s customer, many articles and books have discussed it, its one of those chicken and egg problems. The simple fact is that effective nonprofit work, as a business challenge is far more complex than many people realize, and when auditors sit in-front of nonprofit executives and directors they should keep this in mind.