Coping…or Adjusting? Addressing New Operating Realities

Publication Date: 
Mon, 04/08/2013 - 2:35pm

Ed. Note: Sadly, this post marks the last of Kim Cook’s contributions to Social Currency as an Associate Director on NFF’s Advisory Services team.  But we are delighted to share that she has been appointed President of the Arts Council of New Orleans where she will take the helm in just a few short weeks. Click here to read through Kim’s thoughtful contributions to Social Currency over the last two years. We wish Kim the best of luck, with all certainty that New Orleans’ arts organizations could not be in better hands!  

In the last year, as I’ve worked with nonprofits to examine their business models, explore the economics underlying their programs, and reflect on the relationship between their money and their mission, I’ve observed a common thread.  I see resilient, smart, and determined leaders reaching an impasse as the methods they are accustomed to using cease to work, leaving them groping for effective strategies for sustainability.  Most nonprofit leaders have weathered a storm or two.  It has never been easy for nonprofits to survive, let alone navigate the challenges of fundraising, program delivery, and complex grant and contract-compliance. 

In our years of work, NFF has encouraged leaders and board members to transition from subsistence break-even budget management to building balance sheets with a composition of assets that prepare the organization for sustainability.  To traverse that distance requires the courage to navigate new territory when the current course is already uncertain and past techniques for righting the ship have become insufficient.

How do we move from coping to adjusting, and how do I differentiate between the two?  As I observe it, coping is anchored in a range of approaches that have appeared to work in the past.  These include:

  • Belt-tightening
  • One time board member loan
  • One time large donor gift
  • Urgent messaging/rescue fundraising campaign
  • Use of a Line of Credit to fill cash gaps
  • Expenditure of cash reserves meant for cash flow
  • Borrowing against endowments
  • Letting Accounts Payable build up
  • Furloughing staff during slower periods

What these methods have in common is that they rely on the assumption that the organization is contending with a short term set of exigent circumstances that are expected to return to a previously more normal state.  They are not sustainable, and once belt-tightening has undermined the organization’s infrastructure (often impeding fundraising ability), there are no more loans or special fundraising efforts to be undertaken, and the staff is exhausted.  Once an organization has charted this course, it is very hard to get it back on track.

What, then, does it mean to adjust?

Collaborating in Good and Bad Times for the Right Reasons

Publication Date: 
Mon, 06/04/2012 - 11:22am
Money and Mission

Editor's Note: This post originally appeared June 1st, 2012 on NFF's Money and Mission blog at the Chronicle of Philanthropy.  Learn more about NFF's work on collaborations here.  

Though it may not always feel like it, the Great Recession officially ended in June 2009–three years ago. Nonprofits have been hit hard with increased demand for services and a shifting funding landscape in the years since the economic crisis began, and predictably there has been much talk of a resulting spike in collaborations and mergers. But the notion that collaborations are somehow linked with recessions leads to the false assumption that nonprofits should collaborate because of financial motivations.

Organizing strategic collaborations solely to reduce costs does not set up collaborating partners for success, and it ignores a fundamental function: to do a better job of accomplishing  the mission.

So why do we associate tough economic times with collaborations and mergers? Because of money. When resources are scarce, competition for those resources increases, and the financial stresses drive nonprofits to explore collaborations or mergers—particularly groups in a financially precarious position.

As manager of the Catalyst Fund for Nonprofits, which supports collaborations in Boston, I hear this argument time and again. But in reality, the cost savings can be elusive or won’t be realized for years. The notion that nonprofit mergers lead to improved economics comes from businesses, whose mergers and acquisitions result in cost savings mostly through mass layoffs. But mass layoffs are often absent from nonprofit collaborations and mergers.

In a 2010 piece for the Stanford Social Innovation Review, David La Piana describes the challenge of reducing expenses by sharing back-office resources, creating a joint venture, or merging two nonprofits. To implement each can necessitate higher expenses, which can offset any savings that may have been achieved.

While a recession can lift the curtain on outdated nonprofit business models, nonprofits would be better off shifting their focus from money to mission as the primary reason to collaborate or merge. Keeping strategy and mission at the heart of collaborative ventures changes the conversation from fearful (recession, competition, cost-cutting) to hopeful (strategic, mission-focused, greater impact).

Fostering this shift toward collaboration as a strategic option is just one of the goals of the Catalyst Fund for Nonprofits, a five-year funding collaborative managed by Nonprofit Finance Fund that includes the Boston Foundation, Boston LISC, the Hyams Foundation, the Kresge Foundation, and United Way of Massachusetts Bay and the Merrimack Valley. After a year and a half of operations, the Catalyst Fund has supported nine collaborations and mergers and provided $340,000 for technical assistance. We have seen real-world examples of the importance of keeping mission and strategy at the heart of collaborative ventures.

One such example is a nascent joint venture of diverse organizations—human-service providers, community-development corporations, education nonprofits, and even a credit union. These partners are aligning and co-locating their services to create a more seamless system that helps individuals and families in the greater Boston area build financial resilience. If you asked any of the partner organizations why they’re taking part in this collaboration, cost savings wouldn’t appear on anyone’s list. (In fact, they’re adding expenses.) At the top of their lists would be doing a better job of achieving their mission.

Collaborations and mergers are a strategic option to be deployed for the right reasons when times are tough—and when times are good. For every headline of economic recovery, let’s hope to see one (or two!) more headlines championing mission-driven collaborations.

Peter Kramer is a member of the Nonprofit Finance Fund’s national consulting team and also manages the Catalyst Fund for Nonprofits in the greater Boston area.

Why Strategic Finance Is Difficult and How to Make it Easier

Publication Date: 
Mon, 08/01/2011 - 4:00pm

In my last post, I explored the differences between “compliance-driven” nonprofit financial reporting required by outside entities and the “strategic” financial analysis that should be the basis for internal decision-making.  We often find nonprofits using compliance-style benchmarks to monitor their financial health when customized strategic measures would be more appropriate, and in this post, I look at why this problem happens so often and offer some thoughts on implementing a strategic approach to benchmarks.

We should probably start by acknowledging that developing internal, strategic metrics simply requires more work (gathering and analyzing data, goal setting, etc.) than adhering to standard external benchmarks.  Since nonprofit staff capacity is often stretched thin, it’s not surprising that adhering to sector best practices seems like an attractive option.  While there’s no magic bullet here, transparency and broader organizational engagement in the financial decision-making process can help.  Identify the key metrics and staff who will be tasked with gathering them and emphasize that achieving on mission will require a financial strategy grounded in your organization’s particulars. 

Beyond the issue of time, there’s also a deeper challenge in the development of strategic metrics: done well, they require a level of comfort with underlying nonprofit financial concepts. 

If you don’t consider yourself a “finance person,” a conceptual approach to financial issues can seem vague and tangential to the urgent day-to-day demands of running the organization.  In our financial workshops, attendees often want to move quickly though conceptual material and get to the “more practical stuff” such as templates and specific advice about the organization’s current financial situation.  But absent conceptual background, templates and metrics provide a “what” without a “so what”. 

Web chat: The Ins and Outs of Strategic Collaboration

Web Chat
Tue, 06/14/2011
NFF Speaker(s): 
Bob Van Meter, Chrystal Kornegay
The Ins and Outs of Strategic Collaboration
Chronicle of Philanthropy website

Web chat: Attend here!