Real world nonprofit finance matters, and real world thinking about strategies for financial, programmatic, and leadership sustainability. This column is written by Steve Zimmerman, principal of Spectrum Nonprofit Services.
This survey of 906 nonprofit finance professionals reveals some surprises about these crucial-but-often-overlooked staff, looking at questions ranging from educational backgrounds, workload, board and CEO understanding of finance, and CEO compensation:
Nonprofit finance scandals make for eye-catching headlines: whether about misused public funds, egregiously high salaries, constituents not served, or reserves squandered. But while nonprofit finance scandals make the headlines, the people who manage the funds -- nonprofit finance professionals -- are largely overlooked. And while studies have looked at the tenures and experiences of executive directors (CEOs) and development directors, few have looked at the finance professionals in our nonprofits.
Despite the occasional and highly-publicized problem, the very fact that such problems make the news testifies to the infrequency of such occurrences. Nonprofits are relatively free of financial scandal and abuse, demonstrating both professional expertise and a strong sense of values. But today even the best-managed nonprofits are working not only to steward charitable funds, but to manage earned-income operations, to re-invent their business models, to strengthen the leadership functions of governance, and to maximize the use of funds for mission and values.
Finance professionals are at the core of these efforts.
In Part I of this two-part article, we summarized the features and criteria of six of the best known "charity raters" including Charity Navigator, Better Business Bureau, and others. Many readers added thoughtful comments and noted lesser-known raters as well; we encourage you to read Part I and the posted comments.
Here in Part II, we offer advice to nonprofits on managing their ratings, and comment on the impact of the raters as a whole.
Just two weeks after we published Part I, an unusual three-some of Guidestar, Charity Navigator and the Better Business Bureau issued an unexpected but welcome joint statement " denouncing the "overhead ratio" as the sole measure of nonprofit performance." (emphasis added) (overheadmyth.com) The statement also defends overhead to an extent: "Overhead costs include important investments charities make to improve their work: investments in training, planning, evaluation, and internal systems -- as well as their efforts to raise money so they can operate their programs. When we focus solely or predominantly on overhead . . .
In our last Blue Avocadocolumn, we introduced the Matrix Map, which you can use to create a visual representation of your organization’s business model. Comprised of all your organization’s business lines (activities), the Matrix Map illustrates how your activities work together towards both programmatic impact and financial viability. For many board members, the Matrix Map provides sudden clarity on how the organization’s different activities inter-relate. But beyond helping them understand the business model, the Matrix Map can help nonprofit leaders strengthen it.
You’ll recall that putting together a Matrix Map calls for plotting your organization’s business lines according to their mission impact and financial profitability. Depending on where an activity is placed on the map, a strategic imperative emerges. These strategic imperatives are the actions . . .
American Nonprofits and Blue Avocado want to learn more about the backgrounds, experiences, joys and frustrations of being in nonprofit finance. If you have responsibilities for the accounting and finance of a nonprofit -- regardless of your position -- please take a few minutes and help with this survey.
Pass this along to your finance friends (CFOs, accountants, board treasurer, and so forth) . . . and stay tuned for the study results! Click here to start the survey. Thank you!
You may have heard of the Dual Bottom Line: the idea that strategic choices must serve both mission impact and financial viability. But how do you turn this idea into a quantitative decision-making tool? Blue Avocado columnist Steve Zimmerman summarizes the Matrix Map approach in part one of this two-part article adapted from the book he co-wrote with Jeanne Bell and Jan Masaoka: Nonprofit Sustainability: Making Strategic Choices for Financial Viability.
It's easy to embrace the concept of the Dual Bottom Line, but harder to apply it in a real-world board setting. For example, board members -- and many staff -- are seldom familiar with all of the programs and activities of the organization. While there may be a strong sense that "all our programs are great," there may not have been any discussion about which programs are, in fact, those with the greatest or most important impacts. Even people with financial expertise may feel uncertain about how to make decisions that are more nuanced than "stick to the budget and at least break even."
Board meetings unintentionally support this kind of fragmentation. They take each subject on its own: first the financial report, then the program report, and then the fundraising report. The Matrix Map aims to change that.
The Matrix Map is a visual tool that plots all . . .
Maybe in some mythic past it was possible to think first about strategic impact goals, and then about how to raise the money. But today we know better: you can't talk about what you're going to do without talking about how to get the money. And, you can't talk about how to get money without talking about what you're going to do.This piece is adapted from a chapter inNonprofit Sustainability: Making Strategic Decisions for Financial Viability, by Jeanne Bell, Jan Masaoka, and Steve Zimmerman.
What is sustainability?
Most of us in the nonprofit sector are familiar with setting programmatic goals. For instance, we might set a goal of reducing high school dropout rates by 10% in our community, or a goal of increasing the quality of the observations of one hundred amateur astronomy clubs. Nevertheless, we often aren't sure what our financial goals are, or even what they should be. If the financial goal in a for-profit company is to maximize profit, should our goal be to have $0 profit? Or should it be to grow an endowment of $10 million, or to have a surplus of 5%, or a deficit of no more than $50,000?
In classical economics, the answer to this question is . . .
As a banking customer, you probably have two hats: one related to the nonprofit where you work or volunteer, and one as yourself. As you know, American Nonprofits is creating a credit union (a co-op banking institution) for nonprofit organizations, staff, volunteers and stakeholders can use their deposits for the betterment of the nonprofit sector, rather than for the betterment of Wall Street.
In this survey we'd like to ask you as an individual about what banking and credit services you use or would like to use. As we move forward with the chartering process, the results of this survey will be reviewed by federal regulators and the credit union leadership to define what services will be offered through the credit union. Your input is crucial.
We're sending a special issue of Blue Avocado magazine this week with a customized link to survey your individual opinion.
If in addition you can represent the views of a nonprofit organization, please also take the survey here for nonprofit organizations.
An overlooked -- but crucial -- element in strategic planning is the attitude or stance that the executive director takes to the process. Jeanne Bell of CompassPoint suggests a variety of roles and stances that will be appropriate:
As we experiment with new ways of setting strategy, it is easy to lose track of the fact that irrespective of chosen methodology, the executive’s stance in strategy formation is the single most important factor in how bold, how transformative, and how enduring the decisions made during the process will be.
We nonprofit executives are often ambivalent about how best to show up to strategic planning processes:
Is it our job to make sure that board members feel they are establishing strategy for the staff to implement?
To ensure that all staff voices are heard, and that staff feels fully heard?
To step back and let the consultant create a series of activities to unearth the best strategic direction?
To listen and then promote our own ideas about strategy?
To use the process to get everyone aligned with the directions emerging from the management team?
Wait! Scrip is not just for churches and schools anymore. Increasingly, nonprofit cultural centers, health clinics, civil rights organizations and environmental coalitions are finding scrip to be a comparatively easy way to raise funds:
How does scrip work, anyway?
With regular scrip (which is issued as a gift card) a group -- let's say a disabilities center -- buys 50 gift cards from a grocery chain (or gas station, etc.). Each card has a face value of $100, so the total has a face value of $5,000. But the nonprofit pays only $95 per card for a total of $4,750.
The nonprofit sells the gift cards at the face value to clients, staff, volunteers, and others. In other words, a family might buy 2 gift cards worth $200 total and pay $200 for them. The family uses the cards at one of the designated businesses. If the family shops there anyway, they don't experience any difference in the expense, and the disability center nets $250 from its $4,750 investment (the typical commission for a nonprofit is 5% of the face value).
But 5% doesn't sound like much to raise!
True. But suppose you have just 15 board members or staff or volunteers . . .
Instead of focusing only on how board members can raise individual donations (or not!), think more broadly (and effectively) about how board members can support the key aspects of your organization's business/revenue strategy:
In the quest for funds, there is no shortage of advice given to nonprofits. Start a social enterprise! Get corporate donations! Raffle a house! Perhaps the most frequent and consistent advice: focus the board on getting major gifts; in fact, recruit a strong fundraising board that can get major gifts.
But pursuing a new funding stream for which you may not have the right people and competencies already is often not the best place to start. Instead, we recommend that you see how you can boost and leverage the funding streams and people you already have in place.
Let’s imagine a community center with five areas of . . .