Finance & Strategy

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.

photo of Steve Zimmerman

Focus on the Destination, Not the Route (Budget)!

It's time to stop looking at budgets, argues Jeanne Bell in this provocative finance column, and pay attention instead to projections and financial goals:

In this precarious era, annual budgets have become like new cars: they lose value even as you drive them off the lot.

How many of us could predict even a few months ago what might take place to affect our donations, our foundation grants, or our government contracts? The entrenched practice in many nonprofits of using the approved budget as the primary financial reference point just isn't suited to effective financial leadership anymore.

Focusing on the annual budget -- adopted months ago -- is like setting a course on the high seas and staying with it even when unexpected rocks suddenly appear, or a more favorable, alternative route opens up ahead. Instead of being locked into . . .

A Nonprofit Dashboard and Signal Light for Boards

(If you have trouble seeing the graphics in this article, you can download a PDF free here.)

The dashboard in a car gives an instant update on many important factors: speed, gas left in the tank, engine temperature, whether the air conditioner is on. If your dashboard isn't working, it's unnerving and upsetting. But at the same time, when it IS working, you glance at it from time to time but you don't look at it constantly.

A nonprofit dashboard is similar: it gives important information to decision makers such as executives and boards in a quick-read way. But a dashboard has limitations: it doesn't tell you if you're taking the right road to Chicago, or more importantly, whether you should be going to Chicago at all!

The idea of making data -- especially financial data -- easily readable for board members is not a new one. Building on that basic idea, we've added two critical features:

Sidebar: More on the Old and New Versions of 990 Online Software

The current version of 990 Online walks the preparer through the Form and schedules in a sequential way, in contrast to the questionnaire-type interface typical of consumer tax preparation software such as Turbo TaxA(r).A As a past tax professional, I found the 2007 program very easy to navigate in a test evaluation.

But the redesigned 990 is anything but a sequential, aEU~top to bottom' form. The preparer needs to carefully sequence input according to the circuitous steps in the new instructions.

New 990 Software Release on July 20: Is It Enough?

A Blue Avocado Reader OpEd: The new 990 Online software comes out next week on July 20, 2009. This release will help as we face the challenges of filing the redesigned IRS Form 990 (for fiscal years starting in 2008). But 990 Online needs better support to make it the resource we need it to be. Reader Dennis Walsh discusses the software development issue and points to the modest investment that would ease the implementation burden for hundreds of thousands of nonprofits nationwide.

When my wife Debbie was executive director of a North Carolina senior center, she remembers "plowing through the 990 paper forms and instructions, trying to figure out what went where. We couldn't afford to hire a preparer and even though we had a CPA on the board, he didn't provide any help. I wondered if I could go to jail if I did this wrong!"

Sadly, this experience is mirrored in many community nonprofits.

The IRS estimates that it would take a novice preparer 158 hours to learn the regulations and complete the new Form 990: equivalent to dedicating a full-time employee to this task for a month.

It's likely that by 2010 more than 300,000 small nonprofits will have to struggle . . .

Survival Strategies for the Arts

John Killacky, artist and arts funder, not only knows that we need the arts now more than ever, but gives us ten survival strategies for arts organizations and one for audience members -- and reminds us that all of us are audience members.

The arts are where hope lives. And right now, as the very tenets of civil society are being re-written, and as health and human service needs rise, there is legitimate concern about whether the arts will survive, how the arts can thrive.

The arts, like every other nonprofit sub-sector, are being challenged by significant contribution losses from government, corporations, foundations, and private donors. Box office and gallery admissions are also eroding as discretionary dollars evaporate. Almost everyone agrees funding problems will become more acute in the upcoming three to five years. Adaptability is replacing growth as a barometer of success. There's no question to me but that the arts organizations that have dynamic, interactive, authentic relationships with their constituents, audiences, and neighbors are the ones that will come out of this maelstrom stronger. Here are ten . . .

Finance Fear Factor Ratios

At even the most solid nonprofit organizations some board members and executive directors are beginning to wonder and worry, "Are we okay? Should we be worried?" Watching the traditional indicators of financial health -- like performance-to-budget or reserve size are important, but they may not give you the immediacy of knowing whether you need to worry today.

One of the main problems is that they don't necessarily address cash availability. For example, you may have a large payment due to you from a government agency, but if they won't be paying it for another two months, you may not be able to meet next week's payroll.

Volunteer Time Financial Statement Illustrations

These financial statement excerpts illustrate the article, "Tracking Volunteer Time to Improve Your Bottom Line: A Complete Accounting Guide," by Dennis Walsh, CPA. See the full article here.

By reporting donated nursing and medical social worker services of $120,000, total public support (before earned revenue) increases from $250,000 to $370,000, or 48%. We also see that inclusion of these services in program expense increases the spending efficiency ratio from 80% to 83%.

Hometown Hospice Care explains the nature of recognized services, as required by GAAP, in the following footnote to . . .

Tracking Volunteer Time to Boost Your Bottom Line: A Complete Accounting Guide

Tracking volunteer time: sounds like another chore? Actually it can help you meet match requirements, improve your financial statement presentations, and reduce liability. In this article, CPA Dennis Walsh of North Carolina explains why and how to include volunteer time in your budgets and financials:

An all-volunteer suicide hotline was having a hard time raising funds. Its total budget was $45,000, which paid for a small office, telephone lines, and advertising. It asked for operating support, overhead and other funds in its fundraising proposals. Unfortunately, many foundations and donors are allergic to those terms. But when the hotline added up the time its volunteers spent answering phones, attending trainings and . . .

Nonprofit Layoffs and Furloughs: Do Them Right

Dear Rita: It looks like we're going to have to lay some people off in the next couple of months. But the management team is also considering furloughs, a week's shutdown, and other choices. The decision about what to do won't be made by us in HR. But we will need to carry out the unpleasant acts. How can we do these legally and nicely? --Dreading It All

Dear Dreading It All: My sympathies are with you and although it probably won't help you feel better, many community nonprofits are in the same boat. And your attention to the HOW is important: how people are laid off (or hear about pay cuts, etc.) makes a big difference in how the departing staff feel and how the remaining staff can move forward in a positive way. Each group has to assess what works best on their own particular boat, but here are some things to think about:

Six Things Every Board Member Should Know About the NEW 990

Just the thought of an IRS form can bring out the clouds on a sunny day. But now that this annually required nonprofit form is on the web for everyone to see (at, it goes beyond compliance to being an important way to tell your organization's story.

Federal Form 990 from the Internal Revenue Service (IRS) is like a tax return for nonprofits, but since we are tax-exempt, it's called an "information return."

You may have heard by now that the IRS Form 990 has been substantially revised for the fiscal years beginning in 2008 and in the future. The issues disclosed on the form that especially interest the media, potential donors, and the general public still include executive compensation and overhead costs, but with this revised form, the


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