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.
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 in Nonprofit 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 . . .
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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.
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 . . .
Uh oh. We are all afraid of getting audited by the IRS, but we don't really know what would happen in one. Here is the True Life story of an environmental organization's audit, how they survived, and their tips for the rest of us.
It's the phone call everyone dreads: "Hello, your organization has been selected for an IRS audit." The call came to Karl Dickson (pictured left), board treasurer of an environmental nonprofit in Milwaukee, and his caller ID showed that the call came from an unidentified cell phone. Karl's instincts were to suspect a scam.
Karl questioned the caller who told him (not very believably) that "most IRS agents don't have an office" and therefore use cell phones. She also told him they had been selected . . .
Has "Create an Accounting Procedures Manual" been on your To Do list for several months now? For several years? You aren't alone. We often stumble on this task for two, curiously contradictory reasons:
- Creating an Accounting Procedures Manual seems like too huge a task to get started on.
- An Accounting Procedures Manual is one of those things that takes a year and an hour to do.
So here's a template. Download the Word document, and everything you need to fill is in in red. So you can probably do a draft of the whole thing in 30 minutes.
Our thanks to Deborah Connors of the California Association of Nonprofits, along with Meredeth Clark (also from CalNonprofits) and Steve Zimmerman, C.P.A., for this template.
Click here to download the Accounting Procedures Manual Template in Word.
Deborah Connors is the Chief Financial Officer of the California Association of Nonprofits and its for-profit subsidiary, CalNonprofits Insurance Services, and has worked in the nonprofit sector for the past 26 years. Her personal dream on the topic of accounting manuals is to create a "manual to account for" her teenage nephews' thought processes.
See also in Blue Avocado:
- "Five Internal Controls for the Very Small Nonprofit" by Carl Ho, C.P.A.
- "Outsource Your Bookkeeping!" by Steve Zimmerman, C.P.A.
- "A Board-Staff Agreement for Financial Accountability" by Jan Masaoka
- "Nonprofit Bookkeeping Test" by Dennis Walsh, C.P.A.
Have you ever tried to piece together eleven government contracts for overlapping programs, trying to make them fit together to fund all the costs? Or have you had six foundation grants, all for the same program area, but each requiring different line items and paying for separate, narrowly defined expenses? If so, you are either a Contract Wizard or you need to know one:
The term "contract wizardry" caught our eye in a recent article from the Bridgespan Group: "Clients at the Center: Realizing the Potential of Multi-Service Organizations," by Bob Searle, Alex Neuhoff, and Andrew Belton. To learn more, we spoke with Bob and interviewed two real-life contract wizards -- one at a $700,000 nonprofit and one at a $65 million nonprofit.
Most funders -- whether government or foundations -- fund specific programs rather than provide core support to nonprofits. For example, a government contract with the local health department may fund case worker services to people with alcohol and drug abuse problems. Another government contract -- this time with the state and on a different fiscal calendar -- may fund services to people with disabilities, including alcoholism. And a foundation grant -- again on a different timeline -- may fund a research project that includes some family-based services for people in a specific neighborhood.
The challenge for nonprofit finance managers is not any simpler than turning a human into a hedgehog, and requires . . .