Balancing the Mission Checkbook

Imagine this, the development director rushes in to interrupt a board meeting with the news that you have just received an unexpected, and unrestricted, gift of $50,000. How would the management and board decide how to use the new funds? (Assume for this little exercise – or fantasy, if you prefer – that your annual budget is balanced and you have sufficient cash flow to pay the bills.) For many nonprofits, there would be no doubt about it – every cent of the $50,000 would be used as soon as possible to serve as many people as possible. A homeless shelter would add more beds, a youth center would expand a program, and a clinic would increase free clinic hours. For many members of the board and staff, the decision seems simple and obvious – in the face of so much need out there, how could you not spend the money to increase services?

The long-term result of this way of approaching financial management is what Elizabeth Keating calls the “Current Services Trap.” By using all available resources to meet urgent, short-term needs, nonprofit organizations undermine their long-term stability and viability. Keating described the trap and accompanying organizational and financial characteristics at the Capital Ideas Symposium that was presented earlier this year by the Hauser Center and the Nonprofit Finance Fund. Keating’s article is printed on pages 11 – 16 of the full proceedings – it’s worth reading!

I agree with her basic premise that nonprofits and funders must understand the importance of building infrastructure, cash reserves, professional staff, and appropriate capital to support their mission. One of the toughest things to do, though, is to make the case for these investments in nonprofits, and Keating lays the groundwork for us by describing what she calls the three myths that sustain the current services trap. The myths include the notion that nonprofits address urgent needs that can be solved quickly if we have enough funding. This assumes that providing more services would be (a) easy to do, and (b) would solve the problems. But would homelessness really be “solved” by adding more beds to a shelter? The problems that nonprofits address are complex, difficult, and much bigger than a simple service. To break out of the Current Services Trap, our hypothetical nonprofit board would need to consider ways to use the windfall gift to build infrastructure, innovation, technology, and human capital. The payoff will multiply.

I read a great example of this kind of breaking out of the trap in the November 7, 2007 StarTribune story, Can Metro-Area Hunger be Eliminated in Five Years? Five Twin Cities food shelf organizations are working together to move beyond providing groceries today, so that they also address the bigger problems the cause their clients to need services:

Instead of trying to incrementally reduce hunger bit by bit, these groups want to reorganize the way food shelves work, with the goal of ending hunger altogether in the metro area by 2013.

There wasn’t a budget included, but you can be sure that this will take a lot more than funds for current services – this would require investment in long term planning, infrastructure, fundraising, staff, and communications. It’s a great case study for the future.