Balancing the Mission Checkbook

Maybe it’s a holdover from my former life as a banker, but I often read the business section of the paper first (yes, I still like to hold an actual printed newspaper in my hand). Lately, of course, there is news almost every day about job cuts at some of the best known national and local companies. Some recent examples are Caterpillar, Starbucks, SuperValu, Best Buy, and M & I Bank. As you can see from this list losses are occurring in all industries. Unemployment in Minnesota hit 6.9% in December and is clearly getting worse.

How does this impact Minnesota’s nonprofits?

When people lose income and important benefits they turn to the state’s nonprofits for assistance with everything from food and shelter, support and counseling, and job search and retraining. As reported in Minnesota Council of Nonprofits’ Current Conditions Report published in December 2008, 42% of surveyed organizations reported increased demand for services. But over 50% of the nonprofits also reported actual and anticipated decreases in income.

If service demand goes up and income goes down, where are the reports of job cuts at nonprofits? There have been a few reports locally and nationally including American Red Cross Twin Cities, Neighborhood House, Metropolitan Opera, and Harlem Children’s Zone. I know, though, that there are many more organizations that have already made staff reductions or that will have to make some cuts because of their budget shortfalls. One reason that we don’t read about it every day is the different requirements and expectations for disclosure between publicly traded companies and nonprofits.

But I think that many nonprofits feel that speaking openly about cuts is their “family business” and are afraid that it reflects poorly on management and the board. There is actually an odd dynamic at work now - more calls and emails from recently laid- off corporate people who would like to “explore a shift” into the nonprofit sector. As a “shifter” myself I can’t be too cynical, but I’ve got to tell the truth about their prospects right now. (I encourage volunteering.)

Nonprofits are Businesses

I’m starting to think that nonprofits need to be much more public about their staff reductions. At the same time that the community needs nonprofits to provide more and more help and support, income of all types for nonprofits is declining. Let’s not hide the reality that there will be an impact from these changes. The recession is impacting corporations and nonprofits alike.

For years I’ve been a part of discussions about how the public doesn’t understand how nonprofits work. Now is the time to start the tutorial. By being open we can educate the community about how the business of nonprofits actually works - the complex web of financial and volunteer resources, staff and program costs, and role in the economy as service provider and employer.

I like the logo of the V3 Campaign - Nonprofits Are Businesses. It’s an effort to educate the general public about the economic impact of nonprofit organizations.

What do you think? Is it risky to announce cutbacks and program reductions, or could these news stories ultimately strengthen understanding and support for the sector?

Yesterday I had the great pleasure of helping to launch the Social Enterprise Network for nonprofit social entrepreneurs in the Twin Cities. Initiated by Nonprofits Assistance Fund and MAP for Nonprofits, this new monthly peer gathering attracted 40 people who braved the brutal cold to attend a lunchtime discussion hosted by Jim Thalhuber at Goodwill/Easter Seals. We couldn’t have had a better start for the network. The group represented a broad range of nonprofits - social service, arts, youth development, employment services, and educations - and types of enterprises including manufacturing, a bakery, thrift stores, consulting, and various services. Most of the nonprofits are already operating an enterprise and are eager to share their experiences about building their venture, as well as learn from their peers.

The best part about the event was the positive, upbeat tone of the ideas, questions, and discussion. I’ve been to a lot of pretty downbeat meetings lately that have focused on reductions, cutbacks, and shortfalls. While the social entrepreneurs at the network all recognize the difficult economic realities that we all face, there was an energy that I really needed to renew.

Adding to the positive momentum of the Social Enterprise Network is the possibility of a real commitment from the new administration to nurture innovations for the common good. Featured in President-elect Obama’s Blueprint for Change are a number of ideas to expand service and innovations, including a Social Investment Fund and Social Entrepreneurship Agency for Nonprofits. Government is an important player in the nonprofit sector, as contractor, funder, and policymaker, and a new, more innovative approach could help lead to real change for some big challenges. A recent blog post from Public Innovators describes this rich opportunity.

A final gift at the Social Enterprise Network was hearing Kevin Lynch, President of Rebuild Resources in Saint Paul, that he and Julius Walls, Jr. of Greyston Bakery, just authored Mission, Inc., The Practitioners Guide to Social Enterprise, which was just released and is available for sale online.

Thanks to everyone who came to the first network lunch - I needed the boost of energy and optimism. I can’t wait for the next meeting in February.

Update:

Photos from the event are available on our facebook page.

I have a New Years Resolution suggestion that has nothing to do with exercise or diet. Resolve to learn more than you already know about economics, markets, and personal finances.

It’s a matter of self interest for you and for the nonprofits that you serve, now more urgently than ever. Think in hindsight of all the financial choices that have been made about questionable mortgage terms, high home prices, risky investments schemes, and un-diversified retirement portfolios. Could some of the pain have been avoided if consumers, and nonprofit leaders, were more educated about the basics of economics and personal finance? I think so.

In his New York Times article, Contemplating the Boobs We Were, Peter Applebome recounts financial mistakes and asks:

“Are we doomed forever to be the fleeced or is there anything we can learn from this latest round of financial catastrophe? In fact, there are plenty of lessons to be learned. So here’s a revolutionary idea: Maybe it’s time we even start thinking about ways to teach them.”

Freakanomics author Stephen Dubner was even more direct last summer in his blog, asking Are We a Nation of Financial Illiterates? Included in his post, Dubner recites this list of suggested financial basics:

1. Basics of how markets work.
2. Time value of money and the working of interest compounding.
3. The concept of risk and the working of risk diversification and insurance.
4. Basic accounting (very basic).
5. Rights and responsibilities of consumers and institutions.

Read the full post for more detailed descriptions.

I’m sure that if individuals who work at, or serve on boards of, nonprofits were to gain more financial literacy that the nonprofits would also benefit. At Nonprofits Assistance Fund we see many problems that could have been avoided with better understanding of topics such as supply and demand, investment risk, and the difference between cash and income. Resolve to learn more this year, no matter whether you’re starting at Econ 101 or financial analyst level.

If you are a young professional in Minnesota, consider working on a Citizens League Action Group on this topic that is starting soon.