Balancing the Mission Checkbook

There have been years when I hated to see the year end because of all the wonderful, joyful events that had occurred. This year, though, was pretty mixed in terms of the financial health and sustainability of Minnesota’s nonprofits. While there was a lot to celebrate for nonprofits in 2011, there were also challenges which I’ll be happy to leave behind. I can see some silver linings in these clouds, though, in new practices and trends that will lead to better financial health and capacity in 2012.

So in the spirit of year end lists, here are five goodbyes for 2011 – and hopes for 2012:

Goodbye

1. State budget impasse and shutdown: Without a doubt the low point of the year for nonprofits was the long budget battles, anxious uncertainty, and the twenty day state government shutdown. While many services were maintained by court decision, nonprofit leaders had to divert their attention to preparing, information gathering, planning, and navigating appeals and systems to survive.
   Silver lining: Nonprofit leaders learned a lot about contingency planning and budgeting which has led many organizations to begin more substantive scenario planning for 2012.
2. School funding shift: For three years, the state budget has shifted part of the funds for public schools to the next year in an accounting maneuver to close budget gaps. As of July 2011 the shift is up to 40%. The impact of this shift on charter schools is particularly difficult because of limited cash reserves and financing alternatives.
   Silver lining: Nonprofits Assistance Fund made our first significant public policy effort to provide data and analysis on the impact of the shift on charter schools. We look forward to more policy involvement in 2012.
3. Information overload: So much data, information, analysis and opinion to read, hear and see. I’ve been pretty overwhelmed this year by it all, but I can’t seem to stop myself. Between printed media (yes, I still read daily papers), online journals, broadcast and cable media, Facebook, and Twitter, I should be as well informed as humanly possible. When I found myself standing by the steps of the capital at 11 pm on June 30th, though, listening to MPR on a tablet computer and reading tweets on my phone, I realized I had fallen into the well.  I had to learn to “curate” for myself (new buzzword alert).
   Silver lining: We have amazing journalists in Minnesota through nonprofit and for-profit media outlets that make their reporting available. My hope for 2012 is that the economic models for high-quality reporting and ideas gain stability and support from all of us who rely on them.
4. Financial crises and closures: A number of nonprofits in Minnesota ran into severe financial problems in 2011 which resulted in major program contraction or closing their doors. The prolonged recession was a big contributing factor, but not the only factor.
   Silver lining: Some board members have woken up to the need to to ask better questions about both short term financial information and long term structure and sustainability. We hope in 2012 to see better financial governance that goes far beyond micromanaging budget variances.
5. Unemployment: We all know too many people who have been laid off by nonprofits, government agencies and businesses in the last three years.  It’s been a loss to have talented, experienced, committed workers sidelined and spending long months or years searching for work.
   Silver lining: There are glimmers that nonprofits are finally being recognized as employers and “job creators”.  As reported in this Nonprofit Quarterly article the nonprofit sector is generating jobs at a faster rate than the private sector. A new advocacy organization, CForward, was formed to “champion the economic role of nonprofits”. We are hopeful that a variety of incentives and policies will be adapted to support the nonprofit sector as an economic force.

My final goodbye for 2011 is to thank all of the staff, volunteers, and board members of nonprofits everywhere for your commitment and effort to help people, build community, create magic, and bring us all together. My hope for 2012 – that all of your organizations are productive, effective, satisfying – and well-funded – in 2012.

Brad Kruse, Program Director at Hugh J. Andersen Foundation with Steve Boland, Nonprofits Assistance Fund

The Minnesota Council of Nonprofits’ Minnesota Foundations 2012 conference was another info-packed afternoon, talking about all the news from the latest edition of the Minnesota Grants Directory. Hundreds of grant-seekers gathered to share what they know about philanthropic support in Minnesota, and occasionally to bemoan how funders just don’t get us.

The conversation shifted to ways nonprofits can help granters. One suggestion was to add a good narrative to budgets or financial documents. Financial narratives are brief comments that can accompany grant proposals and can be extremely helpful for potential funders. Nonprofit organizations that use financial narratives have the opportunity to explain unusual or exceptional circumstances and avoid any potential confusion or misunderstanding.

Some possible situations to explain in a financial narrative:

• Is there anything in your document that would stick out as unusual for the first-time reader?
• Are there any unusually large or exceptional sources of revenue requiring explanation, such as receiving a planned gift or one time grant?
• Explain if your organization received a multi-year gift that will be recognized all in one year and expended over multiple years. A simple sentence or two can go a long way in explaining an unusual surplus in one year and then deficits in one or more years after. If applicable, be sure to report temporarily restricted income and explain the restriction.
• Does your organization have an internal, board-restricted reserve or other internally restricted funds as opposed to having cash on hand? If so, does your board have a cash reserve policy? Explain cash reserves and any policies in the narrative.
• If your organization has a deficit or multiple-year deficits, put the situation in context and use the opportunity to explain what the organization is doing to address the situation.
• If your organization has a healthy balance sheet with surpluses, put the situation in context and explain your need. “Why not spend down your resources before seeking more?” You likely have a good answer. Write it down.
• Explain if the special event revenue line. Is this one special event or the totals from several special events?
• Does your individual giving contain special events or are those listed separately?
• Large amounts of in-kind contributions can raise questions. Provide some detail that explains how these donations fit the guidelines for in-kind contributions.
• Does your program budget contain all committed funds or only partially committed funds and the plan(s) to raise the necessary funds?

Obviously, not all of these questions are appropriate for every situation and financial narratives should be kept brief. A financial narrative that goes on for pages and pages is usually not as helpful. A brief, one-page or less narrative can be an important tool in helping your organization tell your story and make your case.