Balancing the Mission Checkbook

At the pace we’re all traveling it’s easy to forget what you said last week, much less a few months ago. It’s interesting, then, when we receive a comment on a past post and go back to re-read it. So much is happening and developing in the nonprofit world that I’m taking this week to update three topics.

Transparency

In December 2007 I wrote about Transparency and Financial Information:

I would strongly suggest that nonprofit organizations make the effort to make usable financial information available on their website. The IRS 990 is already a public document, so it seems like the obvious tool for financial disclosure. However, I think we should go past the 990 to share better information, especially since everyone seems to agree that the current version of the IRS 990 is overly complex, confusing, and very difficult to use. A better solution would be having the audited financial statement easily available on the website.

Guidestar recently published The State of Nonprofit Transparency Report, which included these findings:

A high percentage (93 percent) of nonprofits are embracing the Internet to disclose information about their programs and services.

Only 13 percent posted their audited financial statements on their Web sites. The results of our survey show a reluctance to disclose audited financial statements publicly. Although not all nonprofits obtain audits of their financial statements, our survey sample reflects organizations of the size for which an audit is both prudent and a necessary tool for assessing management’s financial capabilities and the organization’s financial health.

Let’s hear it for more audits online!

Mergers and Strategic Collaborations

In June 2008 I suggested Speed Dating for Nonprofits:

No one would say that mergers are the right answer for every nonprofit, but if you do think that joining forces would make sense and help your organization maintain stable services, where do you find your mate? I think I’ve found the answer - speed dating for nonprofits! Speed dating is an organized event to help singles meet a number of people in one evening with the intent of finding one or two for an actual date.

I’m excited that MAP for Nonprofits and the MACC Alliance for Connected Communities have organized a Speed Dating event on May 20^th to explore strategic partnerships.

Low-profit, Limited Liability Corporation (L3C)

And in May 2008 in Where For-Profit and Nonprofit Meet I was excited about the new hybrid Low-profit, Limited Liability Corporation (L3C) that had been adopted in Vermont.

The idea is to create businesses that can attract some private capital, bolster that with more patient philanthropic or socially motivated investment, and result in value to the community (jobs, housing, local revitalization) and a below-market return to investors. This structure is not a fit for every nonprofit, or even for every social enterprise. The L3C is all about raising capital, and when the need for capital is significant, this is worth considering.

This post continues to attract readers and questions. The most common confusion is about the fit for nonprofits that need subsidy (i.e. grants and contributions), rather than capital. The L3C is designed for capital but doesn’t offer any incentive for contributions. For more information, the experts on the L3C are Americans for Community Development. We’ll explain this new hybrid form at the May 14^th meeting of the Social Enterprise Network.

Since the post was written several other states have adopted the model, with others in the legislative process. I’m hoping that Minnesota can get on the bandwagon in the next year.

A headline last week in Philanthropy Today read “Mass. Charities Urged to Merge and Pool Resources”. The story comments on a report just released by The Boston Foundation on the financial status and condition of nonprofits in the state. The online story offers a few nuggets from the report and summarizes that “Its findings follow what officials at the foundation have been saying less formally in the past several years: that some of the state’s nonprofit groups should merge or pool resources to reduce overhead and offset cuts in state money and waning private donations.” This summary of the report’s recommendations is accurate, but it’s incomplete. The report itself, Passion & Purpose: Raising the Fiscal Fitness Bar for Massachusetts Nonprofits, offers so much more in information, analysis, and recommendations that are important for nonprofits everywhere.

In their analysis, the authors group nonprofits in three organizational/financial categories: small Grassroots Organizations, mid-sized Safety Net Organizations, and large Economic Engines. While it is a budgetary distinction, the authors dig into the financial profiles of these three groups and point out some systemic issues. They raise alarms, for example, about the vulnerable financial condition of the essential Safety Net Organizations caused by reliance on public funding that does not cover the cost of delivering services or building infrastructure and reserves. The report also acknowledges that the growth in the number of young Grassroots organizations can be seen as evidence that there are too many nonprofits, but that this group is often the source of new ideas and direct responsiveness to niche community needs.

The report concludes with three recommendations billed as “A Call to Action” on page 15 of the Executive Summary. The first recommendation, which earned the headline, is for Restructuring and Consolidation including mergers and/or alliances to efficiently provide some administrative and operational foundations. A great Minnesota example of this is MACC CommonWealth. The other recommendations that weren’t headlined are also important. The second is Repositioning nonprofits as an influential group in the state and region through collective action, policy work, and organizing for common goals such as cost savings, efficient regulations, and access to capital. In my view, the third Call to Action is most important – Reinvention and Reinvestment. This broad recommendation encompasses three themes: appropriate program funding structures that cover the cost of services, adequate funding for organizational capacity and stability, and healthy financial management practices. These structural questions are urgent. Nonprofits can’t merge their way out of recurring deficits if the formulas and expectations continue to demand more services for less money. The three recommendations have the most impact as a set – not an either/or choice. The challenges to stable services in the community and healthy nonprofits spring from various practices, systems, and perceptions and require multiple approaches. I hope you read this report and join the call to action.

When economic times get stressed, as they are now, nonprofit organizations are often urged to consider mergers or other collaborative structures as a strategy to navigate reductions and shifts in funding. The topic came up again at a meeting last week titled “The State We’re In: Fulfilling Human Service Needs in a Time of Economic Uncertainty.” Scott Russell at MinnPost.com wrote a good summary of the tone and comments of the meeting, Nonprofits hear a gloomy forecast about future funding. With financial pressures from all sides, coupled with increased demand for services stemming from employment and housing problems, many nonprofits will be hard pressed to keep up the juggling.

No one would say that mergers are the right answer for every nonprofit, but if you do think that joining forces would make sense and help your organization maintain stable services, where do you find your mate? All of the articles and books I’ve read discuss the importance of finding the right fit with leadership that can work together, board buy-in, and mission alignment. But where do you find them? What happens when the board chair or director of a small nonprofit calls the CEO of a large, established agency to inquire about a potential merger? Do they invite you over for coffee? Do they even return the call?

I think I’ve found the answer – speed dating for nonprofits! Speed dating is an organized event to help singles meet a number of people in one evening with the intent of finding one or two for an actual date. Speed dating for nonprofits would follow the formula. Nonprofit leaders, from large, medium, and small organizations, would be scheduled for a series of 5 to 8 minute conversations about mission, programs, and goals. A bell would indicate time to move on to the next “date.” No commitments or promises are made. At the end of the event everyone indicates on the list which of the nonprofits they would like to talk with further. It’s efficient and direct.

On the other hand, if you’d rather proceed with more control and confidentiality, there are a number of resources available. A short study published in 2004 by a collaborative of Milwaukee funders, Nonprofit Collaborations and Mergers: Finding the Right Fit, lists these key characteristics of successful partnerships: committed leadership, unambiguous goals, clearly defined roles, commitment at multiple levels of the organization, dedicated staff time, and sustainability in the midst of change. Fieldstone Alliance has two workbooks by David La Piana on nonprofit mergers. For hands on assistance, Project ReDesign is a new service from MAP for Nonprofits to assist with any part of considering, planning, and carrying out a merger.