Here are some sound ways to begin bringing in money and other resources, such as volunteer time and gifts-in-kind.

1. Start with a budget.  Your budget communicates your plans and tells prospective donors and funders how realistic you are in your work.  A start-up budget is likely to be very modest with minimal staff and facilities. This checklist can help you begin, but keep in mind your first year expenses may need to be very limited to show you understand how to start from the beginning and not take short-cuts. If you have a reasonable plan, supporters are more likely to bring dollars to the table than if you only have good intentions without a roadmap.
2. Your founding donors probably know you.  Covering the first few expenses (even filing the IRS form costs money) has to come from somewhere. People who already know and trust you will be your strongest supporters. Have a party to explain your mission to friends and family, and ask them to help cover the initial costs. Nonprofit founders often stand alone for too long, and paying all the expenses out-of- pocket can cause a lot of stress early on.
3. Think small. Many nonprofits want to request a large grant right away. The big request is much more likely to be successful if you can show a track record at little achievements. There are many local businesses, houses of worship, and community groups which could afford $100-$500 donations if they see a budget and some initial investment from a start-up organization (see 1 and 2 above).
4. Be wary of debt. A loan or a credit card advance can seem like a good way to get the ball rolling, but often this start-up debt can hobble an organization for years to come. The money you get in earnings and donations in years 2 and 3 are going to be needed respectively. Spending income to pay off debt from the first year can significantly impact an organization’s financial situation down the road.
5. Plan long-term. That big foundation request mentioned in number 3? Don’t forget about it completely. Be ready to show how it becomes viable in year 2 or 3 for your new organization. Start looking at funding cycles, timelines, and begin meeting with philanthropic staff. This, along with proven results, will help you get that first application in on time and ready for approval.

Patience is not only a virtue; it is a key to becoming a thriving nonprofit. Take your time, spend within your means and then plan to grow. Since starting from scratch requires time, resources and money, we emphasize how important it is to plan and budget accordingly. Every mighty oak must start as an acorn. If you are expecting something different, make sure you weigh all of your options.

We now have evidence that these concerns are unfounded. In fact, EDs who go on sabbatical are more likely either to remain in their positions or extend their tenure, not cut it short. And rather than causing chaos, disruptions in an organization’s day-to-day affairs may be beneficial. Perhaps most importantly, a sabbatical can be a relatively inexpensive but highly productive capacity-building tool that yields measurable results.

We’ve proven the truth of that conclusion first hand here at Nonprofits Assistance Fund and at MAP for Nonprofits. Judy Alnes, Executive Director at MAP, took a sabbatical in October 2009. She wrote about what she learned during her time away in a thought-provoking guest commentary for Minnesota Council on Foundations. I’m still digesting my ideas and thoughts after a one month sabbatical in February of this year. It’s not really a surprise that having the opportunity and luxury to step back for a while benefited both Judy and me. Our absences had an entirely different benefit for those who were called upon to step in the lead while we were gone. Amy Wagner, Associate Director of MAP, and Janet Ogden-Brackett, Loan Fund Manager at Nonprofits Assistance Fund, deserve a thousand thanks (and some extra vacation). We asked them to share their thoughts about the experience.

Amy Wagner

Recently, Judy Alnes, Executive Director at MAP, known to me as “my boss,” took a sabbatical. While Judy was taking some time to travel, read, learn, connect, meet, think, recharge, etc., I had the chance to serve as MAP’s Acting Executive Director.

Judy was gone for five weeks. While that sounded like a long time when we were planning for it, it actually went by in a flash. Judy worked closely with MAP’s board and staff to prepare for her time away and there was clear communication on roles and responsibilities in her absence. One MAP staff member commented:

Staff at MAP know their roles and responsibilities and operate independently, which also led to a smooth operation. Everyone was willing to do what was necessary to help out.

And there was a need to help out. Judy’s planned sabbatical happened to fall exactly at the same time that we were preparing to launch GiveMN.  Since MAP was the nonprofit rollout partner in this effort, and I was the project manager and lead trainer, we were stretched. In addition, a key staff member was called away to address a family emergency during this time. Thankfully, everyone was willing to step up, pitch in and work as a team to keep things moving smoothly. In retrospect, it may have been better to plan for the unexpected and think proactively about who would be “on deck” to help in various scenarios. That may have taken some pressure off of me and given others more of a chance to contribute in new ways.

Personally, Judy’s sabbatical gave me a chance to develop and demonstrate my leadership abilities. I gained a greater appreciation for the role of the ED, and all the different constituencies with whom the ED interacts and to whom they are accountable. I gained a greater appreciation of the role the ED has in setting the tone in the office and creating an environment in which people can share their talents. I gained confidence in my ability to work with our board and our funders. I saw, and I know others sensed as well, that while serving as an ED is a big and important job, leadership does not reside in one person – there’s a whole team of staff and board members leading the organization. Since Judy’s return from sabbatical, I’ve been named MAP’s Associate Director. This new position is part of an organizational change that in large part resulted directly from what Judy and MAP as a whole learned during the sabbatical. The organizational shifts aim to give Judy more time to focus on MAP’s voice and impact in the community, me more time to work on new collaborations and partnerships, and others at MAP new opportunities to learn, lead, collaborate and contribute. I think we will feel the positive impact of this sabbatical for years to come.

Janet Ogden-Brackett

When I thought about what to include in this blog, I just knew I wanted to share some funny stories from the four-week period in which Kate Barr was on sabbatical. There is the story where the construction crew announced they would be removing the doorframe from my office at the exact moment that I was on a conference call. Maybe I would try to describe the amount of dust that sanding drywall produces or the screeching sound of the hydraulic lift. I only wish I could share a recording of one of the carpenters who loved to sing along to the oldies radio station.

Wait, I’m getting a little ahead myself.

Let me explain that the same four weeks that Kate was out coincided with the renovation of our office space. We had never planned for this to happen but as we saw the two events align, there was no real reason to change either one. We knew there would be the additional challenges of managing construction, but everything was very well planned, right down to the last detail.

The real value of the sabbatical is not how we addressed the unexpected and often hilarious challenges, or gained greater appreciation for scenario planning and always having at the ready a good plan b. Rather the value is in the rare opportunity for our organization to gain increased capacity through renewed leadership and an empowered staff.

There has to be a very special team in place in order to pull off a sabbatical. The first step comes not from a beleaguered Executive Director who makes the request of the Board because they need a long vacation, but rather from thoughtful leadership that can see the benefits of the break to staff and board as well as themselves. The Board must buy in that the benefits are identifiable and real and staff must be willing to step up and work as a team while assuming a great deal of responsibility. A successful sabbatical inspires and empowers everyone.

The changes here at Nonprofits Assistance Fund are large and small, obvious and subtle. The most obvious difference is to the office space; the change is big and audacious. Other changes took place as we developed our skills in unfamiliar areas from capable to proficient. We all raised our expectations for each other and ourselves. The more subtle changes will have a greater lasting impact to our organization. Oliver Wendell Holmes said, “The mind, once expanded to the dimensions of larger ideas, never returns to its original size.”  We asked every single staff member to step up into more responsibility and take on more work. After the sabbatical, there was no reason to step back. The entire team is better for the experience and our internal capacity is far superior to what it once was. To me it feels like we took a giant step forward and with every new undertaking, we now start closer to the finish line.

Part of the value comes when you pull together all the pieces to have the form completed. The new 990 requires information about mission, program accomplishments and costs, board members and key staff, policies and governance practices, compensation, fundraising, finance, and much more. While many nonprofits rely on their audit firms to complete the 990, most of the required information is not financial and must be supplied by various departments or staff of the organization. The second part of the value comes from continuing to use the 990 as a communication and analysis tool. Here are four suggestions.

As an organizational tutorial

Read the whole 990, front to back. New managers, board members, emerging leaders, or anyone else on staff who wants to know more about the organization can get a complete overview of the organization by reading the complete form including all of the schedules. This assignment will also help you identify any questions or sections that need to be clarified or completed more thoroughly.

As a financial analysis tool

The 990 contains a complete financial report in a standard format. The new form expands the financial information, particularly the income section, to provide more complete data. Most financial analysis steps can be conducted using the 990. To make it easier, Nonprofits Assistance Fund created a new tool that we call the “990 Decoder.” Transfer the three financial pages from the Core Form onto this spreadsheet and you will generate a familiar looking Balance Sheet and Income Statement and a page of six standard nonprofit financial ratios. These can easily be used for comparison with other years or with other, peer nonprofits. Just “decode” their 990, too. We’re happy that the Minnesota Council on Foundations likes to decode 990s, too.

As a source of comparable compensation data

A month ago we were fielded a number of requests for help from board members of nonprofits who were responsible for obtaining information about executive director compensation from comparable organizations. In many cases, salary surveys fit the bill, such as the thorough review that Minnesota Council of Nonprofits compiles. Another simple approach is to create your own peer group of 4 or 5 nonprofits that are of similar size and type of service. Compile a custom comparison by using Guidestar to collect compensation data from your peers’ IRS 990s. Compensation is usually listed in Part VII on page 7. Guidestar registration is easy and free for the basic search. The information will be at least a year old, but as we told the board members we talked with, no one got much in the way of salary increases last year anyway.

As a communications tool

One of the unique features of the 990 is the Program Accomplishments section that is now the second page of the form. Hopefully you have taken advantage of the opportunity to communicate specifically what activities you completed, who you served, and how this work had an important impact in the community. Take an hour or so and read the Program Accomplishments for your nonprofit and then read the section for a few other organizations that you admire. How well did they communicate their work? How did you do? Learn from other organizations and look for ways to promote your 990 as another communications tool. Post it on your website (along with you audit, please).

Don’t let the IRS 990 sit around gathering dust. Give it a workout and help both your organizations and the nonprofit sector show the value of transparency and accountability.

The Value of Smaller Gifts

I’m pleased that smaller gifts are drawing greater attention and wanted to highlight a few noteworthy examples. The article Save Our Ship in American Theatre Magazine describes the efforts of theaters to rebuild from financial struggles:

The hero who emerges from emergency campaigns is the small donor. Practically every artistic leader I spoke with used the words “grassroots” and recounted anecdotes about donated piggy banks. Over and over, artistic leaders said that it was not one single donor that saved them but rather many, many modest donations – gifts of $100 and $150 that added up to serious money.

The value of many, many small donations was proven on November 17th. At the end of the fundraising-palooza of Give to the Max Day, 38,778 gifts had been made totaling $14,000,406. That divides to a $361 average gift. Many of the most impressive Give to the Max Day campaigns yielded great numbers of both donors and dollars with pretty small average gifts. The organizations with the largest numbers of donors had average gifts ranging from $75 to $100. Organizations receiving the most dollars also had modest average gifts between $65 and $325.  Other examples of the power of small donations can be seen in the international response to the recent earthquake in Haiti, such as the American Red Cross raising $3 million as of 9am EST in $10 increments through a text message campaign.

In his book The Art of the Turnaround, Michael Kaiser describes the process of Alvin Ailey Dance Company’s financial recovery. He offers this advice:

Aiming to fill a deficit with one extraordinary gift is usually just a pipe dream. We need to focus on “right-sized gifts,” gifts that make sense given the budget and the profile of the organization. For the Alvin Ailey American Dance Theater, with a $6-million budget and a $1.5-million deficit, $50 was too low and $1-million was too high. At Ailey, while we did receive larger gifts, we focused our fund-raising on $1,000 gifts. Our board felt comfortable asking for this amount from friends and associates, and this was an amount that would make a difference to us.”

If you prefer to hold out hope for large gifts and grants, be aware of the risks. The Minnesota Council on Foundations just released their 2010 Funding Outlook based on a recent survey. The survey found that overall funding by Minnesota’s foundations will stay fairly level in 2010 compared to 2009, for which we should be thankful. There is wide variation, though, in the grantmakers’ forecasts. More grantmakers expect decreases in giving in 2010 than expect increases: 30 percent expect to give less compared to 25 percent who expect to give more. At least 20% of foundations expect to decrease the number of grants awarded, as well.

Keep up the grantwriting, RFP submissions, and lunches with prospective large donors. But take Michael Kaiser’s advice to heart – make the priority for 2010 to build a reliable base of “right-sized” gifts.  They really do amount to something very important.

Harsh is the word for it. When I read the article in print today, this statement in the conclusion really jumped out for me:

“Those of us in leadership roles should remember that this time will be judged by the actions we take or the actions we fail to take.”

That’s a lot of weight being carried by leaders of nonprofits.

David Brooks described the pressure in his column in yesterday’s New York Times:

“It’s no fun being a leader in a financial crisis. You’ve got to be bold but reassuring, free-spending but disciplined. You must decisively crush the short-term problem without freaking everybody out and leaving a long-term mess.”

He was writing about Treasury Secretary Tim Geithner, but I think many nonprofit directors share the feeling.

Nonprofit Leadership

Leadership in nonprofits has been the subject of many articles, studies, forums, and institutes. I have benefited from some of these greatly, learning about my personal style and how to nurture my strengths, include other viewpoints, and work collaboratively to create a team. Sometimes, being a leader requires you to take responsibility for tough problems and be held accountable for the results. Commenter Claudia Dengler’s response to one of my December posts really hit a nerve. She said:

“And on the personal side, if you thought you were lonely at the top before…even the most transparent leader will find they have to hold information close, thinking deeply, often privately, about the full weight of their impending decisions.”

If you’re the one who has to stare at the budget column or read the letter informing you of a funding reduction you know what this feels like. As David Brooks said, it’s no fun.

Ideas about Support and Resources

What kinds of support and resources do leaders of nonprofits need to manage the personal demands and the pressure of leading in this environment? Based on the number of people I’ve seen at the various meetings and forums about managing in difficult times, there are a lot of people looking for something – some skills, some information, even some secret solutions (there aren’t any). I also think that we’re all looking for some reassurance that we’re not alone in the struggle.

This is a time to learn a new leadership approach or adapt well developed leadership practices. I have some ideas about what needs to change and I hope that you will weigh in as well.

I offer three suggestions to start:

• Nonprofit directors often lack support networks of true peers because they’ve learned to manage the relationship with their board and to treat other nonprofits as competitors. We need to lower our guards and be more honest and open with others in our field.

• There are hundreds of different ways that staff leaders and board leaders work together. Many executive directors don’t really know what to expect from with their boards right now. Executive directors and board chairs need to have a conversation about how the board’s role, practices, and composition will need to change to adapt to long-term financial and community uncertainty.

• Find a friend with whom you can confidentially share your fears and pressures, get some reassurance, sympathy, and care – and then do something fun.

What are your ideas?

Capital campaigns also demand consideration of external factors, including the competitive impact of other capital campaigns and of economic trends. We in Minnesota can thank the Minnesota Council on Foundations for conducting a survey last month on Capital and Endowment Campaigns in Minnesota, 2007-2008. The survey reports on 62 current and 72 planned campaigns for buildings, endowments, and infrastructure investments. The largest campaigns are for colleges and universities, with human services and health care a distant second and third. Interestingly, the higher ed, health care, and arts organizations expect most of their funds to come from individuals donors, while human service nonprofits expect about half to come from grants. This week’s Chronicle of Philanthropy reports in “Feeling the Squeeze” that some large capital campaigns are running into some resistance from large donors concerned about the economy. The examples in the article, which is only available in its online format to subscribers, indicated that gifts were delayed or stretched out, but that the campaigns continued to be successful in a different environment.

If you are beginning to plan a new fundraising push – whether you call it capital campaign or not – you need to understand the trends, the local landscape, and how many other “asks” will be in the mail.

I left the roundtable with a sense that this may be a good time to start moving on from this endless discussion/argument. As Juliet remarked, “What’s in a name? That which we call a rose, by any other word would smell as sweet.” Today’s version is “General operating support, by any other name would help as much.” It was notable that the participants didn’t have a “line in the sand” definition of general operating support. The distinction didn’t seem to be nearly as important as you might think with these foundations that understand that program grants have to include all the costs of the programs. The foundations were not very concerned with tossing out gen op requests. They were focused on working with nonprofits doing good work in the community that matched their foundation’s areas of interest, and providing support – program, project, organizational – to help them to do that work. We talked a lot about flexibility, long-term relationships, trust, and shared community goals.

What are the goals? Foundations want and need to understand how the funds they provide are helping to meet needs in the community that match their priorities and interests. Nonprofits want and need funds to support programs that further their mission with some flexibility to respond to the changes that might occur. Both foundations and nonprofits want to help the community. Both also want to have trusting, honest relationships. Too often, unfortunately, these priorities have led to battles in the general operating vs. program grant war. Are the goals really all that different? I suggest that we move the last goal into first position – both foundations and nonprofits want to have trusting, honest relationships. These relationships require clear information, reliable decisions (no surprises on either side), real numbers, and a good match in mission and community vision. I know that you might say that the particular foundations represented at the roundtable are some of the most committed to creating these relationships (and they are). Fortunately they are also leaders in the foundation community.

By the way, it’s interesting to read your own words in a transcript, as I got to do with this Giving Forum. I cringed a little when I read this verbatim excerpt: Barr, “I hear [nonprofits] say that general operating pays the rent and program support pays for the work; that’s the worst accounting I’ve ever heard.” Harsh – but I stand by it.

The key is to understand your income mix. There are essentially five distinct sources of nonprofit income and each income source expands or contracts depending on different factors in the economy. If you understand the sources of income that are most important to your organization, then you can focus on following movements and trends that will matter. One overall trend to keep in mind is that the “nonprofit economy” tends to lag the general economy by about a year. Here are some ideas for trend watching the economy.

Program service revenue, or payment for directly providing services, is the largest total source of income for nonprofits. Income from contracts for service, especially from government agencies, is determined based on tax receipts and state and local budgets. We know how many reductions occurred a few years ago and most of these sources haven’t rebounded. If this is your primary income source, the keys are the reports from the state and the budget process. You can track these through the Minnesota Budget Project. To survive with contracts, it’s important to understand the true costs of delivering the services (which is probably not the amount you are paid for delivering the services) and having your eyes open about the need for additional subsidy – and where to get it.

Program service revenue that is paid directly by the user of the service – like tuition, memberships, tickets, and fees – is a lot like business income and reacts to market downturns depending on the buying power of your customer. If your service is considered discretionary, like entertainment, then consumer spending is worth tracking by reading the business section of the paper.

If foundation grants are an important component of your income, watch the stock market. Because endowment payouts are calculated in a way that evens out big increases and decreases, there is no reason to expect a big decrease in 2008. However, pay attention to the excellent surveys and analysis from Minnesota Council on Foundation including Grantmaking Outlook and Giving in Minnesota. If the market performs poorly over time, some reductions in grants could develop. Keep in mind, though, that even with the poor market performance several years ago, grants from Minnesota foundations have increased total dollars almost every year (more details in the MCF reports). If your endowment is an important source of income, the same market trends described above apply.

For nonprofits that rely on individual donors it’s a mixed bag of economic news. This recent online discussion about the Outlook for 2008 hosted by the Chronicle of Philanthropy highlights some opportunities for planned giving and large gifts that transcend the economy, and emphasize the importance of relationships and communications in maintaining a building a donor base.

So don’t assume the worst or start a chorus of woe about the poor economy. Yes, there will be challenges, but you can understand how economic trends will affect your nonprofit. Knowledge is power and will help you anticipate and plan for any changes.

I heard many smart and experienced people talk about important, urgent issues. I learned about technical and financial topics and policy and economics. After all of my conference experiences this month, I have one burning question: what’s the point of PowerPoint? Many of the conference sessions included a PowerPoint presentation, but in very few cases, did the visuals add anything of value. I hate to admit it, but the PowerPoint that I created for one of my sessions was a case study in dullsville. We all complain about it, but when are we going to stop mistreating our audiences and improve the practice?

The typical use of PowerPoint at the conferences was a number of slides with 4 to 8 bullet points containing 40 to 70 words. Most used no visuals except the logo of the presenter’s organization or a Microsoft design template. In many sessions the presenter also distributed printed copies of the slides as a handout. The best of the presentations used the slides as a focus point for the audience with key phrases and issues. Less effective presentations used slides with every word of the information, lots of data and detailed descriptions, and lists of the names of the panel members and topics for the session. The worst users included slides with complex charts that were unreadable both on the screen and on the printed page. Unfortunately, the audience can end up frustrated, confused, bored, or insulted.

Despite my complaints, I don’t hate PowerPoint. Research about learning styles shows that many people learn through visuals, and PowerPoint can be a great communications tool. Here are a few suggestions to improve your use of PowerPoint:

• Learn how to use PowerPoint. It’s not a difficult program but there are features that need practice and testing.
• Good presentations don’t just happen, they require planning and preparation. The problem with templates is they make it easy to take shortcuts and create a bad presentation.
• PowerPoint is a visual tool – make it visually interesting and engaging with pictures and graphics that build on your message. This includes both the pictures and the slide design.
• Get a copy of the book “Why Bad Presentations Happen to Good Causes” published by Cause Communications. This terrific book, less than 100 pages long, is full of practical information to improve presentation content, delivery, and use of PowerPoint. Most nonprofits can get a copy for free.
• Visit David Canfield’s 8 Mistakes of Microsoft PowerPoint Presentations for a list of common mistakes we have all made at one time or another.
  

I’m back from conference-land. Next week I’ll be back with thoughts about financial issues for nonprofits.