Nonprofit Harvest

The Chronicle of Philanthropy and Nonprofit Finance Fund are hosting a special series of discussions to help nonprofits address challenges during this recession.

This week’s topic was New Ways for Arts Organizations to Finance Their Operations.  There was an interesting conversation about the ideas of mergers and new ways to raise revenue.

Generating Revenue

Clara Miller: Starting up and growing a new line of business requires investment all its own, and may take years to actually contribute net revenue to operations. And earned revenue is the lion’s share of most arts orgs’ revenue now.  I have seen a variety of creative approaches to wringing more net revenue out of the current business platform:

Examples cited by Clara Miller and Holly Sidford:

• “Meet the artist” salons and other forms of patron engagement
• Deploying artists into the community in various venues (hospitals, schools, etc.)
• Partnerships with business, universities, etc
• 2 for 1 tickets
• Pay-as-you-can admissions
• Free outdoor events with a pass-the-hat request for donations
• Special deals for members and subscribers (perks like free parking, better seats, meet the artists opportunities, free admission to other events)

What ideas is your organization trying to boost revenue?

Mergers and Strategic Collaborations

Clara Miller: From a purely practical perspective, sharing performance space or tech equipment, for example, can be challenging because the nights when ticket sales are highest tend to be the same, and times when rehearsal is needed is similarly clustered. I think that “neutral” platforms–those run commercially, sometimes as cooperatives themselves–are worth looking into because they are already scaled, and actually large enough to benefit from economies of scale–two (or even 12) small arts organizations may get some scale economics, but internal complexity will be problematic in reaching true economies, and will require new skill sets and systems to be built.

Holly Sidford: Arts groups ought to look for opportunities to economize on shared services with non-arts organizations as well as arts groups…it may be more difficult for two arts groups in a given discipline to combine forces than for arts groups to collaborate across discipline lines (dance and theater, for example, or music and dance), or to combine with educational, social service or even health organizations.

An example from the discussion:

The Great Lakes Music Festival, the Eisenhower Dance Ensemble and the Detroit Chamber Winds & Strings, share physical space, marketing staff, and development staff, and accounting among other numerous functions.

More resources and ideas about nonprofit collaborations:

• Fieldstone Alliance’s Tools You Can Use: Engagement Strategies: Making the Most of Working Together

• Foundation Center’s From the Answer Desk: What do I need to know about collaboration and other kinds of strategic alliances?

Other Artful Resources

• Arts in Crisis: A Kennedy Center Initiative

• Springboard for the Arts - check out their delicious account for great resources, and an example of how an organization can aggregate and share information

• smArts & Culture (If you’re on twitter, follow Maryann)

Nonprofit Harvest

• White House Officials Discuss Plans for Social-Innovation Office

• More ways to track stimulus spending in Minnesota and around the country

The administrative cost ratio, always the topic of heated discussion, is in the news again. Not-For Profit Accounting blogged on the topic this week, unpacking the accounting jargon and rules:

A nonprofit’s expenses are classified by what they were used for within the three broad categories / functional areas of administration, program and fundraising.  Program costs are considered direct expenses, expenses that have a direct effect on fulfilling the mission of the nonprofit organization.  Administrative costs are indirect expenses, they affect the mission of the organization indirectly.  The organization can’t get by without those expenses but, according to the IRS and others, they have no direct effect on the mission.

This point, of course, can be argued and I think it is where much of the confusion resides when talking about classifying nonprofit expenses.  But this is the world we operate in and those are the rules, so it is best to make sure we understand the rules so we can present our numbers in the most honest fashion to show what it costs to do the work we do.

He also contributed his take on what the ratio really means:

One financial ratio used in isolation is no true measure of any organization.  Only by looking at both the numbers and the program outcomes can we judge whether an organization is effective or not.

There’s too much at stake right now to use this ratio alone to measure effectiveness, let alone as a way to compete with one another for already diminished resources.  Kate brought up a similar question last year in her post, Irrelevant Ratios:

We need a two-step retirement plan. First is to jointly stop using the ratio as a way to distinguish our organizations from others, in an unhealthy type of competition, as in “our administrative ratio only is 5%, so your donated dollar will go farther with us.” The second is to find a better way to convey the quality and effectiveness of the work that you do, which requires a real method of evaluating and communicating the programs and impact on clients.

Administrative costs are part of doing business.  It takes time and money to run an effective organization, and being efficient with those dollars is not the same as being effective with them.

End of Session Resources

• Weigh-in on unallotment before Governor acts from MCN’s Nonprofit Policy News
• The Legislature has Left the Building, Pawlenty’s Poised to Make Cuts-What’s a Nonprofit to Do? from Philanthropy Potluck

This Week’s Harvest

• The Cohen Report: Finding Nonprofits in President Obama’s FY2010 Budget
• Philanthropists Set Spending Deadlines from the Wall Street Journal
• New to the Nonprofit Sector? Here’s a BRIEF Overview from Nonprofit Leadership 601
  
• Survival Strategies for the Arts from Blue Avocado

This week the Chronicle of Philanthropy and Nonprofit Finance Fund launched their discussion series, Financial Management in Tough Times.

The first topic was Financing Options, which included information about loans, PRIs, and other financing options.  Coincidentally, at the same time we were hosting a Social Enterprise Network on capital sources and touched on many of the same topics.

This week’s post gathers definitions and resources shared by participants of both discussions. For more details, I suggest you read the transcript at the Chronicle of Philanthropy’s website or Not-For Profit Accounting’s summary.

Program Related Investments (PRIs)

A PRI is a tool foundations can use to provide capital to nonprofit organizations.  It is more like a loan than a grant because it must be repaid or otherwise provide a return for the foundation.  In their PRI Primer, the PRI Makers Network lays out the benefits of these investments:

PRIs give charitable organizations or commercial ventures access to needed capital, typically at favorable terms. In return, the funder benefits in several ways:

• It is often able to recycle PRI payments for subsequent charitable investments.
• The foundation is generally able to count PRIs toward its minimum five percent payout of net assets.
• PRIs allow foundations of every type and size to have greater programmatic impact.

Resources

• The Hidden Gems of Foundation Funds from Balancing the Mission Checkbook

• What is a Program Related Investment? from the Foundation Center

• PRI Makers Network

• Program-Related Investing guide from Grantcraft

• Calvert Foundation

Community Development Financial Institutions (CDFIs)

Community Development Financial Institutions are vehicles to foster economic growth and ensure access to capital in urban and rural low-income communities.  Many CDFI’s focus on affordable housing and economic development activities.  Others, like Nonprofits Assistance Fund and Nonprofit Finance Fund, specialize in providing credit and financial training to nonprofit organizations that serve low-income and underserved populations.

• Learn more about the CDFI Fund

• To find a nearby CDFI, use the Member Locator on Opportunity Finance Network’s website

Loans and Lines of Credit

Clara Miller issues an important reminder that “loans are never a substitute for revenue” and makes an excellent case for when credit makes sense for your organization. For more information you can also read our Borrowing Guide.

Download our Cash Flow Template to help assess whether or not credit can help your organization bridge a gap caused by grant timing, delays in government reimbursements, or other accounts receivable.

Nonprofit Harvest

• Now What?

• Nonprofits Buying Into Franchises from The Nonprofit Times

• State And Local Governments Consider Fees on Nonprofit Groups

The Federal Budget

On Thursday, May 7th the Obama Administration presented their 2010 federal budget.  Here are a few resources to help you understand how these budget decisions may impact your organization.

• The Chronicle of Philanthropy has a good overview, Nonprofit Groups Receive Mixed Results in Obama’s Budget.

• Minnesota Budget Bites participated in the telephone budget briefings that highlighted key aspects on the budget.  Read their takeaways here.

• Learn more about what this budget means for your state with the OMB’s state by state fact sheets.
  • Minnesota

• If you’re on Twitter, follow the conversation under the #budgetnp hashtag

2009 Giving Forecast

This week the Minnesota Council of Foundations issued an update on how Minnesota’s foundation are responding to the economic crisis.  I suggest carefully reviewing the information to see if your funders giving priorities or guidelines have changed.

For organizations outside of Minnesota, the Foundation Center is doing a great job of gathering information and analysis on the philanthropic community, including a similar giving forecast for national funders.

Foundation Updates

• Despite Decline in Assets, Foundations Are Responding to Those Affected by Recession

• Responding to Economic Turmoil in the Arts

This Week’s Harvest

• Filing the E-Postcard?  The deadline is next Friday, May 15th.

• Nonprofit News Roundup: Laws and Money from Not-For Profit Accounting

• What’s the Point of a Nonprofit Board, Anyway? from Blue Avocado

• The Chronicle of Philanthropy and the Nonprofit Finance Fund are offering a special series of live discussions on Financial Management in Tough Times.
  • Thursday, May 14: Financing options
  • Thursday May28: New ways for arts organizations to finance their operations
  • Thursday June 11: The changing role of foundations
  • Thursday June 25: Making capital campaigns work in the recession

Stimulus Update

The American Recovery and Reinvestment Act (ARRA, commonly called the Stimulus), includes significant funding for nonprofit organizations.  However, assessing whether or not you should apply, and how to do so, can be a daunting task.  Especially given the timetable for submissions and reporting.

Before you apply for any federal funding, I encourage you to read these words of caution and consider whether or not your organization has the infrastructure and administrative capacity for a federal grant.

Jim Schowalter, Minnesota’s state budget director, also offers a few important caveats about the available funds, according to MCF’s Philanthropy Potluck blog:

The amount of stimulus money flowing to Minnesota is equal to 8.2 percent of our state budget; however, our state is facing a 15 percent budget deficit.  This stimulus funding provides a one- or two-year bump to hopefully get us through the recession, but it is not enough to resolve our budget deficit.

While the dollars involved are many, they are not significant enough to create new areas of funding or expand programming, and may not even be enough to stave off cuts to balance our state’s budget.  Much of the money will be distributed using existing infrastructure and pipelines and will go to backfill gaps created by budget shortfalls.

General Resources

• Bulletin on How Nonprofits Can Apply for Stimulus Package Funding from Giving USA and the Center on Philanthropy at Indiana University
• What Do Nonprofits Need to Know About the American Recovery and Reinvestment Act? 
• National Council of Nonprofits Special Reports on Economic Stimulus & Recovery

Minnesota Resources

• Best ARRA Funding Resources - Minnesota from the Foundation Center
• Overview of the Recovery Act from the Minnesota Management & Budget Agency
  
• 2009 Recovery Act Resources for Nonprofits from MCN

New 990 Resources

The IRS has an excellent Resource Library to help nonprofits maintain their tax exempt status, file reports, and meet other requirements.  They recently produced a new mini course to help nonprofits file the 990.

As a reminder, MCN has video training that helps organizations understand the changes to the 990 and Not-For-Profit Accounting can help answer your questions.

This Week’s Harvest

• Surveys: Few NP Mergers And Ready Credit
• Nonprofit Groups in 19 States Report Late Government Payments
• The Funder is Not the Program
• More Than a Third of Family Foundations Are Either Uncertain About Lifespan or Expect to Spend Down