Nonprofit Harvest

Sometimes I think our sector needs its own superhero – a Nonprofit Mythbuster who would go around busting up some of the perceptions that undermine our ability to do good.

Photo Credit: Dunecasher on flickr

There are many things that make nonprofit work challenging.  However, often we’re not battling the forces of evil (or even indifference), but rather misinformation and public perception.  So I want to focus on some of the myths that threaten our ability to be effective.  Unfortunately, many of these assumptions that are shared by nonprofit staff, boards, and their allies, as well as the general public.  It’s time to educate ourselves and each other.

We are Businesses

In case you have not heard…

We have real employees and comprise a significant portion of the economy.

• Nationally, the nonprofit sector employs 7% of the workforce – 14 million Americans are nonprofit staffers.
• In Minnesota alone, we are 10% of the state’s workforce, paying $12 billion in wages.
• There are twice as many employees in the nonprofit sector than in the construction industry.

Nonprofits Can Make a Profit

CharityLawyer tackles the top Nonprofit Law Urban Legends, starting with the pervasive (and problematic) assumption that nonprofits can’t make money:

I covered this surprisingly persistent legend in a related post, but it bears repeating. The designation of an organization as “non-profit” or “tax-exempt” does not mean that the organization can’t have money left over in its bank accounts at the end of the year.

Kate discussed this topic last year, Why Nonprofits Should Think About Profit:

Call it what you want – surplus, positive change in net assets, or profit – nonprofit organizations really need to plan for, and embrace, the importance of building financial capacity by generating a cushion. We don’t have a common language for this, and many nonprofit leaders would be uncomfortable using a term like “profit” when describing their financial goals. The word is much less important than the practice of budgeting and managing to build surpluses…  [Woods] Bowman makes it simple and direct: “Where does financial capacity come from? There can be only one place: annual surpluses.”

Not only can nonprofits “make a profit,”it’s in their best interest:

Planning for an annual surplus, specifically an unrestricted surplus, is a positive, important, beneficial, and necessary practice for all nonprofits. I emphasize the importance of viewing unrestricted operating results, rather than the total of all unrestricted and restricted funds, because of the volatility in results caused by the timing of project and multi-year grants.

What can nonprofits do with that money?  A lot of things – invest in their own capacity, which means being able to do better, more efficient work over the long-term.  A few examples of these investments include establishing an operating reserve, enhancing management systems, investing in technology, and staff development.

Capacity Building Enhances Capacity

There are consequences when we are unable or unwilling to invest in our organization.  The Bridgespan Group’s recent article The Nonprofit Starvation Cycle is pretty frank:

Organizations that build robust infrastructure—which includes sturdy information technology systems, financial systems, skills training, fundraising processes, and other essential overhead—are more likely to succeed than those that do not. This is not news, and nonprofits are no exception to the rule.

We have to combat these myths, because they undermine our ability to be effective. Here are some additional resources to help you.

Budgeting for a Surplus

• “Organizational Slack (or Goldilocks and the Three Budgets” by Woods Bowman, published in the Spring 2007 issue of The Nonprofit Quarterly
• Nonprofit Budgets Have to Balance: False!

Cash Reserves

• Operating Reserves
• The Yin and Yang of Operating Reserves   
• Reserves – What Kind and How Much?
• From The Answer Desk: How Much Should My Nonprofit Have in Operating Reserves?

Working Capital and Capacity Building

• Ending starvation by planting seeds for growth
• On the Money
• Beyond Cash Reserves
• Nonprofit Capital
• How to Get Out of the Current Services Trap

Other Myths

Visit Balancing the Mission Checkbook’s series, Mythbusters: Nonprofit Finance Edition for more mythbusters, including

• Donors and Overhead: Maybe They Don’t Care
• The Cash Reserves Myth
• The Magic Donor Myth

Be a Change Agent

Continuing our superhero theme, we’re hosting a session at this week’s Transforming Our Work, the MCN and MCF joint annual conference called Change Agents. This breakout is all about how you can help transform your organization’s business model and be sustainable over the long term.

It could be renamed Learn to Love the Balance Sheet.

In honor of this useful financial document, we’re having a Balance Sheet Haiku Contest.  Submit your poem for a chance to win a special prize.

And for a blast from the past, here is a poem I wrote in response to Nonprofit Quarterly’s call for a mission haiku:

So, do you haiku?

(Post) Halloween Harvest – No Tricks, only Treats

• 19 Free Webinars for Nonprofits – November 2009
• What happens when two competitors combine forces.
• SROI Act II: A Call to Action for Next Generation SROI from REDF
• Nonprofit Groups Spin Off Green Ventures
• What Makes Nonprofits Laugh?