National Council of Nonprofits has produced a series of Special Reports on the economy.  Their most recent update, Strategies Being Used by Nonprofit Leaders To Cope with the Nation’s Economic Crisis, summarizes findings from a range of reports and provides some key takeaways.  I found the first tip is particularly interesting:

[B]eing transparent about financial challenges and “staying close to funders” emerged as an essential strategy for many organizations. Savvy nonprofits are asking grantmakers to be transparent – because nonprofits need to know how much to expect, and within what timeframe, in order to conduct realistic financial planning. For instance, asking foundations to expedite payments,  in these times when “cash flow” for many nonprofits feels like “cash drip,” is a fair thing to ask.  Likewise, it is better to hear bad news – that a grant will be smaller, or delayed, or even discontinued – earlier rather than later so that adjustments can be made immediately.

Until you have information about the likelihood and timing of grants and other sources of revenue, it’s hard to engage in realistic contingency planning.  The Minnesota Council of Foundations is doing their best to gather and aggregate data on how Minnesota grantmakers are responding to economy.

• Updated 2009 Giving Outlook 
• 2009 Giving Forecast by Minnesota Grantmakers

Nonprofits Assistance Fund has also created materials to help organizations manage cash flow and make informed financial management decisions.

• Cash flow template
• Scenario Planning tools:
  • Scenario Planning Example
  • Scenario Planning Worksheet: A blank template for you to use

To see all of our financial management tools and articles, visit the Resources section of our website.

Nonprofit Harvest

Training and Resources

• New! Blue Avocado Webinars
• Human Resources for Nonprofits Update from Not For-Profit Accounting
  
• Alternatives to Forming a Charitable Nonprofit an article from Gene Takagi and Emily Chan of the Nonprofit Law Blog
  

Social Enterprise

• More Details on the Social Innovation Fund from Foundation Center DC
  
• New corporate structure could give social entrepreneurs new funding stream
• Foundation portfolios, proxy action leverage social change from MinnPost

News and Other Updates

• Sales tax breaks for nonprofits: New rules in the works from MinnPost
• Weathering The Storm – Financial Health Standard from Charities Review Council

As some organizations are tapping into their cash reserves to minimize the impact of diminishing resources on their programs, the question of how to use and manage these funds keeps surfacing.

On one hand, organizations lucky enough to have this rainy day fund are wise to consider best practices and consult their own internal policies around using reserves.  The Foundation Center recently did a feature, How Much Should My Nonprofit Have in Operating Reserves? Review their article for a list of resources.

However, the time may have come to ask a different set of questions. In Beyond Cash Reserves, Kate advocates for a new kind of thinking about cash – that working capital is king:

Rather than dwelling on the best practice or target for designated cash reserve accounts, maybe nonprofits need to learn to be more sophisticated managers of cash and its relative, working capital.

The Social Innovation Fund

Tactical Philanthropy is covering the Social Innovation Fund (What Exactly is the Social Innovation Fund? and Why the Social Innovation Fund Matters).  He draws attention to a number of reasons this is an important development, but he keys in on the value of growth capital:

The Social Innovation Fund is the first meaningful incentive for large foundations to provide growth capital to nonprofits.

The Fund is providing cash grants to grantmakers. Most grantmakers are stuck with the endowment they have and do not have access to additional funding. But the Fund requires that grantmakers use this money (plus matching funds from the foundation’s endowment) to provide growth capital and capacity building grants to nonprofits.

L3C – The New Kid on the Block

Increased access to capital is one reason the L3C model is such a hot topic (we have covered it here before).   A new post from Foundation Center does a good job of summarizing the available information and discussion about L3C, including sharing some examples from Vermont. To learn more you can also read Notes from Capital Sources, Options, and Structures.

Another Round of Reports

The Minnesota Perspective

The Minnesota Council on Foundations (MCF) has released an updated 2009 Outlook report.  Key findings include:

• In March 2009, 52% of Minnesota grantmakers said they expect to decrease grantmaking in 2009, more than the 40% who anticipated decreases in November 2008.

• Nearly half of Minnesota grantmakers expect giving will remain the same (31%) or increase (17%) in 2009 compared to 2008. In November, 41% expected grantmaking to remain the same in 2009, while 15% expected increases.

• In relation to the economic downturn, grantmakers say they are most likely to provide support for food, housing and jobs.

• Minnesota grantmakers report the most likely ways they will cut operating costs is by reducing travel and conference attendance, eliminating salary increases, and reducing or eliminating the use of consultants.

Warren Woolfe at the Star Tribune recently covered the struggles of Minnesota’s nonprofits to address rising needs with fewer resources in his article, Anxiety on the rise at area’s nonprofits.  You can also read MinnPost’s three-part story on the Minnesota economy, starting with The big question for economic recovery: Which stresses are merely cyclical and which indicate a cold, new reality?

The National Perspective

The Chronicle of Philanthropy also reported on two national surveys on the impact of the recession on the nonprofit sector:

• Ninety-two percent of the nearly 100 respondents in a survey conducted in May by the Bridgespan Group said they were feeling the effects of the downturn.

• Eighty percent of charity officials reported that their organizations were experiencing financial stress, in another study conducted in April by the Johns Hopkins University’s Listening Post Project. Nearly 40 percent of the 363 respondents described the stress as “severe.”

Two findings from the Bridgespan Survey struck me as particularly timely:

Finding No. 2: More organizations are tapping into reserves. Also, more nonprofit leaders are developing contingency plans, a key step that can help them respond purposefully when crises arise, and also prepare for better times ahead.

Finding No. 3: The deepening recession has led more nonprofits to lay off staff and reduce program activity, while taking action to protect core services and activities. The specific tactics used to cope with the downturn have varied by organization size. But now, more than ever, it is important to identify the people who matter most to an organization, and to keep that group strong.

If you need help grappling with these decisions, you can visit our resource page. It has contingency planning tools and other resources from Nonprofits Assistance Fund and other capacity building organizations.

Nonprofit Harvest

• Finding Inspiration from Founders
• Pawlenty shifts mean schools need loans; charters especially worried
• Nonprofits Carrying out the Stimulus-or Trying to
• IRS Info and Some Questions and Answers
• Just what the prez ordered: $$ for community clinics

Summer Bloggin’

This summer we’re going to be writing this blog every few weeks. We’re working on some exciting projects, so stay tuned for information about new opportunities.

If you need a regular dose of nonprofit financial management news, follow us on twitter. You can also check out Tactical Philanthropy’s Daily Digest, PhilanTopic’s Weekend Link Roundup,  or Not-For Profit Accounting’s Nonprofit News feature.

Blue Avocado’s new issue includes the financial management article, Finance Fear Factor Ratios.  Unfortunately, a number of people can probably relate to this experience:

A CFO at a troubled organization told me, “The first and last thing I do in the morning and evening is look at our bank balance and see if we have enough cash to meet our next payroll. The budget looks fine, but cash flow is our biggest problem.”

How do you know whether or not you should worry?  Read the rest of the article for ratios and four key questions to help you recognize red flags.

You can also read Cash is Cash, Sometimes for information on what could impact your ability to access your organization’s cash.  And our handy Cash Flow Template is available to help you craft your own cash flow projections.

Calling All Minnesota Social Entrepreneurs

Don’t miss your opportunity to enter the Social Entrepreneurs Cup – a joint venture of Social Venture Partners Minnesota and the Minnesota Cup.  This competition “seeks out, supports, and celebrates Minnesota’s most innovative and effective social entrepreneurs and the nonprofit organizations they lead.”

The deadline is Friday, April 24th, so you have one more week to enter.  It’s an opportunity to win a $20,000 general operating grant and 40 hours of consulting from Social Ventures Partners.

In the News: This Week’s Harvest

• The Pohlad Family Foundation announced $20 million in grant support to businesses and nonprofits.  (Our loan fund is generously supported by the Pohlad Family Foundation.  Our complete list of funders is available here.)

• USA Today launched a new feature specifically for the nonprofit and philanthropic community.  Check out the Sharing section for news on our sector.

• The Foundation Center-Cleveland’s online librarian, Katie Artzner, live-blogged a recent conference session, Navigating Your Nonprofit Through Challenging Times.

• Updates from the Social Enterprise Summit (via the Chronicle of Philanthropy):
  • Nearly Half of Charities Operate Businesses
  • New Legal Status for Socially Oriented Business Gains Ground

• White House Appoints Head of Social Innovation Office

Inspired by Nonprofit Leadership 601, I’m going to keep an eye out for innovative and interesting examples of how nonprofits are collaborating during this challenging economic time.  Taking a note from Heather, I’ll also tag those stories npoeconomy.

• Now That’s What I Call Collaboration…

Another Collaborative Framework

In his post, Social Movement Innovation Andrew Wolk asks how nonprofits can work together to maximize impact.

What are the unique roles of a direct service organization, an advocacy organization, a coalition, or the government? How do they all fit together to ensure lasting social impact?  What are the connections in education, for example, among Teach for America, Alliance for Excellent Education, the National Alliance for Public Charter Schools, and the U.S. Department of Education?  Each organization is  concerned with its own sustainability and impact, but shouldn’t they also consider their role in a collective purpose: better education?

How Liquid is Your Cash?

From Balancing the Mission Checkbook, an important reminder that Cash is Cash, Sometimes:

Beyond verifying an accurate number, though, it’s important to have a solid grasp of all the strings and restrictions that might hinder your ability to use that cash when you need it. Some restrictions are external, such as temporarily restricted grants. Other strings on cash result from internal decisions related to investment decisions, reserve policies, or overly-complex designations and conditions.

To help organizations get a better handle on how accessible their cash really is, Nonprofits Assistance Fund has created the Cash and Investment Analysis worksheet.

I would also suggest reading a related post, It’s 10 am, do you know where your cash is?

 This Week’s Harvest

Updates on the Stimulus and the Proposed Deduction Changes

• Sources of Information Regarding Stimulus Funds: National Council of Nonprofits Special Report #4

• More information on federal stimulus in Minnesota from Minnesota Budget Bites

• Information about the Proposed Changes in Charitable Deductions: National Council of Nonprofits Special Report #5

• Obama’s Charitable-Giving Plan: What It Means for Nonprofit Groups Live Discussion Transcript from the Chronicle of Philanthropy

Other Developments

• L3C – Developments & Resources from Nonprofit Law Blog

• What I Learned From the IRS, Part 1 from Not-For Profit Accounting

• Art as collateral from the Artful Manager

• The Critical Alignment of Mission, Money and Competence blog post and discussion on Social Velocity

Nonprofit Funding: It’s Not One Size Fits All

Ten Nonprofit Funding Models: A Proposed Lexicon

Social Standford Innovation Review points out one of the reasons that nonprofit financial models are more complex than for-profit ones:

When a for-profit business finds a way to create value for a customer, it has generally found its source of revenue; the customer pays for the value. With rare exceptions, that is not true in the nonprofit sector. When a nonprofit finds a way to create value for a beneficiary (for example, integrating a prisoner back into society or saving an endangered species), it has not identified its economic engine. That is a separate step.

The article, Ten Nonprofit Funding Models from the goes on to identify different models, arranged by the dominant type of funder – individuals and/or foundations, government, corporations, and a funding mix.

So, What’s the Best Model for My Organization?

When trying to figure out your organization’s funding mix, it’s important to remember that there is no one right answer.  Blue Avocado elaborates in Just Tell Me: What’s the Best Way to Raise Money? Choosing the Right Revenue Strategy:

The decisions you make about your revenue strategy – that is, who should be supporting your work and how to go about soliciting that support – should be based not only on who is most likely to give you money or pay for your services, but what makes the most sense in terms of who you are, what kind of change you’re trying to make in your community and how your funding sources can help you get there.

And Is Profit Important?

Not-For-Profit Accounting addresses a frequently asked question, Why Nonprofits Have Profit

In order for an organization to do its work and carry out its mission on an ongoing basis it must generate more income than the expenses it incurs. It must make a profit. Any organization, either a for-profit or a nonprofit, that does not take in more money than it spends will fail in the end.

Fresh from the Farmer’s Market: This Week’s Harvest

• A Social Capital (Farmer’s?) Market from Tactical Philanthropy

• Resetting the Capital Approach from Social Velocity

• A Social Solution, Without Going the Nonprofit Route from the New York Times

• Increasing Service Opportunities Would Revive Nonprofit Finances, Report Says from the Chronicle of Philanthropy

• Academic Endowments: The Curse of Hoarded Treasure from Business Week

Lucy Bernholz writes an “instant classic” by reframing the moment: It’s not a recession, it’s a restructuring.

What might now seem to be on the edge of philanthropy – or any industry – may very well come to its center. And quickly. Here are some ways restructuring might happen:

• Social enterprise begins to morph the philanthropic giving that exists to its left and the commercial enterprise that exists to its right (on a spectrum from giving to investing)

This is just the first idea, relevant to the Social Enterprise Network.  I suggest you go read the entire piece.

More Positive Thinking

• pubTalk asks, Out of Crisis, Opportunity?

• Nonprofit Leadership 601 is looking for something positive

I’m getting tired of the media focusing on negative stories of nonprofits struggling to survive, so recently I started tagging POSITIVE stories of nonprofits that are saving money, improving their operations and thriving during this current economic downturn.

A Round-up on the Stimulus and the Federal Budget Proposal

• The National Council of Nonprofits is producing Special Reports on Economic Stimulus & Recovery.  I’ll post them here, but you can subscribe to an RSS feed for the most up to date information.
  • Nonprofit Grant Opportunities
  • Stimulus Grant Tips and Thoughts
  • Whether and How States Are Accepting & Distributing Federal Stimulus Funds

• Coverage from the New York Times
  • Obama Plans Major Shifts in Spending
  • Limiting Deductions on Charity Draws Ire

• From the Washington Post
  • In $3.6 Trillion Budget, Obama Signals Broad Shift in Priorities
  • 2010 Budget Blueprint: Agency by Agency

• The Center on Budget Policies and Priorities weighs on the budget proposal

• The Chronicle on Philanthropy assesses the sector’s reaction to a plan to reduce charitable deductions

The Minnesota Angle

• Minnesota Budget Bites has posted their take, First look at Obama’s budget 

• The League of Minnesota Cities has posted information on their website and presented a webinar on how the Federal Stimulus may impact Minnesota’s cities
  • Download the presentation
• Read Budget Bites on the Minnesota budget

• The legislature’s presentation on the state budget that they deliver at town hall meetings

• Obama’s shout-out to Minneapolis was unexpected

Transparency and Accountability

• Examine the federal budget documents

• State Recovery Sites are now included on Recovery.gov to “help explain how they are spending funds allocated by the Recovery Act.”

• The Minnesota Management & Budget website has a section devoted to the Stimulus

Other News

• The National Council’s  February Policy News features a number of items of note
  • It leads with a story on the Preserve Charitable Tax Exemptions Campaign lead by MCN
  • Includes an update on L3C legislation, which has been introduced in Illinois, Mississippi, North Carolina, North Dakota, Utah, and Wyoming
    • Read Kate’s take on L3c – a Low-profit Limited Liability Corporation
    • Read an overview written by Americans for Community Development

• From the Chronicle of Philanthropy
  • Charities Merge at Almost the Same Rate as Businesses
  • Individuals Make Fewer $1-Million Gifts; Grant Makers Help Offset Decline

• Charities Now Seek Bankruptcy Protection

I was amazed at the breadth of experience in the room. We have a vibrant nonprofit community.  Many of these organizations are pursuing entrepreneurial earned income strategies.  The purpose of this network is to to support and strengthen social enterprise in Minnesota, and provide a space to facilitate dialogue.

These notes are the participants’ thoughts on how organizations can foster a culture of entrepreneurship. Please share your own ideas and any reactions in the comments section.

Top 10 Ways to Foster a Culture of Entrepreneurship

Jim Thalhuber of Goodwill/Easter Seals hosted the first Network on Fostering a Culture of Entrepreneurship.  He shared his Top 10 Ways Nonprofits Can Build and Nurture a Culture of Social Enterprise:

10. They keep their board on board

• Set up an enterprise committee
• Don’t let board members “turn off their business brain”

9.  They keep their employees engaged

• Be transparent
• Engage as many different people and voices in the process as possible
• Generate buy-in by discussing
  • What is going on
  • Why it’s happening
  • The desired outcomes
  • How it will impact everyone’s job

8. They are brutally candid

• Assess the marketplace
  • What is unique about your organization?
  • What are your skills? What are your core competencies?
  • Don’t confuse the way things actually are with the way you would like them to be
• Cannot have tunnel vision

7.  They push the envelope

6.  They focus, focus, focus on what the customer needs

• 3 most dangerous words:  “I like that”
  • Doesn’t matter what you like
  • What does the customer like? What does the customer want?
• Remember the double bottom line
  • The customer’s needs are more important than what you want, but less important than your mission
    • Be mindful of this tension
    • Know your organization’s priorities to help make decisions when they are in conflict
  • A successful social enterprise is where the customer’s desires and the organization’s mission come together

5.  They don’t assume anything

• Research
• Make fact-based decisions

4.  They are keen on their core values

• Core values – what you do when no one is looking
• Social enterprise is a means to an end – to achieve your mission
• You don’t want the tail to wag the dog

3.  They are clear about their core competencies

• What does the market value in your organization?
  • How can you leverage that?
  • Where is there room for innovation?
• Avoid everything else

2.  They are persistent

• Social enterprise is a long-term strategic decision

1. They learn how to dance

• Be flexible
• Have a plan – but don’t be wedded to it

Other Thoughts

Why is internal culture important?

• Internal culture eats change for breakfast
• Takes time and commitment,  keep at it

It’s ok for nonprofits to talk about profit

• Some people are nervous to say the word “profit” or “sales” (the “p” word)
• Profit is good
• The real issue is what you do with the profit
• It’s ok to adopt from for-profit businesses
  • Use what works: business models, terminology, best practices
  • Nonprofits have a double bottom line, so not everything will be applicable
• Helpful framework: I operate a small business within a nonprofit environment

Perceptions

• Is a social enterprise marginalized if it’s one part of a larger nonprofit?
  • Important to engage your colleagues
  • Social enterprise helps support the mission & core services
• Perception that nonprofits can’t run themselves
• Must be good at the business you are doing

Dealing with Risk

• There is risk involved – but you have to leap/seize the moment
• What is the culture of your organization?
  • Is it risk adverse? If you are focused on stability and providing services, a risky venture will not work.
  • Having cash reserves increases your ability to take risks
• The value of a needs assessment
  • Although it can’t guarantee success, it can help mitigate risk
  • Balance risk with market need
  • Consider the opportunity cost
  • Assess what you can afford
    • Can you afford to take the risk?
    • Can you afford not to?
    • Can you afford to wait?
• Don’t put all of your eggs in one basket

Defining Success

• Do what it takes to be successful – to generate earned income for your organization
  • Don’t be married to a particular idea
  • Narrow it down to what is successful
    • Grow deeper, not wider
    • This may mean eliminating programs, rather than adding
    • Keep the focus on your mission and core competencies

Getting the Right Board

• Having the right board might be the most important factor in a successful nonprofit social enterprise
• Look outside the organization and your traditional constituencies
• Ideally you want a balance between “business” and “nonprofit”
• Try to recruit successful small business entrepreneurs
  • Running a successful small business takes a different set of skills than working at a large corporation
  • They have been there, done that (including failed)
  • They are probably connected with other successful entrepreneurs
  • They could serve in an advisory capacity or be elected to the board

Running a Social Enterprise

• You cannot run a social enterprise like you run a nonprofit
• You must generate a profit
  • Time costs money
  • What is the true cost of your social enterprise?
  • What are the true costs of your programs?
  • How much income do you need to generate from this venture?
  • This will help you set a realistic price point

Working with the Government

•  MCN’s Nonprofit Day at the Capitol is February 5th
• The Property Tax Exemption question will impact nonprofits whether or not they own land
• There are huge budget cuts coming – social enterprise can help mitigate reductions
  • Contact your representatives and let them know your thoughts
  • The State House and the State Senate both have websites devoted to the budget deficit

• Economic Crisis Calls for New “Social Contract,” Charity Head Says from Chronicle of Philanthropy’s Government and Politics Watch

The severity of the nation’s economic crisis has created an opportunity for charities to transform the way they work with the government as a new administration and Congress take shape, Larry Snyder, president of Catholic Charities USA, said today.

…He said public officials should draw on the expertise of charities to design social programs, exploring “a new way to work together, a more mutual thing, rather than simply government throwing funding out and all of us scrambling for it.”

• Princeton Legal Battle Raises Questions from Give & Take

• The Future of Corporate Philanthropy by Alyson Warhurst for Business Week

• Charity donation decline gives rise to innovation (hat tip: CNM’s post Economic Crisis Spurs Innovation)

• Some charities see good news and bad in the economy from MPR

From the Blogs

• Foundations’ Role in a Tough Economy from Social Velocity

[I]t is not just about foundations.  They are only part (and a very small part) of the resource engine that drives the social sector.  The entire way in which the social sector is capitalized needs to change.  We need to put a financial priority on the solutions that the social sector is coming up with.  Those solutions need to be scaled and made sustainable. And adequate capital (from all sources) is the only way to do that.

• Strategic Philanthropy in Tough Times from Paul Brest

[W]e need to ensure that the best organizations — those that are delivering real outcomes — weather the storm. We’re not going to be able to salvage them from the bottom of the sea after the storm is over. On the other hand, we shouldn’t use precious assets to keep poorly managed organizations afloat either.

• My Social Entrepreneur Identity Crisis… And, Philanthropy is Sustainable from ForImpact’s Daily Nuggets: Blog

• Is Generosity a Luxury Good? from Sasha Dichter

And now for something completely different

I am an avowed social media geek. You, however,  may not be.  So I want to tip you off to something very cool that’s going on. Allison Fine and Marnie Webb have launched GiveList, and trust me, you want in on this:

Times are tight. We know, we know. We’ve all seen the scary headlines. Too many of the scary headlines. And we’re all feeling the pressure in other ways too. But, still, we want to contribute what we can to making the world the better place. The GiveList gives you ideas and inspiration for just that: ways that you contribute without spending or buying. Or maybe giving while buying and spending a little less than usual. There are lots of small things you can do that don’t cost you anything that can make a big impact on communities. And you probably have some thoughts on this. Share it on del.icio.us, via twitter, in your own blog post. Just tag it GiveList and we’ll share help you share your idea with the world.

As nonprofit financial leaders, we offer a unique perspective.  While we’re gathering resources and ideas on how organizations can manage during this challenging time, we can also think about how we all can maximize our impact with the resources we do have.

What are your GiveList ideas?