Nonprofit Harvest

In my last post I shared some New Year’s Resolutions, and TechSoup had a similar idea with a series of technology resolutions, including #3: This Year, We Will Manage Our Finances Better.  This is a great resource that rounds up available nonprofit financial management and accounting options.  It explains the different products (with links to their TechSoup pages) and even has some resources to help you find the best software to meet your needs. For anyone unfamiliar with TechSoup and their nonprofit discounts, add that to your 2010 to-do list.

Here are a few other things for that to-do list.

Assess Your Hyperlocal Conditions

We can all agree that local conditions vary. I just returned from a brief vacation to sunny Florida, and these words have never felt more true.  Nonprofit Quarterly took used idea as the theme for their Winter 2010 issue.

Local Conditions

There are many factors that impact your nonprofit, such as your funding sources, field of service, and the needs of your constituents.  Let’s think of these as the local conditions. The Minnesota Council of Nonprofits and Minnesota Council on Foundations have updated information on how the economy is affecting funders and Minnesota nonprofits in general. National Organizations such as The Foundation Center, NFF (view information from 2009 or take the 2010 survey), and the National Council of Nonprofits all have good resources that can help you take action.  However, these reports can only take you so far.

Go Hyperlocal

The most useful information is the “hyperlocal” conditions – what is happening on the ground at your nonprofit. As our ED, Kate Barr, says in her article for Nonprofit Quarterly:

“In all forecasts, ‘local conditions vary,’ and the most relevant information is the situation at an individual nonprofit organization. Only by clearly understanding its own financial position, strengths, and risks can a nonprofit develop strategies to respond to the economy and plan for the future.”

How can you get a handle on the conditions at your nonprofit? Our Assessment of Recession Risk and Preparedness for Nonprofit Organizations is a tool designed to help you quickly assess your organization. By answering these 20 questions, you will identify potential risk factors, immediate priorities, and proactive steps to take right away. Keep in mind; this is a first step, not an in-depth organizational assessment.

Whatever is happening on the ground at your organization, the Recession Preparedness Assessment provides useful information to help you better understand what’s happening and develop strategic responses. You can read the full article in Nonprofit Quarterly or download the Assessment from our website.

Re-Set Your Internal Controls

Internal controls are another factor that can impact a nonprofit’s stability. Smaller organizations in particular are often cited for lacking adequate segregation of duties in management letters.  Blue Avocado’s recent article,  Five Internal Controls for the Very Small Nonprofit, is a great starting point to help you strengthen your internal controls.  CPA Carl Ho outlines five main categories that are crucial, and do-able, for even the smallest organizations:

1. Set the control environment
2. Assign responsibilities
3. Physical controls – lock it up
4. Cash, always have two people count it together
5. Reconcile the bank statement

Read the whole article for additional suggestions and examples.  For more on this topic, you can participate in our webinar on February 22nd, Financial Policies for Internal Control.  You’ll receive sample board and management policies and learn how to customize them for your organization.

Know Your True Program Costs

More on everyone’s favorite topic – overhead! (If you missed our past blogs about overhead, and why we think it’s an overrated metric, start here.) Last week the Chronicle of Philanthropy hosted a discussion on Making Smart Decisions About Overhead Costs.  What cannot be said enough is the importance of knowing (and then budgeting for) the true, full costs of your programs and operations. As Daniel Stid of The BridgeSpan Group stated:

It goes without saying (but perhaps we should say it!) that having a clear view of the full direct and indirect costs of delivering a program is essential. We often encounter situations in which clients have failed to budget even for their full direct costs let alone so called overhead.

It has to be said, explicitly, because too many organizations do not know the actual costs of delivering their services.  We have a workshop dedicated to this topic, and I encourage any Minnesotans with questions to attend our April training Calculating True Program Costs.  If you don’t live here, or don’t want to wait until April, check out Nonprofit Cost Analysis: Introduction from the BridgeSpan Group.  It’s a thorough introduction and very helpful, although it may not be the most accessible to those without a strong financial foundation.

Update Your Bookmarks!

Intrepid nonprofit accounting guru and friend of the blog Alan Strand has has moved. Not-For-Profit Accounting remains a helpful resource, but for new content from Alan visit Nonprofit Accounting, a resource from the Nonprofit Center in Washington State.

It’s a new year, a new decade, time to turn over a new leaf. Like many of you, I have New Year’s resolutions to get my life (and notoriously messy office) in better shape.

Many nonprofit and social enterprise bloggers have the same idea.  My favorite was Nell Edgington’s ideas about Social Impact Finance:

It’s a new year and a new decade, and both hold tremendous promise for creating real social change.  And key to significant social change is a fundamental restructuring of how we finance that change.  I think (hope) that in the next decade we will see the emergence of a new Social Impact Finance.  And I imagine it will look something like this…

• Nonprofits Understand the Power of Finance. Nonprofit organizations understand and become successful at financing their overall operations, instead of fundraising for them.  And they begin to think bigger about their work, the overall outcomes they are trying to achieve and how finance fits into that (The GiveWell blog did a great series on the “Room for More Funding Question.”)

Another one of her predictions, Individual Donors Become a Powerhouse, echoes Kate’s post, The Year For “Right-Sized” Donations and the outpouring of support we have seen in response to the tragic earthquake in Haiti.

(For more on Haiti, I suggest visiting Philanthropy.com and PhilanTopic, which have done a great job covering this story from a nonprofit and philanthropic perspective.)

2010, The Year of the Board?

Is 2010 the year of the board?  Two blogs I read regularly are focusing on  governance to start the new year:

• Nonprofit Law Blog: 10 New Year’s Resolutions for Your Board
• January Risk Management Tip of the Month: Getting Your Board’s House in Order

Are you looking for ways to help your board of directors take their leadership to the next level? Check out our webinar Financial Clarity for Nonprofit Boards next Friday, January 29th at 2pm CT (3pm EST). This training is a great way to prepare boards to assess and pursue new financial strategies, as well as shore up their understanding of nonprofit financial reports, terminology, and responsibilities.

We offer a range of financial trainings throughout the year.  They are an easy and affordable way to enhance your nonprofit’s financial management. For more information you can visit our website or sign up to receive training updates.

New Year, New Rules

We know there’s a new 990. Since organizations operate with different fiscal years (our Fiscal New Year is also April Fool’s Day) how do you know which form to use? Not-For-Profit Accounting has a short explanation to help you:

When do we file the new 990? Read below or click here for a PDF of a general overview of the instructions.

Calendar year – Use the 2008 Form 990 to report on the 2008 calendar year accounting period. A calendar year accounting period begins on January 1 and ends on December 31.

Fiscal year – If the organization has established a fiscal year accounting period, use the 2008 Form 990 to report on the organization’s fiscal year that began in 2008 and ended 12 months later. A fiscal year accounting period should normally coincide with the natural operating cycle of the organization. Be certain to indicate in the heading of Form 990 the date the organization’s fiscal year began in 2008 and the date the fiscal year ended in 2009.

The Nitty Gritty

There have been many useful guides to the new 990. Here are some of my favorites:

• Not-For-Profit Accounting’s 990 To Do List
• From Guidestar: The Revised Form 990: A How-to Guide for Your Organization
• The Charities Review Council’s New IRS Form 990 Resources
• Eve Borenstein’s Form 990 Tips and Resources

In case you want to go directly to the source, these are updates and resources from the IRS:

• Form 990 Resources and Tools
• Form 990 Case Study – The New Form 990: Getting Started – Video Series Introduction – This series of videos, each between five and ten minutes long, are part of The New Form 990 Getting Started case study. Each video covers a key area of the Form 990, using facts from the case study.
• Form 990 Filing Tips archive
• Questions about Schedule A (Public Charity Status and Public Support) and Schedule L (Transactions with Interested Persons)
• IRS Stay Exempt Mini Course, including special features on how to file the new form and information about the revisions.

This is also a good time to review the Top 5 Compliance Problems for 501(c)(3) Organizations.

For folks interested in taking their analysis to the next level, check out The Door Has Opened: New Form 990 Creates Strategic Opportunities and Risks for Nonprofit Organizations.

Nonprofit Harvest

• What Does Grantmakers’ 2010 Funding Outlook Mean for Minnesota Nonprofits?
• Nonprofit Fiscal Rules for the “New Normal”
• Tips : Third Sector Connector : Nonprofit and NGO Tips, News, Best Practices, Resources
• Nonprofit Managers Say Top Investment Priority Is Having Assets in Spendable Form
• NFF’s State of the Sector Survey

Training for Minnesota Nonprofits, And Beyond

This is an exciting time at Nonprofits Assistance Fund. This week we unveiled our new webinar trainings, which have been in the works all summer.

Photo Credit: jurvetson on flickr

We’re looking forward to having our trainings available to nonprofit leaders across the state of Minnesota, as well as our friends all over the country.

If you have been hoping your friendly nonprofit finance geeks (that’s us!) would visit your neighborhood, the wait is over.  Participate in our webinars and share any thoughts you have about the experience.  We are very excited about this expansion of our training program and want it to be as helpful as possible.  Your participation and feedback will make it a stronger service.

As online learning and communications tools continue to evolve, we’ll do our best to take advantage of new ways to serve the nonprofit community. We’ll continue to ask how technology can enhance our work and deliver services to nonprofits in and outside of the Twin Cities metro area.  If you have ideas for us, share them here, on our facebook page, or contact @NAFund on twitter.

Additional Online Training Opportunities

There are many other online learning options for nonprofit staff and board members.  Here are some interesting opportunities that you can explore to take your work to the next level:

• Foundation Center’s Events Archive (their podcasts are also available on iTunes)
  
• Chronicle of Philanthropy Live Discussions 
• Pro Bono Partnership of Atlanta videos and webinars on nonprofit legal issues
• Arts Enterprise: Art as Business as Art course from UW-Madison and the Artful Manager,  Andrew Taylor (podcasts available through iTunes U)

Reconsidering Your Budget

Last week, Jeanne Bell wrote an excellent article for Blue Avocado, Focus on the Destination, Not the Route (Budget)!   In a nutshell, she is arguing that, especially in an uncertain economic climate, rolling projections and organizational goals are more valuable than an annual budget.

She offers great rationale for why this shift in focus matters, as well as some practical steps to get started, included:

Do a revised projection at the end of the current quarter, and have the management team and the board discuss it. Consider these questions:

• What are the key discrepancies between what’s in the budget and what we now believe is going to happen?
• Given this information, do we need to expect a different financial outcome for the year than what the budget was meant to achieve?
• What changes need to be made in the management of any revenue or expense items?
• What implications are there for the next fiscal year, given the projected financial result of this year?

Nonprofit Harvest: Employee Benefits

This week’s Chronicle of Philanthropy Live Discussion was on Employee Benefits at Nonprofit Groups.  It was a timely discussion, especially given a recent report by the Johns Hopkins Listening Post Project (a summary is available on MCF’s Philanthropy Potluck blog).

The discussion pointed out some useful resources to help nonprofits consider ways to limit costs while still providing benefits and professional development opportunities to their employees:

• Rethinking Benefits for Nonprofit Employees from CommonGood Careers:
• Nonprofit Workforce Action Agenda from Listening Post Project

Transparency as a Planning Tool

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

Cash Reserves and Access to Capital

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.

Minnesota’s Current Conditions

On the heels of last week’s post on the Giving USA annual study, we have more data to digest. MCN recently released their Current Conditions Report for June 2009:

Minnesota’s nonprofits continue to be seriously affected by the recession. Nonprofits are bracing for extended impacts from the reduction in revenue they have already seen and expect to continue to see in the coming months and years.

• Organizations relying on state, local or federal government are seeing varying levels of unreliability in payments to them from government, making it increasingly difficult for organizations to plan accordingly. Exacerbating this is the threat of unallotment for many organizations.
• A majority of organizations report an increase in demand for services, yet many are still having to cut back on staff.
• All major nonprofit revenue sources (contributions, government funding, foundation grants, and earned income) are reported to be down from economic affects.
• Small organizations are feeling the worst affects, with far more reporting declines in revenue and cash shortfalls. Small organizations are also the least likely to have available reserves or a line of credit to fall back on.

These findings are echoed by other studies (here and here).  Although the specifics vary from state to state, and among organization type and size, people in our sector are doing their best to meet demands with fewer resources.

We are all trying to prudently cut costs in ways that minimize the impact on our mission and overall capacity. This is a tall order, especially when combined with increasing needs for service. How do you go about making those tough choices?

A Four Step Framework

Our executive director, Kate Barr and Judy Alnes of MAP for Nonprofits wrote an article for MCF’s Winter Giving Forum, Nonprofit Survival: Four Steps to Take Now:

Economic uncertainty and the threat of impending doom are not unfamiliar territory for nonprofit organizations. We’ve lived through multiple downturns and have “right-sized” ourselves time and time again. Philanthropic organizations have done likewise.

But something feels uncharted about this downturn. Perhaps it’s the fact that it has fallen on the heels of a downturn from which we never really recovered. Perhaps the global nature of the economic stress makes us see ourselves in a broader context. In any event, this fire is real and hot.

Then they lay out four steps to help you make decisions:

• Focus
• Identify Your Most Important Work
• Seek and Speak Financial Truth
• Review Size, Scope and Structure

Read the rest of the article for more information on this helpful framework.

Other Resources

• Improving Cash Flow Management In Challenging Times: A Primer from Nonprofit Quarterly
• Our Cash Flow Template and Nonprofit Scenario Planning Tools
• Nonprofit Layoffs and Furloughs: Do Them Right from Blue Avocado

More resources are available at Sustenance in Lean Times, our resource collection.

This Week’s Harvest

• Governor’s Unallotment Plan
• Check out the Nonprofit Quarterly’s Daily Digest – the Nonprofit Newswire
• Strategies for Hard Times: The Case for Sustainable Funding
• Charities Review Council unveiled a draft of their updated Accountability Standards
• Recession Resources for Artists and Arts Organizations