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.

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

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

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

We’re very excited that our executive director, the “wildly practical Kate Barr,” is featured in this month’s Nonprofit Quarterly.  Her article, Improving Nonprofit Decision Making amid Economic Crisis, highlights the importance of taking action:

Over the next year or two, budgetary challenges are clearly in the cards, and there are likely to be successive and different situations requiring action. Change may be inevitable, but the impact of this change on an organization depends on which decisions are made and how.

Although Kate doesn’t use the old adage “Never put off until tomorrow what you can do today,” she does illustrate the dangers of allowing a problem to “fester until it [becomes] a crisis.” She also offers some suggestions for how to improve organizational decision making.

After reading the article, you can use our resources to start making decisions at your organization.

• Cash Flow Template
• Scenario Planning Worksheet

This Week’s Harvest: Frequently Asked Questions

Audits

Not-For-Profit Accounting returns to answer some frequently asked questions, starting with questions on audits:

Our nonprofit is getting ready for our first audit.  What are we supposed to do, and what does the auditor do?

You should receive a letter of engagement from the auditors that helps spell out the relationship.  You’ll also get a lists of things to do and get ready before the auditors come to your offices for the field work.  This article also talks about the process.  But if you have any questions you should ask your auditors before things get going to avoid any confusion and additional cost.

Read more about audits in Balancing the Mission Checkbook and see what other FAQ’s Allan tackles in blog post.

Collaboration

• Mergers seem to be the hot topic these days. But there are many ways to collaborate beyond mergers. The Foundation Center provides information on different types of strategic alliances, including few different typologies, which underscores the range of possible collaborations.

Stimulus

• 2009 Recovery Act Resources for Nonprofits from MCN’s Public Policy team

• Want Stimulus Money? Act Fast! from Fieldstone Alliance

• Special Reports on Economic Stimulus & Recovery from the National Council of Nonprofits

Alan at Not-For-Profit Accounting sees a silver lining in the recession - a greater focus on nonprofit operations:

I have read more articles about not-for-profit operations, administration and finance recently than I think I have in the last ten years. And they have been positive. They have spoken of the need for organizations to look at how their finances and operations are handled, to make sure they have the systems in place to be able to figure a) out exactly where they stand financially and b) what to do going forward as far as budgeting, cash flow and capacity.

While I’m not happy about the pain that will be felt by many organizations and the populations they serve I am pleased that these discussions are taking place and that we will end up with a stronger sector once this crisis passes.

Check out his post,  Money Managing in Challenging Times, for a collection of tools and resources to help your organization.

HR Resources

COBRA Updates

• Health Insurance: A Bit of Good COBRA News (Blue Avocado)
• COBRA Premium Reduction in the Recovery Act (MCN)

Ask Rita

A regular Blue Avocado feature is Ask Rita in HR:

Rita in HR is actually two HR attorneys in one: Ellen Aldridge and Pamela Fyfe, both of the Nonprofits Insurance Alliance Group. They advise nonprofits on wrongful termination, wage & hour, discrimination, harassment, and other employment issues.

Recent topics include: 

• Downsizing from Employees to Independent Contractors?
• Nonprofit Layoffs and Furloughs: Do Them Right
• A Family and Medical Leave Act Checklist