Dealing with Uncertainty

McKinsey Quarterly’s article, How managers should approach a fragile economy cautioned business managers that the economic uncertainty is far from over. Uncertainly is something that nonprofit financial managers are well acquainted with. McKinsey continued with some suggestions for managing in this environment:

What else must companies do these days to survive and thrive? First, they must drop the pretense that they can predict the future. Second, they must continue adapting their management processes and capabilities with an eye to making better decisions under uncertainty—for example, by abandoning the fixed calendar and planning schedules typical of annual budgeting and operating processes. This change will require a shift to monitoring macroeconomic indicators in real time, something akin to “just in time” manufacturing approaches applied to decision making. It also means building greater flexibility into strategic activity by putting a greater focus on acquiring options, contingency planning, and the use of stage-gating techniques for committing resources.

If you want to employ some of these suggestions at your nonprofit, we have resources that can help.

Cash Flow

• Cash flow template
• Projecting and Managing Cash Flow Webinar

Scenario Planning

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

Additional Resources

• For more on scenario planning, check out Contingency and Scenario Planning – What’s the Difference and How Do Nonprofits Get Started? from PhilanTopic.
• To learn more about adapting your budget for greater flexibility, read Blue Avocado’s article, Focus on the Destination, Not the Route (Budget)!

Nonprofits are Awesome

The Harvard Business Review’s The Awesomeness Manifesto questions the constant calls for innovation.  Instead of innovating, it suggests that businesses should focus on what is awesome about their product or service:

Love. You know what’s funny about walking into an Apple Store? The people working there care. They don’t just “work at the Apple store” — they love Apple…the goal of Apple Store employees is simply to show off their awesomeness, and let you share it [rather than sell a product]. Love for what we do is the basis of all real value creation.

Reading this, I was struck by how much love exists in the nonprofit sector. We are here because of the mission.  How can we better tap into this love, the awesomeness of what we do?

Some more food for thought at the Nonprofit Quarterly’s article, Nonprofits: We Must Start Beating the Drum and the v3 campaign’s efforts to raise the profile of our sector.

Nonprofit Harvest – Updates on the 990

• IRS Releases Tips for Attachments to the Form 990 Tax Return
• IRS and 990 Resources from Not-For Profit Accounting
• Sample Policies:
  • Board Operations from the Community Foundation of Sarasota’s Nonprofit Resource Center
  • Model Documents and Policies from the Charities Review Council

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

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

This week has been a mix of optimism and pessimism. When I saw a blog post titled Innovation in a Recession, I had to read more. It directed me to this post, which summarizes the opportunities Tim Draper, a venture capitalist, sees in the current economic climate.  Although I don’t agree with all of his ideas, I appreciate his willingness to reframe this moment:

Don’t panic and don’t cling to the past as it will be a new game. We need to all stick together to solve our current problems. We face not only a crisis but many opportunities for new innovation.

I think that this framework segues nicely with Blue Avocado’s suggestion to declare an emergency:

An emergency doesn’t mean people should panic . . . an emergency means considering the bold and wacky ideas that are either brand new or used to be off the table.

Transformation

For some thoughtful analysis on what the future could hold for the nonprofit community, I suggest reading Paul Light’s recent article in Nonprofit Quarterly, Four Futures.  The entire piece is worth reading, but for the moment I want to focus on the forth possible future:

Transformation. This fourth scenario is hopeful but different, and it is likely only if nonprofits make it so. As has been noted in several of this issue’s articles, nonprofits could use the faltering economy and its impact on the sector as an opportunity to reinvent themselves. But this approach requires examining all possible options quickly and creatively. In state budgets, should certain services be saved over others? Are there ways to redesign organizations to achieve greater synergy between community players? Are there ways to involve communities in rethinking and reenergizing our work? A transformation-oriented approach requires deliberate and collective action by the sector’s stakeholders: communities, philanthropists, governments, intermediaries, constituents, nonprofit associations, and boards.

He goes on to list some strategies for moving towards this more hopeful future.

This Week’s Harvest

Considering the Inauguration

• America’s Greatest ‘Public Works’ by Clara Miller in Chronicle of Philanthropy

• Foundations Should Step Up as Obama Steps In by Mark Kramer and Amber Johnson for Chronicle of Philanthropy

On the Proposed Stimulus Package

• Economic-Stimulus Package to Help Nonprofit Groups Meet Social Needs from Chronicle of Philanthropy

• State fiscal aid key part of federal economic recovery package from Minnesota Budget Bites

• Economic Recovery Bill Would Add Little to Long-Run Fiscal Problem from CBPP

On the State Budget

• Minnesota Budget Bites

• MPR’s coverage of Minnesota’s budget shortfall

• Pawlenty’s deficit plan: Freeze, cut from the Star Tribune

Additional Articles and Resources

• When Good Data Goes Bad from Minnesota Budget Bites

• When the Ax-Man Cometh: What to cut out of your budget from Katya’s Marketing Blog

• A giving recession? from The Economist

• Great Depression Giving- Data sources part two in Philanthropy 2173