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

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

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

A few weeks ago, Blue Avocado published a great post about the value of Dashboard reports:

Imagine getting a dashboard like this at every board meeting. With a glance, board members could see how the organization is doing and start asking the important questions. The board would also be able to discuss what indicators should be added to the dashboard and which might not be necessary…

It’s hard to imagine driving a car without quick, ongoing access to a speedometer, fuel gauge, or gear position. An organizational Dashboard can be the same, fast way to check in on basics . . . so you can pay more attention to where you’re going.

It was a timely article, because we had just revamped our own dashboards.  We wanted to make sure we were giving the board and staff the most useful metrics about our finances, programs, and other work.  The end result is more useful dashboard for board and staff, but just was useful was a by-product of the process.  It forced all of us to take a step back and consider what information we’re sharing and why.

As the Blue Avocado article states, it doesn’t tell us where we’re going, but it provides critical information that allows us to focus on our work and the road ahead.  A tool that helps you cut through the noise and focus is a great asset.

For more on dashboards, read What Gauges Belong on Your Dashboard? or Seth Godin’s post, Dashboards.

Overhead

There is an interesting debate swirling about nonprofit overhead expenses.  Are they an investment in infrastructure,  money that could be better spent on programs, or something in between? Do donors care?  Should they?  This is Kate’s take:

Here’s my soapbox

I agree that it’s wise to “Do the same due diligence on your donations that you would your investments or your business.” But when I review an investment opportunity, I review based on the expected criteria for a successful business – profitability, market share, and returns. I don’t review their overhead and management costs. So why would overhead be the criteria for a charity?

…Do some due diligence on charities before you donate, just as you would for an investment or business opportunity. Pay especially close attention to how successful the nonprofit has been at achieving its mission. Do they provide information about how effective their programs are and what impact they have on the people and communities that they serve? Do they have a way to measure and communicate progress and/or success?

Join the conversation at Balancing the Mission Checkbook, facebook, or follow the example of Rich Cowles from Charities Review Council and blog about your position.

Late July Harvest

Mergers

• Joining Forces in the Back Office – Lodestar Foundation Resources
• Nonprofit mergers: Putting the best foot forward

IRS Updates

• IRS Releases Final Regulations for Returns of Small Groups
• IRS Training Materials – Governance

Other Resources

• Workshop Resources, Questions and Answers
• Nonprofit Leadership 601: New to Running a Nonprofit: Here’s an Overabundance of Resources
• Turning Crisis Into Opportunity: A Conversation With Two Nonprofit Sector Leaders

Crowdsourcing: What’s Working, What’s Not

A few weeks ago, Kate issued a call for “stories of change and transformation” and in the comments we talked a little bit about how we could leverage the power of our online community and crowd source this. I’ve had a few conversations about tools and tags, but before we jump into tactics, I wanted to ask:

• Is this happening elsewhere?
• Is anyone interested is collaborating on this kind of project?

Let me know in the comments.

This week, Giving USA released their report on 2008 giving.  As nonprofits can attest, it was a rough year.  According to the study, total giving decreased by 5.7%, with donations down across the board.

• Individual giving: -6.3 percent
• Foundation grantmaking: -0.8 percent
• Corporate giving: -8 percent
• Charitable bequests: -6.4 percent
• Two-thirds of public charities experienced a decline in donations.

However, even in the worst economic climate since the Great Depression, charitable giving exceeded $300 billion.

Over at Tactical Philanthropy, Sean does some excellent analysis in his post How Much Did Americans Really Give in 2008?

So what’s the take away? I would say that the best way to think about charitable giving in 2008 is that it contracted sharply, but that the contraction was less than many people feared and the total amount given was within the range of the level of giving seen over the past few years. Giving as a percentage of GDP was 2.2%, within the normal range and very close to the 2.3% of GDP that was given in 2007…

Charitable giving behaved more or less as it normally does when the economy sours. This is, by most measures, the worst recession in a very long time and so we’re seeing charitable giving get hit. But it is only declining in line with the way it normally behaves.

As a reminder, if this recession is similar to other economic downturns, it will take the philanthropic/nonprofit sector longer to recover than the rest of the economy.  The Giving USA authors commented in a discussion hosted by the Chronicle of Philanthropy that this recession resembles the one in1974 , when took three years for giving to rebound.  However, they cautioned against assuming that this would be an accurate guide, noting the changes in the world and the nonprofit sector.

Related Coverage

• Charitable Donations Fell by Nearly 6% in 2008, the Sharpest Drop in 53 Years
• Charitable Giving Fell by 2 Percent in 2008, ‘Giving USA’ Says

Other Giving Reports

• Foundation Center 2009 Foundation Giving Forecast
• 2009 Giving Forecast by Minnesota Grantmakers
• MCF 2009 Outlook Report

What’s a nonprofit to do? Start contingency planning

During the Giving USA chat, someone brought up the question of budgeting amidst so much uncertainty:

Question from Hazel, animal charity: How can one do any financial planning or construct a budget for the coming year when it may even be worse than last year and no one knows whom we can depend on?

Nancy Raybin:  Agree on different scenarios, e.g. economy gets worse by 10 percent, economy levels; economy gets better by 10 percent. Make some hypotheses about the impact of different scenarios on your animal charity’s activities and what donors are likely to do. Then prepare different budgets for each scenario. Clearly, you know best how animal lovers respond in these times. You must also have a number of donors on whom you can depend. Focus on those.

Sometimes it feels like I’m beating the scenario planning drum all time, but it really is the best advice we can give to help nonprofits plan and adapt in these uncertain times. Download and use our tools to get started.

This Week’s Harvest

• A Nonprofit News Round-Up from Not-For Profit Accounting,  including:
  • Bringing the Stimulus Plan Home: Obama’s Effect on Nonprofit Jobs
  • 7 Things To Consider For Your D&O Policy
• British Charity Mergers Examined
• FASB Releases Standard for Nonprofit M&A

Recently there’s been a lot of chatter about nonprofit wages in the blogosphere and beyond. Debating these questions is important, but in this age of tight budgets, are there any steps an organization can take to improve employee compensation right now? Especially for lower wage employees who are critical to an organization’s success, but are sometimes left out of this conversation.

Blue Avocado gets to the heart of the matter in the article Low-Wage Workers and Nonprofits:

While raising salaries would be, by far, the best way to support these important staff, doing so isn’t possible for most nonprofits: certainly not in the short term, and often impossible for the long term given business models and funding constraints…

Although the challenge of providing adequate compensation to low-wage employees may seem overwhelming, especially during a financial crisis, the fact is that nonprofits, consultants and funders can consider a number of helpful options without torpedoing the budget.

The article offers a range of options, which fall into three main categories:

• Steps to take relatively quickly at little or no cost
• Intermediate steps
• More far-reaching steps

These ideas are not intended to replace a real conversation about wages, especially one that goes beyond executive compensation.  But they are a place to start. Add your thoughts and suggestions here or leave a comment at Blue Avocado.

Related HR Resources

Not-For-Profit Accounting shares some information from the intersection of HR and accounting.  This post unpacks the sometimes woolly world of employee classifications — exempt vs. nonexempt, independent contractor vs. employee — and provides information on payroll systems.

If you have specific questions about nonprofit account, I suggest submitting them to Alan.  His regular Q&A feature is a great resource for financial managers.

New Resource Collection

Blue Avocado has compiled all of their articles about nonprofits and the economy. Visit this archive for information on financial management, HR, and more.

Harvest

• IRS Form 990 Filing Tips: Part VI, Governance 
• Nonprofit Policy News | May 2009
  • Federal Legislative and Regulatory Developments
  • IRS makes public its 2009- 2013 strategic plan
• Free Foundation Center Widgets
• Charities Loosening Strings on Arts Grants

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

The first topic was Financing Options, which included information about loans, PRIs, and other financing options.  Coincidentally, at the same time we were hosting a Social Enterprise Network on capital sources and touched on many of the same topics.

This week’s post gathers definitions and resources shared by participants of both discussions. For more details, I suggest you read the transcript at the Chronicle of Philanthropy’s website or Not-For Profit Accounting’s summary.

Program Related Investments (PRIs)

A PRI is a tool foundations can use to provide capital to nonprofit organizations.  It is more like a loan than a grant because it must be repaid or otherwise provide a return for the foundation.  In their PRI Primer, the PRI Makers Network lays out the benefits of these investments:

PRIs give charitable organizations or commercial ventures access to needed capital, typically at favorable terms. In return, the funder benefits in several ways:

• It is often able to recycle PRI payments for subsequent charitable investments.
• The foundation is generally able to count PRIs toward its minimum five percent payout of net assets.
• PRIs allow foundations of every type and size to have greater programmatic impact.

Resources

• The Hidden Gems of Foundation Funds from Balancing the Mission Checkbook

• What is a Program Related Investment? from the Foundation Center

• PRI Makers Network

• Program-Related Investing guide from Grantcraft

• Calvert Foundation

Community Development Financial Institutions (CDFIs)

Community Development Financial Institutions are vehicles to foster economic growth and ensure access to capital in urban and rural low-income communities.  Many CDFI’s focus on affordable housing and economic development activities.  Others, like Nonprofits Assistance Fund and Nonprofit Finance Fund, specialize in providing credit and financial training to nonprofit organizations that serve low-income and underserved populations.

• Learn more about the CDFI Fund

• To find a nearby CDFI, use the Member Locator on Opportunity Finance Network’s website

Loans and Lines of Credit

Clara Miller issues an important reminder that “loans are never a substitute for revenue” and makes an excellent case for when credit makes sense for your organization. For more information you can also read our Borrowing Guide.

Download our Cash Flow Template to help assess whether or not credit can help your organization bridge a gap caused by grant timing, delays in government reimbursements, or other accounts receivable.

Nonprofit Harvest

• Now What?

• Nonprofits Buying Into Franchises from The Nonprofit Times

• State And Local Governments Consider Fees on Nonprofit Groups

On Thursday, May 7th the Obama Administration presented their 2010 federal budget.  Here are a few resources to help you understand how these budget decisions may impact your organization.

• The Chronicle of Philanthropy has a good overview, Nonprofit Groups Receive Mixed Results in Obama’s Budget.

• Minnesota Budget Bites participated in the telephone budget briefings that highlighted key aspects on the budget.  Read their takeaways here.

• Learn more about what this budget means for your state with the OMB’s state by state fact sheets.
  • Minnesota

• If you’re on Twitter, follow the conversation under the #budgetnp hashtag

2009 Giving Forecast

This week the Minnesota Council of Foundations issued an update on how Minnesota’s foundation are responding to the economic crisis.  I suggest carefully reviewing the information to see if your funders giving priorities or guidelines have changed.

For organizations outside of Minnesota, the Foundation Center is doing a great job of gathering information and analysis on the philanthropic community, including a similar giving forecast for national funders.

Foundation Updates

• Despite Decline in Assets, Foundations Are Responding to Those Affected by Recession

• Responding to Economic Turmoil in the Arts

This Week’s Harvest

• Filing the E-Postcard?  The deadline is next Friday, May 15th.

• Nonprofit News Roundup: Laws and Money from Not-For Profit Accounting

• What’s the Point of a Nonprofit Board, Anyway? from Blue Avocado

• The Chronicle of Philanthropy and the Nonprofit Finance Fund are offering a special series of live discussions on Financial Management in Tough Times.
  • Thursday, May 14: Financing options
  • Thursday May28: New ways for arts organizations to finance their operations
  • Thursday June 11: The changing role of foundations
  • Thursday June 25: Making capital campaigns work in the recession

National Volunteer Week honors the important work of volunteers in our communities.  It seems fitting that President Obama signed the Serve America Act during this time.

In addition to encouraging service, the legislation includes capacity building resources specifically designed for small to mid-sized organizations. For more information, read Kate’s thoughts or learn more about the Serve America Act.

Volunteer Management Resources

We know that volunteers provide a great boost to nonprofits, but they also require specific management resources.  Here are some tools to help nonprofits get the most value out of their volunteers:

• Tracking Volunteer Time to Boost Your Bottom Line: A Complete Accounting Guide from Blue Avocado
• Value of Volunteer Time from Independent Sector

Nonprofit Accounting

Speaking of accounting systems, Alan at Not-For-Profit Accounting makes an excellent case for their importance:

We go into the sector because we care about the mission, making a difference, building community, or any other number of reasons.  Not so we can crunch numbers.

But some people are shocked when they realize just how much regulation, filing and paperwork comes with a tax exempt status…The more time it takes to hammer those reports together, the less time you have to do other things like mission and fundraising work.  The harder it is to compile good financial information, the greater the likelihood of it not being as accurate as it should be.  As has been stated more than a few times,  you can’t figure out what you are going to do financially if you don’t know where you stand right now.  Good cash flow planning and budgeting can only be done if you have a system in place that can get you usable information in a timely fashion.

His post, Why You Need an Accounting System also provides resources to help you get you started.  For more ideas on what questions to ask if you need to develop your own system, read Help! We need an accounting system!

This Week’s Harvest

• Two-Thirds of Foundations to Reduce Grantmaking in 2009 from PhilanTopic
• Helping Themselves from the Wall Street
• The Recession Brings Tough Challenges and Opportunities, Say Experts on Socially Run Businesses

If you are looking for volunteer opportunities in the Twin Cities metro area, I suggest visiting HandsOn Twin Cities or MAP for Nonprofits.