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Nonprofit Finance Fund This report was made possible with funding from Funder Wells Fargo Advisors Nonprofit Services Cent...
The Role of Financial Intermediaries  <ul><li>Capital </li></ul><ul><ul><li>Make loans to underserved communities many of ...
The Current NPO Challenge: Retool for success after the recession <ul><li>Nonprofits must make difficult financial and org...
Stability through Balance and Alignment <ul><li>Why do so many nonprofits run into financial difficulty in spite of having...
Mission Support (Subsidy Business) <ul><li>Since we can rarely charge prices sufficient to cover our costs, nonprofits req...
It ’ s  easier  and  cheaper  to raise money for: Program Expansion ( start a new program, expand services) than for Capit...
How Diverse Should Revenue Be <ul><li>NFF examined data, drawn from IRS Forms 990, from 1085 youth-serving organizations i...
Are Diversified Organizations More Profitable? Percent Profitability by Number of Revenue Sources Note: Data from NFF stud...
<ul><li>Operating results are consistently  positive </li></ul><ul><li>Balance sheet is  strong  and right for  your  busi...
Financial Reporting Tips (1 of 2)  <ul><li>Organizations should create reports that provide timely, accurate and  actionab...
Financial Reporting Tips (2 of 2)  <ul><li>Eliminate the practice of  ‘ special ’  or  ‘ one-off ’  reports that increase ...
Cash Flow Management <ul><li>Plan and monitor monthly cash needs by analyzing the timing and reliability of revenue and ex...
Collaboration Nation <ul><li>Rule #1- A negative multiplied by a negative does not result in a positive (only in math clas...
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NSC.St.Louis.morning.0809.ppt

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NSC.St.Louis.morning.0809.ppt

  1. 1. Nonprofit Finance Fund This report was made possible with funding from Funder Wells Fargo Advisors Nonprofit Services Center “ Helping Nonprofits Through Tough Times” Presented by: Dione Alexander, V.P. Midwest Region Nonprofit Finance Fund Detroit, MI 313-965-9145 August 19, 2009 St. Louis, MO
  2. 2. The Role of Financial Intermediaries <ul><li>Capital </li></ul><ul><ul><li>Make loans to underserved communities many of which serve low wealth populations </li></ul></ul><ul><ul><li>Provide incentive to traditional lenders to support NPOs by participating in and buying and selling loans </li></ul></ul><ul><ul><li>Pool and leverage varied funding sources such as tax credits </li></ul></ul><ul><ul><li>Structure and underwrite program and mission-related investing activities of foundations </li></ul></ul><ul><li>Advice </li></ul><ul><ul><li>Provide financial literacy training for board and staff </li></ul></ul><ul><ul><li>Guide strategic decision making through assessment of financial capacity </li></ul></ul><ul><ul><li>Deliver financial planning tools and services such as program profitability, cash flow and scenario planning </li></ul></ul><ul><ul><li>Business enterprise modeling for scaling, growth capital, and change management </li></ul></ul><ul><li>Advocacy </li></ul><ul><ul><li>Develop research and knowledge tools to support best practices for NPOs and sector </li></ul></ul><ul><ul><li>Provide leadership in dialogue around NPO money matters with government, corporate, and philanthropic community </li></ul></ul><ul><ul><li>Assist NPOs with understanding relationship between money and mission and communicating metrics to stakeholders </li></ul></ul><ul><li>Collaboration </li></ul><ul><ul><li>Facilitate strategic mergers and alliances via through a rigorous process to ensure transparency, financial discipline, and likelihood of success </li></ul></ul><ul><ul><li>Share networks, and bridge relationships between NPOs </li></ul></ul><ul><ul><li>Support and inform community coalitions, management support organizations, CDFIs, and other initiatives </li></ul></ul>
  3. 3. The Current NPO Challenge: Retool for success after the recession <ul><li>Nonprofits must make difficult financial and organizational decisions that address immediate needs without making them structurally weaker in the long term. Money is the determining factor driving choices </li></ul><ul><ul><li>NFF surveyed 1,100 NPOs </li></ul></ul><ul><ul><li>Only 12% expect to exceed break even this year </li></ul></ul><ul><ul><li>Only 16% expect to cover operating expenses in 2009 and 2010 </li></ul></ul><ul><ul><li>1/3 have less than 30 days cash </li></ul></ul><ul><ul><li>30% have only 90 days of cash </li></ul></ul><ul><ul><li>56% would like access to financial planning tools </li></ul></ul><ul><ul><li>52% want help with conveying their financial story to funders </li></ul></ul><ul><ul><li>44% and 62% respectively expect decreases from government and foundation sources </li></ul></ul>
  4. 4. Stability through Balance and Alignment <ul><li>Why do so many nonprofits run into financial difficulty in spite of having excellent programs? Establishing a balance between mission (what you do), capacity (the people, places, and processes that support mission) and capital (the resources you and assets you have) is critical for sustainability. </li></ul>Mission and Program Capacity Capital
  5. 5. Mission Support (Subsidy Business) <ul><li>Since we can rarely charge prices sufficient to cover our costs, nonprofits require mission support businesses </li></ul><ul><li>Nonprofits use subsidy businesses to make up the money lost on every “widget” made or provided </li></ul><ul><li>Common subsidy businesses include: </li></ul><ul><ul><li>Sweat equity (underpaying, overworking, using volunteers) </li></ul></ul><ul><ul><li>Fundraising </li></ul></ul><ul><ul><li>Investment income </li></ul></ul><ul><ul><li>Real estate (rental income) </li></ul></ul><ul><ul><li>Earned income ventures </li></ul></ul>
  6. 6. It ’ s easier and cheaper to raise money for: Program Expansion ( start a new program, expand services) than for Capital Expansion (new facilities, endowment) than for Program Continuation (continuing programs without growth) than for Overhead (administrative expenses, spike with growth) than for Capital Maintenance: Physical & Organizational (depreciation, research and development, retraining of staff ) How Diverse Should Revenue Be Hierarchy of Funding: Ease vs. Risk
  7. 7. How Diverse Should Revenue Be <ul><li>NFF examined data, drawn from IRS Forms 990, from 1085 youth-serving organizations in five states (CA, FL, IL, NY, TX) </li></ul><ul><li>Data drawn from a spectrum of nonprofit youth serving agencies, including youth recreation, youth and family services, and primary d secondary education </li></ul><ul><li>All had annual expenses of at least $1M in all six years examined </li></ul><ul><li>We asked ourselves: </li></ul><ul><ul><li>Does increasing the number of major revenue categories lead to improved profitability? </li></ul></ul><ul><ul><li>What might be some financial consequences of concentrating in particular areas (e.g., govt. vs. private)? </li></ul></ul>
  8. 8. Are Diversified Organizations More Profitable? Percent Profitability by Number of Revenue Sources Note: Data from NFF study of 1085 youth-serving nonprofits
  9. 9. <ul><li>Operating results are consistently positive </li></ul><ul><li>Balance sheet is strong and right for your business </li></ul><ul><li>You can anticipate and prepare for cash flow shortfalls </li></ul><ul><li>You can predict year-end results accurately </li></ul><ul><li>Internal systems allow you to adjust quickly to unexpected financial developments </li></ul><ul><li>Your board understands the organization's financial condition and how it relates to program decisions </li></ul><ul><li>You can evaluate the reliability and longevity of your most important sources of revenue </li></ul><ul><li>You calculate and raise revenue to cover the full, all-inclusive costs of your services </li></ul>Sound Financial Management-What Does It Look Like?
  10. 10. Financial Reporting Tips (1 of 2) <ul><li>Organizations should create reports that provide timely, accurate and actionable information on which to base management decisions. </li></ul><ul><li>Prepare monthly or quarterly Income Statement & Balance Sheet </li></ul><ul><ul><li>Compare actual results to budget and to actual results in prior year </li></ul></ul><ul><ul><li>Project year-end results to reflect material changes to budget </li></ul></ul><ul><ul><li>Consider preparing a profitability analysis for each program </li></ul></ul><ul><ul><li>Segregate temporarily restricted and non-operating revenue </li></ul></ul><ul><ul><ul><li>Focus on unrestricted revenue (including revenue released from restriction) available to support operations </li></ul></ul></ul><ul><ul><li>Set and monitor balance sheet goals: working capital and reserve amounts, payments of debt principal, investments in fixed assets, etc. </li></ul></ul><ul><ul><li>Include brief Narrative Report containing: </li></ul></ul><ul><ul><li>Executive Summary of highlights and areas of concern </li></ul></ul><ul><ul><li>Fundraising snapshot or update </li></ul></ul><ul><ul><li>Both Income Statement & Balance Sheet metrics </li></ul></ul>
  11. 11. Financial Reporting Tips (2 of 2) <ul><li>Eliminate the practice of ‘ special ’ or ‘ one-off ’ reports that increase the chances for mistakes and misinterpretation. </li></ul><ul><ul><li>Resist the temptation to create ‘ back of the envelope ’ calculations </li></ul></ul><ul><ul><li>Reports should be consistent throughout the organization (Is everyone seeing the same numbers?) and consistent each period (Are we comparing ‘ apples-to-apples ’ ?) </li></ul></ul><ul><li>Determine appropriate level of detail for management/staff/board </li></ul><ul><ul><li>Board/program staff may want more high-level reports </li></ul></ul>“ A lot of information they [the board] were getting was modified, adjusted, confusing. The weekly financial reports …were 80 columns wide, but the three numbers you’d need to really get the picture weren’t there.” -- an auditor for the Milwaukee County commenting on a Milwaukee nonprofit.
  12. 12. Cash Flow Management <ul><li>Plan and monitor monthly cash needs by analyzing the timing and reliability of revenue and expenses </li></ul><ul><li>In so doing, the organization will be able to estimate how much cash it should keep on hand and, if appropriate, how much short-term debt it may need to access for the extra tough months </li></ul><ul><li>It is important to distinguish between “cash flow” issues (dealing with timing of receipts) and “cash” issues (dealing with a shortage of revenue to cover expenses) </li></ul>
  13. 13. Collaboration Nation <ul><li>Rule #1- A negative multiplied by a negative does not result in a positive (only in math class) </li></ul><ul><li>Collaboration works best when two or more organizations each has strengths to contribute </li></ul><ul><li>Leadership must be committed to partnership, idea sharing </li></ul><ul><li>Rule #2-One size does not fit all </li></ul><ul><li>Collaboration- No decision making power ceded. Can be as simple as collective advocacy, referrals, sharing space or a resource </li></ul><ul><li>Alliances-Share decision making. Services and programming can be contracted, shared, exchanged, or integrated </li></ul><ul><li>Integration-Corporate structure changes. Organizations may merge or dissolve </li></ul>

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