CEO Survival: Thou shalt not get (too far) ahead of thy board

It’s the first commandment of nonprofit CEO survival: thou shalt not get ahead of thy board. At least, not too far . . . But you do need to be a little ahead of them . . . Just not so much that they notice and get offended.

If you’re confused, you’re not alone. Most veteran nonprofit CEOs have a sack full of stories about interactions with their board. One of the mistakes that is most frustrating — and potentially damaging — is getting too far ahead of a board of directors. The result is the collapse of a seemingly promising idea or policy change, and possibly a severe dent in the CEO’s credibility.

What follows are some thinking points to help negotiate this always treacherous interpersonal whitewater. The central premise of each approach is simple: Ideas and concepts are easily discussed and changed, and this is the proper role of leadership, including the board. Plans are also easily changed, but the effort that goes into them increases the commitment to their plans. Stick with ideas in the boardroom, plans outside of it.

Too far out on growth (Egos and economics)

Two of the most powerful motivators swirl around the intersection of the CEO and the board: ego and economics. By tax law, neither board members nor executives can have a private ownership stake in a nonprofit. But the executive (and other staff) have a potential economic interest, in the form of salary and benefits, financial stability, and improved systems. They also have an ego investment in the form of pride of performance. Together, these constitute a compelling package. This is one of the many reasons why executives will be more likely to propose growth strategies than will board members.

Board members can only invest their egos, so when presented with plans for growth their biggest ego investment can often be summed up in the question: “What if it fails?” This is one of the reasons why board members will be more likely to oppose growth than will executives.

To avoid getting too far out on growth, the CEO can frame the proposed expansion in terms of organizational ego. This approach might use arguments such as “this is an extension of what we already do well” and “if we don’t do this, [another organization] will, but we’re much better at it.”

Too creative (Divergent and convergent thinkers)

During the 1960s, a researcher named Joy Paul Guilford suggested that people think in two different ways — divergent or convergent. Divergent thinking is creative in nature, while convergent thinking seeks the “right answer.” Most individuals are instinctively comfortable with only one of these approaches.

Nonprofit CEOs, because of the nature of their pro- scribed roles, are more likely to engage in creative thinking. Boards are more likely to prefer discovering the “right answer.” This also tends to be true because the CEO is usually more knowledgeable about the field than the board as a whole, since board members are typically volunteers without extensive opportunities to learn about the sector. This tendency of boards to seek the “right answer” also explains why so many motions are passed unanimously.

The creative (divergent) CEO will sometimes have a difficult time with the board because of this difference in thinking styles. When the CEO is too creative for the board’s taste, outsiders such as authorities, respected peers, and consultants can often be a buffer. Note that the board doesn’t necessarily want to diminish the CEO’s creativity – which they probably respect. They want to find independent reassurance that they’re on the right path. Convergent thinking is often done in stages. We drill down to the first correct answer, then the next one, then the next. Bringing the board along might also need to happen in stages.

Acting before deliberation (Getting it done versus deliberating over it)

CEOs are in charge of getting stuff done. Boards are in charge of deliberating about stuff. The tension is obvious. Putting these two approaches carelessly together can result in wasted time, hurt feelings, and worse.

While taking action and deliberating policies are about as different a pair of activities as it is possible to have, a little role clarity will help things go more smoothly. Translation: with a little mutual candor, the CEO won’t always be trying to jump ahead while the board won’t always be trying to slow things down.

At the risk of oversimplification, boards make choices and executives make decisions. Individuals tend to be good at sizing up a situation, making a decision, and carrying it out. Groups, on the other hand, are simply better at refining and improving ideas, plans, and strategies. The CEO will not get dangerously in front of their board if they build in the opportunity for its members to sincerely try to improve the quality of the CEO’s decisions.

This is not second-guessing. It has been proven that groups  that  emphasize  collegial  conversation  and  can evaluate  themselves  honestly  make  better  decisions than  do  individuals.  The inevitable problem is process and time required to get there. Researchers have also shown that people tend to have an exaggerated sense of their own individual capabilities, which is why the CEO/board split can be particularly intense.

The ideal situation exists when an executive’s approach to an issue is vetted by the board in a supportive way. This fits the expected roles — the CEO by definition has to be the public face of the organization, while the board should concentrate on the quality of the outcome (the choices above).

Too risky (Lead with ideas, not plans)

It will come as no surprise to veterans of nonprofit board rooms that CEOs can get too far out in front of their boards on all matters involving risk. This is a structural inevitability — the CEO (as well as other executives) is almost required by the uniqueness of their position to be the designated risk-taker.

The real challenge from a risk management perspective is how quickly the CEO can bring the board around to their position. Considering the baked-in conservative nature of most nonprofit boards as described earlier, this could take some time.

One good way to gain board support for a strategic risk is, again, to lead with ideas, not plans. This is one of the reasons why good strategies, as opposed to strategic “plans,” are not filled with details such as assignments, dates, and activities. Most boards go through three stages of reaction when confronting new ideas for the first time: learning, analysis, and acceptance. Committing to details too soon disrupts this flow and can waste time.

Leading with ideas also makes it possible to work through various scenarios without committing resources. If the dialog is genuinely open it enables the board to safely explore the risks abstractly before encountering them in real time. Note that all parties must be sincere about this process. It can lead to long board meetings, but the offset is that board members will be more committed and will usually report greater satisfaction in their roles.

Another way to avoid getting too far out front is for the CEO to anticipate and cope with real risk as a regular practice. Dealing with a board’s fear of risk is a different problem. This should happen anyway, but doing it routinely helps the CEO establish their conservative bona fides.

The first commandment of CEO survival is to never to get too far out in front of the board of directors because they too have a responsibility to shape the future. But the CEO doesn’t want to be behind the board, because their job is to lead. It’s a structural dilemma, but most of the pathways to success are based on the second commandment of CEO survival: Lead with ideas, then talk about plans.

See also:

The Practitioner’s Guide to Governance as Leadership: Building High-Performing Nonprofit Boards

The Ultimate Board Member’s Book

Super Boards: How Inspired Governance Transforms Your Organization

Reprinted with permission by The Nonprofit Times and Thomas McLaughlin.

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Evaluate the true costs of a merger in three phases

“The benefits of mergers are what motivate organizations to consider this option, but the costs are not always clear at the outset,” explains Thomas McLaughlin, author of Nonprofit Mergers & Alliances and director of consulting services for the Nonprofit Finance Fund.

Unfortunately, many nonprofits struggle to overcome internal nuances that make organizations susceptible to external economic factors. That’s why mergers and alliances have become a popular alternative to consider for many stumbling nonprofits.

Three areas where you can scrutinize potential costs

McLaughlin cautions you to thoroughly evaluate the weighty task of mergers. Fortunately, unlike the corporate world, nonprofits can openly examine the pros and cons without the legal risks of leaking publicly-held company information.

He recommends analyzing the true costs of a nonprofit merger in three phases:

Feasibility determination

Implementation planning


Cost considerations in Phase One, Two and Three

In McLaughlin’s article, “The Cost of a Merger,” he explains anticipated expenses and typical areas of change in each of the three stages.

In Phase One, leaders learn as much as they can about the other organization—especially quantifiable considerations. Costs associated with this phase come from facilitation and research. Nonprofits that attempt to do this in-house or on their own risk spotty results. Outside help is advisable.

Costs during Phase Two are greater but manageable. This phase is still greatly dependent on staff and board time. At this point, consultants who facilitate and support the process are the largest expenditure.

Phase Three, or integration, represents the biggest expense area. You will find expenses and revenue dramatically change during this time.

McLaughlin identifies the most typical areas of the greatest financial change:

Common grants and federal funding (funders can unknowingly undercut mergers by combining two grants into one smaller one)

Government contracts (newly merged organizations may have to re-bid)

Employee compensation (mergers can prompt turnover in management)

Employee benefits (mergers can combine two benefit levels)

Occupancy costs (mergers generally reduce space and sell off surplus)

Information technology (opportunities exist to reduce costs here)

Contractual services (mergers present the chance to re-examine and/or reduce contracts).

Be sure to enlist expertise in forecasting thorough and expertly produced financial scenarios for potential mergers. Use the board and staff collectively to weigh in on all the monetary nuances. Make a commitment to understand every budget line and financial aspect of your own organization and your potential partner. Discuss with your partner how each of you envisions blending costs and efficiencies. Most importantly, consider worst and best case scenarios for integration.

As many reports and articles on this merger topic indicate, nonprofit alliances don’t generally produce immediate savings. Mergers generally cost more in the beginning but promise greater savings in the long run. Mergers are not for the faint of heart—though nonprofits willing to make the leap have far greater long-term potential than they do alone.

See also:

Nonprofit Mergers & Alliances

The Power of Collaborative Solutions

The Zone of Insolvency

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7 ways companies will change how they invest in you

According to Credit Suisse’s latest Global Wealth report, Americans’ median net worth is just $44,900 per adult, placing the U.S. in 19th place behind Japan, Canada, Australia and much of Western Europe. An interesting statistic when you consider the level of individual philanthropy in the U.S. as compared with other countries. While individual giving is king in most funding mixes, it still pays to keep an eye on the donations coming in from businesses to your organization—especially in light of recent developments.

As corporate social responsibility evolves, businesses are questioning if traditional philanthropic giving is an antiquated expense line. Today, stakeholders and investors expect more integrated methods for tying social impact to core business activities. While this Executives have started to ask how their companies can stop giving money away and getting nothing in return is a worthwhile endeavor, many companies are finding the reality of cutting ties with charitable giving easier said than done.

According to Paul Klein, founder and president of Impakt, “Executives have started to ask how their companies can stop giving money away and getting nothing in return, but putting an end to corporate philanthropy isn’t easy. The reputational risk of leaving worthy charitable organizations out in the cold is considerable, making leaders reluctant to take decisive action. However, new approaches are possible, since the end of giving for nothing may not be far away.”

It’s also worth noting the latest data from The National Philanthropic Trust: giving among U.S. corporations accounted for only five percent of total giving to charities in 2011. This underwhelming statistic seems to support the lack of enthusiasm Klein has observed in his work with corporations.

In contrast, what continues to capture the hearts, minds and bottom lines of companies are partnerships that directly connect to the business’s existing business model. What’s more, according to the 2010 Cone Cause Evolution Study, 90 percent of consumers want companies to tell them the ways they are supporting causes. Eighty-three percent of Americans wish more of the products, services and retailers they use would support causes. While the end of philanthropy may be coming, businesses recognize consumer opinion and the need to do a better job of blending profit with purpose.

Klein has developed seven strategies at Impakt to help businesses phase out philanthropy and begin to embed social impact in their core business strategies. I’ve listed Klein’s recommendations here:

1. Develop a five-year exit strategy. Almost every large corporation supports at least one large charity in a significant way. In these cases, it’s important to identify a social objective that can be achieved over five years and allocate financial and other resources towards that objective on a diminishing basis. When the social objective has been achieved, the charity will no longer require support.

2. Begin investing in social change in other ways. “Charitable organizations don’t have a monopoly on social change, and sometimes social enterprises and other businesses can achieve better results.” If social change is important to your business, you should understand the strengths and weaknesses of all the players and start to reallocate charitable dollars toward organizations that deliver the most value, regardless of their sectors.

3. Focus on opportunities that can deliver return on investment. Pure philanthropy has virtually no business value. It’s altruistic and intended to help charities in ways that can’t be measured. Corporations can start shifting philanthropic spending toward social investments that have the potential of creating ROI. That might mean, for example, making a loan to someone with little or no credit to help start a business.

4. Stop funding charitable initiatives that don’t get results. Even without conducting a formal evaluation, you likely already know which organizations aren’t performing. Stop supporting those groups in 2015. Then take a year to reduce or eliminate funding for other organizations that may be of more value but aren’t the right partners for your business. During the transition, provide funding for capacity building to help organizations become more sustainable without your support.

5. Move CSR to finance or operations. Doing so is anathema to CSR managers (most of whom report to marketing or H.R.), but it will increase accountability, ensure business programs that have social value are resourced properly, and support the strategy for exiting out of donations. The transition will be difficult but the results will be better.

6. Focus on value. Start asking how you can give or invest less while bringing about greater social change. This is a standard question for businesses but it’s rarely posed to charities. Organizations that can help you answer it will be worthy of continued support.

7. Embed social change in your business. Financial institutions should find new ways to give vulnerable people access to capital. Companies in extractive industries such as mining or oil and gas should put a high priority on adding more indigenous suppliers and employees. Car companies should focus on sustainable transportation. Pharmaceutical companies need to create new revenue models that focus on preventing illness.

Klein’s recommendations may be alarming if you’re a nonprofit that has a large focus on traditional corporate giving; however, his thoughts are a sound warning that your strategies must attain new levels of ROI. Joe Waters, author of Fundraising with Businesses, says asking companies to simply write a check is tired. Nonprofits need to get creative and look for ways to engage employees and customers while impacting the business’s bottom line. These partnerships will always be easy to justify and renew in the finance department where Klein recommends they be managed.

At Execute Now!, we advise clients on a myriad of financial areas relating to corporate social responsibility. We create financial scenarios for nonprofit clients interested in weighing their options among potential partnerships. We also provide forecasting for various types of funding based on their dependability. Finally, we shed light on what a business partner will be looking for in the finance/operations departments to optimize reporting.

Personally, I found Klein’s use of the phrase, “giving for nothing,” a disappointing representation of the corporate perspective he’s working with today. On the other hand, nonprofits looking for the positive note in his seven strategies should focus on how each tactic informs how charities must aspire to work with companies if they choose to keep them in the funding mix.

See also:

Fundraising with Businesses

Cash Flow Strategies

Zilch: The Power of Zero in Business

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Find out what’s missing in your funder conversations

Words can inform our mind, thrill our spirit or destroy our self confidence. Some call language a “tool of transformation.” No matter the intent behind your words, leading nonprofit thinkers agree the power of language is evident in every aspect of the sector. The influence of language couldn’t be more obvious than in the article introduced by Foster, Kim and Christiansen, coauthors of “Ten Nonprofit Funding Models.”

Foster, Kim and Christiansen argue nonprofit leaders face greater financial challenges due to the lack of nomenclature surrounding recognized nonprofit business models. In their Stanford Social Innovation Review article, the coauthors researched and identified the 10 most common funding models because they felt this framework was necessary to facilitate increased understanding between the nonprofit leader and funder.  As a result, CEOs and boards would have an easier time explaining their model and instilling more immediate confidence in a recognized model to potential donors.

The nonprofit equivalent to “corporate speak”

The corporate world has long benefited from this common language in that securing investors is made easier due to the fact that a shared awareness of successful strategies such as “low-cost provider” or “fast follower” already exists. Foster, Kim and Christiansen created the nonprofit equivalent to the corporate business models by grouping these funding models according to the dominant type of funder. I’ve synthesized their taxonomy in the following list:

Heartfelt connectors resonate with existing concerns of a large donor audience. Examples are Make-A-Wish Foundation and the Komen Foundation.

Beneficiary builders rely on donors and funders who have benefited in the past from services. Examples of this model are universities and hospitals.

Member motivators compel donors to give to the issues that are integral to their lives. Churches and associations are good examples of this model.

Big bettors have a primary donor who’s often the founder and tackles a deeply personal issue. This model is evident in many nonprofit types.

Public providers offer service delivery or outsourcing for the government funder. Examples are Success for All Foundation, Head Start, and Texas Migrant Council.

Policy innovators address social issues that are not clearly compatible with government programs. Youth Villages and HELP USA are nonprofits that use this model.

Beneficiary brokers compete to deliver government-funded services to beneficiaries who pay for them. The Iowa Student Loan Liquidity Corporation and the Metropolitan Boston Housing Partnership are examples of this model.

Resource recyclers collect in-kind donations and distribute goods to needy recipients. Goodwill, food banks, and product recyclers are all examples of this funding model.

Market makers generate fees or donations directly linked to their activities. Nonprofits that facilitate organ donations are an example of this funding model.

Local nationalizers have grown large by creating a national network of locally based operations. Big Brothers Big Sisters is a local nationalizer.

Nonprofit leaders considering one of these funding models should be sure to visit this article and look at the questions you can ask yourselves under each type to determine if the financial framework is a fit.

One tax status, multiple strategies

Nonprofits that model corporations’ use of shared language when discussing business models has distinct advantages. Though nonprofits file under one tax status, nonprofit leaders have the multi-faceted challenge of addressing the nonprofit’s diversified funding model as well as its business model (cost structure and value proposition). The leader’s focus is twofold-one is on the funders while the other is on the beneficiaries of the charity’s services. Creating an overall plan that acknowledges these focal points while furthering the mission captures nonprofit executives’ constant attention. What’s more, ruminating over programs and services is a comfort zone for most boards and CEOs while looking at these elements in relation to funding, cost structure and value proposition is less so.

The authors of this article assure nonprofit leaders that if they learn to adopt this shared language and an understanding of how peer organizations leverage the same model, conversations about financial matters may come easier at board meetings, with stakeholders and fundraising prospects. As the CEO of a finance and accounting firm, I’m an advocate of any measure that makes talking about the financials easier, and I applaud the effort to give each model a name. Let the power of language work for us.

See also:

The Nonprofit Business Plan: The Leader’s Guide to Creating a Successful Business Model

Nonprofit Sustainability: Making Strategic Decisions for Financial Viability

Relationship Fundraising: A Donor-Based Approach to the Business of Raising Money, 2nd Ed.

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Big data is not required for big insights

You’ve probably heard a lot about Big Data. Big Data is going to change the world. Big Data is going to change how organizations are run. Big Data is going to clean our garage and walk our dog.

Big Data vs. Small/Medium Data

And maybe Big Data will do that–for big organizations. If you’re Coke or the Fermilab or the National Security Agency, your products or services or spying naturally produce a lot of data. Tapping into and harvesting massive streams of continuously created data, which is the hallmark of Big Data, is a natural thing to do.

But for many of us who work at small and medium organizations, Big Data is an abstraction at best. We simply don’t have massive, ongoing data streams that we can dive into to learn about our markets, our products or services, our clients, or our organization. We’re not big enough to have Big Data. But that doesn’t mean we can’t learn from the principles behind this phenomenon and use them to our advantage.

The hype around Big Data is the data itself: massive, previously unattainable and unimaginable rivers of data pouring through your world. But the philosophy behind Big Data is actually more important.  t’s about looking around to identify where those data flows are in your own environment and then tapping into them to gain insight. You don’t need Big Data to do that. It works just as well with Medium Data or Small Data, especially if you’re a medium or small organization. We too can tap into and harvest data; it just flows in smaller quantities at our scale.

Three sources from which to harvest data

So how can we start this harvesting? What can we collect? There are three main sources to consider, though we’ll concentrate mostly on the third one.

First, you can harvest data that already exists outside your organization and is updated regularly. For example, there are lots of federal surveys and data collection efforts out there, and they’re very cost-effective to retrieve if you know about them. The right ones can help you understand your environment.

Second, you can create data via ongoing special efforts, such as conducting a regular survey or instituting a special data collection effort that is not part of your daily operations. This is a bit of a different concept from harvesting data, but still falls within the realm of a streaming source of data you can use for analysis.

But the third concept is the core of where Small Data can help you. It’s the implementation of a system to collect and harvest on an ongoing basis the data that we produce in our daily operations. Or more precisely, it’s data that we do or could produce easily in our daily operations.

Focus on the third

Thinking about that third concept, we all have opportunities to gather data on a daily basis. Most likely, we already do to some extent, even if it’s as simple as our client names or time sheets. So we’re already in the habit of creating data. But how are we using that data? As examples, I’m always surprised by the number of organizations that record their clients’ ZIP codes but then never use that data to examine their clients’ demographic and geographic makeup I’m also surprised by the number of nonprofits that don’t do research on their donor databases to identify their demographic sweet spots. These data are often collected but not often analyzed and leveraged to their full extent.

Beyond harvesting data that already exists, is there other data that we can efficiently build into our routines that can add value, either in understanding our clients, serving our clients, or improving our internal operations and efficiency? My company, for example, began tracking the origins of our consulting engagements a few years ago, and it has been very effective both in identifying inefficient means of marketing and effective ones. Our minor investment in that effort has paid itself back many times over.

There is value in data. We all know that. The key, of course, is to manage the process so you’re gathering valuable data in an efficient manner and then actually using it to your benefit. If you think about evaluating a program, a general rule of thumb is that 5 to 15 percent of the budget should be invested in evaluation, depending on the size of program. If you would make that investment in a program, why not follow the same rule for your organization as a whole? It may pay off handsomely.

See also:

Level Best: How Small and Grassroots Nonprofits Can Tackle Evaluation and Talk Results

Leap of Reason: Managing to Outcomes in an Era of Scarcity

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PODCAST: Should nonprofits own or lease their space?

Special thanks to Richard Linzer for the author interview and lively discussion last week about Cash Flow Strategies. We covered a lot of interesting ground with our listeners and one area in particular was the discussion about owning or leasing your office space.

For those of you who are not familiar with Cash Flow Strategies, it is a simple and easy approach that involves using cash flow for budgeting, forecasting and monitoring. This book shows readers how cash flow analysis can resolve complex problems and allow you to formulate strategies that enable your organization to achieve more mission for less money.

Additionally, Richard and Anna Linzer present bold methods for acquiring much-needed capital and specific examples of how other nonprofits have compensated for gaps and appropriated surpluses in revenue.

Learn more about Cash Flow Strategies in our Page to Practice summary library and summary store . Or you can purchase the book and accompanying CD with a Cash Flow Forecaster and Real Estate Calculator at the Linzer’s website . There you’ll also find their additional books including Money Matters! A Kit for Nonprofit Board and Staff Members, It’s Easy! Money Matters for Nonprofit Managers, It’s Simple! Money Matters for the Nonprofit Board Member and The Cash Flow Solution.

CausePlanet members: If you missed this interview about Cash Flow Strategies, download the archive. Register now for our next live interview with Jocelyne Daw about Cause Marketing: Partner for Purpose, Passion and Profit

Not a member yet? Learn more about our summary library of recommended reading, live interviews and interview archives.

See also:

Cash Flow Solutions

Nonprofit Sustainability

Zone of Insolvency

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A fresh and bold look at cash flow management

When I asked Richard and Anna Linzer why they decided to write Cash Flow Strategies after so many successful publications about financial management, they explained how this book further explores bold financial strategies within the context and limitations of our sector. Read on for the Linzer’s detailed answer to my question.

The first of our books, The Cash Flow Solution, was featured by CausePlanet and was published by Jossey-Bass as a practical, nontechnical guide to financial management for board members. It followed on the heels of three other nontechnical publications. Each of these publications sets forth concrete steps that can and should be taken by nonprofit organizations, both large and small, to foster a greater capacity for self-reliance. Many of our ideas were controversial and counterintuitive and while they work effectively for people who try them, they always seem strange to folks who simply contemplate them. Or, as one foundation official noted to us: “I can see that your ideas work in practice, but do they work in theory?”

A look at social and financial theory

Our latest book, Cash Flow Strategies: Innovations in Nonprofit Financial Management, answers this remarkably odd question. On a practical level it represents a more technical and detailed account of the approach that underpins all our work, but it also moves beyond the realm of tips and techniques for practitioners and into the realm of social and financial theory.

The book’s punch line

We urge nonprofit leaders to understand and manage their cash flow, learn how to bridge gaps or deal with surpluses effectively, and work to make all the resources in the nonprofit world flow more efficiently. That administrators and board members can work to make all the resources in the nonprofit sector flow more efficiently is the punch line of this book. And this vital conclusion contains two overarching issues: (1) Nonprofit institutions need to obtain higher levels of working capital to fulfill their mission. (2) Nonprofit institutions must reach beyond the world of philanthropy to a much broader base of societal support.

CausePlanet members: Join us for a live author interview with Richard Linzer on Thursday, June 27 at 11 a.m. CST. Learn more about what’s inside the book and how to make your resources flow more efficiently. Do away with the surprising shortfalls and find out how to maximize windfalls.

Not a CausePlanet member? Find out more about this recommended book and others.

See also:

The Cash Flow Solution: A Nonprofit Board Member’s Guide to Financial Success

Overcome your board’s allergic reaction to the financials

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Overcome your board’s allergic reaction to the financials

“Having clear, readable financial information means that board members, even those who are allergic to budgets and numbers, can assume their rightful responsibilities as trustees,” claim Cash Flow Strategies coauthors Richard and Anna Linzer.

I smiled when I read this quotation in the Linzer’s new book, Cash Flow Strategies. When I was a board chair in my past life and we would review the financials, the reports were always quickly approved no matter how much my executive committee tried to engage the board in the finer details. The Linzers’ depiction of board members’ allergic reaction to financial reports is all too familiar.

We’re currently featuring this essential read at CausePlanet with a Page to Practice™ summary and live interview on June 27. Financial certainty in uncertain times is an ongoing challenge for administrators and board members especially when reporting has lost its utility and readability.

One of the strategies discussed in Cash Flow Strategies focuses on making financial reports more useful for the board and staff through the application of footnotes. “Cash flow budgets that are accompanied by footnotes can make a remarkable difference in the degree to which everyone understands your budget. The cash flow budgets by themselves are a boon to comprehension, but the addition of detailed footnotes can assist even the most fiscally challenged board member,” assert the authors.

In our recently featured book, Storytelling for Grantseekers, author Cheryl Clarke also promotes budget footnotes as an important strategy for helping funders understand your financial reports. “Budget notes can and often should be used, for they help explain and clarity the information contained in the numbers story,” Clarke adds.

Clarke says financial footnotes are especially useful whenever:

a program expense represents five percent or more of the total estimated costs for the program. For example, if the program budget is $100,000 and one line item exceeds $5,000, include a note to explain or justify that expense item.

a particular line item might be unclear to the reader or might require additional narrative detail. For example, “a line item labeled ‘miscellaneous’ practically begs for a note to explain what is included under this category.”

Join us for an author interview with Richard Linzer about cash flow and working capital for nonprofit organizations when we’ll take the discussion far beyond the footnote: Thursday, June 27 at 11 a.m. CST.

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Donors: Help your causes ask the right questions

Erica McGeachy Crenshaw

“The sector has fallen into a trap we created. By focusing on what we DON’T spend, and not on what has been accomplished, we have completely missed the mark in our messaging. We are part of this problem and it’s up to us to educate our way out of it,” asserted Paulette Maehara, former president of Fundraising Professionals in Dan Pallotta’s groundbreaking book Charity Case (Jossey-Bass 2012).

I recently re-watched Dan Pallotta’s highly popular TED Talk about Charity Case and was energized by such a credible and well-researched argument about the commonly misinterpreted topic of administrative costs and overhead. Unfortunately, we’re working against a flawed philosophy reinforced for decades by donors and nonprofit executives alike. Consequently, this week’s post is a message to nonprofit donors and contains some of Pallotta’s main points worth repeating.

Stop asking the flawed question and get to the heart of what really matters

Donors have to stop asking the question, “What percentage of my donation goes to the cause versus the overhead?” Pallotta argues this question is flawed in several ways:

1) The question makes us think overhead is not part of the cause but it absolutely is.

2) It also promotes the notion that overhead steals from the cause, forcing charities to obsess over keeping short-term overhead low at the expense of long-term solutions.

3) This question ironically gives the donor really bad information. It tells nothing of the charity’s quality of work, shares nothing about how it defines the cause, leads donors to discriminate unknowingly, gives the wrong overhead figure because it’s measuring against the wrong result.

Help your charities advertise, take risks and give reasonable time to build sustainability

Pallotta further argues nonprofits have to operate under a separate and discriminatory rule book from businesses. For example, in the area of advertising and marketing, charities can’t build demand for donations to their causes while businesses advertise until the last dollar no longer produces a penny of value.

On the topic of risk taking in pursuit of new donors, while it’s okay if the movie industry spends $100 million on flops, a $5 million charity walk that doesn’t show a 75 percent profit in the first year is considered suspect. Consequently, nonprofits shy away from large-scale fundraising ideas and cannot benefit from powerful learning curves.

Yet another example relates to time horizon. New companies can go six years without returning any profits to investors in the interest of building market dominance while charities that have long-term goals are expected to yield short-term, direct services. If they don’t deliver, they are pariahs. You can help dismantle some of these rules by leveraging your dollars on projects that raise much-needed awareness, allow for calculated risk and long-term growth toward meaningful goals.

Nonprofits are starving financially

You can help by asking new questions like “What kind of impact are you able to accomplish with your cause?” or “What meaningful progress are you making toward systemic change?” Help charities break the starvation cycle of what feels like mandatory low or no overhead. Leverage your donor investments in new ways to get the community looking at the cause differently or to accommodate long-term systemic change.

by Erica McGeachy Crenshaw, President/CEO of Execute Now!

See also:

Charity Case by Dan Pallotta

CausePlanet blogs about Charity Case

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Four trends will impact your financial management

Many of us wish we had a crystal ball for strategic planning and financial forecasting. Marc Chardon, CEO of nonprofit software provider Blackbaud, came close to this wish in his article earlier this year, “Peering into the Nonprofit Crystal Ball.” He identified four key trends that will have the strongest impact on the nonprofit sector this year based on his observations and conversations with leaders in the nonprofit sector. These trends were also formed by conducting research at Blackbaud.

At Execute Now!, my staff is often in the position of helping nonprofits forecast their financial positions in order to improve their organizations’ strategic decision making about important funding matters. As a result, I thought I would share my interest in Chardon’s view of how nonprofits will be impacted by these 2013 trends.

1. Increase in charitable giving will not be dramatic: Considering the tough economic times we are currently experiencing as well as post-regulatory uncertainty, giving will be flat, says Chardon.

2. The nonprofit sector will go through a revaluing process: A nonprofit will be evaluated on the basis of its tax status as it relates to its business model. Millennials securing nonprofit degrees and Boomers leading organizations as a second career will change the sector climate.

3. Technology will play a major role for both nonprofits and their supporters: Chardon predicts a tipping point for nonprofits using technology in 2013. Mobile devices in the sector will more than double in 2013. Nonprofits will use technology in donor services, mission delivery and a more comprehensive approach to constituency relations.

4. The world is shrinking and philanthropic borders are broadening: Competition for donor support will broaden as we see wealth shift to developing countries. Technology has made it easy for donors to engage with causes no matter where they are around the globe.

So what does this mean for nonprofits as they head into 2013and beyond?

Enable responsiveness. It’s never been more important to make financial leadership apriority within your organization. You need strong administrative systems and a sophisticated financial infrastructure that will allow you to successfully respond to the changes ahead.

Give new models financial care. You need to reexamine your funding model and understand that once you undergo a potential change, it’s an evolving process. You need someone at the wheel, either through employment or outsourcing, who can help you monitor the new model’s outcomes and assist with adjustments and new directions as needed.

Worldwide causes’ increased competition for donors and a forecast for flat giving in 2013 require all nonprofits to ask the relevant question: Is your mission rooted in a “must-have” space that compels donors to give? If not, and your organization falls within the “softer services” silo, consider your options for alternative revenue sources or earned income. As you consider these options, do so with an eye on technology to determine how it can help you reach your goals.

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