Posts Tagged ‘financial management’

Kick these tires before you embark on challenging roads ahead

Last week, we introduced Mission-Based Management by Peter Brinckerhoff and his three philosophies that informed his 30-plus years in the successful business of guiding causes. They are:

“Nonprofits are businesses.”

“No one gives you a dime.”

“Nonprofit does not mean no profit.”

He convincingly demonstrates the truth in each of these points throughout the book and in each of the management competencies he explores—from leadership, governance, and finances to marketing, mission, ethics, and more.

But what exactly do these philosophies mean?

It’s worth asking and answering because these “Brincker-isms” are not a passing phase. Brinckerhoff has written three editions of Mission-Based Management—much to the appreciation of the sector. In other words, the nonprofit sector has kicked the tires and liked the journey in this book. So let’s take a closer look at what informed so many other readers’ decisions after reading it:

Nonprofits are businesses. “Your organization is a mission-based business, in the business of doing mission,” claims the author. He adds we don’t have license to be sloppy or ignore a good idea simply because it was originally designed for the business sector. “Using good business skills as a mission-based manager does not, I repeat, not mean dropping services simply because they lose money, nor does it mean turning people away because they cannot pay. But it does mean paying attention to the bottom line, having a strategic vision, and negotiating in good faith and from a position of strength—in short, being businesslike in pursuit of your mission,” explains Brinckerhoff.

No one gives you a dime. Brinckerhoff explains that nonprofits don’t get gifts. If a donor writes you a check for $100 to your social services organization, she isn’t making a donation. Rather, she is purchasing services for someone or some family she will never meet. Brinckerhoff says the business community calls this giving money in exchange for an expectation of outcome. When you purchase concert tickets, you have an expectation of entertainment. When you purchase an airline ticket, you have an expectation of transportation. When you send money to a nonprofit, you have an expectation of service. In other words, “you earn all the money you get,” asserts Brinckerhoff. An interesting paradigm shift.

Nonprofit does not mean no profit. Brinckerhoff encourages you to consider this point. Making money in a nonprofit is legal. Nowhere in the state or federal law does it say nonprofits cannot make a profit. He asks, “If you cannot make a profit, why do you need a tax exemption?” Profit is essential and a key tool for financial empowerment, a subject the Brinckerhoff covers at length later in the book.

As you move forward with your organization, ask yourself if anyone on your team subscribes to the thinking Brinckerhoff tries to overcome in these three philosophies. If so, how is he affecting your decision-making and outcomes? I know, it’s challenging to turn the corner on new thinking but well worth the effort.

Challenging terrain ahead

While I have you thinking about challenges, I’ll add one more. We asked consultant Raylene Decatur what she thought was most challenging about being a mission-based manager today:

CausePlanet: Where do nonprofit managers most commonly find challenges with leading a mission-based organization in your experience?

Decatur: Discipline is the number one challenge. The manager may be a disciplined individual but leading a disciplined department, division or organization is challenging. In a corporation, the bottom-line (profit and loss) creates discipline. Mission-based organizations have multifaceted impacts, which lack the quantified clarity of financial results. The board members, staff and volunteers may each love that mission differently and each be pulling the organization in slightly (or profoundly) different directions. It is the manager’s job to harness that energy and achieve the organization’s stated outcomes, year in and year out.

If you find yourself looking for a comprehensive analysis of how high-impact nonprofits lead their causes, consider Mission-Based Management; it’s grounded in Brinckerhoff’s road-tested philosophies and you’ll benefit from years of wisdom gained from many journeys.

See also:

Building Nonprofit Capacity: A Guide to Managing Change Through Organizational Lifecycles

Do More Than Give: The Six Practices of Donors Who Change the World

Forces for Good: Six Practices of High Impact Nonprofits

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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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Why nonprofits should explore shared administrative services

To some, sharing administrative services sounds like a great idea for streamlining operations and saving money. Others would ask whether it is really worth the effort, compared to just continuing with business as usual. What is needed is a clear-eyed exploration of the real benefits and challenges of shared administrative services.

Some of the most common shared services are bookkeeping/accounting, office space, human resources and benefits administration, and information technology. Most shared administrative services take on one of the following structures:

  • One organization provides services for one or more other organizations.
  • Two or more organizations share staff, a department, space and/or office equipment.
  • Two or more organizations trade administrative services (e.g. one organization trades IT services in exchange for HR services provided by another organization).

Here are the most common questions I am asked about sharing administrative services with one or more other organizations:

Will we reap substantial savings by sharing administrative services?

Most organizations will not experience significant cost savings in the first year or two of sharing administrative services. Often, they can expect additional expenses associated with the transition to shared services, such as building or modifying systems to handle the transactions of multiple organizations. For example, let’s say three organizations decide to jointly share one department to do their bookkeeping. In the first year, there are costs for modifying an existing accounting system, migrating data from other sources into one system, transitioning staff and training the shared staff on the financial transactions of each organization. (In this particular case, it is also useful to note that typically organizations with budgets of less than $500,000 do not reap significant cost savings from sharing bookkeeping/accounting services, but can often outsource the function at a lower cost.)

Will it increase our capacity and provide us with expertise that we do not currently have access to?

The most immediate benefit of sharing administrative services is that organizations can gain access to expertise they do not have or could not easily obtain on their own. For example, three organizations might decide to hire an HR manager because each organization individually does not have the resources to hire a person with HR expertise. By sharing this service, they now have assistance in hiring new staff, retaining and building the capacity of current staff and more effectively handling personnel matters that might otherwise take up a significant amount of an executive director’s time.

How do we determine if an organization is a good partner for exploring shared administrative services?

The first question to ask is: Do our potential partners have operations and programs that require similar administrative functions? Organizations that have operations and programs that require different administrative functions are not good potential partners for sharing services. For example, if one organization services mortgages and the other organization processes a lot of insurance reimbursements, they would not be good potential partners for sharing accounting/finance services because they would require different accounting systems and staff with specific areas of expertise.

Next, you want to look at the following question: Is there a high level of trust between the organizations? Our experience with nonprofit partnerships tells us that organizations with close, trusting relationships have the greatest potential for successfully sharing administrative services. Organizations that share services will be making many decisions together, and if there is not a high level of trust it is often difficult to efficiently and effectively make those decisions. In most cases, when organizations terminate their partnership after a very short time together or decide not to launch a partnership with another organization, it is because there is not a high enough level of trust between the organizations.

Another key criterion is: Does one of the potential partners have existing systems with the capacity to handle providing services for multiple organizations, or are there resources available to build the systems or infrastructure to provide these services? Most of the time, sharing services requires modifying a current system or building a new system. For example, if two organizations share accounting staff but continue to run two different accounting systems, the outcome would not be cost effective.

Finally, there is the managerial question: Will it be difficult for the shared services staff to serve under more than one executive director and meet the needs of multiple organizations with different cultures? For example, if one organization has a highly centralized decision making culture and the other has a very decentralized decision making culture, it can present a challenge for the staff of the shared services department to get both organizations to make necessary decisions and develop common systems and procedures.

Here are some other key lessons that we have learned about shared services:

Sharing administrative services will often not help organizations that are in financial distress. These organizations need to develop new revenue strategies, find another organization to acquire them and/or begin planning an orderly shutdown of their organization and transfer of their clients to other organizations.

There are more and more for-profit organizations providing administrative services for nonprofits. Many small- to medium-sized companies already outsource many of their administrative functions, from accounting to human resources management. At our firm, we work with a great local financial services provider that handles all our accounting transactions, and all our staff is actually employed by a PEO (Professional Employer Organization) that provides a robust and affordable package of employee benefits including a variety of trainings on capacity building topics.

Sharing space can be a great starting point for organizations that wish to share services. Operating together in the same space provides the opportunity to share conference rooms, reception areas, front office staff and equipment. It also provides an environment for the staff of the different organizations to develop relationships that often lead to increased levels of trust. As trust builds, the organizations may feel more comfortable sharing services in various administrative areas like information technology, human resources or accounting/finance.

Sharing services can provide many significant benefits to your organization, but it is important to take the time to consider the factors above before jumping in with both feet.

See also:

The Cash Flow Solution

Cash Flow Strategies

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