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Is your organization “teetering on financial peril”?

The Nonprofit Times just released a study of over 219,000 nonprofits and came up with a couple startling conclusions.

1. One in 12 are insolvent already 2. 30% face liquidity issues

In normal people speak, that means 8% of organizations are currently operating in the red and 30% are on the verge. We’re talking spending more than you’re bringing in and not having enough cash to pay your bills.

It seems dramatic but it doesn’t take much to get yourself into this place. A few months of a casual review of your financials combined with not forecasting your cash flow can easily turn a nonprofit upside down.

The results of this study, that a third of organizations are teetering on the brink of financial disaster, is not surprising. Two thirds of those surveyed had operating budgets of less than $1M, and I can almost guarantee that they also didn’t have a CFO or other finance leader on board.

A bookkeeper or accountant simply isn’t tasked with seeing the financial future of the organization. They’re responsible for day-to-day operations, maybe some reporting, but rarely analysis and forecasting.

What these <$1M organizations need is a CFO, a visionary to help them see into the future and avoid insolvency LONG before it happens. And how, might you ask, do we do this?

  1. It starts with strategic planning, setting up a vision for long term accomplishments and success.
  2. Then the next step is a solid budget that puts numbers behind the strategic plan and gives us metrics to track.
  3. We use financial reporting to look at past performance and help make decisions about the future.
  4. Finally, we create cash flow forecasts to see the future and confirm we’ll be able to meet our obligations.

Ensuring financial sustainability isn’t HARD but it takes time and attention that, frankly, you can’t afford not to give.

So what do you think? Is this study unnecessarily dramatic or do you feel less than confident about the sustainability of your organization?

Join the conversation over on Facebook!

 

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A nonprofit trend that will influence 2018

Classy just posted an article about the 9 nonprofit trends that will influence 2018, but they left out one critical component of nonprofit management. Finance.

[Side rant: Why does everyone forget finance?! If I accomplish only one thing in my life, it will be to elevate the finance department of nonprofits everywhere! Our work is the foundation to programmatic, fundraising, and marketing success, but we are too often overlooked.]

Since Classy covered marketing, data, graphic design, and others, but left out finance, I thought I would round out their list of nonprofit trends that will influence 2018 and add one trend in for finance.

The question is: What did you notice in 2017 and how do you see it influencing the future?

My answer, when thinking about nonprofit finance, is TRANSPARENCY.

I’ve compiled a Transparency Tip Sheet to help you share your financials the RIGHT way. Download it here! >>

Historically, the numbers have been left to the experts. The accountant enters the transactions, the CFO reviews them and presents to the CEO and Board, and that’s where it stops. The Program Manager who runs the programs on the ground has no clue what the income statement looks like or why they should care.

Transparency in the nonprofit world isn’t a new concept. A decade ago, the IRS released the revised 990 which included significant governance questions, and Guidestar, the charity watchdog that we all know and love, has already implemented greater standards for nonprofit reporting, including programmatic accomplishments so that we’re not judged on numbers alone.

But has this industry transparency trickled all the way down to the organizational level?

In my experience, it hasn’t. Non-finance staff still have no idea about their organization’s budgets or financial performance.

Why is this important? If they’re not on the finance team, why should they care how much cash is in the bank or how much we raised last month?

Because transparency leads to accountability which leads to ownership. The more transparent we are about our numbers to the entire team, the more accountable they will feel towards their own small budget. When making decisions on buying supplies for their program or talking about the organization at a donor visit, they’ll think about the big picture. They will feel greater ownership for the organization’s financial health if they know the basics of financial performance.

Transparency is one area we focus on and instill in each of my clients. We host training that breaks down the income statement and balance sheet into the most critical and relevant details so that everyone knows what the numbers mean to them. We boil the financial statements down into usable dashboards so even the most numbers-averse can understand their organization’s financial performance at a glance.

So as I look into 2018, I think more organizations will begin to instill transparency in their organizations and will reap the benefits of a more accountable and dedicated team, and as a result, a more sustainable, strong organization.

Industry-wide transparency from the very top all the way down to individual staff members can only reap good for the nonprofit world as a whole.

I’ve compiled a Transparency Tip Sheet to help you share your financials the RIGHT way. Download it here! >>

 

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Nonprofits: More Powerful Than You Think

Sometimes it feels like those of using working in the social sector are on an island all our own. We focus on different metrics than the for-profit world and our efforts can often feel futile when we see what terrible things are happening in the world.

Especially these past couple weeks, where many feel hopeless at the future of our country and our world, I found encouragement in this great infographic from Classy.org.

All of us working to change the world are making a powerful impact not only on those we serve but also on our economy. We contribute over $900B in revenue to the economy and account for 10% of employment in the US. All of my fellow CFOs watch nearly $2 trillion flow in and out of our organizations! My numbers-loving heart finds great joy in the power of our sector!

So when it seems like your Facebook feed is filled with nothing but misery no matter what side of the aisle you sit on, remember that we do have the power to change the world. We’re a force to be reckoned with and the work we do every day is making a HUGE impact…on our communities and our country.

Here’s the infographic!

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Insider’s Scoop: How to Fundraise Without Spending a Dime

I’m excited to introduce Cindy Wagman, Principal of The Good Partnership, for today’s guest blog post.

I love fundraising. Yes. You read that right. I love fundraising. When I say that, most people are shocked, because, let’s face it, we have all internalized this idea that fundraising is like begging, that it’s “icky” or manipulative. Right?

95% of people I meet for the first time tell me I have such a hard job. They could never imagine fundraising for a living. The other 5% are fundraisers themselves.

So I’m on a mission to help that 95% of the world love fundraising.

It’s funny – love actually plays a huge factor in fundraising.

Most people who fundraise, either paid or volunteer, do so because they love their organization. They love the work, the impact, the change. We don’t work at charities because of the pay. We’re here because of our passion.

But guess what – donors love charities too. That’s why they give.

As fundraisers, our job is to find the people who are inclined to care about the work of our organizations and then help them find the love. I often call fundraising match making.

For small and mid-sized charities, this can feel overwhelming. We’re always comparing ourselves to the big organizations who have tons of resources and therefore we feel like we can’t even “compete”. How many times has that word come up for your organization?

We can’t compete because we’re too small. We can’t compete because we don’t have a budget. We can’t compete because no one knows our brand.

I hear this all the time. Literally. From every charity I’ve worked with (even the really big ones).

Here’s the thing. I want you to break out of this “competition” thought process and I’m going to help you replace it with the match making mindset.

Something truly magical happens when you help your donors fall in love with your charity. Competition literally melts away.

I’ve created a really straightforward cheat sheet to help you help your donors fall in love with your charity, WITHOUT SPENDING ANY MONEY.

That’s right – you can download the Shoestring Fundraising Cheat Sheet now and find great tips, tools and tactics that will help you raise more money and build that ever-elusive donor loyalty without spending a dime.

This cheat sheet will help you tap into your donors hearts and build the love that will last a lifetime. Sounds good, doesn’t it?

So what are you waiting for? Start 2017 off right and download your free Shoestring Fundraising Cheat Sheet. Start to love fundraising!

Wishing you your most successful fundraising year yet.

Happy fundraising,

Cindy

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How to Mitigate Risk for Non-Finance People

Mitigating risk.

Big words. Sounds scary. Not applicable to my business or my little nonprofit.

We all know that starting any type of venture – your own business or a nonprofit or social enterprise – comes with inherent risk. We invest our time and often money into something that we don’t know will be profitable or make an impact on those we set out to help. And when it does work out, a lot of times better than we expected, there are opportunities to grow and expand that again come with risk. Even working for someone else or a Fortune 500 company can be risky. We don’t have control over decision-making or our salaries or whether or not we might be laid off one day.

I’ve been approached by a number of clients lately – entrepreneurs, small businesses, and nonprofits alike – all wanting to know how financially healthy they actually are and if they can afford that big investment they want to make next year. They want a clearer picture of the risk that lies ahead, how they can address it, and they want it in the form of numbers.

As a CFO, this brings me no greater joy because knowing your numbers and being able to see in black and white where the money is coming from and going is one of the most important ways to mitigate risk. The more insight you have, the less unknown lies ahead and the more confident you can be in your decisions.

Props to you, you savvy people!

So mitigating risk is really not so scary a concept. Even if you’re not a numbers person, I want you to do these three things right now to mitigate risk in your own business.

  1. Where am I now? Look at a monthly Profit & Loss statement for 2016. You don’t need to be a financial guru to do this – look for what jumps out at you. Circle the numbers, highlight them, and really visualize what’s happening with your business.
    • Where are you spending money?
    • What months were low on revenue?
    • What is your overall net profit (revenue – expenses)?
  2. Where do I want to be? Write down your goals for next year.
    • How do you want to grow?
    • What investments in your organization are going to take you there? More people? More professional development?
    • Maybe you want to finally invest more in yourself? Increasing your salary or contributing to a retirement account?
  3. How do I get there? We all know that the best way to get anywhere you’ve never been is with GPS. Back in my day, it was called a map. In this case, your budget is your map. I know it can be scary, but I want you to put together some numbers.
    • How are you going to build your revenue goals to be able to make those new investments or otherwise mitigate your risk?

Still don’t think you’ve got the know-how to make the right decisions, even after you do this? I’m happy to help mitigate risk together, but no matter how you approach your numbers, don’t go into 2017 blindly.

When you acknowledge and address your risk, you will reap an even greater reward. As those brilliant Italians say: Sapere e Potere.

Knowledge is power.

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Think bigger than your “overhead rate”

Once upon a time, I was a victim. A victim to the nonprofit overhead myth that as much money as possible should go to programs and anything spent on “overhead” or infrastructure was taking education away from the children of Africa.

I walked around with a 75 pound, 3 year old laptop, and every time I would lift it up, the battery would drop out of the bottom. This was especially problematic en route to meetings when I had my materials up on the screen just before presenting. I’d have to pop the battery back in, shift uncomfortably in my seat while the system booted up again and I opened my presentation back up. I eventually duct-taped the battery in which served me well until the entire system died.

Really? A duct taped computer? I wasted hours on that thing instead of just spending the $600 to get a new laptop!

I was a victim of the nonprofit overhead myth.

Which is why I’m thrilled to see this conversation making the rounds again and again.

I recently spoke at The Shift, a nonprofit incubator workshop, where I walked newbie nonprofits through creating a budget and pipeline for revenue and expenses. You can be sure I planted those seeds early that minimal infrastructure does not equal maximum programmatic impact.

I love Nonprofit Quarterly‘s shift in thinking about overhead as Core Mission Support, and I think it all goes back to the scarcity mindset. We feel like an investment in key infrastructure is taking away from programs and that there are limited resources out there for us.

Of course, we must be reasonable and responsible with our precious resources (none of Oprah’s “you get a car, and you get a car!” business) and focus on our impact, but let’s all commit to making a shift in mindset. Budget for what you need to be efficient – enough staff and equipment to run like a well-oiled machine. On the income side, don’t limit your fundraising goals either – instead of thinking “Oh, maybe we could raise $100k this year”, think instead of what you want to accomplish and develop a plan to get there.

The sky’s the limit, my friends! Go forth and invest!

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Finding an auditor: the RFP process

We’ve got more audit talk for you today! The 12/31 year-enders are prepping and the 6/30 year-enders are looking for auditors, so we’re trying to cover all our bases here.

I spoke with not one but two organizations last week that need a new auditor and asked me for suggestions (good first step, by the way!). I’ve worked with a great audit firm for many years and immediately thought of them but unfortunately, they’re in another state. I texted the audit partner (yes, I basically have him on speed dial!) and he said he’d love to participate in an RFP process. That got me thinking about how important those referrals are for great firms – you’ll likely have a much better experience than simply Googling “nonprofit auditor [your location]”.

Not only do we need an audit firm that specializes in nonprofits, but we also want someone we connect well with. You will likely be communicating with that auditor not only during the annual audit process but also throughout the year as questions come up. The auditor will also meet with your board’s audit/finance committee or perhaps even present at a board meeting.I recommend an RFP (Request for Proposals) process to appropriately do your due diligence and get an auditor that will work best for your organization. I promise it’s not complicated!

  1. Form a committee of stakeholders. Perhaps the ED, your lead finance person and a board member would be a good place to start.
  2. Determine what you’re looking for in an audit firm and write it down. This will be the basis of your RFP document. Here are some things to think about: What size firm do you want? What is their expertise? How many staff will work on your engagement? What is their average turnaround time? Here is a sample.
  3. Identify who you want to send the RFP to. This is where your network comes in! I suggest reaching out to colleagues, peers and board members and finding out which audit firms they recommend. Come up with a list of maybe 10 firms and their contact information.
  4. Send the RFP out. Send both a paper and email copy to the contacts you identified with specific instructions on how to submit the proposal.
  5. Review the proposals, select your two or three finalists and invite them into the office for a meeting to discuss their proposal. Don’t forget to discuss fees!
  6. Make your final decision and hire your new audit firm. Let the fun begin!

With the proper due diligence, this new audit firm will serve as a solid sounding board for your organization. If you have a new project come up throughout the year and you aren’t sure how to make the accounting entry, you can call them for advice rather than waiting for them to find potential mistakes during the audit.

On the contrary, if the audit firm didn’t live up to your expectations, remember that the relationship isn’t forever – simply go through the RFP process again to find a better fit.

How did you find your audit firm? How long have you been with them? Need help managing the RFP process or don’t know where to begin?

I can help!

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Do we need an audit?

I hope everyone had a restful weekend! Are you December-31st-close people finishing up year-end? More importantly, is everyone sticking to their resolutions? I’m proud to say that I’ve gone to yoga once a week! It’s amazing how much better I stick to something when I simply put it in my calendar and treat it as I would a doctor’s appointment. Non-negotiable, not cancellable, not available for anything else during this time. Let’s keep it up!

We talked last week about how to prep for an audit and I’m here this morning to talk about those organizations who are in the initial phases of growth (less than $1M) and haven’t yet had an audit. They’re not sure if they need an audit and once they decide they do, they have no idea how to find the right auditor.

Let’s tackle this head on!

First, what is an audit? Is it when the big, scary IRS comes in and rifles through all your files and you’re in trouble? No way! This is when you choose an independent auditor to come in and assess not only your books but also your policies and internal controls, then they hand you a neatly comprised set of financials that you can then share with donors, funders and other stakeholders. Also, you pay them.

Now that we’ve got that cleared up, does my organization really need an independent auditor? There are a few factors to consider here:

What state are you incorporated/registered in? Each state has different audit requirements. Are you registered in any other states? Oftentimes, organizations will register in a number of states in order to fundraise there and those states may require audited financials. Here is a great guide of state-by-state audit requirements and links to statutes. [Please always consult your legal counsel before making any decisions – sites like this could be outdated!]

Who are your funders? Many private foundations and government agencies will require audited financials along with grant or contract applications. If they don’t require an up-front audit, they may require one when you spend above a certain threshold of federal funds in a year (currently $750,000).

The IRS requires nonprofits to complete the 990 but does not require an independent audit. Part XII Financial Statements and Reporting of the 990 asks whether or not the organization has had an independent audit and, as you probably know, this form is public information.

In short, even if your organization manages to squeak by without technically needing an audit, it is certainly a best practice because:

  • You’ll gain the credibility and confidence of funders and promote financial transparency of the organization.
  • Your organization will potentially be eligible for new and different sources of funding as well as ratings by the important charity watchdog organizations (Charity Navigator, Guidestar, etc).
  • Finally, and maybe most importantly, it’s an opportunity to do a deep dive into your policies and procedures to ensure you’re using your limited resources most efficiently.

Here at 100 Degrees Consulting, we are all about BEST PRACTICES!

Come back tomorrow for the second installment of this thrilling series: Okay, let’s do it. Now how do I find an auditor?

 

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Nonprofit lessons from Mount Everest Base Camp

Five years ago this month, my husband and I embarked on our honeymoon adventure across the globe to trek to Mount Everest Base Camp. We initially thought we’d go to Belize – I still have the Fodor’s Belize guide on my bookshelf – but once I realized I’d travel to Nepal shortly thereafter for work, it was a no-brainer. We could go to the beach anytime, but an adventure to the world’s tallest mountain? Once in a lifetime.

We flew to India less than twenty-four hours after our nuptials then caught the next flight to Kathmandu where we spent a few days exploring, before flying to the world’s most dangerous airport, Lukla. It’s not exactly how most newlyweds begin their life together (essentially camping for two weeks, sans showers) but it was the perfect leap into marriage for us.

I thought, as a tribute to this amazing trip, I would share a few tidbits from my journal as well as life lessons learned (which are also applicable to the nonprofit world!).

Day 1, Kathmandu to Lukla:

This morning we woke up, ready to brave the flight to Lukla and begin our trek. The domestic airport scene was chaotic but we managed to trail after our guide and make the flight. The plane was tiny – room for only fourteen people – but the airline actually had a flight attendant on board to pass out caramels and cotton balls, presumably to stuff in your ears if the pressure bothered you. The place was rickety and old, many seat belts didn’t work and it was HOT. The flight was relatively uneventful thankfully but landing in Lukla really is as scary as they say, especially when we noticed the thick cloud cover as we approached the airport. The runway is very short and ends in a large brick wall, so if the brakes fail, you’re toast!

Lesson learned: Trust that your leader (the pilot) will forge the right path for your organization.

Day 2, Lukla to Namche Bazaar:

We had to cross many suspension bridges along the path today and I was terrified. I’m not afraid of heights but there’s something about walking across a swinging, shaking football field-length metal structure, hanging hundreds of feet over boulders and rushing, freezing water that makes me nervous. My husband, of course, trotted across them taking pictures left and right while I tiptoed across, scared silly.

Lesson learned: We all approach problems differently but often with the same end result. Respect others’ approaches so together you can be successful.

Day 3, Namche Bazaar:

This morning we rose to the sounds of Lady Gaga at the Liquid Cocktail Bar downstairs around 5:30am. Breakfast was scrambled (powdered) eggs, fried potatoes and toast which my husband loved and talked about for days. After breakfast we hiked outside of town to a mountain village about 350 meters above Namche to check out the world’s highest airport. The word “airport” is a bit generous, as it was really just a massive field, and when we finally huffed and puffed our way to the top, the visibility was less than 50 feet. It was a big disappointment but did make for some interesting photos and decent acclimatization to the elevation.

Lesson learned: Sometimes the journey is more important than the destination. Put forth 100% effort into the trek and you may be surprised by the end result.

Day 6, Lobuche:

The first part of the trek was fairly level, but then we hit it: a very rocky ascent, no clear path, very steep and never-ending. And we were at well over 15,000 feet. It was by far the most grueling part of the entire trip. At the top of this killer mountain, we found dozens of graves and memorials of people who’d died on Everest – the scene of these memorials surrounded by the killer peaks was incredibly serene.

Lesson learned: Get some perspective. For us, this was a quick jaunt to Base Camp on vacation, while for others this was a site of death and memorial. Honor others’ experiences.

Day 7, Mount Everest Base Camp:

Lesson learned: Immerse yourself in victories, large and small. Put down the phone and take time to reflect on your triumph and lessons learned before your next adventure.