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Risk and Reward Often Arrive Simultaneously for Nonprofit Boards

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Tips for Nonprofit BoardThe phrase “black swan” comes from 2nd-century Roman poet Juvenal who described “a rare bird in the lands and very much like a black swan.” The poet and most others assumed that black swans didn’t exist. They were wrong. Today, we use the term as a metaphor for the fragility of any system of thought that can come undone once we disprove a set of assumptions.

Expanding on Nassim Nicholas Taleb’s theory, we now explain things as black swans if they are hard-to-predict, rare events that don’t fit our expectations. Taleb regarded almost all major scientific discoveries, historical events, and artistic accomplishments as “black swans”—undirected and unpredicted. He was wrong, too.

Nonprofit boards have to do better. Organizations count on them to recognize that black swans exist and to identify them before the competition does. To do that, directors must overcome the psychological biases that blind them to uncertainty and a rare event’s potential risk. Traditional enterprise risk management (ERM) processes do not address key assumptions on which boards base the organization’s strategy and operating model. Nor do these conventional approaches help directors determine the impact and likelihood of potential risks in order to prioritize scarce resources. Too often boardroom discussions involve an examination of past performance, which can limit insights about unexpected and rare risks. Instead, these discussions should address the changing landscape, customer demands, and innovation.

Who’s Going to Try to Kill Us Today?

In 1983, Motorola introduced the world’s first cell phone, the DynaTAC 800x. In 1987, Nokia introduced its first mobile phone, the “Mobira Cityman 900.”  No one was paying attention to Apple, but after the company’s first smartphone in 2005, no one could ignore them. What were once large and bulky luxury items became small, compact devices we can’t live without. In fact, by 2018, 95% of Americans owned a cell phone of some kind, and 77% of those were smartphones. Directors at Nokia and Motorola probably thought of Apple as a computer company, as we all did. Apple’s application for a patent should have mobilized those making mobile phones to suspect a black swan might be lurking, but it didn’t because directors didn’t have “situational awareness.”

In general, situational awareness involves three segments: perception of the elements in the environment, comprehension of the situation, and projection of future status.  Although the term itself is fairly recent, the concept has roots in military theory and appears in Sun Tzu’s The Art of War and in World War I records, where decision-makers recognized it as a crucial skill for crews in military aircraft. In a nonprofit boardroom, situational awareness means directors should be aware of their own biases that stem from their past experiences and personal, yet limited perspectives. Only then can they ask, “In today’s climate, what business are we really in?” That will lead them to ask, “What are we doing proactively to listen to those we serve and to respond to the direction our mission is taking us?”

The landscape in nonprofit organizations changes a bit differently from how it does in for profits—with more layers of complexity and complications. First, like their for-profit counterparts, directors of nonprofit boards need to protect themselves against disastrous outcomes that could threaten their survival. But they must go a step further—to consider how these risks may affect their mission, especially when that means guarding against potential liabilities from operating risky programs such as children’s summer camps.

Second, as nonprofits consider alternative ways to address their missions, they may find that those options that promise the greatest rewards also involve greater risk. In these situations, the strategic balancing of risks and benefits allows organizations to have the greatest impact on their missions. Since nonfinancial impacts of financial decisions often matter more to nonprofits than they do to for-profit companies, financial decision-making can prove more complicated for the nonprofits.  Therefore, nonprofit directors must weigh combinations of risk and reward more deliberately.

What Will Those We Serve Need Tomorrow?

Too many boards focus on last year or last quarter. They need to quit looking in the rearview mirror and start inviting other directors to view the company through a kaleidoscope to see multiple possible futures and to develop a mindset devoted to continuous learning.   Certainly, effective directors need to be students of history, but boards that keep their eyes on the future realize they need a soothsayer—a human crystal ball who can look into the future to identify where and when the opportunities and risks will appear. Many directors fail this future-oriented litmus test, however.

For example, merger and acquisition (M&A) activity within the healthcare industry shows no sign of diminishing, with nearly all indicators pointing to continued consolidation, according to a 2019 Health Leaders Mergers, Acquisitions, and Partnerships Survey. The fundamental need for greater scale, geographic coverage, and increased integration remains unchanged for providers, and this will sustain M&A activity for years to come.

Nonprofit directors that don’t take a strategic approach—one that carefully balances risk and reward—to an M & A deal risk creating unintended consequences. That’s what happened in Maine.

Beginning in January 2019, MaineHealth became a single nonprofit entity with nearly 19,000 employees and more than $3 billion in annual revenue. MaineHealth joined a long list of hospitals that have merged to form large healthcare systems. According to the American Hospital Association, of the more than 5,500 hospitals in the United States, nearly 60% are part of a health care system. In many cases, a single board of trustees governs the large systems. From a purely reward point of view, successful large healthcare systems can reach economies of scale, share resources, reduce cost, and leverage their increased revenue to attract physicians and purchase the latest medical technology.

From a risk-management standpoint, however, the news isn’t all good, with rural hospitals facing the greatest challenges. Since 2010, The Cecil G. Sheps Center for Health Service Research has recorded 87 rural hospital closures in more than twenty states. According to one study, more than 600 additional hospitals in 42 states are vulnerable to closing, with 12 million patients losing direct access to care and about 99,000 jobs at stake. In short, nonprofit deals are more complicated because they must consider keep a keen focus on how risk and reward march in lockstep precision with the organization’s mission

When leaders acquire a company, of course they believe the deal will work. If they felt otherwise, they wouldn’t have gone forward. Human beings have a psychological tendency to justify our decisions, making it difficult to see the signs that we made a mistake. Thus, a leader who drove an M & A deal is usually more hesitant to pull the plug than someone who didn’t make the acquisition in the first place.

In general, boards of nonprofit health care organizations have done a good job of asking what patients will want and need in the future. They realized years ago that a hospital’s best customers don’t want to be patients in the hospital. So, they started offering more out-patient options, including same-day surgery centers. They asked themselves the question their patients wanted them to ask, “What can a health care organization do to keep people from becoming patients?”

Mission-driven boards address the health, education, and spiritual needs of people, look to improve the quality of life, champion the arts, or seek social change. Additionally, they consider how to satisfy the ever more demanding accountability requirements of funders, donors, and government overseers. Consequently, directors often find themselves trying to develop quantitative measures of their mission-related impacts.

Unfortunately, too many directors focus too much on reviewing data and setting it aside until it’s time to review the data again—usually within a terribly short interval. The value isn’t in tracking the metrics, however. The real value in metrics is the customer-focused discussion they drive, the decisions directors make, and the actions they take as a result of the discussions. The process starts with the right questions, which lead to an understanding of which data are important and which measurements they should really pay attention to. By doing this, they spot customer patterns before the trends cease being trends. Learning from the data can also help them engage in scenario planning to be to speculate about the unknown.

Adaptive Governance

Adaptive governance describes an emergent form of environmental governance that scholars and practitioners increasingly call upon to coordinate resource management regimes in the face of the complexity and uncertainty associated with rapid environmental change. Nonprofit directors apply the principles of adaptive governance when they actively involve directors in setting and maintaining a boardroom culture that involves open discussion and constructive challenge. These directors devote ample time on board agendas to looking at the future because failure to respond appropriately to disruptive situations can make the difference between growth and obsolescence. These directors demonstrate an openness to alternative, nontraditional viewpoints and a willingness to question assumptions. They recognize that some level of tension is acceptable and insist that management share bad news early. Their bias for continuous improvement encourages them to engage in honest self-reflection.

Directors committed to adaptive governance understand that they need to encourage innovation and learning, set ethical standards, and promote accountability, especially with the CEO. Most importantly, these directors take a proactive approach to the oversight of culture to drive sustained success and long-term value creation.

What do we mean by “culture”?  Legends tend to have differing adaptations; the truth has no versions. Both influence—either intentionally or unintentionally—the cultures we build. Corporate culture, the way we do things around here, the pattern of shared assumptions that the group has adopted and adapted, develops in much the same way as legends and traditions do.

Organizations learn as they solve their problems and adjust to the world around them. When something works well over time, and leaders consider it valid, members of the organization begin to teach the behavior or idea to new people. Through this process, new directors find out what those around them perceive, think, and feel about issues that touch the organization.

Excellent decisions serve as the coinage of the nonprofit realm. When directors consistently make good decisions, little else matters; when they make bad decisions, nothing else matters. A pivotal decision—or, more likely, a series of pivotal decisions—literally separates the organizations that flourish from those that flounder. Every success, mistake, opportunity seized, or threat mitigated started with a decision.

Success doesn’t happen without decisions, but neither do mistakes, except when the decision involves indecision—a kind of decision not to decide. When directors play in the most competitive leagues, they will have mishaps and missteps, but indecision doesn’t have to be among them. However, the culture of too many organizations conspires against success. Decisions—good, bad, or decent—get stuck in the entrails of the organization, much as flotsam and jetsam accumulates on an untended beach. Boards create their own bottlenecks and harm themselves in ways that the competition never could. They become their own strongest competitors—the enemy within—the entity that creates risk rather than mitigating it.

Effective directors set the tone at the top and lead the never-ending journey to discover new and better ways to solve problems and adapt to the world around them. For example, when discussing risk, directors often home in on data breaches because this sort of risk can quickly move from bad news to full-blown catastrophes. Addressing a data breach should be done quickly, honestly, and responsibly. Frequently, however, companies minimize the seriousness, explain what happened but fail to apologize, or treat it as merely a public relations problem. Boards spend time discussing cyber risk, but a cyber breach won’t usually put them out of business. A failure to learn from mistakes and make the requisite changes can, however.

Nonprofit directors tend to underestimate the importance of a change-oriented culture when they should see it as one of their top governance imperatives. Culture inextricably links strategy and risk, and it can be an organization’s biggest asset or its greatest liability. Yet, recent studies indicate that more than 80% of directors don’t have a firm grasp of the culture that exists in the organizations they serve. Most directors would be hard-pressed to define corporate culture, and those that can don’t always know what their role should be in influencing it.

Successful directors realize that, in the long run, how a company does business is as important as short-term gains. Now, more than ever, directors are taking their responsibilities seriously, speaking up, and striving for results; but in many cases, the evolving relationship between the company’s executives and the board has not found the right symmetry. Both the company and the board benefit when directors take a more active role in influencing culture.

Conclusion 

Up until now, for various reasons, nonprofit boards have not taken a sufficiently robust approach to risk management. While this tactic has seemed sensible because it minimized risk, it also reduced the rewards of growing and changing.

In his book I Really Didn’t Say Everything I Said, baseball’s great philosopher, Yoggi Berra, cautioned us that we can’t know the future because it “ain’t what it used to be.” Mr. Berra was correct. Directors can’t know the future, yet the organizations they serve depend on them to do just that—and the future arrives more quickly than it used to. Today, directors have learned that opportunity and risk often arrive at the party concurrently—and instantaneously, without warning.

Directors need to strengthen the aspects of board culture that help the organization identify and respond to disruptive risks—to make the board’s culture a corporate asset. When they do that, they will support the management team, even while engaging in uncomfortable conversations. They see tension as a catalyst that motivates deeper engagement. Then, they will be able to welcome both opportunity and risk.

The future will remain uncertain and unstable for nonprofit decision-makers—and we probably won’s see these unpredictable situations diminishing, either. All indicators point to continued change and limited options for preserving the status quo. An expanded capacity for strategic risk management and a willingness to consistently and continuously balance risk with reward will serve nonprofits well, however.

Should Nonprofit Organizations Operate More “Like a Business”?

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Nonprofit Business TipsExperienced executives and managers in the nonprofit sector can often provide a wealth of wisdom, insight and perspective into the practical realities that go along with leading mission-driven, “helping” oriented organizations. As such these programs are purposed to provide mission-critical services to the clients and communities they serve. These “nonprofits” over the years have dealt with an evolving range of societal problems and needs. They include serving individuals with physical and mental disabilities, those who lack safe, affordable housing, the homeless, impoverished families, troubled, incarcerated youth, victims of abuse and violence adults and children, those suffering the serious and sometimes fatal consequences of alcohol and drug abuse to those persons simply in need of safe harbor. Everyone is impacted, in some way, by these societal problems be it a direct relationship to the affected person(s), their families and friends, to employers, companies, our economy and local communities. Nonprofit organizations are vital to our socio-economic way of life and in fact make up one of the largest employment sectors in the United States. The mission, purpose and presence of nonprofits is, in many ways, unique to our American way of life.

With that in mind, the challenge for nonprofits organizations is often that of trying to respond to the growing needs and expectations by those seeking services and having limited financial and/or physical resources to meet those demands. Overriding this charge is the expectation that services offered be of the highest quality and not compromised for the sake of meeting overwhelming demands. In some instances, service organizations, funders, evaluators and governmental entities have been forced to adjust their criteria and measures of quality and eligibility for the sake of trying to balance the resource gap between demands and capability. Examples include health care coverage variances and cost limitations, “teaching to the test” versus assessing students overall knowledge and applying practical learning concepts in our primary educational institutions and the recent and more stringent re-definition of homelessness by the US Department of Housing and Urban Development.  To be fair, significant strides have been made in allaying the even more serious impact of many of such potential shortcomings, due to the effectiveness and ingenuity of community-based, charitable and other third sector nonprofit organizations.

As a consequence, a common refrain heard over the years by many who  have led or are currently leading charitable nonprofit organizations is “nonprofits would do a better job if they operated more like a business” While there is not a universal and common framework for non-profit management, as is typical in the business and government sectors nonprofit organizations are, uniquely different entities and as such managing and governing present inherent differences.  In the absence of more formally identified management frameworks for nonprofits (also known as “third sector”) organizations, however, they are frequently under pressure to look like and be like something else. It is not uncommon for nonprofits to be advised (by others not in the field) to become more structured and acculturated as businesses and entrepreneurial ventures to be more successful.

These recommendations are often voiced by well-intended and dedicated private sector professionals and others, many who also serve on nonprofit boards, are volunteers and donors offering tremendous guidance, financial support and insight. The implication of their advice is “our way is better than yours” and nonprofits would better meet their obligations and commitments to the community by adopting and more “business savvy” approaches. It only makes sense to believe that a more business-oriented approach would lead to more “profitable” outcomes. So, given this, having non-profits operate more like businesses seems to be a logical conclusion.

Such advice suggests taking a deeper dive into the theory that nonprofits would be better off operating more like businesses. In such exploration the first task is to define what operating like a business really means. Here are some examples:

  • A simple business definition is to say that “business occurs when a person or organization profits by providing goods or services in exchange for money.” (Duhaime’s Law Dictionary).
  • “A business is an organization or enterprising entity engaged in commercial, industrial, or professional activities. Businesses can be for-profit entities or nonprofit organizations that operate to fulfill a charitable mission or further a social cause.” Business is also “the organized efforts and activities of individuals to produce and sell goods and services for profit”.: Business https://www.investopedia.com/terms/b/business.asp#ixzz5LRonn95M
  • Stephenson defines business as, “The regular production or purchase and sale of goods undertaken with an objective of earning profit and acquiring wealth through the satisfaction of human wants.”
  • According to Dicksee, “Business refers to a form of activity conducted with an objective of earning profits for the benefit of those on whose behalf the activity is conducted.”
  • Lewis Henry defines business as, “Human activity directed towards producing or acquiring wealth through buying and selling of goods.”

The Balance of Small Business.com identifies the Characteristics or features of business as:

  1. Exchange of goods and services
  2. Deals in numerous transactions
  3. Profit is the main Objective
  4. Business skills for economic success
  5. Risks and Uncertainties
  6. Buyer and Seller
  7. Connected with production
  8. Marketing and Distribution of goods
  9. Deals in goods and services
  10. To Satisfy human wants
  11. Social obligations

The conclusion, given such varying descriptions, is there seems to be no one common definition of what is a “business?” and may be best applied given the situation or endeavor. Certainly, one common theme that runs throughout these definitions is to equate business with profits though deviations in definition seem to be subject to interpretation from there.

Comparing the measures and criteria tied to profit and nonprofit entities is difficult one to make. For example, how does a company that has made record profits in a given year, paid handsome dividends to their shareholders and gained greater market share translate to measures of success of a nonprofit carrying out its mission to save and/or better the lives of others, as well as, address and alleviate a myriad of society’s ills. An argument can be made that yes there are some crosswalks that can be made. Perhaps market share is one measure, profits vs surpluses, reinvestment activities, new product or service lines offer some parallels. Though it seems many differences than similarities are at play when it comes to comparing profit and nonprofit “businesses”

Good to Great Author Jim Collins states when applying the principles of “greatness” to the social sector…” We must reject the idea-well-intentioned but dead wrong-that the primary path to greatness in the social sectors is to become “more like a business”. Most businesses-like most of anything else in life-fall somewhere between mediocre and good” Few are great …so why would we want to import the practices of mediocrity into the social sectors?’’

Some interesting facts to consider are:

  • Nonprofit and other third sector organizations comprise America’s largest employment sector and a national growth industry.
  • Nonprofits are considered helping organizations and “change agents” and are guided by community needs, problems and goals and providing for the common good.
  • In the nonprofit world, measures of success are typically based on “softer” criteria that are more difficult to quantify than bottom line profits. Examples include how many people have been positively impacted and are changed human beings and assessing the social/emotional health and wellness of our communities.
  • Having a large positive bottom line (surplus vs. profit) may, in fact, be an indicator that services invested in are not being fully rendered to fulfill the nonprofit organization’s stated mission (Nonprofit Quarterly, July 2013).
  • Only about 30% (one third) of businesses or entrepreneurial ventures will survive their 10th year in business (U.S Department of Labor Statistics, 2016). This is not a model that suggests it be applied to nonprofit start-ups.
  • The average tenure of a corporate CEO is 4.9 years (Fortune Magazine) versus 12 years for nonprofit CEO’s (NonProfit Times), suggesting perhaps more stable and experienced leadership resides in nonprofit realm.

Given the uniqueness of both profit and nonprofit organizational entities, each of which are reflective of our American social cultural and economic value system, it is time to recognize and accept that differences exist, and each entity should be measured based on its own merits. Expecting a nonprofit to operate more like a business, suggests they are not and that profits know best and are models to emulate are often not true and forces an issue that seems to be worn thin over the years. Many nonprofits have evolved from informal or grassroots initiatives to more structured and formalized entities guided by corporate by-laws, corporate compliance standards, professional standards of care, and even research-based best practices, but still retain missions that are essentially focused on serving the common good and improving human lives.  Less emphasis and recognition has been placed on how many profit- oriented businesses, over time, have adopted principles and methods reflective of the values nonprofit entities have long espoused. These principles and practices have included promoting internal cultures of inquiry, implementing operational efficiencies (e.g. doing more with less) obtaining customer/ consumer feedback and pioneering industry standards of service excellence (e.g. JCAHO.CARF, COA)

To conclude, it seems most accurate to define nonprofit mission driven organizations as already operating as businesses. While for profit and not-for profit entities may be configured differently and serve different purposes in the marketplace both are and complementary and exemplify the best in of our American “business” way of life.

 

References:

  • Collins, Jim. 2005. Good to Great and the Social Sectors (monograph to accompany Good to Great) www.jimcollins.com
  • Drucker, Peter. Managing the Nonprofit Organization Principals and Practices, 2006
  • Drucker, Peter. The Third Sector-America’s Non-Market Counter Culture. Social Contract Journal: Winter 1990-1991.
  • Duhaime’s Law Dictionary  www.duhaime.org
  • Business   https://www.investopedia.com/terms/b/business.
  • The Balance  www.thebalanceof smallbusiness.com, January,2018
  • The National Council of Nonprofits   https;//www.councilofnonoprofitsorg/print/131
  • The NonProfit Times 2014 Salary and Benefits Report  http://thenonprofittimes.com/news-articles. January,2014
  • Kaylan City Life  http://kalyan-city.blogspot.com/2011/03
  • Fortune Magazine www. fortune.com/tag/ceo-pay

Three Steps to Creating a Successful Nonprofit Budget

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Creating a Nonprofit BudgetA nonprofit budget is more than just an Excel sheet filled with numbers. When prepared and monitored correctly, your budget is your roadmap for planning the year’s income and expenses, and ultimately impact. Many non-numbers people shudder when they think of the annual budgeting process, but it serves a higher purpose than just checking a box for good governance.

A budget gives us the green light or red light on whether something is realistic. The budget will give us a quick answer as to whether or not we can expand to a new location this year. A budget helps with sequencing and planning. By breaking out our income and expenses by month and tying it to a cash flow, we can easily see when we might be able to buy that new vehicle we need. And finally, a budget serves as a KPI (key performance indicator) tracking mechanism. When created well and input into the accounting system, we can use the budget each month to track our performance, make course corrections throughout the year, and ensure we are making an impact while staying financially sustainable.

Budgeting is one of the most critical activities an organization will undergo each year, but the annual budgeting process is not usually an enjoyable process for anyone outside the finance department. It can be challenging with unpredictable revenue streams, frustrating when it feels like there’s not enough money, and confusing when trying to ensure that all departments’ budgets are captured accurately.
These common challenges often stem from the budget creation process, and not the numbers themselves. Many organizations create their budget in a vacuum; one or two people pull some numbers together based largely on last year’s budget and what they think they can fundraise this year, then present it to the board for approval. The result? Not enough funds budgeted to accomplish their impact goals, no buy-in from the rest of the staff, and an under-resourced organization.

However, there are three key steps to creating a successful budget, before you even get to the numbers.

1. Create teams of stakeholders.

In order to ensure that we have organizational buy-in and engagement on our numbers, we need to make the budget creation process a team effort, no matter how small your organization. I like to create a uniform template for each department or program area and instruct the leaders how to fill it out, then pull them all together in a summary page when everyone is done. This collaborative and inclusive process ensures that all budget needs are met, because you may not know that Chris’ computer is 12 years old and crashes a few times an hour. This is not to say that all expenses are included in the final budget, no questions asked, but it does mean that all voices are heard and ownership is shared.

2. Align your budget with your strategic plan.

If your budget is the roadmap for your annual income and expenses, your strategic plan is the globe. It’s the longer-term, big picture plan for where you’re going and the massive impact that you’re going to have on those you serve. Hopefully it’s not a plan that get created then shoved in a filing cabinet somewhere, but one mistake I see many nonprofits making is that they don’t ensure their budget is aligned with their strategic plan. In other words, both important documents are created in their own silos. Instead, look at your strategic plan goals for this year and build into the budget exactly how much money you will need to achieve those goals in this fiscal year. Tie your numbers to outcomes.

3. Build the budget backwards.

Most organizations look at how much money they raised last year, maybe add 3-5%, and declare that number as this year’s budget. Then they fill in the expenses to match that income number and cross their fingers that there will be enough to accomplish their programmatic goals. But this is wildly limiting and almost always results in there not being enough. Therefore, I encourage organizations to start with their expenses. Figure out exactly how much money you will need to accomplish what you’ve laid out in your strategic plan, including staff, equipment, and any other investments. Then, and only then, back into an income number.

The annual budgeting process is a great opportunity to increase engagement within your team and help the organization become crystal clear on your goals, even if you’re not all numbers people. When done thoughtfully, the budgeting process will develop a roadmap to help you increase fundraising, provide the resources you need for your team, increase the impact you have on those you serve, and promote long-term financial sustainability within your organization.

Best Practices for Nonprofit Fund Accounting

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Nonprofit Fund Accounting TipsFor a nonprofit, accounting is very important to keep a high level of financial transparency. Nonprofits wanting to keep their tax-exempt status must keep accurate financial records which document that the funds received were used for charitable purposes.

I had a chance to sit down with Michelle Carley, founder of Big E-Z Bookkeeping Software, which hundreds of nonprofits use to understand common mistakes nonprofits make and best practices when doing their accounting records.

Common Nonprofit Accounting Mistakes

Just like for-profit organizations, nonprofits make mistakes. Do you have one major tip for nonprofits regarding their accounting?

Michelle: One problem I see with nonprofits over and over is a lack of good backups of their important electronic files and documents. Nobody thinks their computers will crash, but as an expert in accounting who has seen thousands of scenarios, I’m here to tell you they do!

It even happened to me once long ago. I was working as the accountant for a nonprofit organization when the owner to my surprise decided to have a crew come into the office one weekend to do renovations. I was not aware of the renovations to take place and, to be honest, I would not have known how to protect the computer from its demise either way. I later found out that the computer should have been covered with plastic wrap and tape or removed from the office entirely, so dust from the sawing of wood would not find its way into the hard drive. When I tried to access it on Monday morning the hard drive crashed. Fortunately for me, I had a backup and could recover the nonprofit’s accounting data except for the last two weeks. Another nonprofit I know of was not so fortunate with the important documents they had on their computer. They had no backups and had to re-enter all of their data from the beginning of the year. Sadly the nonprofit learned a costly and time-consuming mistake, so remember to backup often.

Transitioning From One Treasurer to Another Treasurer

Nonprofits usually have a treasurer handle the bookkeeping for the organization. Treasurers of small nonprofits are not usually paid to keep the books and so there can be a frequent turnover of volunteer treasurers. Do you have a tip for how to make this transition easy?

Michelle: First, it is so important that the accounting software you choose for your nonprofit be easy to use. If it’s a burden for the current nonprofit’s treasurer, it will be much harder to train someone new to use it. Make your volunteers happy with an easy-to-use program that won’t waste their time and you will find it easier to get volunteers to keep the books.

Many nonprofits overlook an important aspect of accounting software which is, how easy the software is to correct? Face it, all nonprofit treasurers make mistakes and when they do, it is so important that they can find the accounting mistake and correct it easily. No nonprofit staff or volunteer wants to spend tons of time searching for answers online to correct an error in their nonprofit accounting software. It should be just as easy to correct as it was to enter.

Nonprofit Accounting Regulations

The IRS has certain nonprofit accounting requirements and the generally accepted accounting principles (GAAP) are important for nonprofits to follow too. Nonprofit accounting rules and regulations change throughout the years. Where are the best places for nonprofits to keep up with the current rules and regulations? Which sites do you see as most informative and accurate?

Michelle: The Financial Accounting Standards Board (FASB) is an authority for U.S.-based nonprofits. There are always new things being proposed and improved. The FASB has a page called “In the News” and they post to it often: https://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1218220131727. You might consider reading up on what is happening in the nonprofit world. Like everything on the web, you will need to use your discretion to determine what affects you and your nonprofit and weed out the rest.

Nonprofit Annual Operating Budget and Operational Expenses

What are the rules of thumb when putting together a nonprofit operational budget? And how do you keep your donors happy that you are supporting your nonprofit’s mission, but make them understand there are operational expenses?

Michelle: Budgets can be difficult to determine. When you are starting out you have nothing to compare your actual numbers against, so you have to dream them up. You will need to try to base your income and expenses on what the industry standard is for your type of non-profit. Of course, that will be a guess because no two nonprofits are exactly the same. It’s once you have some history behind you that you can better determine how much income to expect and how much you can spend in the coming year. The old saying “practice makes perfect” certainly applies here.

As for your donors, the same is true. You need to ask yourself what are other nonprofits doing to make their donors happy, then tweak it with responses from your own donors. Donors like to know where their money is being spent. Over time they will let you know, but if they don’t, a well-thought-out survey may be in order.

Nonprofit Terminology and Accounting Software

Some nonprofits need or want to use inexpensive accounting software to track their revenue and expenses. Sometimes the software will be for-profit accounting software. Is it okay to use the less expensive programs if they have terminology that isn’t consistent with fund accounting or nonprofit accounting?

Michelle: Absolutely! All accounting software does the same thing: it crunches numbers down to totals that make sense to you and those totals are so necessary to stay compliant and so needed for tax time. Whether you call it donations, income, revenue, or sales, it is still the same thing.

Nonprofit Policies and Procedures Pertaining to Accounting

It is critical that nonprofits reconcile their accounting and development schedules on at least a monthly basis. Nonprofits also need clear protocols for communicating important accounting activities. Otherwise, nonprofits experience negative consequences such as low to no funds, or, even worse, embezzlement.

For example, if grants or fundraising teams fail to inform nonprofit accounting departments about funds on a timely basis, the latter won’t be aware of the grants or funds for financial reporting requirements and could forfeit funds for noncompliance. And, if the accounting department doesn’t record funds from fundraising, grants, or pledges in the proper financial period according to GAAP, the organization could run into significant issues during its audit — which could jeopardize funding and lose tax-exempt status. Therefore, what would be the best procedures to put in place to keep all departments running smoothly so the accounting books stay up-to-date and accurate?

Michelle: You are correct. Accounting needs to be done on a regular basis, and reconciling your records against your bank accounts is of the utmost importance. Some reconcile each month and I’ve even seen some reconcile each day. It all depends on how tightly you want to control your records. Those who reconcile whenever they feel like it or only when push comes to shove can get into real trouble.

When I first started bookkeeping, I was startled to find out the head bookkeeper was let go. When I inquired, it was because she had not reconciled the payroll account in three months and someone was embezzling.

We have a step-by-step plan on our website for keeping your records up-to-date and current. It’s one of our Getting Started Guides and you can find it here: https://bigez.com/5-easy-steps-to-keep-monthly-bookkeeping-up-to-date/

In your example, you mentioned if the grant writers and fundraising teams don’t communicate properly with accounting that some income could get missed and not recorded which could jeopardize the nonprofit’s status. This scenario would only refer to larger nonprofits using an accrual system of accounting. This would not be an issue for smaller nonprofits operating on a cash basis.

Michelle Carley’s Final Thoughts on Nonprofit Accounting Best Practices.

Michelle: If I were running a nonprofit, I would like to see that the Fund Balance (or money left in the checking account) at the end of the year is equal to at least a year or two of expenses for the organization. I would try to develop a budget that works based on the past year’s revenue and expenses and tweak it each year. If I were a starting a new nonprofit, I would choose to use the cash basis system of accounting over the more difficult accrual basis. And finally, I would watch the revenue closely to be sure it has not reached the threshold for more stringent record keeping and procedures.

Happy Bookkeeping!

How Can Nonprofit Boards Develop a Merger Mindset?

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Nonprofit Board Merger Mindset

When companies merge or acquire, stakeholders rightly expect the whole to become greater than the sum of its parts. Unfortunately, this happens less than half the time. Not only does one plus one not equal three; too often mergers and acquisitions result in losses. A once exceptional organization can quickly take a turn toward mediocrity, or worse.

Study after study puts the failure rate of M&A between 70% and 90%. Many researchers have tried to explain these abysmal results, usually by analyzing the characteristics of deals that worked and those that didn’t. That’s a start, but it only informs decision-makers about the features of the deals that caused or prevented failures. Statistics don’t truly get to the core of the cause–effect relationships among planning, evaluating, and integrating—the essential traits for successful M&A.

Deciding whether to do the deal presents the first round of tough calls, decisions about integration, the second. In the heat of finalizing the deal, board members often leave integration until the last minute or give it short shrift. Board members need clarity about what they should consider when they attempt to align two disparate organizational environments, histories, and cultures. When leaders make the decision to merge or acquire, board members know the stakes are high, and they also understand that they can set the stage for success. Too often, however, these same board members inadvertently invite dilemmas and disasters to come from the wings to take a bow in the spotlight.

Why does this happen? Because the same board members who influenced the initial decision to merge or acquire stop making the necessary tough calls to make the deal work. Realizing the dire consequences that can result, why would sane board members choose to place themselves and their companies in the line of fire?

Why Do a Deal?

When an organization considers an M&A deal, board members need well-honed judgment, courage, vast experience, and unimpeachable integrity to make the tough calls associated with any growth initiative. Unfortunately, judging from the number of failed deals, most decision makers lack one or more of these four constructs. They also need, but frequently fail to obtain, a clear answer to the question, “Why do we want to do this deal?”

The answer to this question starts with the leadership team and the board agreeing about why they want the deal, but then things get more complicated. The senior team, who must make the deal work, need to know why, and they need to be enthusiastic about the answer. Then, members of this team need to test their conclusions with key groups and stakeholders. Otherwise, everyone involved will lose the energy needed to make the deal work. In these situations, companies end up with a plethora of props but no performance.

When asking the reasons to do a deal, “We want to get bigger”—the response that often fuels the passion for a deal in the first place—is not the right answer. These reasons are better:

  • Our reputation in the industry will skyrocket.
  • We will attract top talent.
  • Customers will benefit.
  • We will enjoy better financial results.
  • A combined organization will better position us to compete.
  • Operational synergies become possible.

When an industry consolidates, board members wonder whether they are missing out by not acquiring or merging. These emotional and often unconscious motivations tug at decision makers, often relentlessly. To validate their emotions, leadership teams often conduct studies, analyze data, and hire consulting firms to validate their theses. Data from this kind of research can build confidence in the future success of the deal, but ultimately, clear benefits like these should surface, too:

  • A stronger brand
  • More customers
  • Improved speed to market
  • Increased revenue and margins
  • A bigger, stronger organization uniquely positioned for growth
  • The avoidance of costly mistakes that could tarnish the brand

The desire to amass data to authenticate gut feelings often serves as a powerful motivator—even more so because people don’t admit why they want the data. They feel the urge to believe, feel, and act in ways that others also believe, feel, and act. Board members tend to be smart people—smart but also emotional.  Their emotions guide them, but frequently they fail to analyze or talk about their emotional reactions—all the while hoping that logic will prevail.

Board members who possess a Merger Mindset balance logic with insight. They have a clear read on how others are responding or likely to respond. They react positively to change, control their own fears, and try to mitigate the negative reactions of others.  We can deny the emotional aspects of a deal, laugh at them, or ignore them, but these reactions create the path to perdition—not to good deals.

What Makes a Nonprofit Deal Different?

And what makes a nonprofit deal work well? The Chicago Nonprofit Merger Research Project wanted to know, so they analyzed twenty-five nonprofit mergers that occurred in the Chicago area between 2004 and 2014

When deals failed, the researchers blamed a lack of strategic intent. That means that too many organizations lacked clarity about why they wanted to do a deal. Instead of pursuing a merger based on opportunities to grow the company, leverage their competitive advantage, or offer more and better service, they responded to some sort of force, like the retirement of a CEO or some form of failure avoidance

In contrast, the researchers also uncovered several thoughtful, well-planned, and strategically-driven deals that resulted in more services and greater growth. They noted that the successful merger of mission-based organizations resulted in the expansion of their impact, which they advised should be the goal of all nonprofit organizations and should provide incentives for boards to explore mergers as a strategic option.

For instance, in 2013, United Cerebral Palsy of Greater Chicago merged with Seguin Services, creating UCP Seguin Chicago. The two shared a common mission of service to the disabled. Combining their separate competencies resulted in robust growth in both revenues and services.

Similarly, the 2015 merger of three Chicago area hospice providers created the largest hospice provider in Illinois, JourneyCare. The three geographically neighboring providers pooled their resources, expanded their collective customer impact, and gained a competitive advantage in an industry where for-profit providers had greatly expanded. In each of the twenty-five cases the researchers studied, the companies employed different merger strategies for pooling their resources for greater collective impact or for combining their competencies to grow in new or different markets.

Organizations that don’t take a strategic approach to an M & A deal risk creating unintended consequences, however. That’s what happened in Maine. Beginning in January 2019, MaineHealth became a single nonprofit entity with nearly 19,000 employees and more than $3 billion in annual revenue. MaineHealth joined a long list of hospitals that have merged to form large healthcare systems. According to the American Hospital Association, of the more than 5,500 hospitals in the United States, nearly 60% are part of a health care system. In many cases, a single board of trustees govern the large systems. From a purely strategic point of view, successful large healthcare systems can reach economies of scale, share resources, reduce cost, and leverage their increased revenue to attract physicians and purchase the latest medical technology.

From a mission-driven standpoint, however, the news isn’t all good, with rural hospitals facing the greatest challenges. Since 2010, The Cecil G. Sheps Center for Health Service Research has recorded 87 rural hospital closures in more than twenty states. According to one study, more than 600 additional hospitals in 42 states are vulnerable to closing, with 12 million patients losing direct access to care and about 99,000 jobs at stake. In short, nonprofit deals are more complicated because they must consider the Five Essential Traits of a Successful Deal with a robust focus on how these traits march in lockstep precision with the organization’s mission.

Five Essential Traits of a Successful Deal

Even if the board and leadership team make a well-formulated decision to go forward, more dilemmas surface during the integration stage. During both formulation and integration, board members should consider the essential traits of a successful deal and apply these principles to other difficult decisions:

Nonprofit Board Advice

A simple but clear vision helps everyone see where you’re going—a critical first step in formulating strategy. It defines what you want in the future; it inspires, motivates, and challenges. In conjunction with your organization’s values, vision helps you take a stand on all sorts of issues, including ethical ones.

Before discussing the organization’s vision, however, board members do well to revisit the mission to avoid the aforementioned unintended consequences. The mission clarifies why the organization exists; the vision identifies where the organization intends to go; and the strategy specifies what everyone must do to head into that ideal future. Vision comes from the mission, and strategy (which is shorter term and more specific) comes from both vision and mission—or at least it should.

Thinking about an organization’s future and imagining potential growth does not involve a tough call—at least not initially. Organic growth can happen slowly and deliberately, an approach that tends not to demand too much change too fast. It has an advantage in that people don’t usually fear organic growth. Nor do they need advanced critical thinking skills to formulate tactics for it. Even a little experience will serve to help replicate what you’ve done in the past. If the growth honors the mission of the organization, integrity issues typically don’t appear.

Decisions related to this kind of strategy formulation don’t usually involve tough calls—neither initially nor eventually. That may seem like a relief, but great board members consider this safe zone more imaginary than real. A current rate of unacceptable growth is one reason board members look to merge or acquire. When they do, the decisions they need to make will change markedly, and the speed at which they need to make them will accelerate.

Most board members find embarking on such a strategy far more challenging after many years of reliable, though slow, growth. When considering an M&A transaction, decision-makers will face a particularly tough set of decisions about people. While an organization may have many excellent people upon whom they can rely in the short run, their reliability does not guarantee future success. Of course, decision-makers will evaluate people in the usual ways—looking for evidence of a strong work ethic, high integrity, and effective interpersonal skills—but because deals tend to make things more complex, they will need to demand higher-caliber decision-making among the talent in the new organization.

A key attribute that differentiates those who will succeed from those who will not involves the ability to discern. People with a keen ability to discern see patterns, anticipate consequences, and solve the complicated problems a deal invites. They have a finer ability to distinguish critical issues from unimportant ones, and they don’t easily lose sight of why things need to happen. They differentiate, detect, and determine the tough calls they should make and the essential criteria they must use. While important in all situations, the powers of discernment show their value most clearly in high-stakes situations such as M&A.

Brilliant talent, a breakthrough product, dazzling service, or cutting-edge technology can put you in the game, but only rock-solid execution of a well-developed strategy can keep you there, especially after a deal. You must deliver—to translate your brilliant strategy and operational decisions into action. Your stakeholders will wait impatiently for these results, and they will usually fear the worst.

Therefore, you must make things work—quickly. Even very smart board members, in an effort to improve slipping performance, address the symptoms of reduced performance, not the root causes of it. Meanwhile, as they look around to determine which changes they need to make, people in the organization get nervous. Nervous people are distracted people. Before you know it, they don’t have eyes on the ball. Rather, they abandon their roles as star players and assume that of umpire or critic—two roles you don’t need at any time. A focus on what’s going wrong instead of why you’re experiencing problems never works. Too often, people get distracted by emotions when they should search for logical explanations.

Successful deals start with a strong investment thesis—a clear objective about what the organization wants to accomplish. Clear strategy leads the process; great performance completes it. However, we often get confused. We over- and misuse strategy to describe anything important, and strategic planning becomes an oxymoron. Senior leaders and board members formulate the strategy; they plan the execution—or at least the successful ones do. Execution involves discipline, requires senior leader involvement, and should be central to the organization’s culture. Done well, execution pushes the organization to decipher their broad-brush theoretical understanding of the strategy into intimate familiarity with how it will work, who will take charge of it, how long it will take, how much it will cost, and how it will affect the organization overall—and the customer, most importantly.

Operating plans often masquerade as strategic plans. Strategic planning too often involves a list of goals or set of tactics from which it is impossible to derive solid decision criteria.

In a newly merged organization, you don’t want your operating plan to concentrate on the past—to focus on the reflection in the rearview mirror. After all, at whose past would you be looking? And to what end? Furthermore, you will seriously undermine your ability to see the future. You’ll create an image more like the one you’d see in a fun-house mirror than an accurate reflection. Instead, your operating plan should resemble a kaleidoscope that exhibits various symmetrical patterns reflecting the loose bits of information you have aggregated. As you rotate the kaleidoscope with new information and contingencies, new patterns and answers will appear. If you focus on the bits, you see chaos. But look at the bigger view through the kaleidoscope instead, as if it were a strategy. Then, you can tolerate the disorder and still see the picture that emerges.

Some refer to “incompatible business models” undermining a deal, but what does that really suggest? It means the companies make money in different ways, perhaps doing things differently than board members initially thought they did. If board members don’t recognize and understand these differences, joining the two companies will prove challenging, costly, and probably ill-advised. If you don’t understand how the other organization makes money, you can’t assess the feasibility of its growth plans. Further, board members who overlook critical questions about the financial feasibility of decisions develop overconfidence.

Overconfidence is a key reason that financial performance post deal often disappoints. In fact, overconfidence about future revenue and overly ambitious goals for cost control and synergies do more than just disappoint. Too frequently, they also create a path for struggle and conflict.

On the other hand, the ability to paint an accurate picture of revenue and rate of growth is the single most important factor in evaluating acquisitive success. Even small changes in revenue can outweigh major planned cost savings. Similarly, a drop in sales immediately after an acquisition can have dire consequences, not only for the obvious reasons but also for less apparent ones, such as suspicion among customers, employees, and suppliers. Combined companies find regaining lost momentum far more difficult than preventing it from the outset. Even when board members have engaged in a financially solid deal, during the integration stage, they find their attention drawn inward. But that’s not where you’ll find the customer.

When a deal fails, too often culture takes the blame. Many view culture as some sort of complicated, abstract, nebulous force. It’s not, but research indicates more than 80% of board members don’t have a firm grasp of the culture that exists in the organizations they serve. While culture plays a role in any major transaction, the cultural differences that derail M&A deals have more to do with beliefs about the ways the companies make money and less to do with customs and interactions. Tough calls—good, bad, but especially those unmade—explain more about how deals turn out. Decision-makers need to think about and address the type of culture the newly formed organization will need to create in order to achieve its objectives. Board members must be prepared to make decisions about both the culture and the type of person who will fit into it.

Conclusion

When companies merge or acquire, stakeholders expect improvement. Sometimes the expectations are wildly unrealistic, but nonetheless they exist. Most expect one plus one to equal three or four. Unfortunately, as evidenced by countless failed or disappointing mergers, one plus one all too often doesn’t even equal one anymore, and the numbers move to the wrong side of zero. The deal disappoints, and the acquiring organization loses market share, margins erode, or profits drop

To prevent this scenario, ask yourself, “Do we currently run the existing business well enough to sustain the strain of integrating another?” If the answer is no, proceed with caution. It takes strength to bring companies together, and an acquisition will put a substantial strain on the acquirer’s resources. Ask, “Do we expect this deal to solve a systemic problem?” If so, an acquisition probably won’t solve that problem; rather, it will complicate the situation. In general, before you make a deal decision, start with questions about the current culture of the buyer. Better to clean your own house before inviting other people to live in it with you!

In the end, you’ll have the culture you shape. Whether you do it systematically or haphazardly, as a board member, your actions will sculpt the character of the organization. Decisions about the Five Essentials of the Deal—vision, talent, operations, financial synergy, and culture—will form the foundation. Prepare for things to happen in a simultaneous fashion, not a linear one. Think about how a deal should, ideally, unfold. Then work backward.

 



Nonprofit Marketing Resources to Help You Reach More Donors

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Nonprofit Marketing ResourcesA marketer’s job is to utilize their budget to drive as much revenue as possible, and for nonprofit marketers this need is heightened.

But for the nonprofit marketer, “driving revenue” takes on a different and more delicate aspect. The goal isn’t to sell people on an expensive product they don’t really need. It’s to show potential donors the impact their funds can make, and reassure them it’s a good place to spend their philanthropy dollars. Because nonprofits invest so heavily into the vital programs they run, their marketing budgets are limited and their expectations are high.

The resources below were collected especially for nonprofit marketers, covering a variety of overlooked opportunities, free marketing tools, and special discounts offered exclusively to nonprofits.

Internal Resources You Might Not Be Maximizing

Because nonprofits are typically on a tight budget, it’s important for nonprofit marketers to maximize the resources they already have access to.

Google Analytics

Many nonprofit websites already have Google Analytics installed – in fact, Google’s Chief Business Officer Nikesh Arora was quoted in 2012 saying that more than 10 million websites worldwide do!

Most marketers have experience using Google Analytics, but fail to capitalize on the full benefit of this free software. Here are a few ways to use Google Analytics that go beyond looking at sessions and traffic sources:

    1. Create custom dashboards for automated reporting. Wired Impact has a few free dashboards made especially for nonprofits.
    2. Monitor site speed. Having a website that loads very quickly helps your visitors’ experience, and is beneficial for SEO. Significant changes in site speed may also indicate greater technical problems that your developer or webmaster can address. To view your site speed, go to Behavior > Site Speed in the left hand navigation and set your desired date range.
    3. Track custom goals. Setting up custom goals is a great way to track the different actions that you value. For example, you can set up goals to track newsletter subscriptions, donations, or online membership registrations. This helps you understand your conversion rate, or the percentage of users who complete a desired action.

Your Email List

Many nonprofits have email lists of current and potential donors who have expressed interest in the organization. Larger customer lists can be expensive to host and maintain, so it is important to maximize their benefit. Email lists are commonly used for sending updates, newsletters, resources, and requesting donations.

Here are a few other ways that you can use your email list:

  1. Use automation sequences to reach donors at vital points in their “customer” journey. Engage new subscribers immediately by sending a welcome email series. Send automated emails to donors at regular frequencies to solicit new donations. These emails will be in addition to timely campaigns that offer current news and updates.
  2. Cross-promote your social media channels and website. Reaching your donors through a variety of channels helps strengthen your brand and exposure. Encourage your email subscribers to follow your most important social media pages, and explain to them the unique value you provide on each channel. For example, you may share heartwarming volunteer stories on Facebook or re-share photos that your members tag you in on Instagram.
  3. Send surveys learn more about your audience. Quantitative and qualitative surveys can help you learn more about user demographics, perceptions, behavior, and objections.

Note: Respecting your members’ data privacy is vital, especially where email is concerned. Immediately set the expectation of exactly how you will use your member’s data and the types of emails they will receive before they subscribe – this is especially important for members from EU, where GDPR (general data protection regulation) applies. Discussions around GDPR and other governmental privacy regulations are beyond the scope of this post, and deserve specific attention by your legal team.

Online Reviews

If your nonprofit is active online, chances are you’ve already garnered reviews on Facebook or Guidestar. Online reviews can provide compelling, emotional testimonials that may attract new donors and members. Consider placing testimonials on your website, or using them for social media marketing.

Note: Be sure to ask the reviewer’s permission to use their positive testimonial in your marketing materials and retain documentation of their consent. Using testimonials may not be appropriate for all nonprofits such as those serving vulnerable communities or helping with sensitive topics.

Online reviews can also provide insight into the language your donors use. Reflecting your member’s concerns and objections using the same terminology they use doesn’t just help reduce miscommunication, it also helps you connect with your audience and build rapport.

Organizational Communications

Anyone in your nonprofit in a consumer-facing role will have valuable information about the challenges and objections your donors have, as well as the language they use when they talk about your organization.

Customer service representatives, sales people, and corporate donor managers are all valuable resources that you can use to take your marketing a step further. Try this:

Sit in on sales and customer service calls

Both sales and customer service calls can be leveraged for marketing. There is often a divide between departments, but working together can truly benefit everyone in the organization.

From these calls you can learn common objections that potential donors have, and you can begin to craft communications to overcome those objections before they ever speak to a representative.

You can also record calls to review or transcribe later, but you may be required to gain the consent of the caller to do so.

Ask customer service the most common questions they hear

Understanding the questions your donors ask allows you to clarify your messaging and answer customer questions. This increases the number of users who donate, subscribe to your newsletter, or register as members. Calls like this can also mitigate and reduce demands on customer service.

Free Marketing Tools and Software for Nonprofits

In addition to internal resources that many nonprofits already have but may be under-utilizing, there are dozens of free marketing tools that nonprofits can leverage.

SEO

Screaming Frog has a free website crawling tool that can help you identify broken links, analyze metadata, and see duplicate pages.

Web Page Test allows you to test your site speed performance from multiple locations, and identify opportunities to improve your site speed.

Email

Mailchimp has one of the most robust free packages available to nonprofits. Their basic membership covers up to 2,000 subscribers, 12,000 monthly emails, and includes automation features.

Hubspot offers robust contact management software including features like Gmail integration, pop-up forms, and email templates.

Social Media

Hootsuite has one of the most robust free plans that allows you to schedule up to 30 posts to 3 accounts.

Buffer’s free plan allows you to schedule up to 10 posts at once and create custom graphics.

Followerwonk is a Twitter tool that allows you to gain insights into your Twitter following, including their locations and when they are active online.  

Website Conversion Rate Optimization

Google Optimize is a free tool that allows you to run A/B and multivariate tests on your website. It has an easy to use visual editor, and integrates seamlessly with Google Analytics.

Stock Photos

Shopify Burst is a directory of free images that can be used for personal or commercial purposes with or without attribution.

Pixabay has a free library of 1.6 million photos and videos that can be used for advertising and marketing.

Create Her Stock is a free subscription service that specializes in authentic stock photos featuring black women.

Surveys

Google Forms allows you to easily create and share free surveys and polls. Responses are easy to view or download as an Excel file.

Typeform has a basic free plan that allows you to ask up to 10 questions, and collect up to 100 responses per month.

Events

Evite allows you to send digital invitations by email or social media, and track RSVPs for your event.

 

10 Marketing Tools With Nonprofit Discounts

The following marketing software companies offer exclusive discounts with proof of nonprofit status. If you have an existing paid account with these companies but do not have a reduced rate, many of them will apply the discount to active accounts.

  1. Moz – 75% off – Moz is a leading SEO software that can help you track your backlinks and important keywords.
  2. Buffer – 50% off – Buffer is a tool for social media that allows you to post, review analytics, and engage with users from all social media platforms in a single location.
  3. Todoist – 50% off – Todoist is an organizational tool that helps you manage tasks and projects.
  4. Eventzilla – 25% off – Eventzilla is event registration software that helps you sell tickets, process payments, and survey attendees.
  5. Wordstream – 25% off – Wordstream helps organizations maximize their results from multiple ad platforms including Facebook, Google Ads, Instagram, and Bing.
  6. Paypal – 24% off transaction fees – Paypal is a payment processor that can be used for donations, ticket sales, and e-commerce payments.
  7. Mailchimp – 15% off – Mailchimp is an email provider. They have a free plan for up to 2,000 subscribers, and offer 15% off to nonprofits for paid plans.
  8. Zapier – 15% off – Zapier helps you connect and integrate different more than 1,000 softwares and apps.
  9. Shopify – unknown discount – Shopify is an e-commerce website platform that allows you to build, host, and maintain an e-commerce site for your nonprofit. Contact their team for details on nonprofit pricing.
  10. VWO – unknown discount – VWO is a visual editor that allows you to test design modifications with A/B and multivariate tests. Contact their team for details on nonprofit pricing.

Marketing success doesn’t have to be defined by whoever has the biggest budget. Most marketers aren’t using the full potential of their marketing tools and the teams that make up the organization. There are also a wide array of useful free programs online that can help with everything from SEO to event management. And when expensive enterprise software is inevitable, many marketing software companies offer nonprofit discounts.

Remember, as a nonprofit marketer your career offers unique rewards. Not only will you be more successful: the farther you take your budget, the greater impact your organization can have on the community you serve.

 

How to Boost Nonprofit Board Performance

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History has taught us that the prerequisites of nonprofit board success—courageous leadership, bold direction, clear goals, and a systematic approach to implementation—can also provide a recipe for disaster. The reason? Decision-makers must make choices with far-reaching consequences based on assumptions about what that future will look like. Of course, this paradox has always existed—nothing new about an inability to prophesize about the future. But one thing has drastically complicated the landscape—the future arrives much more quickly now than it used to, and many of the guests it tows along are neither invited nor welcome.

 

Boosting Nonprofit Board PerformanceMany board members feel unsure about their ability to create a credible strategy to boost their own performance and to influence the performance of those working in the organization. Yet, the best plans to improve productivity come from pragmatic business leaders who willingly consider alternative futures for their organizations. This doesn’t happen automatically, however. Board members must painstakingly address how to link mission to margins to create a stellar board that capitalizes on the organization’s unique contribution.

It all starts with the organization’s mission—but it can’t end there. Before board members influence leaders on strategy formulation, they should have a clear understanding of the mission of the organization and how to tie margins to it.

A mission statement should play the same role in an organization that the Holy Grail did in the Crusades. The mission defines the organization’s reason for being—the touchstone against which everyone evaluates strategy, activities, and expectations for overcoming the competition or making a unique contribution. Without one, members will diffuse resources, enable individual units of the organization to operate in silos, create conflicting tactics, and confuse customers, suppliers, financiers, and employees.

Conversely, when you have a well-articulated sense of purpose, you build a firm foundation that provides clear guidance for all significant decisions and establishes a point of reference for setting strategy and planning its execution. An effective mission statement answers these questions:

  • Why do we exist?
  • Who are our best customers?
  • What do they expect of us?
  • Who would miss us if we went away?

In addition to defining the organization’s identity, the mission guides its development over time. Although the mission should be resistant to capriciousness, as the external landscape changes, leaders must tweak the mission statement as they recognize how to translate purpose into practice—and how to take in enough money to keep the mission relevant and alive.

Most nonprofits don’t suffer because their board members don’t understand the organization’s mission. On the contrary, they miss the mark when they don’t figure out how to honor the mission while making money. I consistently repeat two mantras to my nonprofit clients: “No margins, no mission,” and “Nonprofit doesn’t mean not-for-money.”

Most boards understand how to make what I call “Mission Income.” This money comes from the products and services the organization provides. For example, a nonprofit hospital board knows that reimbursement is key, and they may also understand how to generate income from non-hospital amenities, like coffee and gift shops. But too often they leave other revenue streams like grants, individual contributions, corporate gifts, and government funding untapped.

Board productivity requires that decision makers at all levels of the organizations have the financial acumen to know what to do with the money once they have it, too. But if board members have overlooked these quantitative skills when they have recruited new members, the board will continue to struggle. Simply put, members need to know what the numbers mean, how to make sense of them, and how to use them to make sophisticated business decisions.

I have often said that on any board—public, private, or nonprofit—if you can sit on an audit committee, the organization will likely build a statue in your honor. If you can chair one, they will notify the Vatican of the miracle, and you will meet the requisite criteria for canonization. That’s not too much of an exaggeration.

In most cases, the real challenge for directors and executives in nonprofit organizations isn’t regulatory compliance or abandonment of the mission—it’s high performance. To achieve it, directors and executives need to systematically examine the five constructs of a successful, stellar board.

Nonprofit Board Performance Tips

Board productivity depends on strong leadership and tone at the top. Therefore, I recommend that the chair and CEO roles remain separate. Both directors and the CEO can be more effective when the roles and duties of the chair differ from those of the chief executive. Also, when different people have these roles, the chair can act as a lubricant between the board and senior leaders in the organization, especially when inevitable conflict occurs.

Board success starts with the relationships between the directors and the CEO.  The the CEO should regularly disagree with the board, and robust debate should occur, but never at the expense of good rapport. Embrace tension. Move beyond the outdated thinking that the board is a necessary evil and realize that a certain degree of tension is both healthy and desirable.

Contention, however, is not productive. The CEO should ask questions and question answers but all in a climate of candor and responsiveness. Trust, respect, and open communication form the foundation of any strong relationship; board relationships are no exception. Once the board has established rapport among themselves and with the leadership of the organization, everyone can focus on strategy.        

Too often board members don’t understand when and how they should be involved in strategy. Stellar Boards don’t formulate strategy, but they maintain a clear focus on it. They assess and critique it. Like the princess in the story about the pea, members need to detect flaws deep in the strategy—not to execute but to notice and report.

To safeguard the leadership pipeline, members will also want to influence succession planning—especially of C-suite positions. Members will certainly want to discuss the retirement plans for senior leaders plans, but they need to do more. They can play a more active role in setting criteria for hiring and promotion, identifying the stars in the organization, and creating opportunities to keep these people challenged and engaged. It’s all part of governance.

“Governance” is one of those all-encompassing words that people use but that few can explain in concrete terms. For nonprofit boards, it usually means general board oversight. Governance underpins the board’s ability to do all the aspects of its job. While strategy and succession planning address specific “What?” questions, governance deals with the “How?” It includes but is not limited to decisions about the board’s size, frequency of meetings, director selection, stakeholder relations, and social responsibility. When a board has a governance committee, those directors initiate action plans with specific timelines for implementation of recommendations. This committee should have the authority to shape and recommend policy and structure.

Why do board members so frequently fail at linking missions and margins? As noted, it’s not because they don’t understand the mission. They do. Boards run into problems for one reason. Most people who serve on nonprofit boards have a clear passion for their organizations, but they lack strong financial acumen that would help them make the margins that would ensure the mission. The remedy? Set the strategy, define goals for moving the organization forward, and become more self-directed than grant-driven.



Seven Essential Steps to Creating a Winning Nonprofit Annual Report

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Tips Creating Nonprofit Annual ReportHow do you create an impactful annual report? Many nonprofit professionals struggle with this question—and it’s not hard to see why. An annual report can be a useful tool for spotlighting your organization’s recent achievements. But it’s tough to work with your colleagues to determine which accomplishments to feature and how to present them in a way that will resonate with supporters.

Your nonprofit’s unique characteristics—such as your fundraising processes and donor demographics—should influence how you approach your annual report. However, regardless of these details, there are several key steps that all organizations should take to produce a report that truly hits the mark:

  1. Analyze the landscape. Review annual reports published by other nonprofits to gather ideas for how to present your content. Seek out reports from top-performing nonprofits and peer organizations—especially those in your sector and in your community. Ask your colleagues to share any impressive annual reports that they have encountered.
  2. Identify top stakeholders. Determine who you need to win over with your report, both inside and outside your organization. Is your primary reader a current donor or a prospective donor? Which of your colleagues must sign off on the report?
  3. Pick the right format. Consider the communication needs and preferences of your readers and how you want to share the report. A printed brochure could work well with an older audience. A digital report is your best bet to engage younger supporters. Consider offering a couple of formats if you have different audiences that are equally important.
  4. Document the process. Develop a step-by-step plan for producing your report and edit your document throughout the process as your expectations converge with reality. That way, you won’t have to reinvent the wheel when you create next year’s report.
  5. Seek frequent feedback. Request input from your colleagues throughout report development to get their buy-in. Before you begin, ask how they plan to use the report and what they liked or disliked about past reports. During report development, share draft content to find out whether they think it will be compelling to readers. After the report is complete, ask if the report was helpful and if they received any feedback.
  6. Create donor-centered content. Make your reader the hero in the story. Avoid using jargon to talk about your organization. Instead, use simple yet emotive language to address the reader directly, emphasizing how his or her generosity is fueling your mission. Include technical information if necessary, but keep it to a minimum.
  7. Create a strong communication plan. A robust communication plan will ensure that your report reaches as many people as possible. Consider which channels to prioritize to reach your primary reader. Depending on the format(s) you choose, you may be able to share the report via your website, social media, email and mail, as well as at conferences and in meetings.

It’s not easy to create an effective annual report. Few other projects require a nonprofit professional to not only understand an organization’s overall impact, but also communicate it in a concise and compelling way to its most important raders. However, if you follow these steps, you’ll produce a report that makes a meaningful impact where it matters most.

Can the Nonprofit Sector Survive the Upcoming Cash Crunch?

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Nonprofit L3C - Nonprofit ProfitsThe nonprofit sector is used to intermittent income. Individual donations and government grants rise and fall with the economy. Uncertainty is at heightened levels however, as crowdfunding for individual causes and impact investing compete for “giving” dollars. And above all of this looms the Tax Cut and Jobs Act (TCJA) of November 2017 that could slash individual giving. U.S. NGOs need to be pro-active in creating a form of “battle plan” to cope in adverse circumstances.

While the magnitude of the TCJA is still unclear, the sector cannot afford to wait to act. The biggest threat of the TCJA is the doubling of the standard deduction, which will reduce the number of taxpayers who itemize deductions and negate the value of a charitable tax break. Significant numbers of taxpayers relied on the break when determining both whether and how much to donate. It is estimated that the new law will cut charitable giving by about $16-$24 billion a year from a total of about $390 billion, and that the number of households claiming an itemized reduction will fall from 37 to 16 million in 2018. Individuals and households are more likely to give to smaller NGOs, who can less easily cope with funding shortfalls. This will compound the effect of the reduction in giving.

Some taxpayers may find workarounds. Some may donate larger sums once every two years, or open donor-advised funds. People may also increase IRA donations (which are not deductible but count as a required minimum distribution), charitable gift annuities and charitable remainder trusts. Despite this, the tax bill will likely wallop many nonprofits, especially smaller ones. Less certain and more “jerky” inflows can mean more closures, fewer programs and reduced ability to apply for grants and loans. The resultant increase in concentration in the NGO sector is perhaps one of the most damaging effects of the TCJA.

Back to that battle plan…

Tepid U.S. wage growth rules out relying on individual giving as a way forward, leading some to look at more unusual alternatives, like NGO-led crowdfunding campaigns (if you can’t beat them, join them). However, donor fatigue and resource intensiveness may rule out crowdfunding. A better option might be to use rebound of the real-estate market and the aging population as a platform to push legacy programs. Growing revenue from service fees, venue hire and merchandising will continue to be important, though some local markets may not be robust enough to support much growth in this area. Collaboration on grants and contracts is also a possibility, especially as a way to ensure survival of the smaller NGOs.

Obviously, a government expansion of tax relief options would also help. A possible solution may be to create something akin to Canada’s First-Time Donor’s Super Credit that was introduced in 2013 and allows new donors to claim a tax credit on donations. The Canadian legislature is also considering a “Stretch Tax Credit for Charitable Giving,” which would apply to incremental donations to prevent the cost to Treasury from donations that would have been made anyway.

L3C Nonprofits

A more extreme response would be for more charities to become low-profit limited liability companies, which are social enterprises that combine the legal and tax benefits of LLCs with the social benefits and goals of nonprofits. In the U.S., state law governs L3Cs. In particular, they are designed to allow private foundations to use tools like loans and equity instead of grants, which could increase the amount of private investment in the nonprofit sector. L3Cs themselves are not eligible for tax exemption, but are generally taxed as pass-through entities, while the for-profit investors are subject to tax on income received. This allows L3Cs to expand “commercial” offerings including things such as cause-related marketing, sponsorships and “knowledge sales.” NGOs can also opt to create L3C subsidiaries, which could combine more commercial-type activities with social welfare goals.

A potential snag may be that the IRS appears to be “resurrecting the obsolete, discredited commerciality doctrine, which says that a nonprofit cannot be charitable if it engages in activities, which are primarily commercial, even if the activity benefits only the general public or a charitable class”. This was abandoned years ago due to its dampening effect on innovation. The recent IRS approach may threaten a range of charities including community health centers, university bookstores, the NCAA. All of these offer services that could be perceived as competing with private business. NGOs might therefore be safer if they set up a wholly-owned trading subsidiary, with no limits on the type of services they can provide. They would have to pay tax on profits from these subsidiaries but after that the trading subsidiary could give all its remaining profits to the NGO as a charitable gift.

As government budgets are cut, there is a greater need than ever for nonprofits to “fill the gaps.” Sadly, their ability to fund this expansion is also being threatened and survival will depend on the availability of new structures such as L3Cs and an increase in fund-raising tools such as merchandising. What were once seen as alternative may soon become the norm…

Best Practices for Annual Reports for Nonprofits

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Annual report for nonprofitsIt’s time to think about your annual report! This is a great opportunity to highlight your nonprofit’s achievements, to report on the impact you’ve made, and build trust. As you start, there are a few important things to remember:

1. Connect it all to the donors

Tie everything back to the donors. Focus on their achievements. Don’t just frame it in terms of the nonprofit’s achievements. What did the donors make possible this year? Did their generosity give scholarships to 253 kids? Did their volunteer hours help feed over 500? Do a little humble bragging about your donors.

Focus on each type of donor you have. Chances are there are different ways to support your organization. Do you have individual giving, corporate giving, planned giving? Include short articles on each; how Mary became involved as an individual donor, how ABC Company’s donation built a new gym, and why Hank and Betty decided to name you in their estate plans. Gather quotes on why they became
involved, how giving makes them feel. Personal stories make giving seem more approachable and human. People can imagine themselves giving. This approach can appeal to potential donors by showing them all the ways they can give, and can also motivate a current donor to support in a new way.

2. Make it visual

We all know that a picture is worth a thousand words, and in the digital age it has never been more true. Pictures can grab attention and convey the need more thoroughly, emotionally, and quickly than the most carefully crafted paragraph.

So include pictures! Do you have pictures of the people you help? Before and after pictures on a certain project? Pictures of your volunteers? Pictures of the donors whose story you’re telling? Include them! (And please edit them before you use them. A simple crop can improve a photo dramatically!)

Also use visuals with your financials and statistics. Maybe this is just me, but I find numbers much easier to grasp when I see a visual. Use bar charts, infographics, pie charts (or donut charts if you’re Homer Simpson). This is your chance to get your stats to stick in your donors’ minds.

3. Be clear with your financials

This may seem obvious. And it should be. Be sure your financial data is rock solid but clear as glass. Make sure the areas you are reporting on are consistent year to year. Your donors want to know that you are a good steward of their funds. Be honest, be transparent, and you’ll build trust.

4. Read it over with the eyes of an outsider

Read over your draft as if you knew nothing about your charity. Would you come away with a clear understanding of the mission, values, and impact? While we live and breathe the non-profit life, we can unconsciously assume that everyone knows this or that about our program, or where we are based, or our ways to give. Be sure that your Who, What, Where, When, How, and Why are all there. Also checkto see if you are also including the nitty gritty details of mailing address, who’s on the board, areas served, tax-id, social media handles, website, and who to contact if someone has questions or wants toget involved.

5. Read it over with the eyes of a long-time supporter

If you were reading the annual report of a charity you personally supported, what would you want to ee? I would say:
• Where the money went
• How it made a difference
• A thank you!
• Facts and stories to share

The annual report is an opportunity to get facts, stories, and your gratitude to stick in your donors’ minds. This may motivate more involvement, more giving from them. It also provides them the tools to become your new ambassadors, sharing your story and mission in a personal and authentic way.

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