5 Strategies for Non-profits to Use to Get Rid of a Deficit

By Ingrid Zacharias on September 1, 2010

I came across an article on “The Chronicle of Philanthropy” dated back to March of 2009 about non-profit deficits and how in the USA, the deficits are resulting in loss of programming, staff and services. You can find this article at http://philanthropy.com/article/Nearly-a-Third-of-Charities/63052/ .

In the non-profit world, “deficit” is almost a dirty word, falling into the ranks of other taboo words like “advocacy”. The article speaks of how one third of the non-profits in the USA had operating deficits in 2008. While in Canada, when I did research a few months ago, most said in census that they expected their funding to remain stable or actually increase. But non-profit deficits are what you have to deal with no matter where you are located in the world.

Some organizations that I have worked with, have run deficits for short times, but immediately developed a plan on how to get rid of the deficit. The most I have seen in a deficit is about 3% of the organization’s annual income. This is still manageable. But there are probably other non-profits in the world that run a deficit more often and with a higher percentage of their annual income. But if a non-profit is running a deficit, there are a few actions they can take. They are:

  • Reallocate some core funds – If your non-profit receives core funding, then you may be able to reallocate some of the core funds to cover the deficit, by finding economies in your core expenditures.
  • Donor fundraising – If your organization relies on donors, then it’s important to kick up your advertising campaign and get your board tapping into their contacts to help raise money to cover the deficit.
  • Grant fundraising – There are some grants out there that don’t have a lot of turnaround time. Most funders will not cover deficits, but if you find a funder who will pay for a part of a program that your core funding now pays for in the fiscal year that you are running the deficit, then you can direct those extra funds where you need them provided it abides by the agreement entered into with the first funder.
  • Bank line of credit – You could go to your financial institute and see if your organization can get a line of credit. Keep in mind, banks don’t lend you money when you need it, they loan it when they know you have income that will come in shortly that will cover the loan. So if your deficit occurs because of the timing of funder payments, you may be able to get a line of credit from your bank.
  • Go to your funder – If all else fails, contact your funder and explain the situation and see if there is anyway, your organization’s next funding cheque can be sent out sooner, explaining that it is a result of cash flow problems, if that is the problem.

Question of the Day: What strategies have you seen non-profits use to rid themselves of a deficit situation?

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Succession Planning: Is It a Staffing Matter? No

By Carter McNamara on June 17, 2010

Succession planning is one of the most important topics in nonprofit capacity building.  That wasn’t the case even 10 years ago.  Today, there’s more people moving from job to job, and a large number of baby boomers retiring.  Effectively filling those open positions is critical to the success of the organization.

Unfortunately, succession planning is still done quite poorly — primarily because it’s too often seen as a matter of replacing a person, rather than organizational performance management.  Those two perspectives produce very different ways to do succession planning.

(Unfortunately, performance management is too often viewed only as employee performance management, and not as organizational performance management — but that’s another blog post.)

Succession planning is a management function,
not a staffing crisis.

Establish Board-approved, up-to-date personnel policies

They should include guidelines and procedures about, e.g., staffing analysis, hiring, orienting, training and organizing employees; performance management; and compensation and benefits.  Those policies not only ensure fair and equitable treatment of employees — they can minimize chances that you’d lose a lawsuit with an employee.

Here’s more about personnel policies.

Conduct relevant and realistic strategic and departmental planning

The planning clarifies the most appropriate priorities for the position to address.   A position, or job role, is really a means to get something done in the organization — it’s means to achieve an overall goal or address an overall priority.   Why fill a position that was not designed well in the first place?  Only through useful planning will the organization know if the position is designed well.

Here’s more about strategic planning.

Conduct staffing analysis to identify most appropriate roles

Too often, job roles are developed in response to recurring crises in the workplace, to an increasing amount of work that is not getting done.  Instead, roles should be identified near the end of strategic planning when clarifying what expertise is needed to achieve goals.  The analysis should produce up-to-date, relevant job descriptions.  (There are many who assert that job descriptions are no longer a useful management tool — that’s another blog post.)

Here’s more information about staffing analysis.

Use suitable practices of employee performance management

These practices should be done regardless of whether the employee is leaving or not.  They include:

  • Establishing performance goals in reference to the employee’s job description and priorities for the year
  • Techniques for effective delegation, not just work direction
  • Getting up-to-date descriptions from the employee about his priorities, issues, plans, etc.
  • Sharing useful feedback to continue to enhance the employee’s performance
  • Addressing performance issues when they occur (they might require training, providing more resources, getting more from the employee or firing the employee)

Here’s more about employee performance management.

Making sure all employees go on vacation

That forces the organization to learn about — and be able to do — the jobs when the employees are gone.  A supervisor might not really know what his employees are actually doing to get the job done.  Ironically, the better the supervisor is at delegating, the less the supervisor might know about the details of his employee’s job.

Succession planning is about developing and implementing a system, a practice of activities on a recurring basis.  Then, when an employee leaves, the system almost naturally refills the position with the most suitable candidate.

Here’s more resources about succession planning.

What do you think?

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.

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Meatloaf or Tartare?

By Renata Rafferty on June 14, 2010

I recently encountered an organization that’s on the cusp of a big change … a change about which its huge constituency is feeling a bit uncertain.

The agency has never had a chief executive, and that’s part of the new picture that has some supporters skeptical.  After all, things have gone okay without one, why spend the money on another administrator?

Like the Chinese symbol for “crisis,” this moment of change represents both opportunity and danger.

On the one hand, bringing in a new leader with energy, ideas, expertise, and commitment could take this organization to a new level of efficacy and service.

On the other hand, just bringing someone in for this new position is stretching the comfort zone of many important supporters.

So, what’s a Board to do?

In the lifecycles of a nonprofit organization, it’s critical that the mindset of the board and the chief executive are in sync about where the organization should be heading … and more critically, how fast it should be heading there.

Many board/executive marriages get off to a rocky start when the board looks to engage the type of leader they “think” they want rather than what they REALLY want or are comfortable with.

In other words, a board that is in “maintenance” mode – that is, it is seeking to promote the stability of the organization to a nervous constituency – should recognize that bringing on a passionate innovator at that moment in its organizational development may actually impede the agency’s progress.

The same is true of a nonprofit in which the board is ready to significantly advance the mission, operations, or reach of the organization, but chooses an executive counterpart that is risk- or innovation-averse.

Like the marriage between the big-time biker and America’s sweetheart, at some point, something’s going to give, and it’s the organization, ultimately, that will suffer from the strain.

All ground beef is not created equal. Don’t order steak tartare if what you REALLY want is meatloaf … and vice-versa.

Fare well, and farewell until next week …

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The Politically Incorrect Guide to Donors

By Renata Rafferty on June 8, 2010

The donor pool can be (and has been!) sliced and diced in a variety of ways.  My preferred method of grouping donors is by motivation:

The” Social Donor” uses charitable contributions to attract personal visibility and social prestige.  Although no one admits is, there are plenty of major gift donors who engage in philanthropy as an expression of their own vanity.

The “Quid Pro Quo Giver” sees donations as a form of “social currency” between business and social peers – “I’ll give to yours (and I’ll expect you to give to mine when I ask).”

The “Social Conscience Supporter” gives to one or more organizations because they truly or deeply believe in the urgency or importance of a nonprofit’s mission.

The true “Philanthropist” carefully invests wealth in the nonprofit sector — specifically and deliberately — in order to benefit the general good of mankind, and to effect positive, substantive change in the world.

Before you ask someone for a gift, examine what their motivation might be.  If what they want is access to movers and shakers on the A list, it really won’t matter how many baby whales you could save with their gift.

Another way of identifying donor groups is by the level and type of involvement they are likely to desire with the charities they support.  Here again, we can crudely classify them in the following four categories:

The “Traditionalist” is likely to be over the age of 60, and once the gift is made, is not prone to becoming involved in a very “hands on” fashion with the charity.

The “Pre- and Young Boomer” generation (age range of about 35 to 50) lived through the dotcom bust.  Some would argue that dotcoms went bust because the ‘younguns’ who created and ran the start-ups thought they had all the business answers – although many had never been exposed to business.  These folks are the ones who want to see nonprofits run “like businesses” and want to be actively involved in tightening operations at the charities they support.  Unfortunately, many have never had any experience with or in nonprofits before – but that won’t stop them from telling you how to run your “business.”

The “Revolutionary” wants to re-form the relationship between the philanthropic sector and the global economic system, investing funds – literally – to create hybrid solutions to make change in the world more efficiently and effectively.  Their approach takes a variety of forms, ranging from social ventures, to social entrepreneurship or philanthropreneurship, to the latest – philanthrocapitalism.  This group is focused primarily on systems change, and may or may not be actively involved in working with “boots on the ground” charities.  They will want to see some innovation in your organization’s revenue model, as well as scaleability.

The “Tweeters” are in their late teens, 20’s and early 30’s.  They don’t necessarily have a lot of money (or any money) to give, but are energetic, bright, and have been steeped in a culture of voluntarism and service to humanity.  They spend their time communicating via social media and tend to see the universe globally rather than locally.  They are more likely to organize a tweet-up or twitter group for individuals seeking to support third-world women in establishing economic independence than to volunteer at the local domestic violence shelter.  They want to understand how your work connects to a global injustice, and if you can show them, they will bring enthusiasm and energy to your nonprofit.  Once the school loans are paid, they’ll be in a position to contribute money as well.

Gross generalizations? Absolutely!  But having some benchmarks by which you can approximate a donor’s motivation – and understand how they will assess and interact with your organization – can minimize both the miscommunication and misunderstandings fostered by “one size fits all” cultivation.

Farewell, and fare well until next week …

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How Financial Sustainability is So Misunderstood

By Carter McNamara on May 27, 2010

Finances Are Just a Symptom, Not a Solution

When people think of financial sustainability, they usually think of getting enough money to pay bills for the long-term.  Then they focus on strategies to keep getting enough money.  That’s the wrong approach.

1.  Strategy for Sustainability — Be Realistic

If an organization is trying to do far too much, it will likely not have enough resources, including not enough money to do what it wants to do.  The solution is not to keep trying to get more money, the solution is to do less. Yeah, that’s right, do less.  Cut back on the number of goals and priorities to address OR extend deadlines in which to address them.

2.  Strategy for Sustainability — Ensure High-Quality Programs

If your organization does not have high-quality programs and services, then clients’ participation will eventually decline as will funding.  That’s why it’s so important to do a few things very well, rather than a lot of things not so well.  The solution is not to keep trying to get more money to offset deficits.  The solution is to pick which programs you can do very well, do them — and keep proving your strong results.

3.  Strategy for Sustainability — Financial Planning

Two of the best practices are achieving a financial reserve and doing contingency planning.  Many leaders even laugh when they hear suggestions to establish a reserve.  Too often, that’s from a mindset that all money must soon be spent because that will accomplish even more positive results for the community.  The irony is that that approach too often hurts the community because the nonprofit remains in financial crises, which can hurt programs and services.

4.  Strategy for Sustainability — Think “Organizational Sustainability”

When Board members and other nonprofit leaders talk about sustainability, they’re ultimately worried about having enough money to continue to support the organization.  So remind them that financial sustainability is really just part of organizational sustainability.  Help them talk about being realistic, ensuring strong programs, and doing financial planning for reserves and contingencies.

What do you think?

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.

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What's a Nonprofit "Program"? Really?

By Carter McNamara on May 21, 2010

Too Often, What We Call a Program, Really Isn’t

If you spent the day guiding old ladies across the street and someone gave you a dollar for doing it, would that mean you’re delivering a “program?”  What many people call a program is too often just a sporadic set of disconnected activities — it’s not really a program.

So What’s a Real Nonprofit Program?

A program is:

  • A highly integrated, ongoing set of activities,
  • Aimed to meet a verified unmet need in the community,
  • By accomplishing certain outcomes among clients and
  • Using sufficient evaluation to verify that it’s meeting that need.

The quality of the program depends on

  • How well resourced the program is with people, funding, facilities, etc.
  • How well the nonprofit responds to results of evaluations to improve the program

A program closes the loop — it hears back from its clients to verify if the program is indeed meeting the needs of the clients AND the needs of the community.

What do you think?

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.

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Social Schizophrenia

By Renata Rafferty on May 17, 2010

On which side of philanthropy’s great divide do you stand?  More importantly, where do your donors and potential donors stand?

The divide used to be less noticeable, but with the explosion of social media over the past five years, tweeting, blogging, and linking has brought the great divide to the forefront.

On the one side are those who assume that “social capital” belongs in the public domain and should be applied to the public good.  The “public good” is defined by broad terms such as social justice and environmental ethics.

On the other side are those who are productively and satisfyingly engaged in personal philanthropy … where one’s giving is a personal expression of one’s own values, concerns, interests, (hopefully) vision, and, yes, even whim.

Do donors have a social obligation to subordinate their personal philanthropic passions to a group-think standard for how and why they should give?  Isn’t that part of what we pay taxes for – how successfully have THOSE dollars been used to create social equity?  Will a philanthropic “free social capital market” be any more successful – or socially just – than, say, a Goldman Sachs-school market?

The divide is more than polemics.  If you think this debate has no bearing on your own nonprofit, think again.  Where you stand on this issue will affect everything from how you frame your case, to how you package your appeal, to how you interact one-on-one with your supporters and those you serve.

Private philanthropic money … public good or private vision?

And what, in essence IS philanthropy … “love of mankind” or “obligation to mankind”?

Food for thought.

Farewell and fare well until next week …

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Reactive Versus Planful Nonprofits

By Carter McNamara on May 10, 2010

I’ve worked with nonprofit organizations for a very long time.  I’ve noticed two distinctly different approaches to leading: reactive versus proactive.  You’ll very likely notice each of the two distinctly different types in the following paragraphs.

Fundraising

The reactive nonprofit is continually fundraising and then spending whatever funds are obtained — so the organization is in a continual state of fundraising.  The proactive organization sets a fundraising target and raises funds until that target is hit.  Then the organization directs more energies to the rest of the organization, especially to programs.

Source of Leadership

The reactive organization is led by a person, usually the Executive Director.  He/she staffs the Board with members who are expected primarily to do fundraising.  The proactive organization is led by a strong working relationship between the Board and Executive Director, with emphasis primarily on planning and implementing those plans.

Sustainability

The reactive organization sees sustainability as a matter of having enough funds.  The proactive organization see sustainability as being realistic in everything it does — because if the organization is not realistic, then it will not have enough resources, which will lead it into an unsustainable situation.

(Astute readers might recognize the signs of a reactive organization as very similar to the signs of an organization with Founders Syndrome.)

What do you think?

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.

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Whose Capacity Should We Be Building Anyway?

By Renata Rafferty on April 30, 2010

In another sterling example of checking brains at the nonprofit boardroom door, I recently learned of a charity that is financially on the ropes.

Poor decisionmaking, weak leadership, the struggling economy, and ho-hum programming have this cultural entity (with a multi-million facility) on the verge of collapse.

No one is currently at the helm, and the board is hunting for a new chief executive.  After a bumpy search, the choice is down to one of two candidates.

Candidate A has fundraising experience, but has never managed people, never served as the senior executive of any organization, and has never worked with an agency within the cultural sector.  But the person is bright, likeable and local.

Candidate B is a seasoned E.D. with a track record of performing turnarounds at charities with a similar mission.  This person, however, would be relocating from half-way across the country, and has an aggressive personality tinged with a helping of arrogance.

The search committee sums up their choice this way:  Candidate A has a lot of potential and, we believe, could grow into the job.  Candidate B could definitely do the job.

Slam dunk choice, no?  After all, the charity is at the verge of shutdown.

But since Candidate B is not as “nice” as Candidate A, this group is seriously considering banking on “building the capacity” of Candidate A as a chief executive.

Am I missing something here?  If this were a multi-million dollar company with stockholders, would this board even CONSIDER making the same choice?

Sometimes, real capacity-building is nothing more than engaging the full capacity of our brains … the ones we checked at the boardroom door.

Farewell, and fare well till next week …

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Should Nonprofit CEO Pay Be Based on Outcomes?

By Carter McNamara on April 28, 2010

Last week, I did a workshop among nonprofit Executive Directors.  Some of them expressed great frustration at the exorbitant compensation of CEOs of very large, for-profit companies.  They mentioned that many of the companies’ products were very poor quality anyway.

One participant offered a rather novel assertion that the pay of those CEOs should be based on how much customers actually benefited from the companies’ products and services.  (She refined her assertion a bit by adding that compensation should also be based on performance of the stock and on some performance goals set by the Board.)

Another participant in the workshop ventured the question, “Then should a nonprofit Executive Director’s pay be based on how many of the outcomes were achieved by participants in the nonprofit’s programs?”  (Remember that outcomes are the types of changes achieved by participants in programs, e.g., new knowledge, skills and abilities.)

That question produced a firestorm of indignation and assertions about how nonprofit organizations are very different than for-profits.  I asked for a vote to get a sense for how many people believed that the E.D.’s salary should be based, at least in part, on outcomes.  Only 2 out of 15 agreed.  Then I asked for a vote of how many believed that a for-profit CEO’s salary should be based on some measure of customer benefits — 9 out of 15 agreed that should be the case for for-profit CEOs.

What do you think?  Should a nonprofit E.D.’s salary be based somehow on outcomes from programs?

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