Real learning gets to the heart of what it means to be human. Through learning we become able to do something we never were able to do.
― Peter M. Senge
― Peter M. Senge
Does your organization need more resources? Do you wish you had more loyal and generous supporters? The process of looking for potential donors can be exhausting and even costly. Take a page from companies like Amazon and Southwest Airlines. Identify your core donor in four steps - and get the fuel to achieve your mission while building long-term sustainability.
"What is this leadership thing you keep talking about?"
I was leading a fast-growing organization when that question was asked by one of the senior directors during a team meeting. He was a great employee and a gifted trainer but clearly not someone who was ready to help lead. Does your not-for-profit have less than one month of operating reserves? Have you lived through those months when it felt like an elephant was sitting on your chest as you worried about how you’d cover the monthly bills - or worse, payroll! I’ve been there and it's awful.
But you don’t have to be one of the fifty percent of all US not-for-profits in the same boat. That is if you’re willing to talk about building wealth for your organization. Ok, a conversation about wealth and not-for-profits feels a little crazy, I admit. But like most important things, I’m pretty sure we need to talk about it a whole lot more. How do you make your nonprofit financially healthy? No, I don’t have a good punch line, but I do have some clues to offer. When I am asked to assess organizational health, the very first thing I look at the Unrestricted Net Assets or URNA.
So, what are Unrestricted Net Assets? Simply put URNA represent the money that can be used completely at the discretion of the nonprofit. URNA are the resources that the organization “owns.” Your URNA are so critical to your organization’s health because not having them, not having enough causes all sorts of headaches and heartaches that make running a nonprofit seem like a bad dream. When I ran a nonprofit, with the first hint of fall, the worry would return. Was our end-of-year appeal ready and good? Were we on target for our fundraising events? Do I have the right fundraising staff in place? Sure, the board would be helpful, but their success was very dependent on the staff's ability to help follow up, which generally meant that they might raise less than we were hoping.
If I could go back in time, there are a number of things that I would tell myself do differently. I would first assure my former self that fundraising could be much less stressful if the board and staff were willing to spend more time on a strategic execution planing in order to get everyone aligned. I’d watch the first beads of sweat appear on my younger forehead. Get everyone aligned? But we’re all so busy! Do you have a will? Does the thought of outlining what you want done with your stuff after your earthly departure fill you with dread? Well it shouldn't. And neither should creating a succession plan for your organization! It's hard to acknowledge that one day we won't be here - either physically or in our current job. But making a plan can help make sure a CEO transition won't mean the end of your mission-driven organization.
The Financial Accounting Standards Board has made some changes in how your organization's Equity is presented effective for years beginning after December 15, 2017 (calendar years 2018 and fiscal years 2019). Could I say that in English? I'll try. But first let's talk a little about what you need to know about Net Assets. If this is review, skip to the bottom. call your bookkeeper, and ask them to reclassify your Net Assets.
So first of all, your net assets are on the sheet that many leaders spend too little time exploring - the Statement of Financial Position or Balance Sheet. (Quick aside: when I'm asked to evaluate the financial health of a not-for-profit, I start with this statement and zero in on the section called Equity. More on that later.) Predicting the future is not usually part of an Executive Director, CEO or board member’s job description, but it is a critical part of the role, particularly when it comes to securing future revenue. Nonprofits are not always considered businesses, but they still have to generate enough revenue to keep the doors open. You may not be worrying about how your 3rd quarter financials will impact the company’s stock price, but since 2008, the marketplace for social sector investment has been changing and understanding your position in that market is critical to your mission and your stakeholders.
You used to know how to raise money for your organization. You had all the right connections with all the right people and you knew how to gain traction, but things have changed. You’re working hard, perhaps harder than ever, yet finding it tougher to make headway. Change seems to be the theme du jour, and as the leader in your organization, you need to be able to anticipate change and to adapt.
Basic Terms:
Merger: This is the term of art that most easily communicates the idea of more than one organization coming together under one roof. However, legally, the term merger is no longer commonly used. Strategic Alliance: This is currently the term-of-art for the range of options that nonprofits can look at when considering combining forces. These alliances can range from formal program or administrative partnerships on one end to a complete organizational integration. (link to chart) Asset Transfer: When two organizations decide to unite, the Asset Transfer (or the related Asset Donation or Asset Acquisition) is the legal contract used. Rather than the historical merger, the Asset Transfer process moves resources and intellectual property from one organization to another. Wind Down and Dissolution: When an Asset Transfer is complete, usually the combined effort retains the name of one organization. The other organization usually goes through a process of legal wind-down and dissolution. This includes satisfying all of the organization’s debts, archiving necessary contract and financial paperwork, and filing legal paperwork with the government. Some Things to Consider Financial Outlook: In this volatile economic and philanthropic environment competent organizational leaders are asking themselves and their boards about their organization’s future. For many years, I’ve recommended that organizations do conservative three-year budget projections which over-estimates expenses and underestimates revenues. It’s critical to ask the difficult questions and take an honest look at the environment. Depending on your projections your organization might consider anything from seeking to take on a programmatically strong but financially weaker partner or looking for a financially stronger organization that would adopt your mission. Leadership Change: There doesn’t ever seem to be a good time for ED’s and senior leaders to transition out of their jobs. Before jumping into a transition process, boards should discuss if a strategic alliance should be considered. Bringing on a new leader is a high-risk, high-return endeavor often taking 12-18 months before revenue, expenses and staffing stabilize. Aligned Missions: Nonprofit organizations are like snowflakes – each and every one different in their own right. There truly are no two that are exactly alike. And yet like snowflakes, while nonprofits are unique many have countless ways in which they align. Mergers in the nonprofit sector are most often between organizations that share a passion for a population or for solving one of our society’s many intractable problems. When we put the needs of the populations we serve at the forefront of our analysis, we often see those similarities come to the forefront. Who leads the conversation – board or staff? This is a question we hear often. Of course the answer is that it depends. Based on our experience, conversations about mergers are often raised when there is a strong and trusting relationship between the CEO/ED and Board. That said, in the majority of cases, conversations about potential merger options are often led by staff leadership. However, there is no merger without the involvement of the board. Our approach in working with organizations is to identify many inflection points where decision makers – in particular the boards – agree to continue with exploring a process of alignment or merger. How long should the process take? This is another question where the answer is dependent on many factors. We think it’s safe to count on a 3-6 month process. The speed of the process is dependent on a number of factors including negotiation time, board meetings, the legal process, etc. Do we need a consultant or can we do this by ourselves? For many years, we’ve recommended David LaPiana’s The Nonprofit Mergers Workbook. We recommend that all our clients get this book and review it. Most information on nonprofit mergers you’ll find on the web is based in their work. In the book, you’ll find that LaPiana generally recommends using a consultant. A new tool from BoardSource also includes a "Do We Need a Facilitator" section in their new guide to strategic partnerships. . Will our funders pay for a merger exploration? More and more philanthropy is willing to support organizations in exploring mergers even when they don’t end in a merge. When contemplating asking for support, it’s useful to know that what pieces to ask for. The good news is that for most nonprofits free legal counsel is available. The main costs for the nonprofit are the consultant (if you have one), staffing and wind-down costs. Additionally, it’s useful to think about post-merger costs to help with cultural and programmatic integration. |
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