"The data show that the more financially challenged nonprofit organizations are more likely to engage more deeply with their boards," said Jennifer Talansky, Vice President, Marketing and Communications, Nonprofit Finance Fund (NFF), in a private interview. Talansky was referring to the results of NFF's 2011 Survey. Nonprofits with budget deficits indicated a higher likelihood of engaging more closely with their boards than nonprofits with budget surpluses. And nonprofits with less than 90 days of cash on hand were more likely compared with nonprofits with more than 90 days of cash.
In this third annual NFF survey, 77% of nonprofits reported that they experienced an increase in demand in services in 2010, and 49% reported that they were unable to meet the demand for services. 85% expect further increases in demand in 2011, and 54% do not expect to be able to meet the demand. Nonprofits coped by reducing and eliminating programs and services as well as adding and expanding programs, increasing the number of clients served, and partnering with other organizations—programmatically and financially. For many organizations, additional programmatic, financial, and staffing changes are planned for 2011.
There are many lessons to draw from the survey results. Here are a few.
Lesson to Boards: Engage sooner rather than later
First of all, boards have fiduciary responsibilities for the nonprofit organizations they govern, so they have a duty to be informed and aware, and to ensure that their organizations achieve their missions.
Second, even the best nonprofit CEO cannot maximize the revenue potential of a nonprofit without the full support and engagement of the board. The challenge, of course, is building a board that is committed to the mission, with the expertise and the passion to participate in meaningful and productive strategic deliberations: helping to affirm the mission, envision the organization's potential in serving the community, build a revenue model to achieve success, and engage in attaining the vision. There are many ways that board members can help accomplish results, including taking part in meetings with key investors/funders.
Boards, don't wait until the organization has less than 90 days in operating reserves to engage in strategic discussions about core programs and the revenue model. Make sure that your board meeting agendas are focused on key strategic issues, committees are streamlined to address priority governance matters, and that board members are using their precious time for vital board work. Partner with your CEO who should be an expert in the field, and make sure you have excellent board leadership.
Lesson to Funders: Invest in general/unrestricted operating support
"We provide and understand the importance of unrestricted operating support for nonprofits, especially for lifeline organizations (providing critical services to people in need). We fund this annual NFF survey to look at challenges facing the nonprofit sector during these tough times, help validate our funding approach, and also inform the broader field. We hope that more funders will see the value of funding for unrestricted operating support." Kerry Sullivan, President, Bank of America Charitable Foundation, explained this to me in a private interview.
In the same conversation, Rebecca Thomas, Vice President, National Services, NFF elaborated, saying that, "Funders often encourage nonprofits to bring new programs to them for funding, eschewing funding for operating support. This can force nonprofits to expand when they have insufficient human or financial capital." Thomas adds that, "Too many organizations grow on the cheap. Organizations need capital to change or grow in a viable way."
This point of view complements NFF's pioneering work in philanthropic equity, through which NFF encourages funders to be "builders" of nonprofits, not only "buyers" of nonprofit services. NFF shows funders how to be partners in investing in organizational vitality and sustainability—through today's challenging economy and into the future.
Lesson to Boards, Nonprofits, and their Investors: Financial tools
The vast majority of nonprofits ask for help in fundraising. I was also glad to see 38% ask for technical assistance or capital access services for the "tools to communicate [their] financial picture to board and/or funders," 35% for "organizational performance measurement support," and 31% for "financial scenario planning."
Nonprofit CFOs who move over from the for-profit sector will tell you that nonprofit revenue models can be far more complex than for-profits—even though the organizational budgets might be a fraction of the size of businesses. That's because many nonprofits have vast and various income streams and reporting requirements, on a wide variety of timing schedules throughout the year. Given the complexity of nonprofit revenue models, it's not surprising when savvy business people are not prepared to recognize distress signals in a nonprofit's finances until late in the game. It happens in particular when there are budgets with third-party payers, such as government or aid organizations, and with health and human services and global NGOs.
NFF is a force in enlightening us about how nonprofits are financed, how they cope, the incentives that drive organizational behaviors and decision-making, and how investors and boards can shift their approaches to be proactive in building more vital and sustainable nonprofit organizations.