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When All You See Is Red: What to Do When Your Organization Hits the Wall

Last week’s post talked about the tension between mission and money for nonprofit organizations.  My thesis was that mission is important but cannot flourish without sound money management.  Any nonprofit organization director who doesn’t understand that is kidding him or herself.  Financial management is not a pesky little detail of nonprofit life; it is central. 

#1 Rule: Keep the money straight.

So what happens when the money has not been kept straight?  One of two things happen:  either the situation is ignored, minimized and marginalized OR the situation is the impetus for new, better financial practices.

Like a smoker ignoring his hacking cough, glossing over nonprofit financial problems only leads to a worse situation.  Financial problems, like cancer, do not cure themselves.  But like cancer treatment, the cure for nonprofit financial problems is not easy or painless.

Steps to a cure (or at least rehabilitation):

1.  Professional diagnosis:  Because non-profit organizations are often small and mission-driven, they rely heavily on volunteers with limited time and, often, limited expertise. When the board of directors first begins to see a pattern of financial problems, that is the time to seek a professional opinion from someone outside the organization.  Virtually every community has nonprofit management technical assistance, this is the time to seek it out.

2. Management accountability:  The organization’s executive director and board of directors have to take ownership of the problem, accept responsibility for past practices, and make a commitment to improvement.  I subscribe to the school of thought that nearly every problem that can be named and claimed can be solved.  Unfortunately, it is very often the case that a nonprofit’s finances are a mess because the executive director has limited financial skills and a propensity toward denial.  Often, a board of directors, itself with limited time/skill, will aid and abet the director’s minimization of the problem.  Solutions cannot happen in this environment.  Accountability is a fundamental requirement of change.

3. Treatment compliance:  Getting out of serious financial difficulty is very hard even with the best professional advice.  Generally, a nonprofit in serious financial trouble needs to: a) develop a detailed remediation plan in consultation with the best advice available; b) fully implement the plan, doing the hard things like laying off staff, consolidating operations, reducing benefits and any number of other onerous things; c) communicate with funding sources so they get firsthand information about both the situation and the plan; and d) establish clear performance/accountability checks so the organizations stays on an improvement course.

 Is all this trouble worth it?  That depends. 

How valuable is your mission?


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What Comes First: Mission or Money?

A mission-driven organization is a thing of beauty; that is, until the checks bounce. Then it’s just another organization that thought running on dreams was more important than having money in the bank, an organization where the director used the Scarlett O’Hara Accounting Manual and decided, everyday, to think about it tomorrow.

Harsh?  Maybe.

Most new nonprofit organizations, like small businesses, are established out of the hopes and dreams of a founder or a small founding group.  These are people who are fundamentally mission-driven.  Maybe they’ve experienced the problem they are trying to solve or they’ve spent months and years working as a volunteer to save a community.  Whatever the core motivation, they are setting up a nonprofit organization in order to bring their hopes and dreams to scale.  That’s wonderful and so important to our community.

Right away, though, there is risk.  And the risk is this.  Like new entrepreneurs, new nonprofit directors get carried away with the work they are doing.  They are all about getting their office space and logo, applying for grants, and running their programs.  Almost guaranteed is that setting up a sound financial system will be their last priority. Few people understand nonprofit financial management and fewer yet are interested in learning. This includes nonprofit directors who are reluctant to avail themselves of workshops or technical assistance because it would require opening their situation to outsiders and admitting that their management shortcomings.

Like a college kid with a credit card, it doesn’t take long for a new nonprofit organization to get in very tangled financial trouble.  And because it is extremely difficult to find board members with financial management experience, it is common for a board of directors to aid and abet an organization’s poor financial management while focusing its energies on the program and fund development.  It doesn’t take long before it’s impossible to provide funders with correct accounting of expenditures, some vendors don’t get paid in order to pay other vendors, cash flow and payroll become crises, and the annual audit becomes a nightmare.  It is truly a slippery slope if good systems aren’t set up at the start.

I really love nonprofit organizations and the people who work in them.  I admire founders as much as I admire scrappy entrepreneurs.  Both nonprofit and business start-ups need to keep one single imperative in mind.  And, yes, it is more important than mission.

#1 Rule:  Keep the money straight

If the money is straight, if financial systems are in accordance with the best practices of nonprofit management, the mission can flower.  Money’s a mess, the mission won’t matter.

It’s that simple.

 

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Need help with nonprofit financial management?  A good place to start is the Nonprofit Center of Milwaukee.  www.nonprofitcentermilwaukee.org.

 

 

 


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