Why does your small wobbly nonprofit struggle with cash flow and what can be done about it? I already know what you are thinking. You just can’t seem to come up with enough funding. Times are tough. It’s out of your control and not much can be done.
Case closed. Or is it? Not in my book. That rationale just doesn’t register with me. Face it- you have tested positive. Now it’s time to fight clean and address those performance gaps before you take a real shellacking.
Inject Discipline. Put an immediate stop to impulse buying. Is the authority and procedure to purchase clearly spelled out in your organization? Have you shopped around? Can you get the item used? Do you have an alternative stashed away in your inventory? Have you tried to request an in-kind donation? The services of a volunteer? Checked with a larger purchasing group like NJPA? If you haven’t taken steps like those first, please don’t shamelessly request contributions. On the other side of the coin, if you have taken those preliminary steps and the need is critical, your nonprofit has a strong case for funding.
Understand when to save and when to invest. Yes, for every thing there is a season. But being penny-wise and pound-foolish is a smug management approach. Don’t offend staff by telling them there is little funding for pay increases or program activities while enriching management behind the scenes. Don’t cut back on volunteer recognition because you overpaid the contractor who is a friend of a Board member. Don’t save money on insignificant office supplies while at the same time clearly overspending on big-ticket items. Do invest in your people, your vision and the activities that can truly make a difference.
Avoid future shock. Monitor your cash flow carefully and regularly. Missing data, inaccurate information or just no data at all can prove to be catastrophic to a small wobbly nonprofit. Do you know how much unrestricted cash you have on hand at this very moment? How much do you expect to have next month or next year at this time? If there is a hole in the boat, fix the leak before it sinks.
Don’t let budgets vaporize. They are real and serve a purpose. A lack of accountability can result in overspending. Expecting the arrival of a bonanza at your doorstep to pay for it is foolish, risky thinking.
Stewardship is a serious undertaking. So face the music now. Be transparent. Be ethical. Be reasonable. Be balanced. And always be vigilant.
Get your free copy of the Multiplying Good blueprint at Wobbly Nonprofit.
- 3 Budget Boo Boos your Nonprofit Can’t Afford to Make (wobblynonprofit.wordpress.com)
Why does your nonprofit organization prepare a budget anyway? Maybe to “stay on track”? Sometimes a budget is viewed as a way to promote positive cash flow. Or, maybe one is put together just because its required. You know- the standard yearly procedure that deep down everyone sees as nothing more than a distraction. Not many good reasons there.
So how do you bring your budgeting process back to life? Paying attention to the following budget boo boos can help you to get more from the process and product.
1. Look out! Its the big bad budget monster!
Plenty of nonprofits continually question if they will be around for the long haul. For many, that is a valid question; however, instead of thriving, their focus is merely on surviving. Facing the difficulty of balancing a budget year after year can result in a process driven by fear. This blinding of vision is accentuated when the nonprofit keeps looking in the rear view mirror at earlier years financial struggles. Releasing the fear and stopping the stories in your head can help move your nonprofit to a higher level.
Looking at chances for progress instead of possible calamities would be a good starting point. More specifically, preparing an Opportunity Budget can shift the focus from just surviving to thriving. An Opportunity Budget seeks to discover and capitalize upon timely, favorable circumstances. For the most part, that means always keeping your feet on the ground and your nose in the air. Then its time to roll up your sleeves and roll out the idea along with a responsible budget. As you follow this never-ending process, remember what H. Jackson Brown, Jr. said: “Opportunity dances with those already on the dance floor.”
Don’t miss that dance.
2. Distributing the Almonds.
When you allocate resources, don’t be the delivery person who drives everyone nuts! It’s important to make sure that every program “gift box” has just the right assortment and reaches its destination on time. Each dollar of budgeted income and cash reserves must be allocated as efficiently as possible.
Producing the greatest value of services with the given resource(s) should be a key objective for nonprofits. To decide if you are meeting this objective, consider questions such as these.
- What use of the resource(s) could best advance the mission?
- What program(s) and/or beneficiaries could receive maximum benefits from this resource?
- What programs(s) and/or beneficiaries would suffer the most without it?
- What program(s) could face closure absent this resource?
- When is the resource needed by the program/beneficiary? (In your budget, always take seasonality factors into account.)
- Should a limited resource be shared by programs/beneficiaries to produce the greatest value of services?
- How much of our available resources will be committed to programs? How much to administration? How much to fundraising activities?
- What return on investment can we expect on each allocation of resources?
3. Get Out the Colored Markers.
Failure to invest in the highlighting of accomplishments and the efforts of those who contributed may be the biggest boo boo of all. Ouch. Anticipate milestones and be ready with the funds to celebrate. Have fun while you are at it too. There is nothing wrong with being visible in the community either. Just don’t try to be overly thrifty here: the return associated with allocating resources to this area is often hard to quantify yet arguably holds a value above all else.
Get your free copy of the Multiplying Good blueprint at Wobbly Nonprofit .
Ready to advance your mission? Here’s a fresh look at leveraging limited resources in your wobbly nonprofit. I will start with 7 locks that can keep your organization from moving forward. Then I will reveal the 7 keys that can unlock the power that resides within your small nonprofit.
Lock #1- Immobilized Board Resources
Common expectations of nonprofit Board members are to make monetary donations and to open up their rolodex file to the organization. The number of business contacts and amount of money an individual can offer to the nonprofit are often used as barometers to gauge the true value of a Board member. There is no question that these resources could be of value; however, this is merely a discounted value. Consistently applied, this approach can in fact alienate and dishearten Board members with much more to offer. This in turn can lead to poor governance and increased turnover of Board members.
In my experience, the 5 main reasons people join Boards are as follows.
- a mission they care about and a vision that stirs them
- fulfillment of a corporate responsibility in the community on behalf of their employer
- an avenue to personally give back to society in some fashion
- the belief a contribution can be made by offering their skills and sharing life experiences
- gaining valuable expertise and new connections
Of these, I consider #4 to be the most underestimated, and sometimes most overlooked reason. Of course, there are many others.
Financial contributions provided or secured by Board members are certainly valuable; however, over the long-term will those gifts be maximized if the Board member simply attends meetings? The failure to look beyond the rolodex file and check book to properly tap the collective wisdom of Board members is clearly a waste of time. Nonprofits that foster this approach risk stagnation. That inaction can filter down to the working levels of the organization. Employee morale and the quality of services ultimately suffer. In the end, the very image of the nonprofit itself can become tarnished. Yes, a small nonprofit organization can be blinded by its own financial needs and fail to discern this dangerous path. Consequently, there can be an especially high risk of forfeiting future benefits-financial and otherwise- due to an underutilized Board.
Lock #2- Cash Flow
Perhaps more than any other factor, cash flow problems can impede the progress of a small nonprofit organization. When attempts are made to uncover the reason(s) for these cash flow difficulties, two general explanations commonly arise.
- Overspending. There is wasteful spending (sometimes widespread) that is draining the bank account. Budgets are not being properly monitored or adhered to.
- Fundraising difficulties. The organization is receiving an insufficient amount of revenue and support.
Of course, there are many other possible causes; however, the cause and effect relationship is not always studied close enough to find the root cause(s). It is these underlying problems that must be addressed. Not enough income and/or too much cost doesn’t offer enough color to do that.
Funders, corporations, individual contributors and communities expect a prudent use of funds and to realize acceptable returns on their financial and social investments. Failure to do so destroys confidence levels. This in turn has a potential negative impact on future cash inflows from these very sources.
When small nonprofits fail to live within their means, cash flow difficulties become inevitable. Engendering the support of donors becomes a trying task, debt levels may rise, employee wage increases may be reduced or foregone and/or critical services curtailed. The time spent addressing these cascading effects can be substantial and redirect focus away from the mission.
Lock #3- Meeting Increased Demand for Services
Economic weakness has resulted in a greater number of people seeking the kind of help many nonprofit organizations offer. Nonprofits scramble to keep pace in meeting this rising demand. And limited resources have made this struggle even more difficult.
This creates a need for nonprofits to maximize the use of available resources. Failure to take this important first step results in poor stewardship. In particular, time management is a prerequisite and becomes a more critical issue as labor resources get stretched beyond original expectations.
Will your own organization be ready to rise to the occasion as needs arise?
Lock #4- Over-reliance upon Government Funding
U.S. governments at all levels – federal, state and local- are facing budget crises. With a long-term shift in jobs and business activity to other countries, tax receipts have markedly declined while spending has spiraled out of control. This has resulted in financial shortfalls, increased debt loads and less funding available for nonprofit organizations.
Attempting to increase the amount of government funding seems to be a high-risk, low-return strategy. Competition for a smaller pot of government funds will likely intensify. Cost based contracts may increasingly transition to performance based ones as well. Late payments remain a looming concern too.
Time spent securing government contracts will need to be closely monitored. Operations will need to show the highest levels of efficiency and a competitive advantage will be necessary to secure funding. Too many eggs in the government funding basket may prove to be catastrophic for small nonprofits in the future.
Lock #5- Lack of Infrastructure Funding
The funding of nonprofit infrastructure has traditionally been difficult to get. Administrative expenditures are clearly treated differently than pure program expenses when proposals are evaluated. Nevertheless, proper infrastructure is a necessary foundation to assure sound programming. In fact, due to the reluctance of funders to pay for infrastructure, small nonprofits tend to under-perform in this area.
In response to this trend, small nonprofits lean towards investing fewer resources in infrastructure. A weak infrastructure can result in excessive costs due to rework, duplication of effort, lack of training and compliance issues. When the administrative support for programs is weak, their overall image tends to become tainted. Confusion often results with a spillover effect to the quality of services being provided as employee time is misdirected.
Lock #6- Staff Burnout
Unrealistic workloads can take a heavy toll on nonprofit employees.
Leaving staff mentally and physically exhausted is a high price to pay in accomplishing missions. Burnout typically reduces productivity. It also causes resentment, hopelessness and cynicism.
Lock #7 – Lack of Visibility
It is common for small nonprofits to spend a great deal of effort on various marketing and public relations activities. The quest to create awareness consumes the time of many people associated with the organization. While increasing visibility is certainly a worthwhile goal, the time and cost to obtain it should be carefully monitored. Limited resources can easily be wasted on this activity.
When fee for service activities are involved, the situation becomes even more complicated. Marketing-bringing together buyers and sellers- can become confused with development activities like communications and fundraising initiatives.
A lack of visibility prevents a nonprofit organization from successfully reaching those in need. Conversely, too much promotion can financially cripple one.
Many small nonprofits find themselves at one end or the other of this spectrum.
KEY #1- Endear, absorb and mobilize Board members.
The process of endearment is a prerequisite to tapping the strength of a Board. Impart the goodness of your nonprofit organization to each Board member, allowing every person to intimately learn about your mission and the people behind it. Next, absorb the responses of Board members. Learn in detail what they see, hear and feel. Finally, use these shared experiences to call your Board members to specific action.
KEY #2- Fuel in-kind contributions.
Clearly identify your unfunded expenses. The two categories of expenditures to examine are:
- budgeted items paid through operations or reserves and
- items not budgeted that could further enrich a program.
Match and endear potential contributors-preferably well in advance of planned purchase activity. Cash conservation will be a benefit.
KEY #3- Get better.
It’s been said that those who know how always work for those who know why. With this in mind, start to focus upon why activities should-or maybe should not– be completed. Then move on to the question of how by carefully evaluating inputs and the associated outputs. This will help your small nonprofit to respond to demand issues at any point in the business cycle. Make this an ongoing activity to be ready for periods of rising, falling or constant demand.
Remember that getting better means you don’t leave anything on the table. Also remember that getting better is a never-ending journey without a final destination.
KEY #4- Be flexible.
Be ready to respond to financial crises before they occur. Budgetary measures should be put into place that adjust for changes in activity, funding, legislation or economic circumstances. Resources can then be successfully reallocated and any opportunities seized.
Introducing financial flexibility that extends beyond the standard static budget is a prudent measure.
KEY #5- Break new ground on infrastructure.
Efficiently expanding administrative support can be helpful to a small nonprofit organization. Since output is typically low and input high, the cost per unit tends to be high. Options should be explored to streamline processes, consolidate output and broaden the range of in-house administrative services.
KEY #6- Incessantly nourish employees and volunteers.
Recognize the value of people as your greatest asset. Select people carefully, tap their energy and link performance to reward.
KEY #7- Open your doors.
A straightforward yet overlooked concept by many small nonprofits. Be cautious not to fall into the trap of over-weighting communications with stakeholders via electronic means. Steer away from convenience and revert to the old-fashioned face-to-face variety when appropriate. Don’t create obstacles. Just open the doors to the real essence of your organization.
- Cash Flow on Steroids: 4 Uncensored Secrets every Small Wobbly Nonprofit Should Know (wobblynonprofit.wordpress.com)
- Don’t Mark Down Your Wobbly Nonprofit: Stop Chasing Money (wobblynonprofit.wordpress.com)
When chasing money becomes the primary focus of your wobbly nonprofit, you discount the value of the organization. You can also dilute-sometimes even unintentionally-other critical efforts. Throwing more money at problems without addressing the underlying issue(s) can be harmful too. At its very worse, chasing money can create a lack of confidence on the part of potential contributors and be viewed as toxic to long-term success.
Instead, simply focus on getting better.
That can help you to generate positive momentum toward your mission and vision. Yes, money is clearly important, yet sharper focus can help you to attract it. Your small nonprofit will not become instantly successful solely by finding more money; however, it can more easily attract money by being successful. Bring that kind of eye-opening success to what you do.