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Nonprofit finance: The answer is in your own backyard

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In this recent undated photo, Matt Sims, bandmaster for the Salvation Army, talks a donor through a credit card donation at the kettle he was manning at the Forest Hill Ukrop's in Richmond, Va. The charity is testing kettles that take debit and credit car

In this recent undated photo, Matt Sims, bandmaster for the Salvation Army, talks a donor through a credit card donation at the kettle he was manning at the Forest Hill Ukrop’s in Richmond, Va. The charity is testing kettles that take debit and credit cards. The growth of so-called “plastic kettles” comes as fewer shoppers carry cash. (AP Photo/Richmond Times-Dispatch, P. Kevin Morley)

P. Kevin Morley, AP

Leaders of small nonprofit groups often find themselves in a complicated relationship with money. They have the desire to be responsible stewards of it, the anxiety of having too little of it, the discomfort with asking for it, and too often, maybe even for some of these reasons, they are frustrated by the way its scarcity seems to always penetrate the agenda or even threaten to rob them of the gift of continuing service.

To better understand the relationship between finances and nonprofits, think about the ultimate service organization: the family. Regardless of its composition, the family is inherently a human service enterprise. It serves to nurture and provide for at least one and often several generations. It often provides for companion animals, makes decisions about how large a footprint to make in the community, and makes difficult choices about how to balance the needs and wants of the present with those of an unknown future.

It balances time allocated to earning money with time allocated to its primary mission and purpose. It also seeks to understand, or at least benefit from, investing and finances such that money starts to work for it, rather than it for money.

Once an organization finds its existence a struggle from year-to-year, it enters what I frequently refer to as an “organizational cycle of poverty.” This cycle parallels the spiral that, if unbroken, can keep people from realizing their potential, sometimes for generations. It also drives increasing attention inward rather than outward as one crisis leads to another.

Countless publications provide creative ideas for fundraising, but without understanding how finance works, the best revenue ideas can only pour money into a leaky pipe, thus perpetuating the cycle. Six ways to break the cycle:

  • Learn and own your financial reality. "How to Read a Financial Report" by John Tracy is a classic. While written for the corporate world, it is a digestible read for those of us who are neither experienced in nor interested in financial accounting. It does arm you with enough knowledge to ask the right questions at a strategic level.
  • Do not allow yourself to be house poor. If your space is not flexible or multi-purpose, it can drain dollars. Often, emotional ties to a physical space make them political non-starters. Even previous donations and gifts can be tied to a physical structure (stained glass windows, kennels, bookcases, etc. that were given in memory of someone special). If space is an issue, find a way to respectfully transition and do justice to the memories of those connected with it, but do not allow it to block your path forward. Find out what the real market value of the space is and/or how much you can borrow against it. Not all debt is bad debt, especially if renovations or retrofitting will make it work for you.
  • Avoid excessive focus on the small stuff. Nickels and dimes can add up to dollars, and such efforts have their place. But unless you have a donor list in the tens of thousands, these efforts take a lot of time with minimal return. A bake sale or a car wash can net some cash, but it won’t build an endowment for the future. Too often, we are afraid to ask for money. If you are matching the right potential donors to the right cause, you are better served getting them to give $50/month on an automatic draft ($600/year), than a $100 one-time gift now.
  • Do not retrench. Just like we invest in our homes, our educations, our businesses, we need to invest in our nonprofits. While there is no excuse for wasteful spending, and some belt-tightening is just good discipline, avoid the temptation to take shortcuts in the wrong places. Too often, nonprofit leaders will say, “Once things start looking up, we’ll do X.” The problem is, not doing “X” is often perpetuating the downward spiral.
  • Climb a rung or two up the risk ladder. Investing is about the risk/reward ratio. If your budget at current course and speed leads to bankruptcy in three to five years, inaction is a default choice to organizational hospice. Investing and borrowing wisely might reduce that runaway to two to three years in the worst case, or it could be the fresh start you need.
  • Think about partnerships. Just as the family can provide for additional security, savings and in some cases income, complementary arrangements can be in everyone’s best interest. Interfaith outreach groups often do this very well. If you advocate for a cause that is politically unpopular, such as education or job training for inmates, technology can enable you to partner with national or geographically distant entities with similar goals. At a minimum, consider forming cooperatives for purchasing items in bulk or negotiating contracts like snow and trash removal.

Face the finances and face the fear. As Gandhi said, “Capital as such is not evil; it is its wrong use that is evil. Capital in some form or other will always be needed.” John J. Brady is the chief operating officer of HigherNext, Inc. With 20 years in the education sector, he writes on matters of higher education, transitions into college and career, nonprofit management and standardized testing. JB@highernext.com