Growing Your Future Board

Board members are typically older-in their mid 40’s to late 50’s. At this stage of life people have developed in their careers, made significant financial decisions, and have developed some “life wisdom”, that brings value to the non profit organization.

However, don’t discount the benefit of bringing younger members on to your Board. Although they might not have the life experience they can bring new insight and energy to your Board. It is generally recommended that your Board include someone with financial expertise and someone with legal expertise. Many Boards have difficulty finding professionals in these areas. They can tap the resources of someone in these areas with 3 to 5 years experience in their field. The expertise they have, even at this stage, will be valuable. As long as the individual knows when they need to research and when to ask questions, they can be beneficial.

Also, consider a “junior Board” for younger adults to participate in. Determine what rights this Board would have and what Board meetings they would attend. This is basically a Board in training from which hopefully you will develop future board members. Make sure, though, that this junior Board has an opportunity to share their suggestions and observations with the Board and that as much as possible, their ideas can be used. Give them responsibility over certain functions (like elements of a fund raising event). This Board needs to feel that their commitment and time is valuable to the organization.

Decisions, decisions

Still thinking about setting priorities, especially in light of some consulting projects we are involved in right now. Great missions, passionate staff, tons of ideas, not a lot of time or financial resources—yet. Lots of creative ideas. Some of the ideas have the potential to generate significant funds. What to do first?

Here is a model to help narrow focus. Look at your financial picture. Get it down on paper. Where are the current revenues sources coming from? What programs generate what type of funding stream? Analyzing objective financial data can help point you in the right direction. Next, use a matrix to classify ideas.

Classify your ideas into four categories: low risk or high risk and high return or low return.

The low risk ideas are likely to be successful. More people can be reached, better response rate to treatment more likely, etc. These are proven concepts with a likely chance of success. The high risk ideas are the long shots. Maybe it is a great idea, but you aren’t sure if it will really work.

The high return refers to the dollars likely to net from the idea. What type of donations will this attract? How will the fundraising event do? What type of program service fee could be charged? What are the costs associated with the idea? When you compare the revenue generated in excess of the costs what is the net return?

Next group the categories into quadrants.

High return, low risk concepts go in the upper left quadrant. High return, high risk ideas go in the upper right quadrant. Low return, low risk ideas go in the lower left quadrant and low return, high risk ideas go in the lower right quadrant.

Those ideas in the upper left quadrant are most likely to be successful. The concepts in the lower quadrant are least likely to be successful.

It is assumed that the ideas generated will be mission focused. However, if you feel your organization has drifted from its mission or is spread too thin you can substitute high mission and low mission for the low risk and high risk considerations.

Although you probably have a general perception of the ranking of the initiatives, charting them out and attaching objective financial data, clarifies things for everyone. Initiatives that offer a high return and low risk are the ones you consider first. Low return, high risk concepts may be less of a priority.

This model can also help you narrow down what you need to do to make an initiative better—how can more revenues be generated, how can risk be minimized—to improve a concepts position in the quadrant.

Pairing the objective financial data with subjective program information can help you see which ideas have the best chance of success.

Protecting People from Themselves

I find it interesting how many organizations are hesitant to institute checks and balances for fear of offending someone. They think that the person will think that the organization doesn’t trust them. Maybe the person will think that but it’s your responsibility to put safeguards in place, not only to protect the organization but because it is kinder to the individual in the long run for two main reasons:
1. We are all only human. If cash regularly passes through our hands and there aren’t any checks and balances, how long before we need $5 for lunch one day and decide to borrow the money. We might pay it back, we might forget. Time passes and later we need more money. If you are reading this and thinking—that would never be me—remember that many people who ended up taking large sums of money from their company said the same thing, with equal conviction, at one time.
2. We need to protect others from false accusations. You never know when the political climate of your organization can change. You may be doing well financially now, but in three years if finances change, people sometimes starting looking for somewhere to place blame. If someone falsely accuses another of misappropriating funds, you want to be able to say—“no, that’s not possible because of…(name safeguard that is in place)

General rule of thumb—make sure 2 to 3 people are involved in every financial transaction. Small organization? Make sure items go before the Board. Involve the Board in approving bills, signing checks, reviewing the monthly bank reconciliation, and reviewing monthly financial reports.

And to the naysayers....

My last two posts address the importance of nonprofits living within their means. Even as I wrote them I am aware of nonprofit organizations that overspend believing that their donors will come through for them and the donors always do come through, and so the organization continues living from donation to donation. However it has been my experience that for every organization that manages to survive using that philosophy there are three other organizations that have to close their doors because they relied on that philosophy. I am also seeing that larger donors and funders are increasingly becoming more discerning. They are looking for financial healthy organizations to give to, where they believe their money will be handled wisely and can make a long term difference because the nonprofit will be around for the long term.

“The Millionaire Next Door” applies to Nonprofits too

In their book “The Millionaire Next Door” authors Thomas J. Stanley and William D. Danko, systematically illustrate the point that the secret to becoming a millionaire has nothing to do with your inheritance, your nationality, or even the job that you have, it is a function of saving more than you spend. They provide example after example and study after study back up their point. This is another great application for nonprofits to apply in financial management. Spend less than you earn. Save money.

Nonprofits argue—we can’t do that. The needs are too great.

Let’s look at this from another angle. When a nonprofit has cash flow problems and is always running short on funds, how much time is spent trying to figure out which bills to pay first, calling creditors, paying late fees, etc. That is time that could be better spent meeting those needs. Instead it is wasted time and costly decisions are sometimes made in haste. And it is all because the nonprofit did not live within its means. Think what you could do with more money. Want to have more money in the future? Manage it well in the present.

"Feed the Pig" applies to Nonprofits too

The American Institute of Certified Public Accountants (AICPA) has a clever advertising campaign www.feedthepig.org to encourage saving among consumers. (Feed the pig being your piggy bank). You do not have to look far to see the detrimental impact of America’s spending habits on the economy.

How do we save? Simple, spend less than you make. The same seemingly simple philosophy applies to nonprofits too. No matter how great the need, how successful the program—you need to live within your means. You cannot start a new program based on what you think donors might give to you once they see the success of the new program if you don’t have money saved to kick off the new program. You can’t keep running a program when funding was cut for the program three years ago and no new sources of funds have been developed. Nonprofits that are successful for the long run have learned that you can’t spend what you don’t have.

AI-It is all in the questions

The website Appreciative Team Building gives this summary—“an appreciative approach starts with a series of questions about what is already working, in order to uncover the root causes of team success” When you read about AI you might conclude that it ignores problems that exist or by only focusing on the good things an organization doesn’t get the full picture. This could be possible. However, I like the summary noted. You can still look at a problem situation and ask “how have we overcome problems successfully in the past?” or “what is working well and why” and “how can we take why this is working well and apply it to this, that is not working well” It would be tempting for an organization to use AI to avoid talking about very real problems that could threaten the organization if they were not addressed. It is important to design the questions carefully to address issues in your organizations.

Just Starting Out with Appreciative Inquiry

About two weeks ago I attended a seminar from the Association of Fundraising Professionals on the topic of Appreciative Inquiry. First of all, kudos to the speakers who had us work through an example to illustrate the more complex elements of Appreciative Inquiry. Most of us in the audience were new to the concept and a bit skeptical. The practical examples helped us see the enthusiasm that develops when issues are explored using positive inquiry. It would be hard to adequately discuss the elements of appreciative inquiry here so I’ll refer you to one of the websites that I found the most helpful. This group, Appreciative Team Building, presents a concise discussion of AI.

There are a lot of elements of AI that I can see would be beneficial to organizations. It can enhance the traditional strategic planning process, especially for organizations that have been through the process several times before and might be looking for a different approach. Even in informal planning processes, reframing a question from a positive standpoint can open up dialogue that helps find solutions. It is a process that I would like to explore more.

New Risk Assessment Standards-Cost Beneficial?

As discussed in the last post, new audit risk assessment standards provide auditors with additional guidance to enhance understanding of the organization and to assess risk. In our preliminary audit work we have implemented these procedures and while we have not found any major issues, we have found some smaller procedural issues that have enabled us to provide our clients with some practical recommendations.

I cannot yet determine if the value of the recommendations exceeds the additional time on our end and the cost on the client’s end. However, many changes take place that don’t necessarily have a direct and equal economic value to all the participants. Hopefully industry wide the changes will provide value across the board and the long term result will be fewer problems with financial reporting.

New risk assessment standards can provide organizations with additional opportunities

Audit risk assessment standards fully took effect this year. A few new standards were implemented last year. The standards are designed to help auditors increase their knowledge of the organizations they audit and provide additional guidance to improve risk assessment.

Organizations (especially small to midsize nonprofits) noted a change with their financial statements last year. If they outsource the preparation of the financial statements to their auditor, they will need to evidence their ability to take responsibility for the statements. This could be done by completing a disclosure checklist or other steps. While a number of our clients were pretty familiar with the various disclosures and could comfortably discuss their financial statements, they did welcome the opportunity to learn a little bit more about the statements and why the disclosures are there (after an initial hesitation). The more knowledgeable an organization is about their financial picture, even in seemingly insignificant areas, the better overall picture they will have of their operations.

Subcontractor filing

In a previous post I discussed employee vs. subcontractor decisions. If you do have subcontractors, you need to send them IRS Form 1099-Misc by January 31. The form is due to the IRS by February 29. A subcontractor is:

• a person or business that is not incorporated
• that provides you with a service
• that you pay more than $600 to during the calendar year

Common situations where you could have a subcontractor could be your cleaning service, landscape service, the disc jockey for your fundraiser, or people who you bring in to do temporary work.

Appreciative Inquiry

The Association of Fund Raising Professionals in the Philadelphia area is having a half day seminar on using Appreciative Inquiry in Strategic Planning. Since we provide clients with strategic planning two of us from the Bucks County Center for Non Profit Management are signed up to go to the seminar. The past week, I spent some time online reading about Appreciative Inquiry. My first thought was that it is like the SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) except for it is just the SO part. However, it is much more than that. Appreciative Inquiry approaches planning from a different angle. The traditional starting question has been-what are our problems and how do we solve them? Appreciative inquiry starts with questions to uncover what the organization does right and why. It is an intriguing approach and I am looking forward to learning more about it.

Employee vs. Subcontractor

If you are a small non profit with just a few part time employees you may be considering reclassifying the employees as subcontractors to cut down on the payroll filing hassles. Be careful though, the IRS has guidelines as to who is an employee and who is a subcontractor. Generally a subcontractor is someone who you can only direct the results of the work, not the way the work is accomplished. The IRS provides more detail at www.irs.gov in Publication 15A Section 2: Employee or Independent Contractor? There they list ten main criteria to consider when deciding if someone is an employee or a subcontractor. These criteria include where and when the work is performed; if the person uses their own supplies to do the job; or the organization’s supplies; and if the person performs the same work for other organizations. It is important to carefully review the criteria and if you decide that someone is a subcontractor to document the reasons why. If the IRS decides they are actually an employee, the organization could face penalties.