“I hope it doesn’t rain tomorrow,” the executive director of a nonprofit was once heard to say. “We’re having a golf tournament fundraiser and we need the money to meet next week’s payroll.”
This may sound like a comic one-liner, but it’s a true story. It was relayed by the head of another nonprofit and illustrates some of the serious challenges facing many organizations in the nonprofit world, especially among charitable nonprofits.
The challenges for these organizations, simply put, are limited resources, growing community needs, and the increasingly heavy burden of governmental scrutiny. The issue for most involves the balancing act of maintaining their commitment to their mission against the hard realities of capacity and capital constraints.
The Resource Squeeze
“The single-most challenging issue for us on an annual basis is being level-funded or less-than-level-funded when our participants’ needs only become greater,” said Roslynn Rubin, CEO of Greater Waltham ARC (GWArc). Founded 60 years ago, GWArc continues to successfully weather the financial issues that are unique to nonprofits.
The GWArc, one of 700 Arc chapters in the country, annually serves approximately 300 adults with intellectual and developmental disabilities and their families in Waltham and its surrounding communities. GWArc’s chief funding resources are Medicaid and the Massachusetts Department of Developmental Services.
As participants with disabilities age, their needs become more demanding, particularly with changes in their mobility, communication, and daily living skills, Rubin explained. As a result, GWArc and its counterparts elsewhere in the social service arena need more financial resources for things like staffing, training, adaptive equipment, and technology.
“This is challenging when we are getting the same or less from our chief funding sources,” Rubin said.
“We are competing with other nonprofits for a piece of the fundraising pie, but the pie has a finite number of pieces.”
Leigh J. Tucker, managing director, Nonprofit Client Practice, principal, at Waltham-based Accounting Management Solutions, agreed: “Governmental funding ebbs and flows according to budgetary imperatives, but the needs of the nonprofit sector and the people they serve remain unchanged.”
This sentiment is emblematic of the entire nonprofit sector.
“Sustainable funding continues to be our greatest challenge,” wrote a respondent to the National Finance Fund’s most recent survey on the state of the nonprofit sector. “Our actions to address this challenge include developing and adhering to a strong and dynamic strategic plan; diversifying our program funding streams as much as possible; developing and communicating a strong community impact statement for our programs; and focusing on increased donor engagement in order to increase fundraising dollars.”
In many ways, this could be Roz Rubin’s job description at GWArc, as many nonprofits—particularly smaller ones—simply don’t have the deep staffing resources to devote to generating grants and developing donor relationships.
“It often falls to an organization’s executive director to lead this charge—to get out into the Nonprofit Cash Flow community and form strategic partnerships that will lead to an increase in charitable giving,” said David Felton, vice president and senior business banking officer at Rockland Trust Company, whose clientele includes GWArc and a number of other Greater Boston-area nonprofits. “They wear a lot of hats. They’re not just managing the day-to-day operations of their organizations; they’re out there promoting them.”
“You’ve got to be a schmoozer,” said Rubin. “I love that part of the job. There’s a lot of cultivation that has to occur and, ultimately, we hope there will be some harvest.”
Barriers to Growth
Nonprofits face many of the same challenges as those in the for-profit sector, and not least of these is dealing with the laws and regulations that are imposed on them to ensure they adhere to common standards.
Two of the most imposing and most costly governmental issues facing nonprofits today are the federal Fair Labor Standards Act (FLSA) and the Affordable Care Act (ACA), which affect both for-profit and nonprofit organizations, large and small, as employee benefits comprise the biggest expense item for any enterprise. The FLSA deals with regulating salaries and wages, and the ACA—while offering broader access to health care—comes with a significant increase in the cost of offering that benefit for many organizations.
Finding a long-term solution to the sector’s immediate crisis of limited resources, increasing demand, and more-intensive scrutiny is something that will likely take more time and effort from the nonprofit community. But there are some steps nonprofits can take right now to help manage through the challenges.
No Time Like The Present
“Nonprofits need to develop policies and procedures that are conducive not only to expense control, but also to maintaining the high level of quality and performance in executing their missions,” said Rockland Trust’s Felton.
Felton offers some practical steps toward that end:
Management of the balance sheet – an organization with a strong equity-to-debt ratio is better able to weather difficult times than one that does not.
Utilizing revolving debt – some nonprofits acquire debt instruments to help them bridge potential cash flow shortfalls. “Whether it’s a credit card or a line of credit, access it only when necessary and pay down your balances in a timely fashion,” Felton said.
Weigh the benefits of leasing versus ownership – whether it’s a piece of equipment or real estate, nonprofits should understand the costs, benefits, and obligations involved in order to make the best financial decision.
Focus on relationship management – keep in touch with donors and let them know their donations are helping to make a difference.
Review vendor relationships – every two to three years nonprofits should reach out to their outside vendors to see if better rates or better quality services can be negotiated.
CPA Leigh Tucker offers some complementary suggestions.
“Nonprofits are a business, and they need to think like a business,” Tucker said. “You live on your cash flow, not just your bottom line. So nonprofits need to think about building surpluses to be able to deal with the rainy day situations that may put extreme pressure on their ability to continue fulfilling their mission.”
Maintaining good financial information is crucial, according to Tucker. It leads to better cash flow forecasting, which in turn leads to a stronger, more-stable organization.
But many smaller nonprofits don’t always maintain accurate or current financial information, often because they can’t afford to hire experienced financial staff. This is where firms like Tucker’s can lend resources on a part-time basis to help struggling nonprofits develop solid financial information so that they can make better management decisions.
Having a better handle on financial information is also becoming more important because many funding sources are tending to submit their funding requests to outcome analyses that help assure them that their dollars will be put to work in ways that are productive, financially sound, and directly impact the nonprofit’s stated mission.
There are myriad challenges facing the nonprofit sector. Despite them, the vast majority of nonprofits are providing valuable, in-demand services across a wide spectrum of community needs.
“All said and done,” said Tucker, “I don’t think nonprofits get the credit they deserve for accomplishing their mission in spite of the many challenges they face.”
