Class notes - week seven, Spring 2018
It’s snowing again.
I’m up early writing this blog post. We’ve gotten about eight inches of snow since yesterday afternoon and my spouse had a 4am shift today. I shoveled the walk while she cleared off the car, and I waved goodbye while making sure that she got out of the driveway okay. After she left I came back inside to sit at the computer as our child sleeps. There’s a memo due for class this week which I should be working on, but instead I focused on my conference presentation coming up two weeks from now. There are some people I need to coordinate with, so am trying to balance the need to have some lead time on that with finishing this week’s homework.
Am going to cut this blog post short. The sun is not yet up, calming music is playing, and I can still squeeze in some class reading and writing before the kiddo wakes and it’s time for the morning scramble. I’m not looking forward to today’s work commute.
Here’s the lecture outline from last week’s class:
- Tonight we’re going to talk about money. Focus on resource environments and funding flows.
- Why does financial management matter to nonprofits?
- No margin, no mission
- Obligation to donors
- Your balance sheet and income statement are just another expression of the organization’s mission
- Composition of a nonprofit’s funding structure strongly influences strategic decisions
- All nonprofits in the US with a C3 status have to submit a form 990
- Nonprofits with revenues over 750K (or 500K in federal funding) must undergo an external financial audit
- Very few nonprofits will have a dedicated funding stream. Usually a mix of sources.
- Individual contributions are the third largest revenue stream. Larger than state and local government grants combined
- Religious organizations and universities are the largest recipients of individual donations
- No funding stream is perfect, no funding stream can fix all of your problems
- If you see a line item on a 990 saying “repurposing of endowment” that’s a huge red flag that the org is in financial trouble.
- Individual contributions, pros:
- Typically unrestricted
- “Easier” to get, no grant writing or reporting
- Individual contributions, cons:
- Highly dependent on external environment
- Often each individual contribution is relatively small
- Often focused on churches and universities
- Government grants and contracts account for 455 billion, more than all other revenue sources combined besides program fees
- Gov’t pros:
- Contracts will often be used to pay for infrastructure (up to a specified percentage)
- Can be very reliable funding streams
- Funding is not always competitive
- Gov’t cons:
- Heavy reporting requirements
- Inaccessible applications/contracting process
- Tensions with government over service delivery vs. social change
- Cash flow issues
- Fee for services account for approximately 50% of all nonprofit revenue. Concentrated in hospitals, health, human services, and colleges. Often called “earned revenue” or “program fees”
- Fee for service pros:
- Completely unrestricted
- Can be sustainable, no worry of funders pulling out
- Fee for service cons:
- Ethical issues (especially for social service organizations)
- Lose the distinctiveness of being a nonprofit
- Many social enterprises fail
- Don’t be afraid to negotiate (keeping in mind limits and context - maybe don’t do this if you’re on thin ice with a funder to begin with)
- Negotiating in coalitions is one way to increase your leverage in a situation
- Smaller nonprofits can partner with larger groups as their fiscal agent or grant writer