Wednesday, April 8, 2015

Nonprofits operating in a deficit are ‘staying the course’

 A few of the ideas in “Seven Ways to Fail Big” almost seem so obvious that it’s surprising to see them listed among the most significant business failures from 1981-2005 among U.S. public companies. For example, everyone knows that faulty financial maneuvers are so 1999. Wrong technology bets and not understanding change management (the synergy mirage) are inexcusable given today’s unlimited access to information, statistics and trends and organizational management, and it’s hard to imagine roll-ups ever being an appealing business plan. I would hope that, at least after having been trained at Heinz, I will not go on to make similar mistakes. 

As for the others, I will admit to remembering times when I’ve been so caught up in projects that I couldn’t see my own blatant errors, which ended up obvious to everyone but me. It reminds me of the Marcus Aurelius quote in our syllabus: "the secret of all victory lies in the organization of the nonobvious." This is why I can personally relate to the concept of ‘staying the course despite shifts in the market,’ because in the nonprofit world, it’s easy to get lost in the mission. As I learned in my Accounting & Controls course at Heinz, many more nonprofits than I realized operate at a deficit each year. It’s actually a phenomenon that’s accepted as normal, much to my own surprise as a traditionally-trained business person. These organizations needed to modernize their business models as they grew, but instead they continued to operate in the past and I believe it’s probably what led many of them into the red.

For example, a passionate person with a mission generates enough money for a small nonprofit with a group of volunteers and donors, and either they will sustain it at this size or it will grow to a medium sized by generating revenue through their program, by receiving grants, or via an endowment. After a period of time, the income source may run out, or the demand for their services may increase, or their expenses may increase. Without creative financial planning, the balance sheet starts to take a hit. From my experience with working for, and interviewing for, medium to small-sized nonprofits, many of them do not necessarily hire (or want to pay for) strategic-thinking finance employees. They just want someone to fill out the 990 based on how the executive director decided to spend that year.

If the mission could be better served by keeping the organization alive with creative thinking in the financial department, perhaps a nonprofit would be able to recoup its expense by paying for a forward-thinking accountant staff, and giving them a seat at the executive table.  This person could help forecast and identify deficits before they happen and lay boundaries for the creative thinkers in the organizations. This article reminds us that utilizing strategic, for-profit business ideas in a nonprofit setting can do nothing but help a nonprofit achieve its mission.

Rachael Swetnam

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