Everybody Loves a Winner
In 2013, the Houston Astros lost 69% of their games, resulting in the team's worst season history. That year, the team averaged just 20,394 fans at each home game. Just four years later, the Astros won 62% of their regular season games and enjoyed average attendance of 29,675. That’s a 45% increase in average attendance as a result of the team’s 2017 winning season (which included winning the World Series). It’s a simple fact: sports teams experience better paid attendance when they have a winning season.
Just as baseball teams have more fans when they are on a winning streak and fewer fans when they are on a losing streak, your not nonprofit organization has more financial supporters when you demonstrate successful programs, sound management, and prudent governance. The reverse is also true: your charity has fewer financial supporters when you communicate that your programs, management, or governance is in distress.
You Might Be Saved But You Won’t Be Respected
Every few years, I will see a fundraising letter that starts “If we do not raise $25,000 by next month, we will be forced to close our doors”, and these letters stab my heart with pain. The solicitation letter tells me that a financial crisis is endangering programs, but the letter rarely provides a forthright examination of (a) how the organization reached the point of crisis and (b) the organization’s long term plan for overcoming the crisis.
This desperate plea for help may raise the $25,000 necessary to keep the doors open but it does not improve the long term prospects of the organization. In fact, the nonprofit is quite likely to be in the same position during the next cash crisis. Additionally, once major donors and foundations make contributions to prevent bankruptcy, it will be many years before they will . . . .
. . . . consider the organization a prudent investment for capital gifts
. . . . feel comfortable making undesignated funds
. . . . include the organization in their estate plan
If You Really Are In Trouble
If your organization has a sudden need for $25,000 to remain viable, it is okay to approach major donors and foundations for support if you follow these rules:
#1: Create a plan
The plan doesn’t need to have the complexity of a full strategic plan, but it should thoroughly and candidly outline the factors causing the crisis, the proposed steps for overcoming the immediate crisis, and the plan for avoiding a similar crisis in the future.
#2: Carefully select the people to solicit
This is likely not the appropriate time to broadly solicit donors by mail or email. Instead, brainstorm the major donors who might be willing to consider a gift and develop a gift pyramid. If you need to raise $25,000, for example, your gift pyramid may look like this:
Keep in mind that you probably need to brainstorm twice as many prospects as gifts at each level. As an example, in order to get two gifts of $5,000 each, you may need to start with four donors that have the capacity to give at that level.
In selecting these prospective angels, choose people who care deeply about your mission, will keep your solicitation confidential, and are willing to provide candid and honest feedback.
#3: Meet with the prospect
Meet with the prospect, and treat them like a major investor in your organization (because they already are or you are about to ask them to become one). Be forthright about the organization’s strengths (such as strong program outcomes) and the weaknesses (perhaps fundraising or cash flow management). Treating them like a major investor also means you will share the plan and ask for their candid feedback. It also means you will listen to their advice and consider ways you can incorporate it into the actual plan.
Like a major investor, the prospect may point out how some of the assumptions in your plan are unrealistic. While this may be incredibly difficult to hear, don’t get defensive about it. Instead ask the prospect how they would change the plan’s assumption and resolve the pending crisis. It’s a tried-and-true fundraising maxim “If you want advice, ask for money. If you want money, ask for advice”.
Toward the end of the meeting, ask the prospect if you can share the revised plan in a week and gauge their level of support.
#4: Incorporate your prospect’s advice
Using the free consulting advice received from your prospects, incorporate their advice into the plan and develop a final document.
#5: Solicit your donor
When you share the revised plan with the donor, it is also time to solicit them. Since you are asking the donor to help the organization during a difficult time, clearly state how the organization will operate differently to avoid another crisis and share how you will report progress back to your donor.
#6: Follow through on your commitments
Call or meet with your donors at the intervals promised to give them frank updates on the organization’s progress. Since all plan implementations face obstacles, also share those roadblocks and ask for advice on navigating around them. By the end of the six or twelve month plan, you will have a stronger organization and even better relationships with your major donors.
About the Author:
Read Dolph Ward Goldenburg's Bio
Earlier this week, the White House released “budget blueprint” for the upcoming fiscal year. While not a formal budget, it offered guidance on White House priorities that included eliminating 9 important federal agencies and many other funding sources (like CSBG and CDBG). I read the 62-page budget blueprint and wrote an extensive blog post yesterday, which you can read here.
With one party in control of the legislative and executive branches, a tsunami of change is inevitable and will impact nearly every nonprofit organization. Like all great storms, the change will come in strong waves: first regulations will get looser or tighten, then funding will rise or fall, and collateral damage on individual households and organizations will be felt throughout the sector.
While paradoxical, some organizations will benefit from the pending changes, others will be at a disadvantage, and the most adaptable organizations will emerge stronger and more resilient than before.
As a nonprofit consultant, podcaster, and supporter, I have been very surprised by the number of nonprofit organizations continuing with “business as usual”.
To continue the storm analogy, it feels like organizations have been warned a major storm is coming, but they are not filling sandbags, recruiting people to help, and identifying ways to stormproof their organizations. With their grant contracts secure for another 12 – 24 months, they aren’t currently preparing for possible government funding cuts of 25% - 100%.
This lack of action is understandable because so many organizations aren’t even sure where to start, but most organizations still have time to act. For this reason, I’ve outlined five steps your organization can take now to position your organization for changing times:
#1: Invest in Fundraising!
The two most important factors in fundraising success are developing a plan and having the appropriate staff. For this reason, allocate the funds necessary to evaluate your fundraising efforts, create (or revise) your fundraising plan, and hire the right staff to implement this plan.
Some organizations, such as Planned Parenthood and the American Civil Liberties Union, have even used the current rhetoric as a rallying cry to raise more funds. The daily news coverage of dramatic policy changes gives them a new reason to solicit donors every morning!
Remember: the ability to raise more funds from individuals will always serve your mission well.
#2: Get Media Ready!
Regardless of your mission, reporters will want to speak with those impacted by policy decisions. Prepare your organization by identifying spokespeople, crafting talking points, preparing clients to speak with reporters, and letting reporters know you can offer real people impacted by policy who are also ready to be interviewed.
When pitching ideas to the media, remember that your organization’s story is best told through people you serve. For example, people are more likely to learn about 300 low-income clients losing health insurance if one brave patient is willing to tell her story to the local news.
#3: Prepare to Advocate!
Empower your board members, volunteers, donors and clients to advocate for policies that promote and support your mission. Specifically, ask them to call legislators when relevant legislation is being considered and make sure they know how to submit public comment to local, state, and Federal agencies that are legally required to consider citizen input before changing policy.
#4: Join an Association!
In addition to joining your state or local nonprofit resource center, actively participate in an association for organizations with similar missions and services. You should expect your mission-based association will alert you of pending legislation, policy changes, and court decisions that will impact all organizations providing similar services.
Joining an association will benefit your organization in many other areas. In fact, an effective association will provide your organization with technical assistance, leadership development, program development, and fundraising support specific to your mission and the services you provide.
#5: Revisit your strategic plan!
When the environment changes, it is always a good idea to review and revise your plan. If your organization’s funding may get cut by 15% or the demand for your service may increase by 10%, it is better to plan for the possibility before it becomes a reality.
If your organization’s environment changes dramatically, however, you may need to begin a new strategic planning process. This is especially true if your organization is in the high-risk red zone on the Trump Risk Matrix below:
Yesterday the White House released Donald Trump’s “budget blueprint” that outlines his spending priorities and cuts for the upcoming fiscal year. Knowing that this budget blueprint would have broad implications for nonprofits across the nation, I sat down this morning to read the 62 page document and summarize changes that nonprofits should anticipate.
In order to disseminate this information quickly, this report includes screen captures of the actual document and has not been carefully proofed for pesky “type ohs” (sic).
In his letter transmitting the budget blueprint to congress, Donald Trump noted, “. . . .I submit to the Congress this Budget Blueprint to reprioritize Federal spending so that it advances the safety and security of the American people.” After reading the document, I can attest that his budget blueprint does indeed increase funding for national defense, border control, and law enforcement. But it jeopardizes the security of many of our poorest citizens – their food security, housing security, and neighborhood security.
While this report primarily focuses on the impact the budget blueprint will have on nonprofit organizations, the greatest impact will be on low-income Americans of all ages, ethnicities, and geographies. They will feel the impact the most because they will be affected by declining nonprofit services and declining government sector services.
It is also important to note that the President has essentially issued a policy paper. There is still time for nonprofits, their associations, and their clients to advocate and change the actual budget.
With these caveats, let’s walk through the budget.
Funding Sources Proposed for Elimination
Funding Sources Proposed for a Significant Decrease
Funding Sources Proposed for an Increase
Funding Sources to Continue But No Clarity On Funding Levels
Elimination of Agencies
The budget blueprint calls for the elimination of agencies that form our country’s social safety net. These are the agencies that ensure justice for everyone, promote economic mobility, ensure equal access to the arts, and often give people their first job out of college or their last job before retirement. Under this budget blueprint, funding for the following independent agencies will be completely eliminated:
Appalachian Regional Commission:
$0 in FY 2018. ARC was founded in 1965 to close the close the profound socioeconomic gaps between Appalachia and the rest of the nation. ARC serves 420 predominantly rural counties with a combined population of over 25 million rural Americans. The Commission operates programs and provides grants that make the Appalachian region more competitive in education, entrepreneurialism, infrastructure, and tourism. In recent years, it has devoted significant resources to helping the region’s economy transition away from being coal-dependent. Verdict: Rural Appalachia will lose support for economic development.
The Corporation for National and Community Service:
$0 in FY 2018. This national agency engages over 5 million Americans in service every year, including 75,000 AmeriCorps members and 270,000 Senior Corps. CNCS also operates the Social Innovation Fund, Volunteer Generation Fund, Days of Service campaigns. These important volunteer programs, which include grants to many nonprofits, will be eliminated. Verdict: Fewer volunteers for nonprofits, fewer organizations with the infrastructure to support volunteers.
The Corporation for Public Broadcasting:
$0 in FY 2018. CPB strives to support diverse programs and services that inform, educate, enlighten and enrich the public. Through grants, CPB encourages the development of content that addresses the needs of underserved audiences, especially children and minorities. CPB also funds multiple digital platforms used by thousands of public media producers and production companies throughout the country. CPB issued 575 large grants to support 1,498 public radio and TV stations. 70% of the organization’s budget goes directly to local public TV and radio stations, 248 of which are rural. Verdict: Public broadcasting will likely survive in areas with higher population density (cities and suburbs), but rural areas will lose this important resource for local programming and news.
Institute of Museum and Library Services:
$0 in FY 2018. This Federal agency supports the growth and development of museums of all sizes. Of note, it provides capacity building grants to small and medium-size cultural institutions in urban, suburban, and rural areas. Verdict: Struggling cultural organizations across the country will have more barriers to becoming a sustainable institution. Many will close.
Legal Services Corporation:
$0 in FY 2018. Provide financial support for civil legal aid to low-income Americans. LSC promotes equal access to justice by providing funding to 134 independent non-profit legal aid programs in every state, the District of Columbia, and U.S. Territories. LSC grantees serve thousands of low-income individuals, children, families, seniors, and veterans in 813 offices in every congressional district. Verdict: Fewer low-income Americans will have access to legal representation when they need it most.
National Endowment for the Arts:
$0 in FY 2018. The NEA funds, promotes, and strengthens the creative capacity of our communities by providing all Americans with diverse opportunities for arts participation. In FY 2015, the NEA awarded more than 2,300 grants in every Congressional district in the country, roughly half intended to reach underserved populations. Through its direct grant making, the NEA will support more than 30,000 concerts, readings, and performances and more than 5,000 exhibitions of visual and media arts with annual, live attendance of 33 million. NEA-supported broadcast performances on television, radio, and cable will have additional audiences of at least 360 million. Verdict: Organizations often use grant-matching requirements to encourage local giving of the arts. There will be fewer performances and exhibits and less local support for the Arts.
National Endowment for the Humanities:
The NEH supports scholarly and cultural activity in order to achieve a better understanding of the past, a better analysis of the present, and a better view of the future. NEH grants typically go to cultural institutions, such as museums, archives, libraries, colleges, universities, public television, and radio stations, and to individual scholars. Verdict: Less funding for the humanities.
Neighborhood Reinvestment Corporation:
The NRC seeks to promote reinvestment in urban, suburban and rural communities by local financial institutions working cooperatively with residents and local government. It funds 235 community based organizations that build resilient, sustainable, and engaged neighborhoods. Verdict: Neighborhoods suffering from blight and economic disparities will not experience growth.
United States Interagency Council on Homelessness:
This federal agency coordinates and catalyzes the federal response to homelessness among the 19 Federal agencies tasked with addressing the issue, as well as governors, mayors, and continuum of care leaders. Verdict: With less coordination of homeless intervention efforts, many communities will experience duplication of services.
And The Cuts Keep Coming
While the President proposes the wholesale elimination of many agencies, his budget priorities will impact funding and services in several key areas:
Food Security and Housing
The budget proposes eliminating the discretionary programs within the Department of Health and Human Services’ Office of Community Services. This includes the
Affordable Housing will be harder to build and harder to obtain.
In eliminating both the Community Development Block Grant and the HOME Investment Program, there will be fewer resources to build affordable housing and fewer resources to support those entering or in affordable housing.
Of course, the Community Development Block Grant does more than just help homeless people. It also provides vital services like meals on wheels for home bound seniors, supports community centers providing after school activities, and much more. In a recent year, the CDBG touched the lives of over 73,000 Americans with housing, 17,000 with economic development, and 38 million with facility improvements in their communities
Finally, nonprofit builders of affordable housing will have fewer resources for capacity building with the elimination of Section 4 Capacity Building for Community Development and Affordable Housing. Consequently, they will also have a lower capacity for actually building housing.
Workforce and Economic Development
Workforce and Economic Development efforts will be taking hits as well. This includes less support for minority businesses and small- to medium-size manufacturers (the text from the budget blueprint is inserted below):
Nonprofits that provide workforce development and job training will experience significantly more demand for their services, as the government eliminates or decreases its job training programs.
With the elimination of the Senior Community Service Employment Program, older workers over age 55 will have fewer opportunities to reenter the workforce. Of note, this program funds 19 national nonprofit organizations that place older workers with employers for a risk-free trial period. During this time, the program funds 100% of the worker’s salary and subsidizes the salary for several months if the employer chooses to hire the older worker. Typically about a third of program participants are hired after the trial period, and many nonprofits have also used this program to recruit and hire older workers.
In an interesting twist of logic, the White House also recommends, “improving Job Corps” by closing under-performing Job Corps centers. It is not recommending replacing those centers that are closed, which means that many low income people will now lose access to their nearest Job Corps training center:
Finally, as seen throughout the budget blueprint, the President seeks to stop funding Federal programs with the expectation that states, municipalities, and employers will find the funds necessary to provide these programs for low-income job training and workforce development.
Also impacting nonprofit healthcare providers, they should anticipate more aggressive monitoring of Medicare and Medicaid reimbursements:
Healthcare and Disease Prevention
The budget blueprint also calls for 20% less funding for NIH, with a significant but undisclosed impact on research grants that will be “rebalanced”.
Ryan White funded healthcare for people living with HIV/AIDS appears safe, but it also depends on the definition of “supports”. Most of the narrative in the blue print is clear whether funds will be increasing, decreasing, or remaining the same, but it is not clear when referring to Ryan White. For this reason, “supports” leaves me suspicious.
Also nonprofit healthcare providers should anticipate more aggressive monitoring of Medicare and Medicaid reimbursements, as the blueprint seeks a $70 million increase in efforts to investigate healthcare fraud and abuse through these programs.
Nonprofits engaged in educating our children and young adults will also have fewer resources to support their students. As outlined below, public schools will have fewer resources for providing remedial help to under-performing students, and nonprofit organizations serving youth will have additional demands to provide educational and social support to these students.
The Supporting Effective Instruction program will be eliminated. This $2.4 billion program supports ongoing State and local efforts to ensure that every child has access to effective teachers. Funds implement educator evaluation systems that provide meaningful feedback and support to teachers and school leaders, prepare educators to implement standards, and attract and retain the best teachers and leaders in high-need schools.
The budget blueprint also eliminates the $1.2 billion 21st Century Community Learning Centers program. This program supports the creation of community learning centers that provide academic enrichment opportunities during non-school hours for over 2.2 million children, particularly students who attend high-poverty and low-performing schools. As a result of this program, 36% of the students experienced an improvement in math grades, 36% experienced an improvement in English grades, and 50% of the students’ teachers reported an increase in homework completion.
In addition to eliminating the striving readers program, which provides additional help for students reading below grade level, the budget blueprint also eliminates or reduces more than 20 unnamed programs.
President Trump appears to be fulfilling his promise to take care of our nation’s veterans by increasing funding for veteran healthcare by $4.6 billion, though his commitment on veteran homelessness is not as concrete. The budget blueprint merely indicates "support". This seems vague enough to make us worry about possible cuts in grants to address homeless vets:
With decreased funding for legal service corporations, decreased support for services benefiting our nation’s poorest residents, and an increase in immigration enforcement, the White House is preparing for an increase in Federal arrests:
Legal Service Corporations will have more demand for service from those arrested, while having fewer resources to represent them. Additionally, many of those arrested will be their household’s primary earner, which will place additional burdens on nonprofit organizations serving the poor in their community.
About the Author
Organizations that are operating at a deficit and lack the cash to meet their operating expenses likely have more than just a “cash flow crisis”. In fact, they probably have a “funding crisis.”
To determine whether your organization has a funding shortfall, analyze your financial statements carefully, including the balance sheet, profit/loss statement, and cash flow statement. If your fund balance is consistently declining or you are experiencing frequent deficits, ask yourself how your organization is surviving. Where is the cash coming from to make payroll, pay the rent, and fund ongoing program expenses?
When analyzing the financials, remember that organizations operating at a deficit might meet cash flow needs by using reserve funds or a line of credit. If not used judiciously and with appropriate transparency, these sources of cash can be exhausted without ever addressing the lack of funding. In these unfortunate situations, organizations are often eventually forced to make drastic and abrupt cuts in staffing and services.
“We won’t be able to make payroll in six weeks,” a first-time executive director shared with me in a recent conversation. I had been in those shoes my very first day as an executive director 13 years ago. Having experienced the riptide of a cashflow crisis myself, I was grateful to those who advised me in successfully navigating the challenge. Now was the time to “pay it forward”.
The executive director was smart to recognize the upcoming cashflow crisis and seek advice several weeks before the organization would be unable to make payroll because acting early gives an organization the most options. We discussed the following effective techniques to manage a cashflow crisis.
Take a deep breath and stay calm throughout this process. If the leader panics during a crisis, everyone else does too. With your most zen-like qualities guiding you, develop a cash flow projection to determine exactly how much cash you need every week. Once you know the amount needed in the bank every Monday morning, create a plan to ensure these funds will be available. The plan will likely include initiatives that:
Who owes you money?
The first step in managing cash flow is to review the accounts receivable report and make every effort to collect those past-due invoices. Do not hesitate to call and email fee-for-service clients and government agencies about invoices issued over 30 days ago. In each conversation, ask for a date by which payment will be made and offer to pick up the check.
Ask board members to accelerate giving
Assuming each board member makes an annual financial pledge to the organization, the board chair can ask members to pay their pledges now instead of waiting until the end of the calendar or fiscal year.
Solicit major donor prospects
Typically major gifts is a “long game” that requires cultivation over a period of months and in some cases years. When a nonprofit needs cash soon, however, the best option is to ask individuals with the capacity to make a major gift since foundation requests, government grant proposals, and special events are often unable to generate cash quickly.
Think about prospective major donors you have already cultivated. Perhaps without even calling it “cultivation,” you shared the work of your organization, personally invited them to events, and sent them email updates. Now is the time to build a list of these prospects and schedule personal visits to discuss their support of the organization. In person solicitations are essential and always more effective than phone, letter, or email.
When meeting to solicit the prospect, neither hide the financial difficulties nor emphasize them. After all, you aren’t asking them to “fix” your cash flow, but are instead giving them the opportunity to support the important work of your organization.
Ask funders for a bridge loan
Since institutional funders can take 45 - 60 days to pay an invoice, they will often extend a bridge loan if the organization asks for one. If the cash flow crisis is caused by slow payment from an institutional funder, share with the funder exactly how the delay impacts services when requesting a bridge loan.
Talk to your banker
Talk to your banker about obtaining a line of credit if your organization has collateral (such as a building) and can demonstrate that the root cause of a cash flow issue is not actually a lack of funding.
As an aside, access to financial expertise and a line of credit are good reasons to bank with a smaller, locally-owned bank. They will build a relationship with you and may even consider extending a line of credit based on your organization’s funding contracts even if it doesn’t have collateral. While executive director of one organization, I built a relationship with a smaller local bank and obtained a $100,000 line of credit without any real estate as collateral. As our banking relationship strengthened and budget grew, the line of credit increased to $250,000 without any real property as collateral.
Use a credit card’s float
If your agency has its own credit card, it can “float” some expenses for 20 to 30 days before the credit card payment is due.
Cautionary note on credit
Always remember it is both risky and irresponsible for an organization to borrow funds without knowing exactly how the loan will be repaid.
Defer major expenses
Even if the organization budgeted new equipment, a renovation, or staff raises, postpone those expenses until cashflow is stronger.
Determine an order for paying vendors
You might, for example, be able to defer payment of a utility bill for 45 days without dire consequences, while an unpaid database subscription may immediately shut down an essential tool.
Once you’ve determined an order for paying vendors, communicate with each vendor that might be paid late. Apologize, explain the situation, and make a good faith effort to pay by the date promised. You will feel less guilt about paying late, and they will likely be more understanding.
Breath, Plan, Communicate
While the process of managing a cash flow crisis can be stressful, your calm, planned, and transparent response will help your organization weather the storm.