Transcript Nonprofit Financial Fundamentals

Making the Case for
Endowment Giving in the
Midst of Recession
September 10, 2009
Kay Sohl
[email protected]
Recession Impact ???
• On your nonprofit’s
viability?
• On building your
endowment?
Recession Impact
Charitable Giving
•Individuals
•Business & corporate support
•Foundations
Government
•Stimulus
•State and local
More Impact
• Program fees & product
sales
• Access to credit
• Endowment & other
investment losses
Recession Challenges
• Increased demand for
human services
• Board, Staff, and Donor
anxiety
• Decision-making amidst
uncertainty
Board Roles. . . in
Good Times & Bad
• Set mission & priorities
• Oversight
• Liaison with community
• Ensure availability of
resources
Key NPO Goals in
Recession
• Achieve mission
• Remain viable
• Ensure sustainability
• Maintain integrity
Resiliency
Ability to withstand
adversity, continue
operations, and fulfill the
mission
Red Flags
Indicators of weakness or
threat that may impair
the nonprofit’s ability to
meet legal obligations,
protect its assets, and
continue operations
Financial Resiliency
Factors
• Liquidity – Cash position
• Net Assets available for
operations
• Endowment
• Diversity of income
sources
Organizational
Resiliency Factors
• Clear understanding of
business model:
relationships between
costs & income
generation
• Capacity for timely
decision-making
{Mental Map}
• Cash
Resiliency
• Net Assets
• Business model:
relationship between
costs & generation of
earned & contributed
income
{Mental Map}
3 Year Trends
• Revenues
• Expenses
• Net Income
• Unrestricted Net Assets
• Cash
{Mental Map}
Cash
Days of Cash
150
120
100
80
90
50
45
0
June 08
Sept 08
Dec 08
March 09
Your Cash Position?
• Days of cash on hand?
• Restrictions on use of
cash?
• Recession impact?
Cash in Recession
• Collections slow down
Government reimbursement
Customer payment
Donor pledges & contributions
• Payables pressure
intensifies
Vendors & consultants
Collaborative partners
Cash Challenges
• Deficit problems
misidentified as Cash
Flow problems
• Restricted cash drained to
meet operating expenses
• Cash pressure limits
ability to generate income
{Mental Map }
Net Assets
Net Assets Provide:
• Ability to continue to
operate despite
experiencing losses
• Capacity to take risks and
innovate
Nonprofit Net Worth
Assets
- Liabilities
= Net Assets
Growing Net Assets
Revenues – Exp. =Net Income
Opening Net Assets
+Net Income
= Ending Net Assets
Nonprofit Net Worth
• Unrestricted Net Assets
• Temporarily Restricted
Net Assets
• Permanently Restricted
Net Assets
Unrestricted Net Assets
Available for Operations
Invested in Fixed Assets
Board Designated Reserves
Total Unrestricted Net Assets
Temp. Restricted Net Assets
are like a Cookie Jar
Temp. Restricted Net Assets
like a Cookie Jar
• Intended to be eaten. . .
• Need to know the
ingredients/restrictions. . .
• “Mission-focused” cookies
can keep you going. . .
• Need to refill the jar. . .
Temp Restricted
Net Assets
• Contribute to resiliency if
restricted to future use
for core functions
• Function as “available for
operations” for future
periods
Key Net Assets ???
• Target ratio of Net Assets
Available for Operations to
Operating Expenses?
• Board willingness to accept
operating losses in order to
invest in future development
or sustain services?
{Mental Map }
Your Business Model
• Sources of income
• Uses of resources
• Relationship between
investment in expenses &
and generation of income
{Mental Map}
Sources
Support and Revenue
Fndns
11%
Individual
gifts
18%
Program
Fees
29%
Program Fees
Gov Contracts
Gov
Contracts
42%
Individual gifts
Fndns
{Mental Map}
Income Trends
{Mental Map}
Uses of
Resources
Expenses
Nonpersonnel
18%
Personnel
Non-personnel
Personnel
82%
{Mental Map}
Business Model
• Relationship between
program activity and
earned & contributed
income in each line of
business
• Each program’s
contribution to overhead
{Mental Map}
Fund Development
Investment
• Cost to raise $
• Allocation of fundraising
resources to current &
longer term strategies
• Progress indicators
Know the past –
Focus on the future
Yr-to-date
Income
Expense
Net Income
Annual
Budget
Actual as % Projected
of budget year end
Projected Impact of
Operating Results on
Resiliency
Prior Year End
Cash
Key Liabilities
Net Assets
Current Period
Projected Year End
{Mental Map}
Nonprofit Net Worth
• Unrestricted Net Assets
• Temporarily Restricted
Net Assets
• Permanently Restricted
Net Assets
Permanently Restricted
Net Assets
Endowment:
• Represents capacity &
commitment to continue
to serve
• Reduces the need to
generate every $ every
year
Endowment Building
during the Recession???
• Opportunities and
constraints
• Allocation of resources for
fund development efforts
Endowment Building
Opportunities
Endowment Donors:
• Focused on long-term
vision
• Desire to be remembered
• Mission rather than
activity focused
Donor Constraints
• Income and net worth
reduced
• Uncertainty
• Concerns about NPO
investment performance
Organizational
Constraints
• Current operational
resiliency
• Total resources available
for fund development
activities
• Allocation of development
efforts
Potential Endowment
Donors
• Have relationship with
your org
• Long term thinkers
• Seek opportunities to
make larger impact
• Think like investors
Endowment Donor
Cultivation
• Personal
• Sustained
• Future needs focused
• Distinct from annual
giving cultivation
Endowment Building:
Key Messages
• Organizational resiliency
• Long-term vision
• Impact of endowment on
current & future capacity
• Resources to support
donor exploration
Board Role in Endowment
Building
• Effective stewardship
• Policy direction
• Donors to endowment
• Relationship building with
potential donors
Every Board Member’s
{Mental Map}
• Mission & vision
• Resiliency & business
model
• Impact of endowment
• Motivation for personal
giving
Your Next Steps?
• Evaluate financial
resiliency?
• Determine appropriate
investment in endowment
building
• Monitor progress?
• ????