|
Visit Us Online | About Us | Contact Us | Join Our Mailing list
March 2008, Issue #8
IN THIS ISSUE:
It's All About Cash
Know the Nut You Have to Cover
Increase Your Options to Continue Serving Your Community
Welcome to our Spring Newsletter!
|
The New IRS 990
Big changes loom on the horizon. The revised 990 form ventures into new territory. Reporting is not just about the numbers anymore. Among other things, the IRS has added schedules probing an agency's governance and management practices and policies, and has increased its scrutiny of executive compensation, whatever form it might take. Don't be caught unprepared. Visit Fiscal Management Associates' website to find out more and plan ahead.
|
 |
|
Like springtime, talk of the economic slowdown is in the air. In our last newsletter, we introduced several actions that nonprofit executives could take to maintain their agency's financial health. Given the strong reader interest, we continue that discussion now. We offer our ideas to help agency execs prepare better for a climate of increased economic uncertainty, and make sure the communities they serve continue to get the best possible services. As always, we welcome your feedback and suggestions.
It's All About CASH
Budgets are important, but they won't tell you about your available cash. If a nonprofit doesn't have sufficient cash to pay its bills, it's in trouble.
A nonprofit may have cash in the bank, but it's unusable for general operating expenses. Money may have strings attached, available for only a particular program expense or at some future date. Moreover, some cash may even be part of an endowment's principal, therefore untouchable.
Many nonprofits encounter seasonal swings to their cash coming in and going out. They may have an annual fund-raiser in the spring that supplies needed funds for the rest of the year. Or, they may have to wait for reimbursements from government contractors to cover expenses paid months earlier.
It's important to have a picture of the cash coming in, going out, and the amount left over each month for the last year or two to give you a way to plan for the future. An agency's fiscal department can compile the data, so you can consider questions like:
- What resources do you have to cover your cash obligations in months when they exceed the cash you receive?
- If you have a "rainy day" reserve, how long will it last?
- How can you make sure you build a reserve during months when you have excess cash?
- What will happen to your available cash if government agencies delay payments another 30, 60, or even 90 days?
|
Recessions: Greater Needs, Weaker Nonprofits.
A recent Nonprofit Finance Fund study of over 6,500 mid-sized nonprofits nationwide found their expenses grew faster than revenue from 2001 to 2003. Agencies may have been providing more services because of their communities' greater needs, but they were undermining their own fiscal health.
For more click here:
|
|
|
Know the 'Nut' You Have to Cover
Nonprofits have expenses they must pay every month: salary, taxes and benefits; rent or mortgage; and utilities, telephone, and Internet expenses. They may have monthly loan payments and an annual credit line repayment obligation. Together, these fixed expenses are the 'nut' a nonprofit has to cover, regardless of how many programs it delivers.
Executive directors and boards need to have a clear understanding of this figure and how they will meet these obligations over the coming few years. There may be ways to reduce the amount to a more manageable level, but they will require advance planning:
- Avoid taking on new programs whose total costs are not covered completely. Any new program will require more staff, computers, and often space, adding to the nut obligation.
- Reduce your occupancy costs. Move to less costly space or rent your excess space to another organization. You even may be able to renegotiate your lease terms with the landlord.
- Reduce staff expenses. Delay hiring or defer filling open positions when possible. Consider using interns, students, and retirees for some activities. Reconfigure responsibilities and eliminate positions, although you may incur severance costs and retain the same occupancy expenses.
- Reduce your monthly debt expense either by paying it down or refinancing its terms.
Increase Your Options to Continue Serving Your Community
An organization's circumstances affect the range of options it has during a recession. Regardless, an executive and board must remember why the nonprofit was established in the first place: to fulfill its mission and provide quality programs the community needs. Keeping that goal in mind can lead to more options, not fewer:
- Focus on the specific programs core to a nonprofit's mission. Some programs may be more central to another agency's mission and fit better elsewhere.
- Consider how to do things differently and still deliver quality programs. An agency may be able to consolidate offices, programs, or functions. Outsourcing might be a viable possibility.
- Explore alliances or mergers to provide a more integrated program, expand a program's breadth of services, and/or save infrastructure expenses.
- Band together with others to advocate for maintaining or increasing funding for communities with significant needs.
- Talk with other nonprofit leaders. Find out how they perform certain activities, reduce their costs, etc., and apply their best practices.
View printable version of this newsletter.
|
