Nonprofit Financial Stability as an Act of Faith

by Scott Stewart Special to The Giving Net

Most non-profit organizations traditionally rely upon gifts of money — government or foundation grants, donations, contributions, tithes — to fund their operations and cover their obligations. They tend to use that money immediately to address financial needs pertinent to their missions. If they save money, they commonly do so to achieve short-term or mid-term goals (purchasing capital equipment, for example, or constructing new buildings). They often keep some money in financial institutions in the form of “rainy day” funds. They are typically frugal with their assets, understanding quite well the variable nature of their income. Their missions and actions often reflect the wisdom that E. F. Schumacher relays in his classic essay collection Small Is Beautiful: Economics as If People Mattered, a wisdom that seeks to fulfill human needs and thus promotes peace, virtue and permanence. Many non-profits intend to operate perpetually; the needs they serve, after all, are often very persistent.

Non-profits’ reliance on monetary gifts to fund immediate, short- or mid-term goals rarely leads to institutional permanence, however, even if their organizations were created to be permanent. Their money management and budget-making frequently fail to account for the tenuous nature of their income. These shortcomings do not constitute a moral failure but a lack of focus on the kind of money management that will support their missions over the long term, especially when economic times are tough. In their recent book Nonprofit Sustainability: Making Strategic Decisions for Financial Viability, Bell, Masaoka and Zimmerman write, “we build our organizations for impact, not for financial stability,” but the time has long since come to build organizations for both.

The Current Situation

In his online article, “Sustaining Nonprofits During Economic Downturns,” George Head writes that, in recessionary times, non-profits often must cut their budgets and focus narrowly on only the core parts of their missions. Why? They suffer declines in contributions, government funding and even volunteer help, while facing increasing demands from clients needing their resources and services.

In 2005, when markets and North American economies were arguably climbing out of a recession, GuideStar.org asked its March newsletter readers to answer the question, “What is the greatest challenge your organization faces?” Forty-six percent chose “Finding the money to accomplish our mission,” a response greater by 25 percentage points over the next challenge in line. If that was true in 2005, imagine what percentage the same answer might garner right now.

A forward-looking survey conducted in March of 2011 by the Nonprofit Finance Fund found that “America’s nonprofits [were] expecting 2011 to be another tough year for their organizations, and for the people they serve.” Although 85% of respondents to that survey expected “an increase in service demand in 2011,” only 46% thought their organizations could meet that demand; ten percent of respondent organizations had no cash on hand; 60% had three months or less of liquid assets. The Nonprofit Research Collaborative’s mid-year 2011 survey indicated that non-profit income trends, however, were not significantly better than those of 2010.

With respect to government funding alone, Larry Checco offers this warning in his GuideStar.org article of January 2010, “Welcome to the Age of the New Normal”:

For decades, countless nonprofits have relied largely or exclusively on local, state, and federal funding, or a combination of all three, to achieve their missions. If yours is one of them, and you haven’t already experienced a decrease in your funding, brace yourself. Given the state of most government budgets, it’s just a matter of time.

Endowments as a Long-Term Solution

Obviously, there are significant financial and operational risks to the hand-to-mouth funding treadmill. If we compare non-profit finance with a family’s financial plan, each organization needs to address the same six areas: cash flow, debt management, emergency funds, insurance, business continuity (analogous to a family’s estate plan), and, the focus of this article, long-term assets.

Diana S. Newman, in her excellent primer Nonprofit Essentials: Endowment Building, lists numerous benefits of endowments to organizations as well as donors and fund-raisers. The organizational benefits in particular all require more than a short-term vision of what the non-profit is trying to accomplish. If a non-profit intends to be long-lived, it cannot afford to forego creating “an ongoing source of income” or relieving “pressure on the annual fund.” What permanent organization eschews program expansion, does not seek to be independent, or would avoid building a “pipeline of future gifts?”

Nothing in this article obviates the necessity of faith in a loving God to provide for an organization’s needs, or the fact that God might instruct an organization to use funds as His Spirit leads. All of this, however, boils down to two very important questions for any non-profit, including churches: First, based on your mission and vision, what is your preferred future? Second, how are you going to get there?

How Do We Get Started?

This article is intended only to sound a wake-up call and offer a few recommendations for written works that support the wisdom of an endowment, which in turn should be part of an overall strategic plan. Endowment-building, however, need not be delayed until the strategic plan is done. The three types of endowments (permanent, quasi- and term) provide financial flexibility as well as stability, and, despite popular misconception, can start with very small amounts of money. Even an organization’s emergency (aka reserve) fund can provide seed money for an endowment: Once the reserve fund is adequately large, additional funds or income generated by that account can start a quasi-endowment.

In Nonprofit Sustainability, we read that “every decision that nonprofit leaders make affects both the programmatic and the financial sustainability of an organization.” Bell, Masaoka and Zimmerman also declare that “nonprofit emphasis on real-world impacts and on mission alignment is fundamental, but . . . . financial stability is not only a legitimate goal; it is a necessary, intrinsic, core goal.” Consider as well the wisdom of Luke 14:28-30; if you intend for your non-profit organization to be a successful and permanent entity, you must start doing now what’s necessary to survive the tough times and thrive, even expand, in the good.

Preparing to meet the cost of survival and expansion is not contrary to trust in God. (Your non-profit or church will have more than enough opportunities to exercise faith apart from this aspect of financial stewardship.) Wisely managing organizational assets for the long term honors the mantle of responsibility that God has laid on your shoulders and is an act of faith in its own right.

Scott E. Stewart is an Investment Advisor Representative of Global View Capital Management, an SEC Registered Investment Advisory firm. Although he graduated in 1997 with a doctorate and a desire to teach biology at the college level, Scott eventually migrated to financial services in 2003. He seeks to help charitable non-profit organizations become and remain financially strong.

Advisory services offered through Global View Capital Management, Ltd. (GVCM), headquartered at N14 W23833 Stone Ridge Drive, Suite 350, Waukesha, WI 53188. Supervising office 262-650-1030.
Recommended Reading

Bell, J., J. Masaoka & S. Zimmerman. (2010). Nonprofit sustainability: Making strategic decisions for financial viability. San Francisco: Jossey-Bass.

Checco, L. (2010, January). Welcome to the age of the new normal. Retrieved from http://www2.guidestar.org/rxa/news/articles/2011/age-of-new-normal.aspx

Coffman, S. E. (2005, April). Nonprofits’ three greatest challenges. Retrieved from http://www2.guidestar.org/rxa/news/articles/2005/nonprofits-three-greatest-challenges.aspx?articleId=780

Coffman, S. E. (2010, October). Does your nonprofit have a rainy-day fund?
Retrieved from http://www2.guidestar.org/rxa/news/articles/2005/nonprofits-three-greatest-challenges.aspx?articleId=780

Frye, C. (2011, February). Financial challenges in association strategic planning. Retrieved from http://www.associationtrends.com/news/finance/headlines/financial-challenges-in-association-strategic-planning

Head, G. L. (n.d.). Sustaining nonprofits during economic downturns. Retrieved from http://www.nonprofitrisk.org/library/articles/strategy09002003.shtml

Newman, D. S. (2005). Nonprofit essentials: Endowment building. Hoboken: John Wiley & Sons, Inc.

Nonprofit Finance Fund. (2011, March 21). Nonprofit Finance Fund 2011 survey: America’s nonprofits struggle to meet fast-climbing demand for services [Press Release].
Retrieved from http://nonprofitfinancefund.org/announcements/2011/nonprofit-finance-fund- survey-americas-npos-struggle-to-meet-fast-climbing-demand

Nonprofit Research Collaborative. (July 2011). Fundraising survey shows little change from end of 2010. Retrieved from http://www2.guidestar.org/ViewCmsFile.aspx?ContentID=3916

Schumacher, E. F. (1973). Small is beautiful: Economics as if people mattered. New York: Harper & Row, Publishers, Inc.

Scott E. Stewart
Global View Capital Management
N14 W23833 Stone Ridge Dr., Ste. 350-A
Waukesha, WI 53188
262-650-1030 office
262-650-1085 fax
501-249-2129 cell
www.gvcmanagement.com