I’m worried about Non Profits going out of business – some with a bang, but more with the comforts of hospice.

My agency has a grant that joins us to 6 other agencies plus two others in the neighborhood. In preparation for the meetings, I read the 990’s of all involved. Hold on to your seat.

  • The range of agencies’ revenue was $1 million – $54 million
  • 1/3 actually made a surplus last year, 2/3 had a loss
  • The two largest agencies had more debt than assets. While accounting can lowball the market asset value of a building, this report is still really bad. I wouldn’t work for this company! It turns out that we don’t have to  🙂  They just laid off 80 staff to try to turn things around. Too little, too late.
  • The 2nd largest agency in the study at $31 million has similar troubles except that they are cutting administration instead of program. They’re down to 9% for administration. Good luck with that strategy for 5 years.
  • Two other agencies (revenues of $5 and $7 million) have complicated balance sheets that show complex fiscal structures or — corruption. How can you have a revenue of $7 million, yet invest $9 million in a limited partnership with the founder and ex director still on the board? I was going to copy their fiscal complexity in our agency but, — oh, they are both still in deficit!! So much for financial deals that we mortals can’t understand.
  • 4 agencies have Receivables at the end of the year of 11%, 14%, 17%, and 18%. How can they stay alive with that much government money that hasn’t paid?
  • Of the three agencies that made money, one has the smallest budget and volunteers.

What is going on?

  • It’s a small sample. Maybe I accidentally found all the nonprofit problems?

My guess is that many agencies don’t spend time thinking about where they are going and how they will get there. Long term viability for nonprofits requires a good strategic plan, including a section on what the agency will not do. Too many strategic plans are magical thinking.

Historic, long-lived agencies have a special problem. They need to ruthlessly cut programs that no longer serve the mission well. It means cutting off some well loved staff who have added a lot of value in years past. Most of the agencies in this small study are not new nonprofits.

Also, someone with predictive accounting ability (management accounting) needs to make a financing plan to pay for what has been planned. Cash is gas for the strategic plan. Out of gas – out of plan.

Finally, make sure your fraud policies are in place. As soon as you say $1 million, you’ll attract new friends and they won’t all be donors J

I’d be interested in the experience at your nonprofit (anonymously if necessary).

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