Risk Management Archives - Page 2 of 3 - TurnAround Social Sector Coaching

Nonprofits under $6 million in revenue are sometimes labeled as in the ‘Valley of Death.’

That’s a term from the for-profit sector (Greg Crabtree et al.) and it refers to the need to scale up administration fast even when you can’t afford the cost of hr, legal, and marketing. Infrastructure cash problems often disappear at the $6 million and above range.

It turns out that nonprofits have a unique worry – the indifference of funders who see no need to match services with reimbursements in a timely way.

The Open Road Alliance graphic shows that nonprofit leaders only cause 27% of their own problems. 46% of the crises in the nonprofit world are from funders. Keep scaling up to get your cash reserve!

 

Roadblock Analysis Report

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I had a job search in 1988 and finally got an interview for an executive position. I would be 2nd in command to a leader who planned a five year window for retirement. I was flown to Washington and then Philadelphia for interviews. The interviewers stressed that I would have considerable power. What’s not to like about power?

The interviewers admitted that there was one challenge – their current president was scared of one person who reported to him. The staff member was abrasive, had no support of other staff, and criticized his supervisor and peers without hesitation. They were reluctant to say what they wanted, but an unwritten part of the job description was to handle Jorge.

I understood that new direction was needed. I hated to take a new job and fire a well known staff so I suggested in the 2nd interview that they fire the offender and I could come in with a clean mandate to make things better. They were doubtful because ‘Jorge even knows how to deal with the boiler when it breaks.’ They agreed to think about it. I was sure that I had the job. I started looking for housing.

On my birthday, April 20, I got the call I had been waiting for! …… But the call was to tell me that they had chosen another candidate for the job. There is a copper taste in my mouth even as I write this today.

After much reflection, I realized — The real job that I was offered was to fire Jorge (handle him Ron) and I turned it down!

It doesn’t matter how many strategic plans you write. You will fail if you have staff who can’t work the plan or who want the plan to fail.

This is why I focus on 4 questions for success in business:

  1. Do you have a strategic plan that also changes what you do tomorrow?
  2. Do you know how much money you need and how to spend wisely?
  3. Can you keep staff from stealing money after $1 million revenue?
  4. Will you and your staff have the talent and passion to do what you plan to do?

Sometimes, staff changes are slow because of civil service, unions, elections – things outside the manager’s control. The mayor employs many critics that he cannot fire in the Police Department and other union and civil service protected positions.

For most of us, the big reason that we can’t change things is that we are scared of the people who work for us! “In 2009, U.S. companies spent $3.6 billion on “outplacement services” (figuring out whom to fire and how to do it)” (Rogers, Jenny. “Getting the Ax From George Clooney.” Slate Magazine (2010): n. pag. Web.)

Staff transitions are difficult. And it’s always tragic to create chaos with someone’s livelihood and career.

If you have staff that can’t or won’t work your plan, you need to analyze job descriptions, start regular appraisals, and stop being scared. Don’t let anger amplify difficulty. Discern if a problem staff has the respect of others. Don’t ask others to do it for you. And stop being scared!

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How can you secure government grants and avoid prison in the midst of a corrupt state or other regulatory environment? New York nonprofits and many others are famously susceptible to fraud. The NY literature (NPQ:02/2014) is filled with names of politicians such as Shirley Huntley, Efrain Gonzalez, jr. Sheldon Silver, Hiram Monserrate, Pedro Espada, fr., and others who were convicted of misdeeds with nonprofits or controlled non profits while pursuing criminal activities. The Nonprofit that decides to base its financing around contracts needs to approach funding mechanisms with political capacity.

5 Thoughts on Corruption, Connections, and Compulsory Crime

  1. Let us accept right from the start that connections matter. A Danish study of ‘clean nonprofits’ found that political connections led to more cash for agencies and better bottom lines on the income statement. (Amore and Bennedsen, 2013:1)
  2. Corruption is the willing agreement of organizational leaders to participate in a corrupt plan that benefits two parties. For example, William Rapfogel in New York overpaid insurance premiums for Metropolitan Council on Jewish Poverty. An insurance executive kicked back the excess payment with cash provided to both parties. He stole $3 million with this strategy.
  3. Tolerated semi public corruption breeds a corrupt culture which is hard to avoid. NYS Assembly Sheldon Silver intimidated some in the legislature and ruined the career of Michael Bragman and others who tried to make a change. Vito Lopez founded a senior center that was investigated for misdeeds while he continued to steer member items to the agency. It can be hard to exist in the same industry if a government official has a favorite project for funds.
  4. Tolerated corruption leads to extortion (Compulsory Crime) where unwilling participants from non profits have to participate in the corrupt practice in order to stay in business. IBM, GE, and many others have been caught in bribery schemes because they wanted to be in business in a certain jurisdiction. Non profits can face the same pressure if a majority of their funding originates in government.
  5. Corruption can be in the form of
    1. A simple cash kickback from the contract money
    2. a required donation to a non profit in which the politician has an interest or receives funds
    3. a donation may be made to your nonprofit by someone else who needs access to the politician and a compliant non profit to wash the money.

 

How To Avoid – A Beginning List

It’s good to develop your political capacity before you sail into deep waters of public money. If simply caught by any of this, your two defenses are stupidity or secret need. Neither are sufficient to keep you from being fired or in jail.

Since this is an article still not fully written, I welcome any suggestions to add or improve it.

Petty Extortion –

  • People generally don’t want to go jail for stealing $10,000. They may make a hint about your $50,000 grant offer, but it’s not worth entanglement if you have a defense. You can try one of these push backs:
    • Mention that you are getting a more severe A133 audit – in other words, just give us the cash, because the audit will catch any disappearing funds.
    • Stop the conversation before any illegal proposal is out in the open and save face for both parties with a legal offer. Maybe Senator X can get legitimate free publicity from the grant. Its not illegal. It’s expected.
    • Refuse the grant. This is not always possible since presumably you are meeting important needs with the money that you want to secure
    • Involve more community partners. Centrality is a concept from academe where several departments cross list a course to protect it during a budget cut. The Academic Dean decides to cut Communications 157 and suddenly discovers that it’s cross listed with Psychology and Sociology departments and will still be offered 100 years from now.

In this example ……..

Community partners can be legitimate subcontractors for a small amount and you promise to be their subcontractor in a similar circumstance. For example, the grant is for a school and you involve a food bank to subcontract the snack and the YMCA for a 3 week soccer class. Now the senator has three agencies involved and the sunlight becomes a disinfectant.

 

  • Larger Corruption
    • Hire a lobbyist. If you need a clinic and the only path is through corrupt electeds, you need a strategy. Making your own rolodex isn’t sufficient. A lobbyist who works at the level of the funding (city, state, county, federal, regional) can draw a safe map from you to funds.
    • Develop a cause in your nonprofit. If you are a vocal Cause (Al Sharpton, Bernie Sanders. Martin Luther King, and Eva Moskowitz are examples) you develop public support that may open the door for you even if it does not bring structural justice and reform the funding process. People like to fund projects with publicity value.
    • Examine your board of directors. Use LinkedIn, Facebook, and Google to understand any connections that they have that would be a conflict of interest. Make sure that no one is acting as a quiet agent in ways that are not transparent. Hire a private investigator if necessary. Then use the Board as a spokesperson. Even if you are not a firebrand, the entire board giving a press conference is unusual enough to get some publicity.

In Buffalo, my close friend and non profit leader was attracting money and doing things. During the build up, he got an unusual offer of money from the mayor. His comment was that he had to be wise because the funding would come with snares that would compromise his work.

If you are ready to grow, make sure you have the political capacity to do good and avoid jail

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Notes

Amore, Mario, and Morten Bennedsen. “The Value of Local Political Connections in a Low-corruption Environment.” Journal of Financial Economics (2013): 19-20. Web.

Cohen, Rick. “New York’s Nonprofit Culture—“Corrupt at the Core?”.” Nonprofit Quarterly (2014): n. pag. Web. <https://nonprofitquarterly.org/2014/02/07/new-york-s-nonprofit-culture-corrupt-at-the-core/?gclid=Cj0KEQjw_9-9BRCqpZeZhLeOg68BEiQAOviWAhGhn_Fto85pvtpHuErLkoGiu-SOyuefS303Cui6bCgaAuEZ8P8HAQ&gt;.

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Most strategic plans assume a static future where the basic costs and use of labor remain the same. That is a critically false assumption.

Machine learning started in the 1990s. Anthony Goldbloom states that machines were trained to look at credit applications and determine a score. Since then the trend line was arithmetic but recently has climbed more steeply. Now we actually have cars on the road which are one step from being self driving.

The rapid dislocation of labor from human to machine is one major factor in the unusual American election. It’s a global challenge on how to make all humans necessary. At this point, the economy does not need grocery checkers, cab drivers, subway drivers, live telephone reception, farm workers, and a host of other tasks which have been human based for time immemorial.

Will your Strategic Plan survive the onslaught? Only those that account for machine learning and avoid that competition will be here in 15 years.

Machine learning requires tasks which are high volume and have limited causal factors.

  1. High Volume – Machine learning thrives in high volume. For example, one study had volume reports on police in Philadelphia and teachers. The goal was to hire police officers who are productive and not violent and to promote only worthy teachers (Chalfin et al. 2016). Since the variability is significant between exceptional performing teachers and future failures, the machine learning was able to discern patterns which would predict correctly in both scenarios – better, more productive police and teachers.
  2. Limited Causation – checking out groceries involves a group of products with bar codes, passing the scanner, settling the price and payment. Presumable bagging will be computerized too. The causation for the checkout system is simple – a consumer wants to process items one at a time and pay for the results and take them from the store.

Machine learning is not effective in novel situations, or with creativity, or with relationships

  1. Novel – Novel situations occur where original reasoning trumps learning. For example, some of the best American scholarship looks at problems from the perspective of 2 disciplines. Sociobiology looks at sociological problems and traces evolutionary causes. It’s a terrible discipline for machine learning at this stage. There is not a high volume of reports from which to learn.
  2. Creative – Machine learning will never produce the creativity of Mozart, bell hooks, or Monet. Creativity is a unique human fountain that never runs dry, While machine learning can produce copies of the Mona Lisa, it cannot jump ahead and create a new Mona Lisa. It’s work will always be derivative.
  3. Relational – So much of business success depends on 8 socio emotional skills
    1. Goal persistence
    2. Awareness of others
    3. Awareness of Self
    4. Optimistic Thinking
    5. Decision Making
    6. Relationship skills
    7. Self Management
    8. Personal Responsibility

Those skills work together to build teams, invent new solutions to business problems, and consider unique value propositions based on available resources.

So how does your Strategic Plan match up?

Test your vision based on the strengths and weakness of machine learning.

  1. Are you planning to manufacture a product without investing in robotics? It’s likely that robotics locally with lower transportation costs will be cheaper than cheap human labor in other locations.
  2. Is there new infrastructure planned in an area that you exploited? NYC plans to go green in 14 years. Any business that moves quickly can compete with old energy guzzlers that don’t see the problem coming.
  3. Did you create a unique value proposition that uses relationship skills for success? Edith Penrose says that effective teams become the real competitive edge of a company.

The coming and current dislocation will be a time for some Strategic Plans to gain the advantage and many others will collapse. It may be an opportunity for a start up to move shrewdly where a larger company could not change.

Is your Strategic Plan going to be terminated?

 

References:

Bloom, Anthony.  “Machine+learning+ted+talk”. TED Talks, n.d. Web. 14 Aug. 2016.

Chalfin, Aaron, Oren Danieli, Andrew Hillis, Zubin Jelveh, Michael Luca, Jens Ludwig, and Sendhil Mullainathan. “Productivity and Selection of Human Capital with Machine Learning†.” American Economic Review 106.5 (2016): 124-27. Web. <https://econ.tau.ac.il/sites/economy.tau.ac.il/files/media_server/Economics/PDF/seminars2015/AER%20picking%20people%20ML%2020151228_final%20complete.pdf&gt;.

Nickerson, Amanda B., and Callen Fishman. “Convergent and Divergent Validity of the Devereux Student Strengths Assessment.” School Psychology Quarterly 24.1 (2009): 48-59. Web.

 

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Abstract

CEOs need to invest intentionally and annually in professional development for key staff in order to achieve the objectives of the Strategic Plan.

 

Adding a New Asset

Many nonprofits are service industry corporations with few fixed assets.*  That means the success of your company is the result of your wise use of two items:

  1. Assets (Cash and other Assets – Depreciation)
  2. Temporary Assets (Labor Costs and Materials Cost)

 

Meir Russ argues that you need to take your key managerial training expense out of the Income Statement (Expensed at a year or less) and make a supplemental Balance Sheet with a new category of Managerial Assets. So the success of your company is now the result of your wise use of three items:

  1. Assets (Cash and other Assets – Depreciation)
  2. Temporary Assets (Labor Costs and Materials Cost)
  3. Managerial Assets (Training and Professional Development Investment – Depreciation)

 

The rationale is that we invest in our key managers with the expectation that they will bring new skills to work everyday and that new productivity will last more than one year. This is not that novel an idea in other industries. Performers already look at life this way. They insure parts of their body with the expectation that its value will last more than one year. “As the Beatles sang “I wanna hold your hand”, their business managers were busy insuring their fingers for £200,000 – a colossal sum at the time…. More recently Bruce Springsteen’s voice was covered for $3 million.” (Hunter, 2003)

 

Let’s assume that your average key staff member has a job tenure of 5 years in your company. Create a supplemental Balance Sheet that records the professional development asset and depreciate the expense over that period of time instead of the normal pattern to expense it all in the year that it occurs.

 

The result is to showcase whether you leverage talent with training or are satisfied with the current state of affairs. If the new account has a balance of $0, I can predict the failure of your Strategic Plan.

 

Intentional Investment for Success

Your key players face the struggle to implement the Strategic Plan. If they don’t do it – what is your Plan B? The Strategic Plan, by definition, is not easy. Your key managers need to improve their skills to meet the challenge of tomorrow. Placing those expenses on the balance sheet gives attention to :

  1. What is a reasonable investment yearly in managerial development?
  2. Does that manager have an IDP (Individual Development Plan) and are they happy or resistant to work on it?
  3. Are some key players in danger of skill aging and need to get one more chance and discussion about moving forward or transition in the next year? One problem of strategic planning is a key manager can be valuable in one strategic advance and not really interested in the continuing journey.

 

Like anything else I write about, these conversations are about as pleasant as a trip to the dentist. But the CEO is solely responsible for the wise use of labor, materials, and assets to accomplish the Strategic Plan. Leveraging the value of your managers is arguably the most strategic action that you can take. Publicly reporting it will make sure it happens and it’s also a better way of looking at leading the company than Financial Accounting allows.

 

Increase Tenure of Key Managers

All of us have a dream of who we can be. I have met very few employees who really feel that they are in the perfect place. I can tell you that if you tell a key employee that you are willing to invest $5,000 every year in their professional development, you are guaranteed to extend their time in your agency. Your reports will feel appreciated and understood.

 

You can’t keep progressing on the Strategic Plan when key talent quits repeatedly. They take too much institutional history and culture with them.

 

Tell your board that you can keep a key staff member Ms. Gold 7 years instead of 5 years for $35,000 ($5,000 per year). Mention that you can implement a key objective of the Strategic Plan with the help Ms. Gold. If I could get that bargain, I’d give the extra $35,000 myself!

 

Conclusion

You are richer than you thought. Those managerial Professional Development Costs are not going to be used in one year. They are going to stay for year 2, and year 3, and year 4 ……..  They are one of your keys to complete the Strategic Plan.  You simply must treat them that way.

 

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*Hospitals and museums are examples of capital intensive nonprofits. The rationale of the managerial reclassifying of expenses should still be valid.

 

 

 

Hunter, Teresa. “What Price an Arm or a Leg?” The Telegraph. Telegraph Media Group, 29 Jan. 2003. Web. 07 June 2016.

 

Russ, Meir. Management, Valuation, and Risk for Human Capital and Human Assets Russ (2014-10-15). Management, Valuation, and Risk for Human Capital and Human Assets: Building the Foundation for a Multi-Disciplinary, Multi-Level Theory . 1st ed. New York City: Palgrave MacMillan, 2014. Print.

 

 

 

 

 

people-leaving-workpeople-leaving-work

Summary

Fraud is a persistent cancer in the non profit world. Local news in New York City reported another fraud of $1 million as the director redirected funds for his mortgage. Just as with other cancers, prevention is cheaper and easier than cure.

 

This cancer is much larger than officially reported.

  • Many nonprofit boards are reluctant to press charges. Board are filled with volunteers who are reluctant to give the examination time needed to find a result that they don’t want to discover.
  • Agencies don’t look good to the public when they report a fraud. It affects their brand and threatens future charitable and contract funding. It’s cheaper to ignore it.
  • Frauds are often perpetrated by employees who appear to be the most loyal and honest. While their overtime work conceals the fraud, they appear to the world as super diligent. It’s never popular to send Aunt Susie or Uncle Bill off in handcuffs.
  • Fraud is usually discovered by accident. Most of us are working in organizations where money is flowing in and out. Even auditors are unlikely to discover frauds below a certain percentage of the revenue of the corporation.

Cure – Expensive and rare

Intentional discovery is almost impossible. Forensic accounting is often more expensive than the potential fraud. It is the Board’s act of last resort.

Prevention – Cheap and Effective

It’s amazing that nonprofits don’t use much prevention. Thousands can be saved. Some of the ideas that follow require no money to implement.

  • There should be a Personnel Policy about fraud. Clearly warn people about things that the organization will not tolerate
  • In a staff team of 25 or more, create an anonymous survey once a year to ask about fraud. It communicates that you are serious. Include questions such as:
    • Do you know of any staff member who has taken company property for personal use?
    • Do you know of any illegal acts in the company?
    • Have you seen a supervisor ignore complaints about illegal actions?
  • Require any person who pays bills, opens mail, or receives money (paid, volunteer, or part time) to take a 2 week vacation of consecutive days once a year. Watch for anomalies during that time.
  • Examine executive perks and how they appear to staff throughout the organization. A strong ethical public tone at the top strongly influences people throughout the organization. If you get a free car as director, the janitor may feel justified in pilfering toilet paper.
  • Create a simple treasurer’s report that warns of potential non profit fraud to watch. There are six ratios in the financials that predict possible non profit fraud. These include overstating expense, bringing future expense into the current year, and overstating depreciation. While these ratios don’t prove fraud, their presence in the Treasurer’s report means that the agency is serious about fraud detection.
  • Compensating Controls – Most organizations can afford compensating controls in lieu of extra staff for division of duties. Let us assume that one person handles petty cash. A simple log with date, purpose, receipt and amount of funds can be required and given to the Treasurer quarterly. It is considered a secondary control but much better than none.
  • Preventive Controls – these are primary controls which are more effective. Some are quite inexpensive. For example, buy rubber stamps for every person who opens mail or is involved with deposits. The rubber stamp is marked ‘For Deposit Only, My Happy NonProfit, Farmers Bank # 1235-56789’. Anyone stamps everything as soon as it is first seen. This simple control prevents double endorsement of checks to someone’s personal bank account.
  • Leadership – controls are of no use if leadership does not enforce them. I know that fraud correction can ruin friendships, invite retribution, or focus on a beloved staff member. Fraud prevention needs a leader who is more committed to the nonprofit mission than these other considerations. It’s not easy.
  • Board Leadership – As nonprofits grow, politicians and others may see the organization as a convenient place to enrich themselves. One non profit outsourced their accounting to a public company created by a former board member. They also invested surplus funds heavily in the new company. Management drained the outsourcing company of assets and closed – effectively taking the non profit’s treasury.  Strong board policies to prevent board access to assets and existence of potential conflicts of interest must be written and maintained.

 

Conclusion:

I first became interested in nonprofit fraud when I heard stories and realized that it’s nearly universal. It’s often a staff member who appears loyal and hardworking, secretly paying personal bills. Most of this fraud is undetected.

Detective controls are expensive, preventive controls are effective and cheap. The faster you start, the more money you will have to help the homeless, feed the hungry, or cure disease. Start today.

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Synopsis: If you have noticed that fewer government RFPs are arriving for your mission, it’s a possible sign that political priorities have changed and your great agency no longer has a private key to the statehouse. This article proposes 4 ways a nonprofit can respond to cuts in contract funding.

Background

Higher Education is a jilted lover.

At the end of WW II, the President feared that the USA would return to peacetime with riots (this had previously occurred after WWI). The economy could not absorb all of the returning soldiers into the work force. The GI Bill was an elaborate ruse to divert soldiers out of the work force temporarily until the peacetime economy resumed.

You know the rest. Soldiers went to college, the Marshall plan created demand for USA goods, and the national standard of living advanced steadily in the 1950’s and 60’s.

By the 1980’s, Higher Education was cast aside while Crime and Medicaid projects flirted with government. The City University of New York lost its free tuition and the rest of the NYS system was no longer cheap. While almost all states have cut funding since 2008, Alabama, Arizona, Louisiana, Pennsylvania, and South Carolina have the sad distinction of removing 35% or more funding for higher education (Center on Budget and Policy Priorities, (2015:Mitchell and Leachman).

 

What can you do if you are in education, AIDS, or some other downsized priority?

I suggest that you choose one of four alternatives:

  1. Reduce your mission to a niche that can be funded
  2. Acquire a similar agency
  3. Look for a hero and negotiate your surrender
  4. Start a forprofit partner

 

Reduce Your Mission

In good years, we all tend to broaden our mission. Our best stakeholders demand it with considerable pressure. We gracefully yield, impressed by our own capacity. The trick is to understand the core where we are determined to be the best and  return to our true love when our government suitor is found with a new friend.

In my agency, our core is academics for kids who don’t have English as a home language. We have supplemental programs as well and many additional students from English speaking homes participate because they like our quality.

NYC does not always have our constituency at heart. The last administration proposed stopping all after school programs throughout the city for fiscal reasons. The current administration thinks more about diversion to avoid youth violence than college prep.

We accept some of those contracts but we also understand our core for those times when the love affair with government falters. We work hard to keep our tuition based programs filled and expanding to guard against the day when funding cuts occur

 

Acquire a strategic company

Notice that I say acquire rather than merge. Mergers often fail as two living organisms try to live as one.

  1. Weak finances of many nonprofits make bad mergers. Owen et al. state that “…. many organizations have grown quite weak in the present economy and are today in an extremely vulnerable position. ….. it would be difficult to carry out effective mergers with organizations that had grown financially desperate as demonstrated by an inability to meet ongoing monthly expenses or the loss of significant revenue sources.” (Owen, 2011:46)
  2. Unusual leadership is needed for mergers– While there are examples of successful mergers, the success depends on skills of boards and executives. I submit that these skills are the exception more than the rule.
  3. Less conflict in acquisitions– The power of the acquisition is simply for one organization to surrender its resources in the expectation that the combined company will have more efficiencies and two networks for its continued mission. There will be staff reductions, but the acquired organization may easily have some talent that will get preference in merit based selections. The spirit of the acquisition under the lead executive will be understood. People accept in advance in an acquisition that difficult decisions will be made to protect what we do for the people we serve.

What do acquisitions provide?

  1. Key contracts– The acquired agency may have a key contract or lease that is hard to obtain.
  2. New networks– assuming that the acquired agency has done quality work and managers will not leave precipitously, you can quickly expand your own network
  3. New talent– if some positions are now duplicates, you may find that some of the better talent should be chosen from the acquired organization. This is a strategic chance to strengthen your bench
  4. Efficiencies of scale– while service organizations do not profit from scale as much as manufacturing, acquisitions with a total revenue of less than $10 million will likely benefit.

 

Look for a Hero

There are too many nonprofits even without the cutbacks and fickle behavior by government. Kobara (2015) states that new nonprofits started at a rate 50 times faster than small businesses in the last decade. He points out that there are no investment banks, specialists, and attorneys that assist non profits as they begin operations.  Since the funding is not provided by the persons served, the market forces that cause forprofit companies to succeed or fail don’t affect nonprofits as quickly.

If you have less than $5 million in revenue and contract revenue is at risk, consider surrender rather than acquisition. Verne Harnish calls the revenue of corporations between $1 million and $5 million the ‘Valley of Death’. Your agency has not attained the efficiencies of scale. While you still may have the talent to lead a combined organization, you probably don’t have the experience.

There is no dishonor in strategic planning to keep the mission alive in a different corporate form.

 

Create a ForProfit Partner

For Profits are helpful vehicles for attracting social investors and business plans that could throw off tax or ownership benefits.

  1. Investors Easier than Donors– For long term fixed assets such as buildings, friendly investors such as board members and friends may be more willing to invest in stock than to donate. The building can be purchased with their capital down payment, financed by rent from the nonprofit, and sold if the rental stream fails. The nonprofit gets use of a property that is normally not available.
  2. Higher Rents– For government contracts that discourage ownership, a leasing structure from the forprofit partner may permit more contract funded repairs and lease money that essentially pays the mortgage.
  3. Exploiting Assets– If the nonprofit has unused assets, the forprofit corporation can rent them from the nonprofit and exploit them for unrelated purposes.
  4. Managing Risk – if the programs have significant risk, the nonprofit can accept the risk since it has few fixed assets. The forprofit keeps the fixed assets at arm’s length and cannot be touched in the event of a lawsuit.

Conclusion

If your agency is largely funded by contracts, changes are inevitable. The needs of communities change and politics change. Even friendly legislators retire or move on. Many of us assume a relationship with government that is not reciprocal. Why wait until your nonprofit is one of the many unlucky ones that fail? Choose your backup strategy now and rejoice that you could survive singleness!

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A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

 

References

Harnish, Verne. Scaling Up: How a Few Companies Make It… and Why the Rest Don’t. N.p.: n.p., n.d. Print.

Kobara, John. “Facilitating Mergers and Acquisitions for Nonprofits” Huffington Post.  9/09/2015

Owen, Greg, et al. “What Do We Know about Nonprofit Mergers?” Wilder Research (2011): 1-49. Wilder Research. Web. 12 Apr. 2016.

Somebody who reads this article needs cash today.

Without cash, you don’t have time to fund raise, to borrow, or to think. You can’t increase your services because you have no cash to advertise. You may even be profitable – but slow payers are strangling your cash.

You have one more source of cash – collecting cash that people owe to you.

 

Are You in the Banking Business by Accident?

Most of us allow government and clients to get our services and pay later. The bank calls that a no interest loan. Here’s an example.  Let’s say that your budget is $1 million and you offer job training where most of the expense is paid by the government. Clients pay for daycare for their kids while they take the training.

  • Assume that 90% of your cash is received after you provide and bill for your job training services and daycare. Assume that it takes another 2 months to actually get the money. Your financial report every month shows about $225,000 as the accounts receivable. Use this formula.  90% of your budget of $1,000,000 is paid late and you carry $225,000 (3 months) constantly in bills that people have not paid. You need that cash now for payroll and rent!
  • The formula is (90%*$1,000,000)/ (225,000)  = 4.
  • You are accidentally in the banking business! 90% of your customers slipped a no interest loan into the services you provided. That number 4 should be much higher or negative.
  • Divide the number of days in a year (365) by 4 and the answer shows that you wait 91 days on average to get paid. This can put you out of business! If you can reduce to 60 days to get paid, you have just added $75,000 to your bank balance!

 

How can you get your $75,000?

  • Discount for immediate payment. If you are paying 7% on a line of credit while you wait for your money, it makes more sense to offer a 5% discount for full payment. Cash will start coming in this week. We needed cash and offered a 5% discount for the tuition paid in full. To my amazement, one person came in and paid $19,000 immediately. We would have paid 7% on our line of credit.
  • Require a deposit. It raises your number 4 and reduces the amount of missing money. A deposit means you are collecting money before service is provided. Landlords always charge rent for the month ahead, the security deposit and the last month’s rent. They reverse the cash and are borrowing 90 days of cash from their tenants at no interest!
  • Require payment today for services today. You are no longer in the banking business. A simple model.
  • Develop a relationship with all the government agency secretaries. Learn the names of their kids and what they hope to do on vacation. They have power. One secretary took our claim and quietly moved it to the top of a big pile. Relationships make a difference!

 

Can you stop being the government’s bank?

Not 100%. But you will find with daily calls and emails, money will arrive much sooner than patiently waiting. And all of these ideas are simple enough to start today. Why are you waiting? Get your cash!

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GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

They say that your 20’s are about career discernment, 30’s – overcoming failure, 40’s – accumulating money, 50’s – accumulating power, and 60’s – guarding reputation.

While there is no perfect age for leadership, strategic planning is always about managing risk. Age tends to dampen our risk appetite. It’s a reasonable feeling. I started a company which failed after two years when I was 35 years old. It took a while to get hungry again – but I had time as a salad while my risk appetite recovered.

If you’re 63 and your best judgment leads to failure, there may not be time to recover your reputation. That is understandable. Unhappily, your aversion to risk can increase incremental business failure. “There is tendency for risk management process to fail incrementally over a long period of time.”  (Fadun, 2013:231)

The people who lead are often at the age where their risk appetite keeps their company from the table of opportunity.  “Risk is an essential part of business because firms cannot operate without taking risks.” (Ibid, 225)

If you are in that exact situation, then Strategic Planning empowers you to the leadership need of the hour without forcing your risk appetite to accept what it cannot tolerate.

  • Your low appetite Strategic Plan will choose one or two big ideas but have unusual sensitivity to choose what NOT to do. Many younger leaders fail because they try to do everything. Sears is floundering as its management tries anything. They briefly attempted to be a pawn broker and then purchased “4,000 charcoal smokers and grills, almost 10,500 beer-can chicken roasters” (Duprey, 2016:1) What a tragedy.
  • Your Strategic Plan will force the big ideas to yearly and quarterly goals and to daily reporting by team members on how much they moved the success needle. You will be less tolerant of team actions that are not tied to the Strategic Plan.
  • Your Strategic Plan will probably hoard more cash so that you are succeeding in your stewardship while setting up another future win after you leave. Platinum reputation anyone?

We tend to fail by our strengths. We overuse them and then eat the bitter fruit. Overusing your low risk appetite will keep you from noticing as the company table has less and less food for anyone. Claim your low risk appetite, write your Strategic Plan to leverage it’s perspective – and make your later career so good that you bore the kids with all the stories in retirement!

If you want One Minute TurnArounds by email, please sign up!

GDPR – Your email is collected by an automated system so that the One Minute Manager posts can be sent. You will be invited twice a year to a two hour Scaling Up workshop for CEOs and EDs. Annually, you will be offered an Ebook and asked whether the resources of TurnAround Business Coaching are helpful.

A maximum of 10 companies per year develop a relationship for Business Coaching to turn around their company or scale up past a growth barrier.

 

Fadun, Olajide. “Risk Management and Risk Management Failure: Lessons for Business Enterprises.” International Journal of Academic Research in Business and Social Sciences 3.2 (2013): 225-39. Web.

Duprey, Rich. “Kmart to Sell Liquidated Goods: How Long Before Sears Merch Appears? — The Motley Fool.” The Motley Fool. N.p., 02 Mar. 2016. Web. 03 Mar. 2016.