NEWSLETTER NO. 7
It’s All About CASH – What Your Trustees Can Do
We dedicated our previous two issues to the importance of cash and what measures charity and foundation executives can employ to ensure limited resources are used for maximum impact. Now we turn our attention to the remaining key player, the board, and what trustees can do to help their institutions. If you missed earlier issues, go to our newsletter archive to read more about fundamental business practices that leaders can use in any economic climate to reduce uncertainty, marshal this limited resource, and be more effective.
Cash and the Board: Bring Your Wisdom, Checkbook and Contacts
The Great Recession has added to trustees' pressure to know more about their agency’s financial health, partner with their executive director to address the economic realities, and increase their "give and get". Good boards do these things as a matter of course.
Be willing to face the economic realities
People join a nonprofit board primarily because they believe in the agency's purpose. Sometimes their passion for the mission impedes their ability to face the organization’s challenges. These blind spots can create problems for an executive trying to lead in a challenging environment. As board members, you have a responsibility to:
Understand the agency as a financial enterprise. First, it is OK - and incumbent upon you - to ask questions if you don't understand the financial information you receive. Nonprofit accounting isn't always easy to comprehend and detail-oriented CFOs can provide financial data that is hard to fathom. It's easy to miss the big picture and get lost in the weeds. Others in the room are probably also confused, so you are doing the entire board a service by raising your hand. Ask questions to understand both the content and the implications of the financial statements you receive: what are the financial challenges the agency faces and how will they affect its programs and ability to raise additional funds?
You need to know the charity's:
- Operating revenue sources - government contracts, foundation grants, and individual contributions - their mix and how reliable each is;
- Expenses: personnel (including the executive's salary and other compensation), other major expense items, and total expenses;
- Operating surplus or deficit before and after depreciation and other non-cash items;
- How large any deficit is as a percent of total expenses: a deficit greater than 10% of total expenses is cause for concern, and if it happens year after year, it is even more troubling;
- Available cash to cover operations: unrestricted net assets represents the cash that can be used to pay any operating expense; you may also want to consider other sources such as a line of credit and board designated reserves;
- Cash flow for the next 18-24 months: focus on when the agency is most cash-strapped and how much cash it needs to weather the shortfall months.
Partner with your CEO to address your agency's financial challenges. Encourage candid discussions about the organization's financial health and options to improve it. Back the CEO in making and implementing the tough decisions needed to maintain a healthy enterprise.
Too often we have seen boards signal their wish to hear only good news and unwillingness to grapple with the financial distress their executives face. Board complacence has contributed to many an agency's demise. We recognize that neither CEOs nor board members signed on for today's increased uncertainty, but this is the new reality. The community you serve deserves your full attention, best judgment and experience to help weather it.
Consider the unthinkable. Programs' survival and the continuation of services call for actions previously considered "sacred cows". It is all about the people you serve, so what is the best way you can serve them given the economic situation? We have helped organizations consider and implement options including:
- The transfer of an unprofitable program(s) to another agency that delivers the same or better quality program;
- The sale of a building to reduce costs and generate needed cash;
- The reduction of the number of people served in the near term to bring expenses in line with revenue, free up cash, and rebuild the organization's financial strength so it can grow in the future;
- The collaboration or merger with another to generate the same or better programs while reducing duplicative infrastructure and other activities.
Ramp up your "Give and Get"
Now more than ever, the pressure is on boards to help fill the funding gap created by government cutbacks and foundation grant-making reductions. For many, this can be disconcerting, especially if you are uncomfortable soliciting funds or are of limited means yourself. There are actions you can take to support the agency:
- Establish or reinvigorate a board development committee and work closely with the board and staff. The committee should develop a realistic board fund-raising plan with timeframes and milestones and actively oversee its implementation.
- Consider shifting fund-raising events to better match your agency's cash flow needs. Refer to the cash flow projections to determine the optimal time for events, even an annual gala. As individual board members, make your own donation to give cash when it’s needed most.
- Learn how to fund-raise. Hire a consultant to develop your board's fund-raising skills, particularly in cultivating potential donors and making the "ask". As a board, contribute the funds needed for a consultant and/or needed development staff.
- Make sure you have the necessary tools. Get the "pitch" and learn it so you are comfortable talking about the agency in your own words. If nothing formally exists, the development committee should work with the CEO and/or development staff to write a brief fact sheet and short "elevator pitch".
- Review your board membership profile and what you need to expand the board's fund-raising capabilities. You may need to add or replace some board members, but do so thoughtfully: you want an individual's wisdom as well as money and contacts. You may want to establish an advisory board whose focus is solely fund-raising. Supporters may step up their financial support more readily if you don't ask them to become trustees at the same time.
- Join your CEO in funder calls. Foundations and corporate funders want to know that a charity's board actively supports the organization. Your presence, particularly if you are the board chair, can open doors and build stronger funder relationships.
We Want Your Knowledge!
Let us know what you are doing to improve your grant-making or and program effectiveness. Your insights can help strengthen the sector.
Systematic, Thoughtful Questions for Stronger, More Effective Decision-Making
When he wants to make sure he fulfills his governance and fiduciary role, he asks:
• How does my decision impact the board’s legal, fiduciary and regulatory requirements?
• What are the implications for staffing, budgeting or operating plans?
• What new risks, if any, is the board introducing?
• What new resources, if any, will the decision require?
• Does the board have sufficient information to make an informed decision?
When he looks at new opportunities or considers existing situations in new ways, he asks:
• What opportunities does the board have to build on our existing programs or services in new ways?
• Whose ideas or voices should be at the table, but aren't?
• What real or perceived gaps in our programs or services do we want to fill?