Nonprofit 411: Size and Success: The Case for Capacity for NPOs

By Kim McCormick, Senior Vice President, McCormick Group

The spectrum of nonprofit organizations (NPO) in the United States ranges from $3+ billion to $250 in annual revenue. The DSC_0303pi-04Ms (1)huge disparity paired with the sheer number (1.5 million) of registered NPOs begs the question, does size matter?

SIZE

Interestingly, there are two conflicting concepts regarding size. Larger organizations have greater resources to make changes, acquire technologies and train staff, however it’s more difficult to shift system wide. Smaller organizations may shift models easily, yet lack capacity and financial resources to make impactful change. Knowing the sweet spot for your organization’s size can help you deliver your mission more effectively. Unfortunately, many NPOs are busy raising money and managing daily operations. Building capacity for greater impact is the stuff of dreams.

Capacity can be measured by in many ways; stating efficacy in relationship to size is but one. NPOs at an effective capacity level raise more money in relationship to their size than smaller organizations. Comparing average gross revenue to size, research shows that the minimum financial capacity for organizational effectiveness is between $1-5M with $10M being the beginning of the sweet spot for strategic growth.

NPOs raising less than $1-3M simply don’t have the capacity to deliver the brand, attract and train quality employees, implement major programs, deeply invest in technology or significantly impact mission. If that is the case, then how can we build capacity? There are several ways, including:

• Raise more money

• Cut staff, programs and services

• Seek collaborative agreements to broaden the footprint, gain economies of scale and reach more constituents

The focus of a collaboration solution to capacity starts with mission, not money, and is centered on ‘what we can do better together.’

SUCCESS

The first step to measuring success requires looking beyond the dashboard to multi-year trends. If a drop is noticeable or the organization is losing impact, volunteers and influence, the reason can usually be traced to capacity. Whether it’s lack of consistent funding, staff, volunteers, lack of “pick your point” there are missing elements that if present would result in positive trends. Additional factors including increased competition, the complexity of managing donors, policy shifts and environmental influences can inhibit success year after year.

Consider the impact of scale. The difference between a $1M versus a $10M organization spending 10% on branding is significant such that to achieve the desired results, the larger organization may only need to spend 7% on branding and have more funds available (in this example $300,000) to invest in strategic objectives. As scale increases, capacities increase simply because of size. There is direct evidence of entities lacking consistent financial capacity and not achieving goals due to weak brand recognition.

Donors relate to an organization on brand, but judge effectiveness on programmatic, fundraising and administration costs compared to monies raised. The larger an organization’s revenues in relationship to their expenses, the more appealing these ratios are to constituents.

Finding success through building capacity can be likened to realizing that you need something, like vegetables to sell at your market. You can either buy land, equipment and seeds, plant and tend hoping your investment pays off; or you can visit a vegetable farmer, get to know her, share resources, create a partnership and start offering high quality vegetables to your constituents quickly and inexpensively. Dream big!

Nonprofit 411: Goodbye Obamacare & Hello Trumpcare? Not so fast…

By Colleen Doherty, SPHR, SHRM-SCP, SVP, Compliance & Client Service, Eastern InsuranceColleen Doherty

From the day that the Patient Protection and Affordable Care Act (aka Obamacare, The Affordable Care Act, or the ACA) was signed into law back in 2010, its opponents have been vowing to repeal it. During the Obama administration, repeal was a moot point given that President Obama could veto any bill that attempted to dismantle his signature legislation. Under the new Trump administration, the repeal of the ACA is a primary objective of the new president as well as the Republican majority House and Senate.  However, a full repeal of the law is highly unlikely given that Senate Democrats will most likely block any attempt to fully repeal the law.

What is an ACA opponent to do?
[Read more…]

Nonprofit 411: Benchmarking: Satisfy your Board and Gain a Competitive Advantage

By Tyler Butler, BerryDunn

Benchmarking doesn’t need to be time and resource consuming. Read on for four simple steps you can take to improve efficiency and maximize resources. [Read more…]

Nonprofit 411: New Financial Reporting Standards for Nonprofits Aimed at Greater Transparency

By William B. Ford, CPA, and Linda J. Kramer, CPA, MBA
G.T. Reilly & Company

You may have heard that new financial reporting standards are coming down the pike that will affect your organization. The good news is that the new standards don’t take effect for more than a year, giving you plenty of time to familiarize your organization with any new requirements. A review of your organization’s financial reporting practices may be beneficial in preparation for the new standards.

Bill Ford-WEB

William B. Ford, CPA

Linda Kramer

Linda J. Kramer, CPA, MBA

The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) 2016-14, Presentation of Financial Statements for Not–for-Profit Entities. This ASU is the first phase of a two-phase project and is intended to make nonprofit financial reporting more transparent.

Specifically, the new standards will improve net asset classification requirements and information presented in the financial statements and notes about a nonprofit entity’s liquidity, financial performance and cash flows.

The changes are effective for organizations with fiscal years beginning after December 15, 2017, although early implementation is permitted. These amendments should be applied on a retrospective basis. The nonprofit has the option to omit certain information for any period presented before the period of required adoption.

Main provisions

  • The current presentation of three categories of net assets (unrestricted, temporarily restricted and permanently restricted) will be reduced to two categories: net assets without donor restrictions and net assets with donor restrictions.
  • The statement of activities also will reflect two classes of net assets.
  • Cash flows will continue to be presented using either the direct or indirect method with the requirement to reconcile the direct method being eliminated.
  • Enhanced disclosures will be required, including amounts and purposes, for any board-designated appropriations.
  • Enhanced disclosures will be required for composition of donor-restricted net assets at the end of the period and
    for how those restrictions affect the use of resources.
  • Disclosure will be required to communicate how the organization manages its liquid resources available to meet cash needs for general expenditures during the next year.
  • Expenses will be presented by both natural classification and functional classification. This may be done within the statement of activities, as a separate statement, or in the notes.
  • Disclosures will be required concerning the methods used to allocate costs among program and support functions.
  • Underwater endowment funds will be reported as part of net assets with donor restrictions; previously these were reported with unrestricted net assets.
  • Investment returns will be shown net of external and direct internal investment expenses with no disclosure necessary for the amount of the expenses.
  • Release of net assets with donor restrictions for long lived assets will be required when the asset is placed in service, thus eliminating the option of release over the estimated useful life of the asset.

If you have questions about whether your current practices will be in compliance with the new standards, or if you would like assistance with implementation of the new accounting rules, please contact us at 617-696-08900.

Nonprofit 411: Is a Cause Marketing Campaign Right for Your Nonprofit?

Nonprofit 411: Is a Cause Marketing Campaign Right for Your Nonprofit?

By Ellen Lubell, Attorney-at-Law, Tennant Lubell, LLC

Cause marketing campaigns – also referred to as “charitable sales promotions” and “commercial co-venturer campaigns” – are mutually beneficial collaborations between a for-profit business and a nonprofit charity to increase recognition of the nonprofit’s name and cause, and to generate goodwill for the business because of its association with the nonprofit. It may also generate revenues for the nonprofit and profits for the business.e-lubell-photo

Cause marketing has been around since the mid-1970s. For example, the “Buy One Give One” campaigns involving businesses such as Toms Shoes guarantee that social or environmental good will be done through their charitable partners each time a shopper purchases their products. General Mills and the American Heart Association (AHA) teamed up to give a “heart check” stamp of approval to products such as Cheerios to certify that these products meet certain nutritional standards, thus advancing AHA’s educational mission and promoting sales of General Mills products.

Since cause marketing is intended to have an impact on the success or failure of the nonprofits involved, state charity regulators —typically Attorney General offices—scrutinize these campaigns to assure that nonprofits’ assets are being used appropriately and are not unduly benefiting private businesses.

If you are contemplating a cause marketing campaign for your organization, questions you should ask include:

1. Is the business partner you’re considering likely to be trustworthy and aligned with your interests?

Due diligence is important. Check out your partner’s financial and legal health; investigate its management practices and reputation; find out its record on issues relevant to your mission and ensure that their practices will not prove to be embarrassing; and make certain that you are compatible.

2. Are there risks to the use of your name and logo? The primary resource a nonprofit has to offer to a campaign may be its name. Permitting use of your name may seem like a no-brainer, but consider that the excellence and goodwill it represents—which your organization has developed over time with substantial effort—is exactly what your business partner wants to associate with its brand. If your business partner thinks your name is valuable in the marketplace, so should you. Consider also that the loss of your good name can be extremely costly. If your partner’s products or services become associated with fraud or greed or carcinogens, then so may your organization.

3. Will the campaign require you to undertake activities that will divert you from your nonprofit mission? Consider whether you will need to use your resources and staff in ways that are a greater benefit to your business partner than to you.

4. Are there legal compliance requirements associated with the campaign? Massachusetts charitable solicitation laws require you and your business partner to register with the Attorney General prior to commencement of the campaign, to file a written contract setting forth the terms of the campaign, and to prepare and maintain final accountings to demonstrate compliance with regulations. Make sure your partner understands that transparency and regulators are the norm in the nonprofit world, that limits will be placed on the way it can promote its brand, and that you will need to approve promotional materials that bear your name.

Is a cause marketing campaign right for your nonprofit? Engage your organization’s Board and senior staff and make sure the campaign will advance your mission.

MNN’s Testimony Against S. 870, S. 874 & S. 875

Testimony to the Joint Committee on the Judiciary

Jim Klocke, Chief Executive Officer, Massachusetts Nonprofit Network

November 3, 2015

Thank you for the opportunity to testify today.  The Massachusetts Nonprofit Network (MNN) is a statewide association with over 750 member organizations, representing nonprofits in every region of the state.  Our members come from all subsectors of the nonprofit world, including education, health care, human services, and civic engagement.  They work in partnership with state government on many of the Commonwealth’s largest challenges related to health, education, economic development, and quality of life.

Among the bills before the Committee today, MNN recommends that S. 870, S. 874 and S. 875 not pass.  Current law provides strong transparency of, and oversight of, nonprofits’ operations.  It also defines balanced rules for tort proceedings that nonprofits are a party to.  S. 870, S. 874 and S. 875 would alter those well-established policies.

Nonprofits are granted a specific legal status in state law because they are dedicated to the common good.  Nonprofits are expressly prohibited from the private inurement of, or excess benefit transactions to, their executives and directors.  Clear mechanisms exist to monitor and hold organizations accountable to these standards—including immediate public access to extensive nonprofit financial information via the Internet.  The exceptional transparency, clearly defined process, and established monitoring and enforcement mechanisms that exists for nonprofit executive compensation suggests that further legislation is unnecessary.

In addition, the bills would make it more difficult for nonprofits to operate in Massachusetts at a time when their resources are already severely constrained.   The challenge all organizations face, of balancing costs with revenues, is especially acute for nonprofits.  Most receive revenues from a range of sources, each of which can be volatile.  Their expenses, whether related to service delivery or general operations, nearly always trend upwards.  Measures which increase nonprofits’ cost of operation can threaten that balance and reduce their ability to deliver services.

Mr. Chairmen, Committee members, on behalf of the members of the Massachusetts Nonprofit Network, I submit that S. 870, S. 874 and S. 875 are unnecessary for our large and critical sector, and I respectfully request that this committee vote against both bills.  MNN would be glad to work with the Committee on these or any other issues related to nonprofits in the months ahead.

Thank you for your time and for your consideration of our views.

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