Nonprofit Finance: It’s Not All About the 990

May 3, 2013

Board Member and LASVP Partner Amy Johnson is leading the Partner Education Team. Amy is creating opportunities for us to learn more about the nonprofit field and how we can be more strategic in our giving. This is her re-cap of our dynamic session on nonprofit finance.

Hello Fellow LASVP Partners,

SVP Partner Donella Wilson & Guest

SVP Partner Donella Wilson and a guest at the Nonprofit Finance Session

I wanted to provide an update on the wonderful Partner education session conducted a few weeks ago and share some feedback and pictures. It was a fascinating introduction to the nonprofit financial landscape. The session was led by David Greco, Vice President of the Western Region for the Nonprofit Finance Fund (NFF) and our very own SVP Partner, Donella Wilson, Partner at Green Hasson Janks.

David’s presentation was very insightful, leading to a robust discussion. A key takeaway for many was how much critical information can be gleaned from the balance sheet when analyzing nonprofit financials. One attendee said, “Having both attended and conducted hundreds of sessions, this was one of the best I have experienced.” We want to send another big thank you to David and Donella for sharing their expertise with us!

What we learned: 

  • Balance Sheet Indicators
  • Statement of Activities Indicators (i.e. Income Statement)
  • How to Read 990s
  • How to better understand Cash Management in the Nonprofit Industry

A recent blog post (Top Indicators of Nonprofit Financial Health) from NFF’s Peter Kramer summarizes NFF’s key messages and the concepts we learned from their years of experience lending to and advising nonprofits. Additionally, NFF and Guidestar have developed a data platform called Financial SCAN, which can help you compare and organization’s financial trends and performance through user-friendly dashboards and graphs. You can also use the tool to see how one organization’s financial metrics and ratios stack up against its peers. Kramer indicates that “Not all financial indicators are created equal” and offers a short list of variables to consider.

     Income Statement Indicators

  • Revenue reliability. Rather than overly focusing on the ratio of earned to contributed revenue, we suggest evaluating revenue reliability—an organization’s track record of bringing in recurring dollars, on an unrestricted operating basis, year after year. Reliable revenue doesn’t always come from the same sources providing the same amounts of money. It does, however, suggest an ability to predict a level of income with a fair amount of certainty, based on historical performance and an understanding of market dynamics.
  • Consistent surpluses. A healthy business model is one characterized by reliable revenue that covers operating expenses and contributes to surpluses—all in the service of mission. Nonprofit is a tax status, not a way of operating: Positive operating results (unrestricted revenue consistently exceeding expenses) are an indicator of strong financial management. Aiming for break-even results doesn’t allow for the breathing room necessary for when things don’t go according to plan. Nonetheless, since 2008, when NFF began measuring the percentage of nonprofits reporting a surplus for our annual State of the Sector Survey, this measure has never surpassed 40%.
  • Full cost coverage. Nonprofit leaders are encouraged to set revenue targets high enough to cover not just their direct and indirect operating expenses but also the full costs of doing business. Though these additional costs aren’t reflected in the income statement, surpluses can provide the additional dollars needed to address these demands over time. These “hidden costs” such as depreciation on fixed assets and reduction in debt principal reside on the balance sheet and must also be covered by surpluses. Ideally, surpluses should also contribute to savings, such as for a future rainy day or a strategic opportunity. Though covering the full costs of doing business every year is aspirational for most organizations, doing so ensures longer-term sustainability and vibrancy.

     Balance Sheet Indicators

  • Ability to manage debt. Debt is a critical financial tool that can help organizations manage the ebbs and flows of cash for operations, facility purchases and upgrades, and more. But as liabilities bump up against an organization’s ability to pay off those obligations, they can become a real problem. Measuring an organization’s liabilities as a percent of total assets can show how much an organization owes relative to what it owns. As this percentage creeps up near the 50% mark, it can call into question the organization’s ability to manage debt, which could jeopardize the delivery of programs and services.
  • Ability to steward facilities. If an organization owns property and equipment, it has a responsibility to maintain and replace these assets over time. We look for reserves dedicated by the board of directors to facility improvements and replacements. Absent formal reserves, are there appropriate levels of liquidity to respond to issues such as replacing the hot water heater or complying with ADA regulations? Additionally, accumulated depreciation can be a helpful accounting proxy for evaluating the remaining “usable” life of these fixed assets, but keep in mind that the accounting value of an asset doesn’t reflect its market value. An engineer can help identify the true future costs of fixed asset repairs and replacements.
  • Appropriate liquidity. There are a number of ways to measure liquidity, the resources available to absorb risk and respond to new opportunities. NFF often measures liquidity in terms of the months of expenses that can be covered with available unrestricted cash (or access to it). This year’s State of the Sector Survey results indicated that 56% of respondents expected to have three months of cash or fewer in 2013. As a general guideline, fewer than three months of cash is often perilously tight for nonprofits, though the “right” amount of liquidity depends on several elements, including an organization’s strategic priorities, funding volatility, facility needs, and the general economic environment.

It was great to mix and mingle with so many people who want to make the most of their giving and volunteering. We hope to see all of you at the next event and will continue to try to create sessions that are engaging, fun, and educational.

Nonprofit Finance Session

Guests at the Nonprofit Finance Session

Advertisements

SVP & Dan Pallotta: We’re About Strategic Giving

May 3, 2013

At last year’s SVP Conference in Portland, SVP Partners were treated to a very informative and inspiring plenary session with Dan Pallotta, author of Uncharitable and Charity Case. Pallotta, who pioneered the multi-day charity event (think Breast Cancer 3-day Walks or AIDS Rides), contends that the way most people think about philanthropic giving is wrong.

At the SVP Conference and in his recent TED Talk, Pallotta challenges the idea of “equating frugality with morality” and says that rather than demanding unreasonably low overhead, we should reward nonprofit leaders and organizations for their accomplishments and help them find ways to grow, expand, and improve on successful programs. And yes, that includes spending money on advertising.

As an advocate for the nonprofit sector, Pallotta has spearheaded the creation of the Charity Defense Council. The Charity Defense Council seeks to be a voice for the nonprofit sector and act as an anti-defamation league. They have defined their five primary functions and are working to find ways to honor the work of accomplished nonprofit professionals and to show the true importance of the sector in the fabric of the American economy.

SVPI board member and SVP Cincinnati Partner, Tom Callinan is aiding in this effort to change minds through his position as the chair of the Charity Defense Council’s anti-defamation committee. In a recent article on Cincinnati.com, Tom points out that “There are 1.2 million nonprofits in the U.S. – and ‘yet the biggest of the watchdog agencies only looks at 7,000 charities.’ All they do is share tax information with you and maybe tell you a little about whether the charity has an adequate board of directors. None of the watchdogs – not Charity Navigator, not the Better Business Bureau, not Charity Watch – does any real research on the effectiveness of a charity’s programs.

But the overhead obsession dominates the public’s view of charities. ‘The public wants every gala dinner and walkathon to send 100 percent of its money back to the cause,’ Pallotta says. ‘But what people don’t realize is that low overhead is not a path to ending world hunger or curing cancer.’”

In his article, Tom Callinan reflects on his direct experience with some of the barriers that nonprofits encounter as he works to get a new nonprofit off the ground. New nonprofits face many of the same challenges as startup business, but rarely have the same opportunities to gain contacts, seek talent, or spread the word about their work. As we think about the level of success we would like to see nonprofits reach, we must also consider how the way we give can help organizations to build out their work and find a ways to have a greater impact on the community.

SVP Partners who attended the network conference last year were very fortunate to hear Dan Pallotta give this rousing talk. If you’d also like to get in on the great opportunities that the power of the network creates, save the date for the 2013 SVP Conference: October 17-19 in Palo Alto.


Partner Q & A: Keith Kegley

January 8, 2013

Keith Kegley, SVP PartnerKeith Kegley is a technology entrepreneur and philanthropist. He joined Social Venture Partners in Seattle in 1997 and has been an active partner in Los Angeles since 2006.

Q: How were you introduced to LASVP?

Keith: I heard about it soon after Paul Brainerd and Scott Oki came up with the idea of it in 1997 and joined as soon as I met Paul Shoemaker.

Q: Why did you decide to get involved and what have your roles been with SVP over time?

Keith: I was inspired by the core mission to train and develop savvy philanthropists and felt a deep connection with that agenda, so I began as the first partner education lead. A group of us designed the early philanthropy curriculum in Seattle.  We recruited a roster of notable experts and innovative philanthropists to lead a series of workshops and programs and were offering about 40 courses a year. I led the partner orientation workshops for the first 8 years and have co-led a series of those here in Los Angeles as well.  I’ve served as a lead partner for 2 investees and as a board member in Los Angeles and actively contribute in various ways to SVPI.

Q: What is your favorite part of being involved in LASVP?

Keith: Learning about the sector, working with social entrepreneurs and investees, collaborating with partners, and teaching partners how to upgrade their philanthropic confidence and savvy.

Q: What is the most memorable experience that you’ve had so far with LASVP?

Keith: Working with Healthy Child Healthy World as a lead partner, feeling confident in our ability to help them and be a resourceful change agent in their transformation as an organization.

Q: What did you dream of when you were a kid?

Keith: I read lots of science fiction, spy novels or political thrillers, so mostly I imagined how the future would be very different and how exciting that was going to be. I got a glimpse of the accelerating pace of technology, won a national invention competition and earned my first patent when I was 15. To me, the future was going to be full of socially transformative inventions and institutions.

Q: What do you look forward to on the weekends?

Keith: Time at home with my wife Ali.

Q: What social issue are you most passionate about?

Keith: I began as a true Earth First tree hugger after hiking through clear-cuts the north cascades, then evolved to realize the environment was an economic justice issue and have progressed to realize that as human beings move into the middle class they care more about the quality of the air, the water, the food and the health of their communities. I believe that for the planet to support a multi-billion person, modern, global society we need as many people in that middle class as we can manage because that’s what stabilizes populations, shifts resources to address those issues, and generates the demand for policies that take care of those concerns.

You can read more about our Partners here on our website.


Congratulations LA Business Journal Nonprofit and Corporate Citizenship Award Winners

August 29, 2012

Ezequiel Olvera, Gumball FoundationWe were proud to see some familiar names pop up in the Los Angeles Business Journal in June. At their annual Nonprofit and Corporate Citizenship Awards, the Journal honored two of LASVP’s Fast Pitch alumni and one of our past Investees. We were excited to see them honored, but not surprised. Over the years, we’ve come to expect it—the fantastic organizations we have the privilege of working with go on to climb greater heights.

The Organization of the Year award went to Chrysalis, an innovative and impactful organization fighting homelessness. Mark Loranger, who presented on behalf of Chrysalis at our first Fast Pitch event in 2008, was also a coach at the 2011 Fast Pitch program, mentoring finalist Cardborigami. Chrysalis impressed the LA Business Journal with their success in creating pathways to self-sufficiency for homeless and low-income people. According to the Journal, “In 2010 alone, Chrysalis Enterprises created over 218,000 hours of employment and generated 2.5 million in wages,” and despite a difficult job market, saw a 15% rise in employment among their clients in 2011.

The award for Outstanding Nonprofit Team went to former LASVP Investee organization TreePeople. The environmental organization’s leadership model “has created a true team approach and a culture focused on ensuring TreePeople’s ongoing success.” Congratulations to all the hard-working staff there, who continue to be dedicated to growing a sustainable future for Los Angeles.

The Social Enterprise Award went to Gumball Foundation, the organization selected as the Audience Favorite at the 2011 Fast Pitch. Their model encourages academic success and increases college access while teaching students valuable entrepreneurial skills—a triple threat that has also been making a splash in the media. Gumball Foundation has recently been featured on NBC and Telemundo, and interest in the young organization continues to grow. Ezequiel Olvera, the founder of the organization, says that his Fast Pitch training has come in handy—most recently when he addressed the audience of 500 at the Journal’s award ceremony at the Millennium Biltmore Hotel.

Congratulations to all of the Nonprofit and Corporate Citizenship Awards Honorees! We know that they will continue to achieve bigger and better things, and most importantly, keep making positive change in our communities.

Want an early peek at the nonprofits who have the potential to become the “next big thing?” Don’t miss our 5th Annual Social Innovation Fast Pitch on October 24th.


Save Water. Use California Native Plants.

July 3, 2012

Patrick LarkinPatrick Larkin is the Executive Director of Rancho Santa Ana Botanic Garden and represented the organization at the 2011 Social Innovation Fast Pitch. Click here to watch Patrick’s pitch.

After Occupy LA protestors were removed from the premises last year, the landscape at Los Angeles City Hall was quite altered—the grass was dead in large patches and parts of the landscape had been uprooted.  The city knew they needed to start from scratch, but instead of doing the same old thing, they decided to look into installing a landscape that would conserve water, one of L.A.’s most precious resources.

That’s where Rancho Santa Ana Botanic Garden came in.  The 2011 Social Innovation Fast Pitch finalist organization offers a diverse set of programs, from educational tours for elementary school classes to employment programs for military veterans readjusting to civilian life.  But as a garden specializing in California native plants, water conservation is something they spend a lot of time thinking about.  “Native plants use 2/3 less water,” says Executive Director Patrick Larkin.

Ellen Sloan, an LASVP Partner and one of Patrick’s Fast Pitch coaches, heard about the opportunity at City Hall and helped connect Patrick with people she knew at the city.  With the help of these connections, Rancho Santa Ana Botanic Gardens became involved as advisors for the City Hall landscape work.  “By integrating native plants into your yard, you save water and money,” says Patrick.  The current options being proposed for City Hall all include integrating native plants, the frontrunner being to incorporate more drought-tolerant and California native plants into the north and south lawns while maintaining a smaller grass lawn for public events.  (You can voice your support for a water-conserving landscape here.)

If you want to help your favorite nonprofit start making connections that will help them put their mission into action, encourage them to apply to this year’s Fast Pitch! Applications will be accepted until July 16.  “The Fast Pitch was great,” says Patrick.  “It helped us make connections in the community…and challenged me in ways I hadn’t been challenged before.”

Click here to see what Rancho Santa Ana Botanic Garden has in store for summer. Click here to learn more about applying to the Social Innovation Fast Pitch.


Judge, Funder, Advocate for the Social Sector

June 19, 2012

Nike IrvineNike Irvin, Vice President of Programs at California Community Foundation, summed up her experience volunteering as a judge at the 2011 Social Innovation Fast Pitch event in one word: phenomenal.

“I had never attended before, but I knew about the program from friends who had participated…I knew it would be special, but I could not have imagined what a spectacular event it would be for the social sector in L.A.”  Nike pointed out that people who work in nonprofit organizations are rarely afforded a chance in the limelight, and that the Fast Pitch offers a golden opportunity for social entrepreneurs and the causes they work for to take center stage.  “In a town that has an awards show for everything,” jokes Nike, “Why not have a high-profile event for the people who are filling the gap in the social sector?”

Nike said that it was a privilege to be asked to be a judge, and to work with fellow judges Warren Olney, Eileen Heisman, and Jake Winebaum.  But she also sees the program from another perspective—as a funder. California Community Foundation has been a consistent funder of LASVP’s Social Innovation Fast Pitch, helping to launch the program and benefiting the community tremendously.  According to Nike, the Fast Pitch is a good investment because it’s a great opportunity for both nonprofits and grantmakers.  “As a funder of capacity building, CCF wants organizations to be able to tell their story effectively. It’s so powerful…You should have your “elevator pitch” perfected; you never know when you’ll need it.”  She also thinks the Fast Pitch is a great place for funders—from major foundations to individuals—to learn about some outstanding organizations.


Doing Good Better: Storytelling with Andy Goodman

June 14, 2012

Andy GoodmanAndy Goodman is a nationally recognized author, speaker, and consultant in the field of public interest communications. In 2008, Andy co-founded The Goodman Center, an online school dedicated to “helping do-gooders learn to do better.”

Andy Goodman has played an integral part in the Social Innovation Fast Pitch program over the years.  In his own words, he provides the “pre-session training” that lays the foundation for the participants to create and refine their pitches in cooperation with personal coaches.  Andy helps the participants understand what makes a good pitch, and what kind of storytelling has the power to stick in people’s minds.

“The Fast Pitch is a good fit for me,” says Andy, whose business, a goodman, helps good causes communicate more effectively.  “One aspect of doing that is helping people tell their story more concisely.”  The longer Andy stayed involved with the Fast Pitch, the more he liked the motivation to give back he saw.  “It’s a win/win/win,” he says. “It’s great for nonprofits, who become better communicators.  No matter who wins in the competition, all of the participants emerge with a new skill.  It’s good for the funding community that attends the event, because they get to learn about these exciting organizations.  And it’s good for the community at large, who are interested in new solutions and who leave the event feeling energized by the good work that’s being done.”

Last year, in addition to leading the pre-session workshop, Andy also served as the moderated the Fast Pitch portion of the event at Club Nokia.  “It was an amazing experience,” he says.  “The group of finalists was the best that LASVP has assembled…each year the selection gets better and better.”