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

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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: Amanda Sabicer

April 8, 2013

Amanda Sabicer, LASVP PartnerAmanda Sabicer is a stay-at-home mother of three who was most recently with Amgen’s Commercial Leadership Program. With her roles as an LASVP board member and Co-Lead of the Recruiting Team, Amanda has kept herself busy since joining LASVP in 2010.

Q: How were you introduced to LASVP?
Amanda: I discovered LASVP as a business school grad student at UCLA. I had to wait until I got a job after graduation before I could join.

Q: What project are you working on with LASVP? Why did you choose to get involved this way?
Amanda: As a board member, my focus switched last year from working on the strategic plan to building the membership of LASVP. I feel passionately that LASVP’s new strategic direction is the most innovative, daring and exciting in the SVP network. Then again, with such a talented group of Partners, many of whom are entrepreneurs, should we really expect anything other than a new “disruptive” approach to philanthropy? Since we are now working on executing our new vision, I am working with fellow board member, Marta Gazzera Ferro, to share the LASVP story with external audiences and recruit new Partners to join our tribe.

Q: What is your favorite part of being involved in LASVP?
Amanda: The people! As a busy mom of three kids (five years old and under), I make an effort to spend the little free time I have on activities and with people that energize me. LASVP never lets me down. In fact, even though I live in the Inland Empire now, I still drive out to the Westside for events and meetings. My husband jokes that I get an “LASVP high” after I hang out with members of LASVP. Where else in LA is there such an incredible, diverse, and intelligent group of results-oriented people who are committed to making Los Angeles a better place?

Q: What book are you reading right now?
Amanda: I just picked up Give Smart : Philanthropy that Gets Results by Thomas Tierney. I haven’t started it yet, but am looking forward to a new way of looking at philanthropy. I just finished David Brooks’ The Social Animal and found it fascinating. I thought Brooks’ section on emergent thinking (check out a quick summary) is especially relevant to LASVP’s foray into collective action.

Q: What do you look forward to on the weekends?
Amanda: I look forward to marveling at how my girls fearlessly tumble around in gymnastics class, to watching my son toddle around our backyard until he finds another dangerous object to put into his mouth, to “bouldering” in Joshua Tree with my family, and to collapsing next to husband in front of the fireplace with a glass of wine on Sunday night.

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


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.


Witness the Power of the SVP Network!

December 4, 2012

Diane and Way-Ting at SVP Conference 2012Last month, 7 Partners and staff members represented LASVP at the largest Social Venture Partners conference to date in Portland, OR. The growing SVP network now has over 2,300 Partners in 29 cities around the globe, including the most recent additions to the network Chicago and Bangalore. Over 300 people came together to stretch their thinking and share ideas. There was even a nonprofit delegation from China who was able to join and share how SVP is becoming a global movement.

With almost 20 breakout sessions to attend and hundreds of socially engaged people to meet, SVP Partners were able to make connections and learn more about the power of the network at every turn. Sessions on Innovation in Education, Collective Action, and Financing Social Impact gave an overview of what is happening across the network and the movements that SVPers want to be a part of. In the Excellence in SVP track, Executive Director Diane Helfrey and Partner Way-Ting Chen  (pictured) led a session on the LASVP Impact Framework and the Strategic Planning process to a packed room of people eager to learn from our experience!

Plenary speaker Dan Palotta, author of Uncharitable and Charity Case, provided an update on the Charity Defense Council. The Charity Defense Council seeks to be a voice for the nonprofit sector and act as an anti-defamation league. The organization has been granted 501(c)3 status, built a board, and has defined their five primary functions. SVPI board member and SVP Cincinnati Partner, Tom Callinan is aiding in the effort as well, as the chair of the Charity Defense Council’s anti-defamation committee.

Keynote speaker, Sam Kaner, author of the Facilitator’s Guide to Participatory Decision-Making, helped us think about our group interactions and how we can move toward consensus decision making. We learned about the dreaded “groan zone” that is a natural part of true consensus decision-making. The “groan zone” happens when a group finds itself with a number of ideas, opinions, and possible courses of action and must work through the diverse options in order to move toward consensus. Kaner described it as “struggle in the service of integration” and we learned that by helping one another to understand and communicate with each other, we can reach a decision.

On Changemakers Night, we heard firsthand how difficulties, setbacks, and failures lead to innovation. Matt Flannery of Kiva, Jill Vialet of Playworks, and Craig Kielburger of Free the Children all inspired us to keep moving through our own struggles as we stretch ourselves to the next level of impact and unleash our own potential. This trio of speakers gave us real-world examples of people who were lost, who failed, and who weren’t taken seriously, but found the strength to move ahead and create organizations that are making a better world, showing us all that innovation and change are possible.

If you weren’t able to make it to the conference this year, be sure to stay tuned to all of our SVP news and make plans to attend the next annual conference in Silicon Valley on October 18-19. It is a wonderful time to see the power of the SVP network in action and witness the power of coming together to create change in our communities.


Partner Q & A: Betsy Densmore

December 4, 2012

Betsy DensmoreBetsy Densmore is the President of the Academies for Social Entrepreneurship and has been an SVP Partner since 2010.

Q: How were you introduced to SVP?
Betsy:
In 2006, SVP partnered with my employer to organize monthly Leadership Forum meetings for the executives of local Charter Schools. In 2008, we also joined forces again to host the first Social Innovation Fast Pitch.  In both cases I was struck by the grace, talent and commitment of SVP members.

Q: What is your role with SVP?
Betsy: I serve on the Board as Secretary and am a team leader for this year’s Fast Pitch. Generally, I do what Diane asks me to do.

Q: What did you dream of being when you were a kid?
Betsy:
A ballerina

Q: What book are you reading right now?
Betsy: Local Dollars, Local Sense by Michael Shuman– a great book about tactics for moving money from Wall Street to Main Streets.

Q: What do you look forward to on the weekends?
Betsy:
Dates with my husband—still romancing after 33 years.

Q: If SVP could solve one problem in LA, what would you pick?
Betsy:
I think the problem we are best suited to solve is the need for an army of undauntable, thoughtful philanthropists who make “change” happen (to a world that works for everyone).

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


Partner Nelson Cheng’s Thoughts on Philanthropy

October 31, 2012

Nelson ChengBefore becoming a Partner in Los Angeles, Nelson Cheng was part of SV2 in Silicon Valley, one of the 27 Social Venture Partners member organizations in the United States, Canada, India, and Japan.

In recent years, one of my former colleagues at Google has become more involved with philanthropy — she and her boyfriend have done well financially and have wanted to become more active and engaged with nonprofits that they’re passionate about (she typically focuses on animals + the environment). She came to re-connect with me because she was reading “Philanthrocapitalism” and an organization that is featured in it, SV2 — I’m connected to. When I lived in Silicon Valley, I used to be a partner and on their board for a period of time — they did a little marketing piece on me because, at the time, I was one of the few younger partners and that’s how she ended up making the connection. There were many great benefits to SV2 but the two biggest for me was the ability to see many great nonprofits quickly (SV2 essentially acted as a high quality filtering mechanism) and connecting with many like-minded individuals who wanted to give back on a financial and potentially strategic level.

I started off doing stuff with nonprofits in high school. I used to volunteer at the local chapter of the American Cancer Society — they weren’t particularly computer savvy and so I would go in for a few hours every so often and do some very light database work. I really didn’t have any connection to ACS but I did like the idea of doing something “good”. I will say that I felt totally disconnected to the cause or even a sense that I was doing anything good — I think it’s hard to feel that way when you’re just going into an office, sitting at a computer, and then emerging a few hours later — especially when you’re 16 or so.

In college, I probably did nothing nonprofit-wise — which is weird because that’s likely one of the best times to do things. You’re just surrounded by potentially a lot of like-minded and socially active individuals. I was probably too focused on my grades and my future business career prospects (or at least worrying about them) and didn’t take advantage of a great opportunity.

However, when I was at amazon.com, a new thought occurred to me: “Nonprofits are run by passionate individuals who may or may not have business experience. Couldn’t I, as someone who has some business experience, bring that to a nonprofit and help them?” So I set about doing that — first by volunteering with a firm that basically provided free consulting help to nonprofits. It was me + an ex-Boeing exec helping a nonprofit founder / ED (Tanya) who was creating a nonprofit that did cancer therapy through knitting. We helped her write the business plan.

I also joined the board of a nonprofit in San Diego called StandUp for Kids which helps homeless children. I’ve long been drawn to causes that, for lack of a better term, give people a chance in life. Not everyone gets a chance along with the resources and opportunities — the thought of children being homeless was (and still is) mind-boggling to me. What future does a homeless child have and, of more immediate importance, how in the world can they get off the street and start building toward something?

Because I live in Los Angeles now, I’m involved with the equivalent organization, LASVP (Los Angeles Social Venture Partners), which, along with SV2, is part of the Social Venture Partners network. Their membership is comprised of individuals who have some financial capacity to support nonprofits while also wanting to engage on a more strategic level. The major difference with LASVP is they also put on an annual “Fast Pitch” competition to help nonprofit leaders think about how they market their organization. Non-profits get 2+ months of training / coaching on honing their elevator pitches which they eventually deliver in front of an audience. (I went last year and it was a spectacular event – George Lopez hosted and had special guests including Mayor Antonio Villaraigosa, Jamie Lee Curtis, and Michelle Branch. The Annenberg Foundation was one of the sponsors and the nonprofits got exposure to many potential funders.)

These experiences were broadly very instructive and still heavily define my perspective on nonprofits and philanthropy to this day. Over the years, because of various roles I’ve played, I’ve gotten to know maybe not dozens, but many nonprofits and their founders. With rare exception, they’re universally extremely passionate, driven people who want to do good.

So I guess the larger question here is, what to do if you’re a person with some means, maybe some ability + time, and some interest in doing “good” so to speak?

I like growth. I want to help great nonprofits go from small to big. I want them to have a giant footprint and help lots and lots of people. I suspect one path is in finding the right nonprofit — one that’s run by a founder / ED who believes in investment and infrastructure and growth. It’s really hard to diversify off of donations as the primary revenue stream — but one that has some cushion so the staff is not running after every donation just to keep the lights on. And frankly, probably one that has great marketing ability — orgs like Robin Hood and Tipping Point have proven this to be true.

The alternative, which is an idea that I’ve been toying with for a long time but haven’t figured out a model that I like or how exactly I’d like to fund it, is to found my own non-profit. The Social Venture Partners model is one part of the ecosystem — but I think there are more opportunities for impact when you’re running a massive fund (e.g. tens of mililions+ $).

Here’s the question I need to answer. How did great and large nonprofits of today get there? Was there some trigger beyond slow, massive growth over time? I want to figure out which ones went from helping 0 to 100,000 in 5 years and how’d they do it — and then figure out how to help more become like that.