1. Nonprofit Finance Fund
Using Finance to Improve Institutional
Sustainability
Presented by
Gar Kelley,
Vice President
AEO Annual National Microenterprise Conference
Washington, DC
May 3, 2011
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund ®

2. Goals for This Session
Equip you to incorporate your organization’s
business dynamics and financial condition in
planning and decision making for programmatic
success
Provide you with financial tools & strategies to
manage in a changed and changing environment
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 1

3. Nonprofit Finance Fund:
Where Money Meets Mission
Served thousands of nonprofits and funders since
1980
CAPITAL ACCESS
 Alone and through strategic partnerships: Debt, PRI
management, New Market Tax Credits, “Philanthropic
Equity,” Catalyst Funds
 $280 million in loans; $100 million in New Market Tax
Credit deals; over $1 billion in capital leveraged ―[NFF is]…
arguably the
most influential
CONSULTING voice in the
ongoing effort to
 Over 1,000 consulting engagements and workshops reshape thinking
in past 5 years and practice
about nonprofit
 Financial advisors and educators
capitalization.‖
 Collaboration/Merger specialists –The Nonprofit Times
All sub-sectors served: $300,000 to $50 million
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 2

4. The NFF Triangle
Mission and Program
What you do, and how
you do it.
Capacity Capital
The people, space, and What resources and
processes that allow you assets you to have to
to do what you do. work with.
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 3

5. The NFF Triangle
Establishing and maintaining a balance among
the three components is essential to long-term
health and viability.
Mission and Program
Mission and Program
Mission and Program
Mission and Program
Mission and Program
Mission and Program
Mission and Program
Capacity
Capacity
Capacity
Capacity
Capacity
Capacity Capital
Capacity Capital
Capital
Capital
Capital
Capital
Capital
Capital
Capital
Capital
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 4

6. Agenda
Some Perspective
 Nonprofits in Recession
 Considerations for Sustainability
Capitalization Tools and Strategies
 Assessing your Nonprofit‟s Current Financial Situation
 Planning a Strategic Response That Encourages Stabilization
and Sustainability
Concluding Thoughts
 Communicating your Financial Story and Resource Needs
 Overcoming the Knowing-Doing Gap
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund ® 5

7. How Did This Recession Compare?
Steeper and deeper than the past 3 recessions
Source: Board of Governors of the Federal Reserve System, 2009 research.stlouisfed.org
Note: Shaded areas indicate US recessions.
Index: 2002 = 100
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8. More Nonprofits Experience Deficits
During and After Recession
Percentage of Nonprofits Reporting Deficits
(Post-Depreciation)
50%
44%
45%
41%
40%
40% 38% 38%
35% 33%
31%
30%
25%
20%
15%
10%
5%
0%
FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005
Recession Recovery Lag
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9. NFF 2009, 2010, & 2011 Surveys
Nationwide survey of nonprofit managers
 To assess the real-time financial challenges
 To surface the most critical areas of need
 both for the immediate and longer-term
 durability and effectiveness of the sector
Over 1,900 nonprofit leaders responded in 2011
Results suggest US nonprofit sector continues to experience:
 Downward pressure on both government and philanthropic funding
 Cash and liquidity constraints for an indefinite period
 60% of respondents had 90 days or less of cash available
 Financial Vulnerability
 44% of 2011 survey respondents ended 2010 with a surplus,
versus 35% in 2009 and 40% in 2008.
 Only 25% of 2011 survey respondents added reserve funds in
2010.
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10. What Are the Trends Among These
Lifeline Organizations?
“Lifeline” organizations that provide critical services to
people in need are finding it hard to meet the demands in
their communities:
 87% saw an increase in demand for services in 2010,
compared with 68% of non-lifeline organizations.
 60% of lifeline organizations increased the number of
clients served in 2010, yet only 43% were able to full
meet the demand for services.
 Just 37% of lifeline organizations expect be able to fully
meet demand in 2011.
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11. Summary of National Survey Findings
Nonprofits face ongoing increases in service demand, while
the financial situation for many continues to be difficult.
Nonprofits are responding to this „new normal‟ with creativity
and resilience, even finding ways to increase services in the
face of funding uncertainty.
While some nonprofits are adapting to changed circumstances
in healthy ways, such as strategic collaborations and careful
expense management, others are entering into situations that
threaten their survival, such as substantial layoffs or deficits.
Now more than ever, nonprofits need open dialogue with
internal and external stakeholders, and support for the overall
organization and core programs.
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 10

12. Agenda
Some Perspective
 Nonprofits in Recession
 Considerations for Sustainability
Capitalization Tools and Strategies
 Assessing your Nonprofit‟s Current Financial Situation
 Planning a Strategic Response That Encourages Stabilization
and Sustainability
Concluding Thoughts
 Communicating your Financial Story and Resource Needs
 Overcoming the Knowing-Doing Gap
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund ® 11

13. Focus, Focus, Focus
Revisit your mission and define your priorities:
 Which activities are core to your mission?
 Are they positive financial contributors or do they need
subsidy from other programs?
 What is non-negotiable in your budget?
Once you define what is core to your mission then
define programs as:
 What we MUST do
 What we SHOULD do
 What we WANT to do
Make Mission-Driven Decisions:
The goal is to ensure you stay afloat to serve the community.
This may mean partnering with other complimentary
organizations or making tough business decisions
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 12

14. Questions to Consider Around
Sustainability
What businesses are you in?
What do you sell in each business?
Who buys ―it‖?
What does ―it‖ cost? How do you price ―it‖?
Is there a ―Model of Sustainability‖ for our organization?
How does our Model of Sustainability change if our
circumstances and/or environment change?
How do our enterprise/balance sheet needs impact and
influence our Model of Sustainability?
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 13

15. Need vs. Demand
Who decides if there is a need for your programming?
How do we know if there is demand for your
programming?
 Who are your local competitors and how does that affect
demand?
 Why are you best suited to offer your programming in your
market?
Demand = combination of reliable sources willing
to pay full-cost price annually
Demand
Sustainability
Need
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 14

16. Agenda
Some Perspective
 Nonprofits in Recession
 Considerations for Sustainability
Capitalization Tools and Strategies
 Assessing your Nonprofit‟s Current Financial Situation
 Planning a Strategic Response That Encourages Stabilization
and Sustainability
Concluding Thoughts
 Communicating your Financial Story and Resource Needs
 Overcoming the Knowing-Doing Gap
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund ® 15

17. Determining Your Risk Tolerance:
Focus on the Balance Sheet
Statement of
Financial Position
Assets Liabilities
Statement
of Cash Cash Statement
Flows of Activities
Net Revenue
minus
Assets
Expense =
Surplus /
Surplus /
Deficit Deficit
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18. Assess Risk:
Understanding Current Position
Assess your exposure and risk
 Understand your income statement
– How might your revenue and expense
components be affected?
– How will operating performance impact the
organization?
 Understand the strength of your balance sheet
– Are you operating now from a position of
strength or weakness?
– Can you afford a deficit and, if so, how large
and for how long?
– What is your risk tolerance?
The urgency and type of action leadership should take
depends on your organization’s current financial
position.
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 17

19. Assess Risk:
Know your Income Statement
Revenue Dynamics
 Where does the organization‟s money come from?
 Is it reasonably diversified or at risk?
 Do revenue streams appear reliable / consistent?
Cost Dynamics
 What does the organization spend on operating activities?
 Are expenses adjusted in line with revenue changes?
 Note: Statement of Activities will not present expenditures
on capital items or debt principal repayments.
Profitability and Savings
 Does the organization cover its costs?
 Are surpluses sufficient to meet balance sheet obligations?
 Is the agency saving? If so, is it enough?
*Conversation with leadership will offer greater clarity than financials alone.
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 18

20. Generate Surpluses to Cover the
Full Cost of Business
Total Cost of All Business Activity
($ in thousands)
2,800
2,400
2,000
Reserve, one month
expenses
1,600
Depreciation expense
1,200
Purchases of property
& equipment (P&E)
800 Estimated debt
principal payment
400 Expenses (before
depreciation)
0 Revenue (including
non-operating)
2010B
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21. Assess Risk:
Know your Balance Sheet
First things first: Know where you stand
Assets Cash – How much? How “liquid?” Balance Sheet
Receivables – Are they slow to collect? Are
any at risk for collection? Liabilities
Fixed Assets – How do you address Assets
maintenance issues? Net
Assets
Liabilities Line of Credit – How do you manage cash
flow? Are you using debt appropriately?
Net Assets Unrestricted Net Assets – Do you own more
& than you owe?
Reserves Temporarily Restricted Net Assets – Do
they fully support your core programs?
Reserves – Do you have them? Are they
suitable to your needs? Agreement on use?
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22. EXAMINE NET ASSET COMPOSITION
Temporarily Unrestricted Earned Permanently
Restricted Contributions Revenue Restricted
Contributions Contributions
Temporarily Permanently
Restricted Restricted
Net Assets Net Assets
Net Assets Investment
Released Income
Ice: Receivables Water Bottle:
Board Designated Reserve
Water: Unrestricted Cash
Rocks: PP & E
Operating and
Non-operating Expenses
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23. Measuring Liquidity
Total Cash
Months of
Cash =
(Total Expenses / 12)
Unrestricted Net Assets –
Months of (PPE – PPE Debt)
Liquid
Net Assets =
(Total Expenses / 12)
Working Current Assets – Current
Capital = Liabilities
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24. Assess Risk:
Months of Cash- Rule of Thumb
What is the right amount of liquidity? In good and
bad economic environments?
Months of Expenses
Covered by Cash Operating Situation
0 Crisis – Scrambling for cash, delaying payment to
vendors, overdrawing checking account.
Less than 3 months Cash is tight – Relying on line of credit, delaying
payment to vendors.
3-6 months Room to breathe – Can do some long-term
thinking. Little room for “rainy days.”
6+ months Handles risk – Able to withstand increasingly
acute shocks such as large facility repairs, funding
cuts and possibly recessions.
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 23

25. Types of Board-Designated Reserves:
Tools for Supporting Organizations
Rainy Day (Emergency) Reserve
 For the unexpected and unbudgeted (i.e. to replace lost
income)
Cash Reserve for Operations
 Internal line of credit to bridge funding delays
 NOT to replace lost income or cover ordinary expenses
Facility Reserve
 Building maintenance, systems replacements, etc.
Investment Reserve
 A “self-governed” endowment with board authority to use
the principal for other purposes if necessary
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 24

26. Agenda
Some Perspective
 Nonprofits in Recession
 Considerations for Sustainability
Capitalization Tools and Strategies
 Assessing your Nonprofit‟s Current Financial Situation
 Planning a Strategic Response That Encourages Stabilization
and Sustainability
Concluding Thoughts
 Communicating your Financial Story and Resource Needs
 Overcoming the Knowing-Doing Gap
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund ® 25

27. A Planning Continuum
Financial & Organizational Assessment
Explore strategic
partnerships,
collaborations,
mergers
Scenario Cash Flow
Testing Planning
Debt
Consulting
and
Access
to Capital
Program
Profitability
Analysis
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 26

28. Cash Flow Management Best
Practices
Estimate how much cash to keep on hand and, if
appropriate, how much short-term debt and/or
reserves you will need to access during low cash
months
Distinguish between ―cash flow‖ issues (timing of
receipts) and ―cash‖ issues (shortage of cash
overall)
Cash flow planning is an iterative process, requiring
constant monitoring and adjustment
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29. Address Risk:
Cash Flow Management
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual
Beginning Total Cash 0 0 - - - - - - - - - -
Unrestricted Operating Cash on
Hand [Beginning of month] 0 0 - - - - - - - - - -
Operating Cash
Unrestricted Operating Cash Receipts
Earned Income 0 0 0 0 0 0 0 0 0 0 0 0
Unrest. Contributions 1 0 0 0 0 0 0 0 0 0 0 0 0
Restricted Cash Releases - - - - - - - - - - - -
Total Op. Cash Receipts - - - - - - - - - - - -
Operating Cash Spent
Personnel 0 0 0 0 0 0 0 0 0 0 0 0
Professional Fees 0 0 0 0 0 0 0 0 0 0 0 0
Occupancy 0 0 0 0 0 0 0 0 0 0 0 0
Interest on debt 0 0 0 0 0 0 0 0 0 0 0 0
Other 1 0 0 0 0 0 0 0 0 0 0 0 0
Total Op. Cash Spent - - - - - - - - - - - -
Net Cash from Operations - - - - - - - - - - - -
Non-Operating Cash
Non-Operating Cash In
Draw on LOC/ Long Term Debt Receipt 0 0 0 0 0 0 0 0 0 0 0 0
Capital Campaign Contributions 0 0 0 0 0 0 0 0 0 0 0 0
Other Non-Op. Cash In 0 0 0 0 0 0 0 0 0 0 0 0
Non-Operating Cash Out
Principal Payment on LOC 0 0 0 0 0 0 0 0 0 0 0 0
Principal Payment on LTD 0 0 0 0 0 0 0 0 0 0 0 0
Other Non-Op. Cash Out 0 0 0 0 0 0 0 0 0 0 0 0
Net Non-Op. Cash - - - - - - - - - - - -
Temporarily Restricted Cash
Temp. Rest. Cash In 0 0 0 0 0 0 0 0 0 0 0 0
Temp. Rest. Cash Released 0 0 0 0 0 0 0 0 0 0 0 0
Net Temp. Restricted Cash - - - - - - - - - - - -
Ending Cash - - - - - - - - - - - -
Monthly Operating Cash Flow
Projection vs Monthly Actual: 0 - 0 - 0 - 0 - 0 - 0 -
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 28

30. Building Your Cash Flow Projections:
Tips and Techniques
Be disciplined and conservative, but not too
conservative – an unrealistic cash flow projection is
useless
Revisions to your projections will be necessary. Each
month, check for anomalies and subject them to further
review
Look for trends in the end of the month cash balances:
 How do projections stack up against actual cash balances?
 Which months end with positive/negative cash levels?
 What are the patterns?
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31. Quantifying the Challenge:
Debt and Access To Capital
Lines of Credit
 Can help address periodic or recurring CASH FLOW
issues
 Provide a bridge for timing gaps between fund
expenditure and receipt of offsetting revenue
By securing a line of credit, particularly when you
need it least, you build your banking relationship and
credit history
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 30

32. Quantifying the Challenge:
Debt and Access To Capital
Conversations with your banker must be ongoing, deep,
and fully transparent. Be prepared to share:
 Short- and long- term plans for the organization
 A management team that has the ability to lead through
changing economic and funding environment
 Evidence of reporting and processes in place to measure
progress against budget and ability to course correct
 Funding commitments / contracts for next 12 months (at
minimum)
 Multiple scenarios for potential reductions or loss in funding
 Track record of support from community and funders
 Engaged board of directors
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33. Using Program Profitability Analysis
to Assess Risk
Assessing underlying program economics informs
strategic decisions about:
 Whether and how to cut costs
 Where to focus fundraising efforts
 Whether to sustain, grow or cut/change programs
 How to respond to operating changes
 How to allocate resources among competing priorities
Nonprofits often make decisions to maintain deficit
programs critical to their mission
The key is to understand the size of, and identify the
source for the subsidy needed to cover, these deficits
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 32

34. Program Profitability Analysis:
A Visual Tool
High $ contribution High $ contribution
Low mission alignment High mission alignment
+$  Assess threat of „drift‟  What can we cultivate and
 Opportunity to align with preserve?
core programs?  Are there opportunities for
Contribution
 Non-financial costs? growth?
Money
Margin
Low $ contribution Low $ contribution
Low mission alignment High mission alignment
 Relevance to the  Potential to cut costs?
-$ organization?  Can the revenue model
 Legacy? One-off? change?
 Opportunities for strategic  Does subsidy exist elsewhere
realignment? in the organization?
Low Impact High Impact
Mission
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35. NFF’s Program Profitability Model
NFF’s Program profitability model helps frame many
key decisions in a way that nonprofit managers can
easily understand and act on
It removes complex cost allocations:
 Total cost allocations are often critical for funder
reports and pricing analyses
 However, they are not always best suited for devising
financial strategy and making operating decisions
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 34

36. PPM Methodology
Step 1: Use most recent annual financial information
 Using current budget or latest projection for current fiscal
year is critical to improving decision making
 Focus on operating revenue available for the fiscal year.
Capital revenue and expenses are not considered in the
model (e.g., the cost of a new building)
Step 2: Identify items that are directly tied to programs
 If the program goes away, does the revenue (or expense)
go away? Eg., After School Teacher may leave if after
school program goes away, but Director of Programs would
likely stay (at the same salary)
 The PPM thus reveals a specific program-based “bottom-
line” surplus or deficit
All supporting expenses (management, occupancy,
fundraising, admin., etc.) are examined separately.
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 35

37. PPM Methodology
Step 2, continued:
Note that PPM is both art and science
Eg., A foundation may give program restricted funding, but if
the nonprofit ended the program, the foundation may fund
another program of the organization because they hold the
nonprofit in high regard and trust management‟s decisions.
Given the funder‟s flexibility in this case, the grant would be
considered “capacity,” rather than “program”
Given cases such as these, a good PPM would draw on the
knowledge of the CFO, CEO, and other key managers
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 36

38. Tips for Using the PPM as a
Management Tool
This is not a one-time analysis, it is meant to get better
over time as staff and board use it
 Real power of the model comes over time, when it is fully
integrated into planning. Stakeholders will have strong
foundation to make financial decisions
This analysis is for internal use only
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 37

39. Program Economics:
Methodology
Step 3: Calculate contribution margins
Program 1 Program 2 Program 3
Revenue: $500,000 Revenue: $400,000 Revenue: $100,000
(-) Dir Exp: $200,000 (-) Dir Exp: $1,200,000 (-) Dir Exp: $600,000
Contribution Margin: Contribution Margin: Contribution Margin:
$300,000 ($800,000) ($500,000)
Program Totals
Direct Revenue: $1,000,000
(-) Direct Expense: $2,000,000
= Total Direct Contribution Margin: ($1,000,000)
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 38

40. Sample Program Profitability Model
Programs Capacity
After Youth Senior Program Special Program Capacity
School Program Literacy Services Subtotal Fundraising Events Mgmt Admin. Subtotal Total
Revenue
(A) Earned
Government contracts $457 $110 $800 $1,367 $0 $1,367
Ticket Sales $0 $0 $0
Client Fees $156 $100 $256 $0 $256
Subtotal $613 $110 $0 $900 $1,623 $0 $0 $0 $0 $0 $1,623
(B) Contributed
Foundations & Corporations $113 $120 $233 $10 $10 $243
Government $27 $27 $80 $80 $107
Individuals $85 $85 $704 $242 $946 $1,031
Trustees $12 $12 $152 $185 $337 $349
Subtotal $237 $0 $120 $0 $357 $946 $427 $0 $0 $1,373 $1,730
Total Revenue $850 $110 $120 $900 $1,980 $946 $427 $0 $0 $1,373 $3,353
Expenses
Salary & Benefits ($441) ($80) ($525) ($1,046) ($188) ($85) ($475) ($748) ($1,794)
Consultants & Contractors ($239) ($100) ($172) ($511) ($20) ($175) ($195) ($706)
Professional Fees $0 ($48) ($85) ($13) ($146) ($146)
Occupancy ($112) ($259) ($371) ($62) ($46) ($108) ($479)
Office & Supplies ($3) ($12) ($5) ($20) $0 ($20)
Program ($85) ($8) ($10) ($103) $0 ($103)
Interest $0 ($20) ($20) ($20)
Miscellaneous ($15) ($29) ($44) ($44) ($15) ($102) ($161) ($205)
Total Expenses ($894) ($100) ($100) ($1,000) ($2,094) ($300) ($337) ($85) ($656) ($1,378) ($3,472)
Surplus/Deficit ($45) $10 $20 ($100) ($115) $646 $90 ($85) ($656) ($5) ($120)
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 39

41. Scenario Testing
By building a financial model using alternate case
scenarios, you can project a range of outcomes to inform
decisions
 Scenario testing provides a means to explicitly and transparently
communicate in financial terms the viability of plans for the future
Determine how and under what circumstances you will
mid-course correct
 Consider which expenses you can reduce, eliminate or postpone
 Evaluate how cuts will impact delivery of mission and economic
viability
 Consider ways to increase revenue, if once reliable sources seem
questionable.
 Ensure new revenue opportunities are “net” positive
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42. Planning Your Response:
Scenario Testing
Determine the triggers that lead to Plan B, Plan C, etc.
 For example: if X% of revenue doesn‟t arrive by Y, we will cut Z%
of expenses
Plan for a worst-case scenario
 Easier to add back later than to be forced to take drastic action
without a thoughtful plan
Plan for the impacts of scenarios on programming
 What is the impact on specific program metrics (i.e., clients served,
number of housing units produced or managed, schools and youth
served, etc.)
Can be as complex or as simple as needed:
 What would we do differently if budgeted revenue dropped 10%?
20%? 30%?
 What is the likelihood of receipt for each revenue source within each
program? What adjustments will we make within these programs
and to our supporting capacity?
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43. How Will Scenarios Impact Your
Organization’s Long Term Health?
How do the scenarios impact the organization’s ability
to withstand risk?
 How will earned revenue or philanthropic dollars raised
change? Will overhead/capacity costs change?
 Which scenarios produce deficits? Surpluses?
 Will deficits deplete cash and liquidity or result in larger
debt obligations?
 Will surpluses be converted to cash savings or invested in
fixed infrastructure?
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44. Concluding Thoughts
―Programs‖ are not necessarily synonymous with
―Lines of Business‖
 Determine lines of business by assessing what it is you
are selling in terms of services, who the buyers of those
services are, and how much those services are costing
you and your buyers
 Once you establish clearly defined lines of business,
you will gain visibility into the sustainability of program
and enterprise level plans
Use scenario planning to adjust strategy and respond to
potential shifts in your internal or external
environment; revenue and expense contingencies can:
 Help mitigate the effects of a dire situation
 Completely neutralize the effects of a negative
occurrence
 Identify opportunities to improve the organization‟s
bottom line going forward
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 43

45. Agenda
Some Perspective
 Nonprofits in Recession
 Considerations for Sustainability
Capitalization Tools and Strategies
 Assessing your Nonprofit‟s Current Financial Situation
 Planning a Strategic Response That Encourages Stabilization
and Sustainability
Concluding Thoughts
 Communicating your Financial Story and Resource Needs
 Overcoming the Knowing-Doing Gap
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund ® 44

46. Communicate Early and Often
Engage staff in conversations about options. Valuable
source of creative ideas and solutions
Bring alternatives to the Board for decision making.
Remember: Board has a fiduciary duty to safeguard the
organization‟s assets
Stay in front of donors—don’t pull back. Be candid
about the continued impact of the economic climate on
your programs and organization
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 45

47. Knowing-Doing Gap: Where are You?
Information Gap: Do you develop transparent, accurate
and timely financial planning and management reports that
give you the information you need?
Interpretation Gap: Do management and board collectively
have the ability to understand, interpret and discuss the
implications of financial information?
Decision-making Gap: Do you have a culture of making and
following through on tough decisions?
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 46

48. Minimizing the Information Gap:
Developing a Financial Toolkit
Do your financial planning and management tools
provide the information you need?
 Year-to-date actuals vs. budget
 Balance sheet
 Monthly cash flow
 Revenue and expense by program
Who is involved in preparing the reports?
How frequently?
Who receives them?
When and how does the Board get involved?
Tools are only as good as the assumptions behind them.
Be prepared to work with and adapt to imperfect
information
nonprofitfinancefund.org ©2011 Nonprofit Finance Fund® 47

49. Concluding Thoughts
Good financial decision-making requires timely,
accurate and transparent financial information
Use financial planning tools to guide decision making
but bear in mind that tools are not a substitute for
making difficult decisions
 Beware of the knowing-doing gap
A healthy capital structure is critical to long term
programmatic vibrancy and financial viability
 Seek funding opportunities that cover full costs and
meet full enterprise needs
 Manage costs in the context of revenue and capital
realities
 Establish reserves that enable the organization to
manage risk
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50. Appendix: 2011 National Survey
2011 State of the Nonprofit Sector Survey Results
March 2011
For more information, please visit nonprofitfinancefund.org
For full survey results, please visit
http://nonprofitfinancefund.org/2011Survey
Data is based on a nationwide Zoomerang survey of nonprofit leaders conducted
by Nonprofit Finance Fund, January-February 2011.
Generously supported by Bank of America Charitable Foundation
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