How to Turn Around Your Not-for-Profit

Are contributions dropping for your organization? Has it had high levels of employee turnover, particularly at the executive director level? Do you have budget deficits? If you answered “yes” to any of these questions, you may want to consider ways to improve your operations. Here’s what you can do.

Find Red Flags

You may be headed for a crisis if you have one or more of these red flags:

• A decrease in the number of volunteers or members
• Increasing reliance on sponsorship and grant revenues
• Frequently tapping your line of credit
• Major expenses that aren’t included in the budget
• Deficits in your net assets or fund balance

Also, look at your board: is it made up of members that the organization needs at this time and under these circumstances?

Take Action

To help you reverse course, first call your financial advisors and attorney. They can candidly identify problems and solutions as well as help you build credibility with key stakeholders. In addition, consider these other strategies:

• Cut Expenses. Consider ways you can reduce c o s t s without jeopardizing operations. Perhaps you can cancel programs or services that aren’t entirely compatible with your mission and goals or consolidate or eliminate staff positions.
• Increase Revenues. Once you’ve reduced costs, brainstorm with your board members, key staff members, and advisors about ways to develop strategies to increase revenue. For instance, create fund-raising events, such as a dinner dance, raffle, or walkathon. To offset declines in grants and endowments, many museums are focusing efforts on increasing their memberships.
• Boost Cash Flow. Most organizations probably have areas where they can easily free up some cash. For instance, you can refinance a loan at a lower interest rate or establish payment plans with vendors to conserve cash in the short term. Most businesses are receptive to this course of action if you assure them that you’ll make payments regularly.
• Revise Your Budget. Once your not-for-profit has taken steps to improve its standing, develop a new budget to help you plan and manage expenses. By following it, your organization will be able to quickly spot negative financial trends and prevent them from becoming major problems.
• Get Your Board Involved. One reason many nonprofits run into trouble is because many executive directors take on too much responsibility and are reluctant to ask for help. In addition to having key staff members assist with cutting costs and increasing revenue, ask board members for their advice and assistance. Each board member could oversee certain aspects of the turnaround plan or provide direction—this will help maximize the utilization of each members’ expertise.

For instance, one board member could concentrate on increasing corporate sponsorships while another helps with the membership drive.

Be Patient

Although your organization may be doing all it can to improve, it will take time for you to see results. It could take three to five years to build up adequate reserves and establish a strong operating position. Continually monitoring potentially troublesome areas will help your not-for-profit identify and address problems early on— before they mushroom out of control.

Avoid the Pitfalls of Restricted Funds

Many struggling not-for-profits are victims of their own fundraising success: they’ve received substantial gifts, but too many are in endowment or restricted fund areas. This has caused a shortage of funds for current operating expenses. To avoid this predicament, take these precautions:

• Encourage unrestricted gifts that your organization can use at its discretion—they’re easier to manage and offer greater flexibility.
• Understand the implications and costs associated with any donation that has requirements.
• Establish a policy that allows your nonprofit to use a small portion of restricted funds—for instance, 2 percent to defray the cost of managing and monitoring the assets.