Turn-Around Tips for Struggling Nonprofits
By
Mark Mullen
1. Understand why the organizations exists
• Revisit, reexamine, refine the mission
• List as succinctly as possible the societal problem your organization is trying to solve
• List all programs that deliver on mission
• Rate (from 1 to 10) each program on mission importance. In other words, which
programs are critical to the mission and which ones are marginally essential.
• Create graph showing five year user participation for each program
2. Understand the financial reports (part I)
• Create Statement of Financial Activities
report that compares FY previous to FY
current with projected year-end
variance to budget
• Create Statement of Financial Activities
report that compares month-to-month
FY previous to FY current with monthly
projected budget variances
• Create Statement of Financial Activities
for each program - including
sponsorship, grant, and donor
contributions - that compares FY
previous to FY current
2. Understand the financial reports (part II)
• Create Cash Flow report projecting cash flow
for each month of the FY
• How many days can the organization
operate if no additional revenue was
received before required to borrow?
(see Cash Ratio on next slide)
• Create Line of Credit report showing monthto-month draw and month-to month debt
repayment
• Create an Investment report showing five
year annual gains
• Create graph showing five year comparison
of total organizational revenue vs expenses
Some Helpful Financial Ratios
Ratio
Debt Ratio
Ratio Equation
Total Debt / Total Assets
Shows proportion of debt to assets. Higher
values means greater liquidity problems
Quick Ratio
Current Assets / Current Liabilities
Measures ability to meet short-term
obligations with liquid assets
Savings Ratio
Revenue – Expense / Total Expense
Measures increase or decrease in the ability of
the nonprofit to increase net assets
Cash Ratio
Step 1: Annual Expense Budget / 365 = One Day Cash Usage
Step 2: Cash + Investments / One Day Cash Usage
Measures the number of days nonprofit could
operate if no additional funding was received
Program Expense Ratio
Program Expense / Total Expense
Measures relationship of funds spent on
programs with all expenses
Ratio Target
1 or less
Greater than 1 is too
high
1 to 1.9
Under 1 is too low
Over 2 is too high
Ratios greater than 1
show increase in
savings
180 days or higher
Less than 90 days is too
low
65% or higher
Under 65 is too low
Your
Ratio
3. Understand the organization’s business
model
• Use newly created Statements of
Financial Activities to rate (from 1 to
10) each program on revenue
generation
• Use newly created Statements of
Financial Activities to rate (from 1 to
10) each program on expense usage
• Use ratings for mission importance,
revenue generation, and expense
and rate in priority order the
programs that have highest mission
and revenue values (revenue must
be at break-even or profit
generating)
4. Understand your user community
• Conduct brief user benefit audit to determine which services/products are delivering
value in the minds of the users
• Is your user community growing, shrinking, stable?
• Is your organization user friendly?
• What keeps your users engaged with your organization?
5. MAKE TOUGH DECISIONS
• Deliver only those programs that are
highly mission related and produce
positive revenue
• Eliminate programs that are
marginally related to the mission,
especially if they break even or lose
revenue. (If a marginal program
breaks even it still uses resources that
could be allocated to highly related to
mission programs.)
• Reducing programs will reduce
expenses and, most likely staff.
(Employee compensation is the
biggest expense for any organization.)
6. Understand the organization’s talent pool & skills
• If you must reduce staff do not automatically eliminate positions from discontinued
programs. A recent Gallup Poll shows that 70% of all workers are not actively engaged
with the mission of their employer. You want to make sure you keep the 30% who are
actively engaged.
• Do not fall into the trap of keeping mediocre but loyal employees over high-maintenance
high-performing employees. You need the high performers with the proper skill sets to
turn the organization around. Without them, the organization will contain to struggle
leaving all employees at risk of unemployment.
Communicate (broadly to all shareholders changes in programing as result of turn around):
• Role clarity – who is accountable for each program; who participates in decision-making
• Often – reassure, welcome & answer questions, build confidence in organization
• Honestly with transparency – build trust
• In positive light – things will get better; the organization will get stronger
• In many formats – emails, social media, newsletters, phone calls, meetings
Adapted from Book:
How to Build a Strategic Nonprofit: A Guide to Getting the Right Things Done
by Mark
Mullen
ISBN - 10: 1501066889
ISBN – 13: 978-1501066887
http://www.amazon.com/dp/B00ND5XCVI
Kindle Edition