Tools & Tactics: Understanding Nonprofit 990s

Last week I had the pleasure of hearing Jessica Prue’s vast knowledge on reviewingcw_eventLogo_02262013 nonprofit financial statements to understand and interpret indicators of fiscal health, including the IRS Form 990, annual reports, balance sheets, and online tools for evaluation. In short, appearances (in dollars) may be misleading.

cw_picJPrue_03Jessica works with the Nonprofit Finance Fund, a community development lender, and is a wealth of information on a topic that few master. Her discussion was part of Catalytic Women’s Tool & Tactics programs, focused on hands-on learning to help us make more effective choices in giving for social impact; members may download the program webcast from our online library. While Guidestar has much of the information she discussed, assuming you have time to review and evaluate, Jessica made a very generous offer forCatalytic Women members to subscribe to their FinancialSCAN at a discount of 20%. This is a terrific resource. (Email us if you’d like more information about the discount, this program, or an introduction to Jessica.)

Jessica is quick to point out the complexities involved. Nonprofit financials are different from corporate financials. (Wondering why? Read on.) And financial data only helps us understand one piece of the pie in assessing the effectiveness of a nonprofit. Specifically, she walked us through some of the primary differences between nonprofit and for-profit finance, and the benefits and drawbacks of using 990 data. Her insights really helped me begin to understand an organization’s sustainability and capacity for growth using financial statements. Lastly, she shared some great tools, besides the publicly available IRS Form 990, that can help a funder analyze data and compare organizations. If you’re interested in financial due diligence in your grantmaking process, or simply wish to learn how to simplify fiscal analysis and hold productive conversations with potential grantees, then you’ll learn a lot from Jessica’s expertise, which is also available in this video.

Before I launch into details, let’s see the world through the eyes of Jessica Prue.

Jessica works with both funders and nonprofits across the Western U.S. as part of the Advisory Services team at the Nonprofit Finance Fund. Grounding her work in rigorous financial analysis, she works with nonprofits across sectors to help management teams understand the implications of strategic decisions such as expansion, facilities projects, hiring new staff, and scaling back programs. This expertise gives her valuable insight into understanding an organization’s financial stability and capacity for program growth. She is also involved in NFF’s national work with Financial SCAN, an online platform for nonprofit financial health analysis. She has experience working with an artisans’ cooperative in Paraguay, a microfinance organization in Bangladesh, and a refugee resettlement agency in Syracuse, New York, and a foundation in Washington DC. Outside of her work at NFF, she serves on the boards of The One Percent Foundation, a foundation I admire greatly that engages next gen philanthropists, and At the Crossroads, a homeless youth organization in San Francisco. For fun, she completed her first Iron(wo)Man triathlon in 2012. This Renaissance Woman has a BS in Applied Economics and Management from Cornell University and a MPA from the Maxwell School at Syracuse University.

So here are highlights on what I learned about nonprofit financials…

  • Reviewing financials is not an end-all. It should be the beginning of a healthy dialogue with a nonprofit that you admire and support.
  • Big budgets and fundraising success don’t mean financial stability. Jessica told a “fundraising success” story that went bad. More money raised doesn’t necessarily mean it can be spent well. Reviewing financials helps us understand: What is the right amount of money for an organization?
  • Audits are the most in-depth financials, but 990s are the most accessible. It’s practical to start there, but understand there are limitations.
  • Some for-profit best practices don’t translate to the nonprofit world. Take economies of scale: more isn’t necessarily better in social service; and growth for a nonprofit doesn’t often generate additional revenue, but rather requires subsidies since clients usually don’t pay for cost of service.
  • Not all nonprofits are required to file the annual 990 tax form (e.g., religious organizations, new groups not yet granted tax-exempt status, state institutions like universities, and organizations with less than $250,000 annual revenue). If filed, 990s are public documents and available for free from Guidestar and the Foundation Center.
  • Understanding all the components of financial health takes a 4-hour workshop at the Nonprofit Financial Fund! Key elements of this 45-minute conversation included operating performance (Do they bring in unrestricted operating revenue that is in excess of expenses?), balance sheets (Does an organization have the ability to handle risk and pursue opportunity? And why is the distinction so important among unrestricted assets, temporarily restricted assets for specific programs, permanently restricted assets held in an endowment, and any property owned).
  • Net worth looks different in the nonprofit sector because of restricted funds. Revenue-less-expenses does not give an accurate reflection because unrestricted, restricted and endowment revenue are all lumped together, yet are not equally accessible. “Temporarily restricted assets” must, by law, be held earmarked for the specific project they support. Beware of Line 19 on the 990, which is not a true reflection of surplus revenue!
  • Rankings of program/admin/fundraising ratios are misleading. Effective organizations need to invest in infrastructure.
  • There are no magic ratios for earned (fee for service) vs. contributed revenue (donations) because the nature of nonprofit service delivery models can vary so dramatically. The more relevant comparison would be looking at an organization’s ratios vis a vis others doing similar work, and over time.
  • Using all the above, we can calculate nonprofit liquidity. Yet an organization with two weeks of cash may not be ready to double in size, but it may be fiscally well-managed. Having two to four weeks of cash is typical of nonprofits operating in low income communities. Nonprofit Finance Fund surveys over 5,000 organizations a year and in the last survey, 60% had less than three months of liquidity! (Typically, only universities with large endowments have over six months’.)

In Jessica’s words, “You should never, ever make a grant based solely on financial health. Doing your due diligence will inform how you can make a grant and what type of grant an organization is ready to absorb.”

Besides Jessica and her organization, I wanted to share a few other resources related to this issue:

  • Make use of GiveSmart’s online donor due diligence tool.
  • Listen to another perspective. To Jessica’s point about being cautious about overhead ratios and how effective nonprofits use financial resources differently than for-profit business, Dan Pallotta also makes the case in his TED .

My biggest takeaway? The best thing we can do as donors is to learn about the nonprofits we support — by trying to understand nonprofit financials in all their messiness and, especially, by having conversations with program staff or leaders of the organization — is to satisfy ourselves that they do effective, valuable work and are well-managed, and then to make unrestricted contributions in support of their work. This is especially true of organizations with less than three months of unrestricted cash on hand: they can most use your unrestricted operating support if you believe in their work and how they do it.

Just my two cents, which you may see if you look really closely at the financials.

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Focus Your Giving in 2013

Today I got to speak with Elizabeth Share—always something I enjoy tremendously because of her wisdom and sincerity. She shared her expertise for our First Wednesday Webinar and I feel so very fortunate to know her as a friend and a member of the Catalytic Women advisory board. Elizabeth has been helping donors and nonprofits increase the impact of their work in communities worldwide for over 25 years. As founder of Wise Giving, she helps individuals and private foundations create focus and impact around their giving. Her private clients include the Isabel Allende Foundation, Khaled Hosseini Foundation, Chez Panisse Foundation, Grace Family Foundation, CompassPoint, and Nepalese Youth Foundation.

The topic of our webinar today was right up her alley: Creating focus for your giving, at year-end and in the year ahead. It sounds so simple, but we all know it isn’t. Elizabeth offered her expertise on a few questions with which many of us struggle:

  • With so many requests, what’s the best way to focus my gifts to the issues I care about most?
  • How can I be kind in saying “no” to the organizations that don’t match my interests (or to the friends who ask!)?
  • Is it OK to decide to make some gifts in support of others’ interests, even if they’re not my own?

End of year requests for donations can feel overwhelming. Each organization articulates such a compelling need—yet our resources are limited and it can be hard to decide which are most worthy of our financial support.

Elizabeth spoke so eloquently about how we can get in touch with values that drive our giving. She also gave a framework for considering the long term impact of what we give—over years, it can be a lot. Benefit from her resources and best practices from Wise Giving, Inspired Legacies and the Catalytic Women members-only library. She led a very practical discussion on how to focus your giving to achieve maximum impact and personal satisfaction.

If you’re looking for a way to feel confident that your charitable contributions achieve the change you want to see in the world, take a look at Elizabeth’s presentation.

Creating Holiday Traditions of Giving Back

What fun for me to co-present with expert Lisa Parker for our November First Wednesday Webinar discussion on engaging multiple generations in yearend giving! Lisa had so many great examples of: How can I make service and giving part of our family holiday traditions? When are children old enough to give? In what ways can we add a greater sense of value by focusing on giving, rather than gifts?

The holidays can be an especially hectic time. While the celebrations honor historic traditions of generosity and kindness, our days seem filled by the “need” to buy for others. Lisa shared simple ideas, tricks and tools to incorporate giving into your family holiday traditions—based on what she sees work for her clients and her own family. She drew upon resources and best practices from Family Circle Advisor’s The Hip Family’s Guide to Happier Holidays and our members-only library.

If you don’t already know Lisa Parker, you will LOVE her after hearing her in this presentation. Her authenticity and expertise come through so clearly and I am so very lucky to count her among Catalytic Women’s talented advisory board members. She is a sought-after speaker, expert on youth and Millennial giving, third generation philanthropist, and founder of Family Circle Advisors. In our discussion, Lisa shared highlights from the Hip Family’s Guide to Happier Holidays and practical ways to engage all generations in giving back. Many of Lisa’s suggestions help me achieve my own vision for Catalytic Women of convening a community of women leaders who are influential decision-makers in wealth and giving. Perhaps because we’re also moms, we do share a passion for effective giving, community involvement, social innovation, and engaging women in giving—at any level—to make a big impact.

Watch our podcast and let me know your favorite new family holiday tradition for giving back.

Double & Triple Bottom Line Philanthropy

Our October 2013 webinar discussion on Double/Triple Bottom Line Philanthropy explored emerging tools for high-leverage giving, answering: What are social venture philanthropy and impact  investing? Is microfinance a good use of my charitable dollars? Is there a role for a business-like approach that can maximize the return on my “investment” in philanthropy?

Many new tools for giving combine the best of business and philanthropy. Our discussion shared resources, trends and best practices in leveraging gifts to make the greatest impact on the issues you support. This brain candy allows me to revisit my corporate finance roots through a social benefit lens—I love talking about models that blend good business and good intentions.

In this conversation I got to tap the expertise of Catalytic Women members and advisors, and draw upon resources and best practices from our members-only library. View this practical discussion of how to make gifts that tap some of the highest return models of business to create significant impact in the world around us—and bring business tools to solving community issues. It also gives me a chance to realize my own vision for community change—by connecting smart women who are influential decision-makers in wealth and giving to the resources and information they need to feel confident and boldly move forward.

Talk about the best job in the world…

High Impact Gifts

Our webinar this month addressed a concern of many donors: impact. How do I know that my donations create meaningful change? What do I need to know to make gifts that leverage impact in our communities? And how can I fund the best nonprofit models addressing the issues that concern me?

There is some exciting work being done on collaboration and impact within the nonprofit sector. This presentation was an opportunity to share studies, trends and best practices in ensuring that our gifts make the greatest impact in the communities we support. I got to explore (and draw heavily upon) the findings of the Center for High Impact Philanthropy at the University of Pennsylvania, and Hope Consulting’s Money for Good research on donor behavior and philanthropic impact—both with thanks to our respective advisors who are leaders there, Kat Rosqueta and Hope Neighbor. I hope you’ll make good use of the download of this practical discussion on how to make gifts that create impact in the world around us—and address challenging community issues in a meaningful way.

Let’s face it. Women make most giving decisions. And, by leveraging our time and talent into funding high-impact nonprofit models, women are funding critical social services and serving as catalysts for broad global change.

Women, Wealth and Giving

Two Catalytic Women discussions in August addressed the significant influence of women in wealth and philanthropy—giving through a gender lens. I had the pleasure of co-presenting with Kirby Rosplock, another catalytic woman, at the Purposeful Planning Institute annual conclave and rendezvous in Denver, and it was also the topic of our monthly webinar.

The webinar recording will give you a good idea of both. Download a phone-friendly file to hear about the trends and best practices that we shared on where women gather information and how we are a substantial, influential clientele that is not being well served by traditional practices in financial advising and wealth management. If you’ve been thinking about: How do women make decisions about wealth and giving? What is most important to women as we build our own relationships with advisors and community organizations who speak to our—and our family’s—interests? then this is a program for you to see and hear.

Why women?

  • Women aged 50 and older own over 75% of wealth in the U.S. and are largely dissatisfied with their financial advisors.
  • A recent study found that 70% of widows dismiss their advisor within a year after their spouse dies.
  • Women aged 22-30 earn more than male counterparts in 147 of the largest 150 US cities.
  • 75% of senior male executives have a stay-at-home partner; 74% of senior female executives have a partner who works full time. These women rely on good advice from outside experts.
  • As for the upcoming wealth transfer shift, women will control two-thirds of U.S. consumer wealth in the next 10 years.
  • Women are 53% of the global population and 9 out of 10 women will be on their own financially at some point in their life, thanks to women’s longer life expectancy.

Women are making most household decisions about spending, saving and giving. Yet women make decisions differently then men. This presentation shared fascinating demographic trends and best practices about how women approach wealth. Whether you are a woman who gives (or is thinking about it) or an advisor who works with women, listen to this webinar to learn more about the largest potential market for financial decisions: women.

For starters, women make decisions based on relationships and people. Whether a woman’s wealth is inherited or earned, she may feel ambivalent about it. A woman defines wealth broadly and brings her values to the discussion. As women, we think of “wealth” in the larger context: to share values across generations, to make our positive mark on the world around us, and to build our own financial knowledge from peers and trusted advisors. Women also think about choices that have a community impact now—Why wait for retirement or legacy planning? Women are a creative new force for innovations in wealth and philanthropy.

Big thanks to Kirby Rosplock’s extensive research on women and wealth, whose examples and case studies were included here. I had the pleasure of presenting with Kirby at the Purposeful Planning Institute conference this month in Denver. Whether you are a woman who gives, or a wealth advisor seeking to serve these valuable clients, I hope you’ll listen to our webinar for a practical discussion of the needs of those who are financially most influential—women—and, of course give me your feedback in how you leverage a woman’s unique perspective on wealth!

Innovations in Online Giving

We launched our monthly webinar series with a discussion of online resources for giving. Sure, there’s a lot of information out there, but how can we navigate it effectively? What resources exist to guide us to the specific areas that are our interest?

If you’ve intended to “carve out time” in your busy schedule to explore online resources on how to give well, this summary of this webinar will give you the most interesting, innovative resources available. The abundance of web-based information can be overwhelming—and extremely time consuming to explore.

Whether you’re gathering information for your own giving, or to share with clients and colleagues, this webinar offered a wealth of ideas. We reviewed research sources, conferences and convenings, innovations in high leverage giving (impact investing, social venture philanthropy, and microfinance), multigenerational philanthropy, resources for women, issue-focused giving and, even, where to start if you’re new to it all. We’ve mined the internet and done the heavy lifting for you to have maximum philanthropic impact with minimum time.

Katie Cooney is the mastermind behind Catalytic Women’s own online library of nationwide philanthropic resources, and an expert in organizations providing tools for giving, community involvement, and social innovation. This presentation will give you a glimpse of how lucky I am to work with this particular catalytic woman, our Project Manager.

2013 – Q1/Q2 Happenings for Women and Social Impact

Happy 2013! The fresh beginning of a new year invites explorations and adventures. Here are some to suggest. Have I forgotten any of your favorites? Please let me know or comment below. Here’s our list for events through June 2013…”

January 2013

February

  • Yale University hosts its 8th annual Philanthropy Conference on February 1, in New Haven, CT.
  • The Harvard Social Enterprise Conference explores the intersection of business and social impact, in Cambridge and Boston, MA, on February 9-10, 2013.
  • Women 2.0 hosts its annual conference February 14, 2013, on the theme of The Next Billion: Consumers, Markets & Products in San Francisco.
  • Wisdom 2.0 hosts its annual summit February 21-24 in San Francisco on the theme ofliving with greater presence, meaning, and mindfulness in the technology age.
  • The Strategic Co-Funding Conference on February 21 in Washington DC focuses onscaling what works.

March

  • International Woman’s Day is March 8, and many organizations create events to celebrate and participate.
  • On March 6, 2013, in New York City, the Impact Leadership 21 Summit  hosts transforming women’s leadership in a hyper-connected world.
  • The SXSW (South by Southwest) annual conference takes place in Austin, TX, with the highly sough-after Interactive session from March 8-12, 2013. Other tracks include Film (March 8-16) and Music (March 12-17).
  • Good Food Festival and Conference on March 14 in Chicago celebrates leaders, businesses, and individuals that sustain the burgeoning, locally-driven Good Food Movement.
  • The Institute for Private Investors hosts Stewarding Wealth: Managing Family Investments and Legacy Across Generations on March 21 in Atlanta.
  • If you’re planning ahead to 2014 Grantmakers for Effective Organizations will host their annual conference in Los Angeles from March 12-14, 2014.

April

May

  • Exit Planning Exchange (XPX) hosts its annual summit for entrepreneurs on the art and science of collaboration, May 3 in Waltham, MA. Melanie Hamburger will be presenting as a “Genius Speaker” this year.
  • Social Enterprise Alliance conference takes place in Minneapolis from May 19-22, with a focus on building an economy on purpose.
  • The Take Action! conference for impact investors takes a break this year. Last year’s event took place in San Francisco May 22-23, 2012.

June

  • Grantmakers for Effective Organizations and Florida Philanthropic Network will co-host the Learning Conference in Miami, on June 3-4, 2013.
  • The Points of Light Institute annual conference for volunteers, social entrepreneurs, corporate volunteers and nonprofit leaders takes place in Washington, DC from June 19-22.

Members may access the full calendar in our library: women who are funding social impact can join here for free; their advisors can subscribe annually to all Catalytic Women resources on women’s wealth and social impact.