Necessary evil: The business of nonprofits | Derek Jennings | Indy Week
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Necessary evil: The business of nonprofits 

What happens when nonprofit charitable organizations--those harbors in the storm and refuges of last resort for so many desperate Americans--face the confounding quandary of having expenses and obligations that exceed their income? A sad illustration of that very scenario took place a couple of months ago in Wake Forest, where Operation Harvest, a food bank that served more than 400 people a week, found itself locked out of its own warehouse by the landlord because of past-due rent.

I'm sure that, while considering a family facing a choice between paying bills and feeding the kids, there are some cold-hearted number-crunchers out there whose first thoughts would be "How are they managing their money?" or "They should have budgeted better." Those are great questions for the medium and long term, but those morsels of wisdom won't feed a child in immediate need. Nor do they succor those who suddenly find themselves without essential services due to a charitable organization closing its doors for financial reasons.

All of this is of particular interest to me. For almost two years now, I've served on the board of directors for PLM Families Together (formerly Pan Lutheran Ministries), a nonprofit, charitable organization that currently provides temporary and transitional housing and other services for about a third of the homeless families in Wake County. I was asked to join the board as they were in the midst of an effort to expand their directorship to include non-Lutheran congregants, as well as diversify to better reflect the demographics of the county and client population. At the time of the invitation, I was already sensitized to the needs of people living on the margins of this economy, my work with the county on foster care having highlighted many of the issues facing families who were homeless or constantly on the verge of homelessness. I figured that serving on the board would be a good chance for me to become more knowledgeable about issues surrounding homelessness, while providing a potential avenue to put some of my own ideas into action.

What I did not expect, however, was a two-year crash course on finances, balance sheets and cash vs. accrual accounting while PLM Families Together steered its way through some very challenging financial situations. To be honest, had I known up front that it would be like this, I don't think I'd have agreed so readily to serve. But in retrospect, this unexpected education has been invaluable and given me a much greater appreciation of all of the work required to run and sustain a nonprofit organization, particularly small and local ones.


My limited understanding of the nonprofit sector was that it was where you went to "do good" and, essentially, escape the corporate world. Perhaps it was never that simple, but certainly, in today's economic landscape, the very survival of local charitable organizations is very much dependent upon how well they are able to function like a business. If it seems like a contradiction, it's because it is. If, say, rescuing abused animals is your passion, you want to be out there helping the sick puppies, not creating spreadsheets, doing paperwork or ensuring that you have all of your audit documentation in the proper format required to maintain your listing with United Way or continue to receive state funding. For those who view charitable work as a calling, all of this business stuff is somewhat of a necessary evil.

I spoke with PLM Families Together's executive director, the Rev. Laura Benson, to gain further insight regarding the challenges of running a nonprofit human services agency like a business. Prior to joining PLM last December, she served for almost a decade as the executive director of the Durham Interfaith Hospitality Network (IHN), another organization committed to mobilizing community resources to meet the needs of homeless families.

Benson acknowledged that the last several years, in particular, have been fraught with both promise and challenge. Nationally, charitable giving has increased as people have reached down into their hearts and pockets in response to large-scale, catastrophic needs in the form of 9/11, the Indonesian tsunami and Hurricane Katrina. In 2004, according to the Giving USA Foundation, which tracks philanthropic trends, Americans gave away a record $248 billion, with individual donations accounting for more than three-quarters of that amount (followed by foundations, bequests and corporate charity at 12 percent, 8 percent and slightly under 5 percent, respectively).

"It's awesome to me to witness the generosity of people, this culture of philanthropy that we have. Still, for those of us in organizations which serve long-term needs, how do we tap into that, and do so without being exploitive?" Benson asks.

Indeed, the record giving masks another trend in which larger percentages of these donations are flowing to the mega-charities. At the same time, our national, state and municipal budgets have slipped further and further into the red, squeezing local nonprofits in two major ways. First, budget cuts have decreased the amount of direct funding they provide to nonprofits. Secondly, they have also cut back on government programs and assistance for citizens, leading to a larger number of people in need of the very services provided by those nonprofits. In short, these agencies, particularly at the local level, now have more people to care for and less money with which to do it.


When asked about situations like the aforementioned financial troubles of Operation Harvest, Benson recalled several other local charities that have found themselves in dire economic straits over the last year, including some that have had to close their doors permanently. Many have endured situations similar to Operation Harvest, which had a key grant reduced by two-thirds. When your operational budgets are day-to-day, week-to-week and month-to-month, any major drops in funding cause tidal wave-like ripples in your organization's ability to function. And when your function is feeding hungry people, you wind up with choices like the one I posed at the outset--food or rent?

"Increasingly," Benson says, "grantors are big on outcomes, measurables ... but if outcomes are important, the question then quickly becomes about the time frame in which the outcomes are measured. It seems that funders are becoming quick to reduce funding based on those outcomes, and for small organizations with a heavy dependency on that funding, that makes their very existence take on an unsettling year-to-year quality."

That short-term focus on behalf of funding agencies is extremely troubling to me, as it mirrors some of the worst practices in the business world. Sure, it's a fast-paced economy, but CEOs whose compensation is based on quarterly earnings rather than the long-term growth and stability of their companies (not to mention market valuation of the companies based upon the same) have led many businesses to abandon their fundamental values and markets while chasing the fickle stock ticker. Even worse, the over-reliance on short-term measurables can create situations in which short-term profit is exchanged for long-term health and viability (anyone remember junk bonds?). The schools, under similar pressure to show good numbers, manifest this same malaise as they reinvent themselves around test scores and relegate actual education to the status of a byproduct.


It is important that nonprofits demonstrate business savvy, not only so that they can remain in compliance with labyrinthine laws and regulations, but even more so to demonstrate good stewardship, to do the most good with their limited resources. Adhering to high standards of record keeping and auditing satisfy requirements for institutional funding and instill confidence in private citizens--who are faced with a staggering array of philanthropic choices--that their donations will be well spent.

My initial naiveté notwithstanding, PLM is blessed to have a number of professionals available on its board and staff who have helped steer it through rough financial waters. What, though, about the even smaller nonprofits, those long on ideals and heart but perhaps short on many of the specialized skills that are becoming a necessity for their survival? If I headed or sought to create such an entity, one of the very first moves I'd make is to register with an organization like the North Carolina Center for Nonprofits (ncnonprofits.org), which exists to advocate for, promote, educate and serve the charities that in turn serve this state's citizens. The N.C. Center for Nonprofits, in association with the North Carolina Association of CPAs, provides a means for hooking up accountants (who can donate time in one-hour blocks) with needy nonprofits in search of assistance on issues specific to 501(c)(3) organizations.

That's a fantastic idea, and one that should at least help some fledgling charities along the path to good governance and fiscal solvency. Ideally, though, I'd like to see the idea taken even further, perhaps via a system implemented in which the for-profit business world could loan expertise to local nonprofits (for tax breaks, make it a win/win)--their CPAs, lawyers, IT consultants, marketing specialists bridging the gap between those who simply want to "do good" and those who can help them stay afloat while doing so.

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