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Mission-Based Management Past questions and answers from Peter Brinckerhoff from live broadcasts aired by the Learning Institute for Nonprofit Organizations collaboration* Other Q & A Topics:
A suggested donation will get the ball rolling. Often I see people put down the actual cost of a service, and then a suggested donation. For example, a basketball league that took kids from the entire economic spectrum noted on its material-"The cost of the league (uniforms, referees, custodians, etc) is $30 per child. You can pay as much or as little as you like. We suggest that you consider paying for your child as well as another child who is less fortunate." The rest of the story- the minimum donation was $30, and the average donation was $65! Q2) How does bottom up management relate to financial compensation to employees? Should those who actually provide service make the most $? No, the compensation should relate to the amount of budget a person is responsible for. Thus the Exec, who is responsible for the entire budget, will almost always make the most money. Q3) How do we find a balance of being a "softie" verses a "meanie" boss. I was a was a softie boss for years but staff seemed uncomfortable with too much ambiguity. Now I'm being more "bossey" and they seem to respond better. "Softie" and "meanie" are very subjective, as I'm sure you know. I know people who think their boss is mean, just because he requires them to come to work each day, and bosses who feel soft if they don't actually yell at at 5-10 people each morning. Certainly requiring certain behavior, enforcing rules, planning and demanding outcomes can be seen as mean, but it also is very consistent with the bottom up management style that is focused on mission outcomes. I have always found that people will meet your expectations-high or low. Set high ones! Q4) Please discuss how you would approach a situation where an agency is overstaffed and yet there is not enough time or money to solve the problem through attrition or through engaging the employees in efforts to improve quality and become more efficient. Scott-you've given me a way too complicated question with way too little information. If you know you are overstaffed, you must suspect where. If you need to cut back on people, figure out where and do it. I KNOW that that sounds cavalier and heartless, but in all my years of managing, I find that 99% of the time that people make personnel cutbacks that they make them too late----and regret waiting. Make the decision, take the action and move on. You say you don't have the time and the money to solve the problem through attrition-so you'll have to take the action yourself. Q5) In reference to clarifying management models as you described...what can you say about the staff and management time it takes to change attitudes toward this model of management? It will largely depend on what is in place now, and how much the staff trust the leadership. If there are acrimonious relations now, it could literally take years. If the relations are pretty good, usually a much shorter time. Q6) In biting the bullet for one of the employees, how "big" of a bullet should the CEO be willing to bite? i.e. the staffer does something immoral or illegal....do "you" own up to the mistake? Great question. In that case, our action depends on whether or not the crime was committed inside or outside the agency. AND, it depends on your personnel policies. For example, some organizations have policies stating that someone who is indicted for a felony must be put on extended leave, or someone who sexually harasses another employee must be punished or terminated. So, make sure you follow your own rules, and that you consult your organizational attorney (quickly) before acting. Finally, your statements would depend on whether or not this person had previous run ins with you or with the law. If you had had warning and ignored it, there is one level of responsibility, but if it was out of the blue, there is another. IN ALL CASES, the most responsible action is to take action QUICKLY. And tell the board IMMEDIATELY. If there is press coverage involved tell your funders and major donors IMMEDIATELY about the facts, and your actions. Q7)Why is it important to give the IRS a copy of your mission statement? And by doing so, will this give your organization more credibility? Because the IRS can (and will) audit your organization to see if it is bringing in all of its money from related sources. the issue of relatedness depends on the wording of your mission statement. Net income from unrelated sources is taxable. All unrelated income should be reported annually on your 990-T form to the IRS. Q8) For a start-up not-for-profit needing office space, are there any benefits for a business to donate office space for a period of time, that the non-profit could use in seeking such a donation? Just the charitable donation of the cost of the office for the time it was used. This could be substantial but will need to be documented. Q9) Your definition of a restricted account says a restricted account is one of the best and simplest places to keep your earnings. What do you mean by the term "earnings"? For the purposes of a restricted account, "earnings" might apply to an endowment fund or profits from an income generating activity that you would like to restrict to certain uses. That way, any funders that you have who come after unrestricted dollars before making you a grant cannot do that. Q10) Our organization has both a mission (why we exist/what we do) and a vision statement (Our "dream" for the future of our organization). They are part of our overall strategic plan. Do you think they should be one statement only? No, keep them separate-and, in the case of the mission statement, short. Note from the LI....this is covered in more detail in the Strategic Planning session. Q11) What is your feeling about linking with an on-line shopping site as a profit source? Is it profitable? Would this be considered non-traditional revenue? - Ann, Ft. Lauderdale, FL Yes, it's non-traditional, and I see it more and more, and it is a GREAT way to raise funds. But, you want to link with a high-visibility on line site! Q12) For non-traditional sources of income, isn't selling a t-shirt a taxable transaction? What are some ideas or angles to keep income sources non-taxable? Selling a t-shirt is a taxable transaction, but remember that it is only taxable if you sell it at a high enough price to make money! If you want to give the t-shirt away for a certain level of annual donation, that's different-and there is no tax implication to you-just to your donor, who cannot deduct the entire gift, just the gift minus the value of the shirt. Q13) How do you develop a plan to create a 90 day reserve? The same way you plan to save at home. Slowly, carefully, and starting with one dollar. It may take you 1 year or two, and will, of course, be very dependent on your funders' policies on reserves. Q14) In the tax code is there a difference between "not-for-profit" and "non-profit"? If you make a profit, does it threaten your tax status with the IRS? No, and no. Q15) What, if any difference is there between a "non-profit" and a "not-for-profit" organization? No, the term that is technically correct is not-for-profit. But in practical usage, they are synonymous Q16) We are lucky in that we have an endowment. But when we share financial information with the public, sometimes the conclusion is that we don't really need help. How can we deal with this? Ask your critics why it is OK for The University of Pittsburgh (a 501(c)(3) just like you) to have a big endowment, and not for you? How about the local not-for-profit hospitals? Same issue. Why should a donor require you to have no reserve, and no savings and be a bad manager just to deserve their money? They should be impressed with services, not with your organizational poverty. Q17) When you talk about getting 5% of your income from an endowment, this requires a lot of money to be invested in the endowment. How can a small organization ever have this kind of money? What percent of small organizations are in this financial position? It takes time, but I have two clients who are three-five years old, have less than $400,000 annual budgets and meet this criteria, because they started day one. The best place to get funds for this for a small organization is through specific targeted fund raising. Q18) With the environment of cooperative givers only wanting to fund healthy nonprofits....how do emerging nonprofits get started? By meeting a demonstrated community need--and in a way that the community wants. Startups are different that existing-and financially shaky--organizations. Funders realize that new organizations bring vitality, innovation, a fresh perspective, and competition to the marketplace. Q19) What do you do when you attempt to push decisions to line and staff but they are resistant? They often don't get paid enough and sometimes are not confident enough to make these decisions. As I said in my presentation-you have to train and train and train, and then coach them through it. You can't just say-here-you do it-and not be there to support them. And, start small. Delegate minor decisions and responsibilities at first. But some people will resist-and it may be time for then to go elsewhere. Q20) Do you fell that the fact that state and federal agencies are requiring "match funds" make it more acceptable for nonprofits to make a profit? I think that match funds are the second most heinous form of funding out there-following only "use it or lose it" funding. The form of funding is ridiculous (it says clearly that the funder does not value your services enough to pay full cost), organizations that use it are rarely of a mindset that you should be allowed to keep what you earn. They already view you as financial indentured servants. Why should they view you as earning your money? Q21) Do you recommend that nonprofits create a "for profit" to create revenue from unrelated business opportunities to provide revenue flow back to nonprofits? Most second corporations are unnecessary and expensive. Remember that most of what you do WILL be related, even if it is for another payer, and that a for-profit ALWAYS pays taxes on profits-even if it is related to the owning not-for-profits mission. If you MUST do a separate corporation, the first thing to look at is another not-for-profit with a slightly expanded mission statement that would allow the activity to be related. This is complex technical stuff- so get some help. Q22) Please elaborate on who we should share money information with....the board, community or who? Yes, yes, and yes-but also you need to be smart. Some things are confidential-such as salaries. Some things are competitive-such as plans to buy a new building that lets people know you are expanding to a new community. The more financially transparent the organization is the better-and don't forget that this includes staff. There is a great book on this subject called "Open Book Management" by John Case. Q23) Many of the "business types" on a board of directors tend to come out of a "top-down" model, instead of "bottom-up". How do you build a "business-lie" board of directors who support the "bottom-up"management style? Boards should leave management up to the staff. If they hire an Exec who embraces this style-or employ one who is won over to the style-they should be informed, but not asked permission. Q24) When we tried to borrow money, the bank wanted an individual to guarantee the loan, not the corporation? How do nonprofits without large assets borrow money from commercial banks? All banks will ask for collateral, and that is only fair. They will also ask for WAY too much collateral-especially from not-for-profits. Remember that the bank is selling you money-not giving you a donation. So, it's ALL negotiable. And they really want your payroll and checking account-it's the money that they loan to other customers. So, agree to some collateral, but ask for some flexibility. Some organizations use receivables, or equipment, or office furniture, or future fund raising receipts as collateral. Always negotiate, and be ready, as a last resort-to move that checking account to another bank. That usually gets the banks attention! Q25) My organization has annual revenues of about $12,000,000, 30 employees, and we provide energy efficiency programs and services for primarily residential customers. We were incorporated and awarded 501c3 status about 20 years ago and as far as I can tell, we have never filed a revised mission statement with the IRS. As you can imagine, our organization has changed and grown considerably over that time and our work has also changed somewhat. We are just developing a strategic planning process and as part of that, we have developed a new mission and vision statement that more appropriately reflect who we are and what we do. I was concerned about changing the mission statement in that I thought it might jeopardize my 501c3 status. Although the wording on our original application was somewhat vague - referring to generic energy conservation work, it did include references to providing services especially to low income families and to providing employment for disadvantaged youth. We now provide conservation services primarily to residential customers, with a small amount of income from low income work. We do nothing with the employment issue. I was interested in your comment about it being riskier to "not" file your revised mission statement because the IRS might consider much of your work unrelated income and tax profits. However, if I send them a revised mission I'm afraid I'll run the risk of jeopardizing my whole 501c3 status. I guess my question is, how closely does the IRS look at revised mission statements when they are filed? Who decides if they've varied significantly enough to call into question your exemption? I would just like your opinion. Have you ever know an organization to lose their exemption? Thank you! - Janet, Wisconsin Janet, this is a great question, and one that many organizations struggle with. Having not seen your original or revised mission, I can't get too far into specifics, but I would suggest that you look at the mission statements of other energy conservation corporations to see how they word the issues that confront you. If there are such groups that provide similar services, of course! Q26) Why should not-for-profits worry about management skills when there is so much mission to do? Good management, good marketing, good cash flow, good controls, good personnel policies are all really good mission. As a steward of a not-for-profit you are charged with getting the most out of your resources. This means using all the best techniques that you can—and that means not only doing excellent services, but also managing them well. Q27) I came to my job up through the ranks. I never had any formal management training, so I’ve learned on the job. A lot of management stuff seems foreign to me, and more appropriate to an MBA. What can I do? You’ve made a good start by attending these sessions. Keep coming to them. Also, subscribe to general not-for-profit management journals such as Nonprofit World. Third, look for more in-depth management ideas in the materials in the bibliography and at the LINO website. Fourth, see if your local college or university has a program for nonprofit management. Over 250 do, and some can be done by correspondence. Look on the Internet for such programs. Keep training yourself and your staff in good management. Q28) My Board is not interested in management as much as mission. Thus, they don’t want to invest in training or education. What can I do? Talk to them about the need to get the most mission for the money, and how that takes money to train and invest in staff. Get more board members who are business people and who understand the need for such an investment. Get board materials from such sources at the National Center for Nonprofit Boards, which exhort boards to invest in their staff expertise. Q29) I don’t think my community is ready for our not-for-profits to make profit a goal. What can I tell them? Tell them that only if you make a profit can you expand, try new things and improve services. Tell them that profits are both legal and ethical for not-for-profits and that, as long as you reinvest the profits back into more mission, everyone in the community will benefit. Q30) How long will it take me to get my management house in order? That, of course, depends on the shape you are in, the time and money you can commit, and your level of expertise. But management is not something you just fix; it is, like all other parts of the organization, something you are constantly improving. Continuous management improvement is the key. Q31) Are there regulations that discourage non-profits from doing for-profit activities? for example: paid advertising in a non-profit publication? The key parts of mission reserve in my view are: budget a set amount each year and tell staff that this is PART of your financial empowerment plan. Let them suggest the ways to spend it-making sure it is on direct services. Start with perhaps a tenth of one percent of your budget-so for a $500,000 agency that would be $500, and work up from there. If you can start with more great! But remember to let staff know that this is the payoff from the other savings that you are doing (for your cash reserve and endowment. I am not a fund raiser, and would suggest you talk to your local chapter of the NSFRE (National Society of Fund Raising Executives). Some examples of non-traditional revenue could be things as simple as a gift shop set up by a museum, to personal trainers offered by a YMCA in people's homes, to a homeless shelter running a car wash, to a economic development agency running a restaurant. They can be large, small, involve the people you serve or not. Jimmie Alford responded to a question similar to this in question #22 of his Q&A page. In summary, Jimmie reported that The Philanthropic Advisory Service of the Council of Better Business Bureaus specifies 35% as a reasonable standard for fund raising costs. Nationwide, these costs average 17.5%. Q36) Can you briefly discuss the differences between performing arts non-profits vs. service nonprofits regarding the percent of budget derived from earned income? For example, arts groups generally charge admission fees for performances or exhibitions, whereas service organizations might not have a fee-for-service revenue stream. What are recommended percentages, if any, for each type of non-profit? Any answer here is of course a generalization: Arts organizations TEND to have two large sources of funds: ticket sales (for performing arts) or admission sales (for museums) and then fund raising in many forms. Most human service organizations get a large percentage (sometimes upwards of 90%) of their funds from a government source. Everyone seems to want a set percentage! There really isn't one. Some organizations are more capable of fund raising than others, some more able to earn non-traditional revenue. Some provide services that really only the government will ever want to buy (residential care for the mentally ill, for example), some do things that are very public, some more behind the scenes. So it is impossible to come up with a fixed, best percentage. Sorry. -See the answer to #10. I would talk to them about the fact that you, like any of their for-profit vendors (the people that sell them space, electricity, office supplies, or telephone equipment) are selling them a service that you deserve to be paid for. I will almost guarantee that your funders have, at some point, encouraged you to be less dependant on them, but how can you do that if you are only breaking even? You need to assure them that your net revenues will be reinvested in the community, and be willing to take certain risks. Also, I wouldn't waste too much time going to a government funder-I'd go to your legislative representatives and make the case with them. -See Question #9 See the answer to Question 8 for the first question. I can't give you a good rule on debt without seeing your balance sheet and operations. Talk to your banker and accountant, the two financial professionals who are most familiar with your finances. Reviewing the mission should be a regular part of your strategic planning process. Refining the mission is not only fine, it is essential if the organization is to keep up with a rapidly changing world. Be smart, though, and bring a lot of people into the process. If you change the mission let people know why, and how is will and won't affect the way you do business, who you serve, etc. We need to treat our volunteers like valued assets as well, but with the understanding that we expect excellent outcomes from them as well. Susan Ellis will address this in two months. If you already have morale problems and a history as you describe, it's tough, and a long-term task. But start with your people-the people that you supervise. One thing that I didn't get to discuss in the program is that the entire organization should act in the bottom-up fashion, but that you don't have to wait for everyone to be on board to start. You can begin with your part of the organization, and show, by example, how well it works. But if you, as you describe , are starting in a morale hole, you have a tougher job. You will have to earn people's trust, and that takes time. I don't know, I always ask people what they want! Have you talked to staff about ways to make the organization a better place to work? The management style that we discussed in the program is a huge benefit for many people, and it takes time and effort, but not much money. Again, I can't make any generalizations. Talk to your state or national associations about what retention rates are in your specific type of organization and area of the country. The old adage that a few bad apples can spoil the barrel is certainly true. Unfortunately, some people seem to have a dominant gene that forces them to see the glass as one-tenth empty. If you have had "talks", and been frank with your expectations, and asked these people what it is that they want, and there is no improvement, document the conversations, and the actions, and seriously consider asking these people to work elsewhere. This is even more critical if the negative actions are filtering to the people you serve. An endowment fund is one that is set aside for the long term, and is used to generate interest or dividend income for use by the organization. A cash reserve is just that: cash held in reserve for short term needs-such as when your main funder's check doesn't show up. Ask and you shall receive....Just click here! Remember...when we promise a resource during the program, or we tell you that we will respond to your questions, it normally takes 2 weeks to post these on the web site.We will typically post these under "participant resources" in the "supplemental web-based resources" section. Q50) Does any 501(c)(3)organization have to limit their carryover funds so the IRS will not revoke their status? Too much reserves? Not from the perspective of the IRS, unless a huge percentage (50% or more) of it came from unrelated activities. Remember that Harvard is a 501(c)(3) and has an endowment (a carryover) of hundreds of millions of dollars. They've kept their (c)(3) status, as have hundreds of other hospitals and colleges and universities with large cash reserves. Q51) Is the goal of being profitable 7 out of 10 years considered an "acceptable business practice"? Don't businesses require a profit every year? I certainly would strongly consider it, if your financial picture for the next few years looks good, and you see a way of raising more money to supplement your endowment. See the answer to question #19. Q55) What guidelines can you recommend for non-profits who, due to the similarity of products/services they provide, are in effect competitors? Always provide the best services you can, meet the wants of your markets, and compete-it's the new reality in not-for-profits. OR, if you are uncomfortable with that, talk to the other agency and see if you can collaborate, or specialize in ways that don't require direct competition. Long term, though, you need to work toward becoming comfortable with service competition. After all, you already are competitive for donations, staff and volunteers. Q56) Peter identifies the term "not-for-profit" as the correct "technical term" to describe an organization operating in the third sector ("Is Profit a Dirty Word?", page 18, Nonprofit World, Vol 12, No. 1). And unless I was mistaken in the video program of Feb 18, Peter identifies the term "not-for-profit" as the correct *legal* term as well. Are there references for these citations? Good question. The IRS uses the term tax exempt as well as not-for-profit, as do many (but not all) state corporate statutes. Nonprofit is more commonly used by funders, the press and the public. The great pity about all of this semantic confusion is that either label focuses on what the sector is NOT primarily intended do, and by inference, what many think it should not do at all-make money. A caller in last year's program suggested a much better term: community service organizations. I would love to see that adopted nationally, as it speaks to what we ARE not what we are NOT. As an aside, internationally, not-for-profits are called NGO's or NON-GOVERNMENTAL ORGANIZATIONS, another misleading term. After all, Dell Computer is not a governmental organization-but its not a charity either. *Responses were transcribed by Prof. Andrew Lewis from the live broadcasts produced by the Learning Institute for Nonprofit Organizations collaboration. |
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