John Zietlow / Southwest Baptist University and Indiana ... · Example – Fundraising letter:...

John Zietlow / Southwest Baptist University and Indiana University/IUPUI Nonprofit Communication Conference Drury University Springfield, MO October 3, 2016

Why…should we pursue a healthy, sustainable, robust organization?

What…are some measures of financial health, focusing on cash and cash flow?

How…can we move the conversation and state of practice forward?

10/3/2016 © 2016 by John Zietlow. All rights reserved worldwide.

Research on faith-based organizations, including major “Lilly Endowment Study” in 1990s

Roughly 300 CFO interviews 2011 Indiana University Center on

Philanthropy study of 500+ mid-sized nonprofits (Moody’s Foundation)

2011 Financial Health Research Project (Malone University, CapinCrouse LLP – CPAs)


Type of organization

Size of organization (Total Revenues & Support)

Your role at the organization

How many serve on a nonprofit board?


The IDEAL context or frame for every finance committee conversation!


Source: Lilly Center on Philanthropy 2010 national survey of 500+ nonprofit organizations. Used by Permission.

10/3/2016

“Explicitly link the financial health of the organization with its goals and strategy. Explain why finances will or will not allow the organization to accomplish what it has set out to do.” - Tom McLaughlin


“…organization’s ability to manage the unexpected, adapt to changing circumstances, and pursue mission imperatives” – Peter Kramer (NFF)

“long-term stability in both programs and financial performance” – Kate Barr (NAF)

“ability to deliver effective and efficient services in both the present and future” – Elizabeth Keating (Boston University)

“the ability to generate resources to meet the needs of the present without compromising the future” – Jeanne Bell (CompassPoint)


“…ensuring that financial resources are available [today and in the future] when needed (timing), as needed (amount), and at reasonable cost (cost-effectiveness), and that once mobilized, these resources are protected from impairment and spent according to mission and donor purposes” – Zietlow, Hankin, & Seidner

Financial Management for Nonprofit Organizations (Wiley, 2007)



Structural Deficits

Revenues across the years

Expenses across the years


Use of Debt

Assets must be funded

Low-risk: Use donated capital or accumulated surpluses

High-risk: Use debt

Super-high-risk: Use debt to fund assets and structural deficits


Inattention to cash

Cash and cash flow are the lifeblood of your organization

Bring the cash in quickly

Slow the payout of cash

Make sure cash is in one or a very few locations and is accessible

Manage the risks of cash and cash flow

Faith-based homeless shelter in Canton, OH Set policies to accumulate cash and near-cash

through a “Liquidity Management Policy” Finance committee, and later the full board,

determined that “months in cash” was not the only metric to monitor and manage


Financial Health Index Trend for Refuge of Hope (2009-2015) Financial Health Index ranges from 0 to 100.


Be careful: Months in Cash Does Not Always Capture Your Near-Term Financial Strength (based on one-year percent change…to six-year percent change)


We advocate that your organization profile its financial health over the near future, out to three years. Why is this important?

Example – Fundraising letter: “All through the years we have just met expenses. Thus, there have been meager funds for much-needed leaky roof repair and other building upkeep. There has been a lack of funds for expansion, medical and other equipment, adequate support of our websites, etc. We must constantly be making plans and implementing them, to overcome these shortcomings. I ask you to please help me to do this.”

- Human Services Executive Director (March 2013 Fundraising Letter)


Many nonprofits (outside of large healthcare and educational institutions) are targeting liquidity and financial flexibility as their primary financial objective (IU Center on Philanthropy Study, as shown on next slide)

Yet, many nonprofits only monitor a basic measure of their near-term financial resources: Cash in terms of operating expenses

(3 months? 6 months? 1 year?)


Source: IU Center on Philanthropy 2010 Survey. Used by permission.


Audience Poll: (agree or disagree, by show of hands) “We must use all available resources to meet urgent/pressing needs now.”

Agree? You are snared in the CST: “Current Services Trap” * – in this zone, you are likely to undermine your long-term stability/viability * Elizabeth Keating


Months of (Operating Expenses) of Cash on Hand (or “Days Cash on Hand”) commonly touted

This measure is assumed to be the closest thing to a “one size fits all” measure of financial health

Three-months (90 days) is the default setting Question: Is my organization OK if it has four

months’ cash on hand?


Can benchmark against ourselves over time and against similar organizations

Can select one or more measures, one subscore, or maybe the overall Φ score and put it on your dashboard for monitoring and review

Can revisit your cash reserve policy based on insights (recall the primary financial target)

Can begin targeting one or more of the measures as a financial policy

Can assess development initiatives, growth plans and policy changes relative to financial health effects


When our primary financial target is relatively short-term it is essential to have a grasp of what constitutes/contributes to financial health over the near-term and out to three years

Financial Health/Sustainability/Robustness is critical for our mission, our clients, our employees – and our metrics must reflect financial health

Cash and Cash Flow are the Key Focus Points



Source: http://www.girlsinc.org/annual-reports/2016 Accessed: 10.1.2016.

One answer to that question…

http://www.girlsinc.org/annual-reports/2016




1. Alert – to what lies ahead (environmental scans)

2. Agile – recruit, train, retrain, maybe redeploy talented, flexible workforce

3. Adaptable – build reasonable reserve funds in spite of donors and frequently ask why exist, whom serve, and how will know succeeded

4. Aligned – all operations toward mission


10/3/2016

Source: Lilly Center on Philanthropy. Used by permission.


Questions?

Further information Complete version of Financial Health Index write-up: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2049022

For copy of “How-To Guide for Calculating Financial Health Index,” request via email ([email protected]). Contact John: (417) 328-1480 www.johnzietlow.com


http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2049022

mailto:[email protected]

http://www.johnzietlow.com/

John Zietlow / Southwest Baptist University and Indiana ... · Example – Fundraising letter:...

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