Not-for-Profit Notebook

Practical insight and analysis on the accounting, audit and tax issues impacting not-for-profit organizations.

Six Strategies for Financially Troubled Nonprofits

When your nonprofit organization is struggling financially and you’ve already attempted to cut costs in more traditional ways, like wage freezes and layoffs, what’s next? 

If you need to generate operating cash flow, try these six strategies:generate operating cash

1. Review your endowment fund rules. A potential source of operating funds is your organization’s permanently restricted endowment funds. One of our previous blog posts provides more detail regarding restrictions. Under the Uniform Prudent Management of Institutional Funds Act (UPMIFA), you may be able to spend what was once considered the untouchable original principal (or historical balance) of funds.

Access generally is available when the donor of the original gift is silent about restrictions or hasn’t specified that UPMIFA provisions don’t apply. In some cases, an original condition or restriction may no longer be practicable or possible to achieve. Consult your attorney to learn whether this is an option.

2. Contact the original endowment donor. If UPMIFA provisions don’t open up a potential source of funds, you could take another route by approaching the original donor. Ask the donor to lift all or some of the spending restrictions so you may use a portion of the funds for operating costs.

3. Analyze your financial statements. In a previous post, we discussed the importance of using your financial statements to help manage your organization. Look back at some of the financial statement metrics, such as debt ratios, program vs. administrative expense ratios and restricted vs. unrestricted resources. When you take a detailed look at your finances in this way, you may find areas to improve and subsequently save your organization money.

4. Reconsider expensive programs and events. Perhaps there’s a particular program, or even a large annual event, that isn’t critical to your organization’s mission, yet provides a drain on cash balances and staff resources. Saying goodbye to that program or event can be difficult — but the reward is freeing up funds for more pertinent programs or administrative necessities. If you can redirect individuals to similar programs or events offered by other organizations, such changes can be made without a break in service.

Note that you may be alerted to a program that is costing too much during your financial statement analysis.

5. Examine your investment portfolio. Your nonprofit may have portfolio investments or idle assets that aren’t generating operating income — for example, donated real estate, collections and other non-marketable holdings. Consider divesting some of these possessions and obtaining the operating funds you need.

6. Lean on your board members. Board members usually have a passion for their organization and will do whatever they can to assist. In many cases, board members already have employer backing for your organization, and that company may be willing to step up its financial support. Board members have other community contacts as well. Sometimes, all your Board members need to do is ask these contacts for support. Using personal appeal can surely help as well.

The ideas above, while not all-inclusive, point to cash sources you may need to sustain your organization.