Providing Social Services— and staying afloat

Joan M. Renner, CPA, CGMA, Director 501(c)(fit!)

If your organization provides government-funded social services, you know you’re among the nonprofits with the tightest budgets.  You probably accept it as part of delivering your mission.  Social service providers often depend on funding that just doesn’t cover the cost of the services provided.  It’s no wonder that six out of ten social service nonprofits are in financial distress. *

What’s more, grants come with complex accounting issues, making it harder to report accurately on the results of operations and financial position.  As a result, many find themselves blindsided by their financial condition.

You’ve read about high-profile nonprofit closures in a number of FIT! TIPS.  Sadly, there’s one more to add to the list.  This January, Colorado’s largest provider of substance abuse treatment, the Arapahoe House, in Denver, Colorado, closed its doors after 42 years of service.  Arapahoe’s CEO explained that underfunding led to continual losses.  In the end, the organization’s reserves ran out and the nonprofit closed its doors.

Survival in today’s climate of tight budgets and complicated grant funding streams will require nonprofits to adapt.  You can only continue your mission if you can manage to stay afloat.

What can we learn?

Assess your program funding.  Arapahoe’s program costs exceeded its government funding, and its outside contributions didn’t make up the difference.  What do your grant programs cost?  Include overhead.  How much do your funders give you to conduct those programs?  The shortfall is your funding deficit.  The government funding model presumes that nonprofits will make up this shortfall with outside funding.    

Bigger isn’t necessarily better.  The more government-funded programs you accept, the bigger the funding shortfall gets.  You can only take on new grant-funded programs to the extent you can cover the additional shortfall with money from other sources. 

Know where you stand.  Arapahoe closed its doors with two weeks’ notice.  Were they blindsided by their financial condition?  The process of getting your accounts complete and accurate is called controllership Without it, you’re driving blindfolded and you may be faced with a sudden stop.

Assess your assets.  Arapahoe’s most recent 990 showed liquid assets, but most were restricted or needed to pay liabilities.  How much do you have in cash, investments and receivables that you don’t owe to others?  How much of that is free from restrictions?  This is the amount of money you have to call your own. 

Compute your reaction time.  When Arapahoe closed, 5,000 program recipients had to seek treatment elsewhere.  Arapahoe employees found themselves out of work with one paycheck.  How long will your assets last if you continue on your current course?  Plot out your known income and your known expenses by month.  Explore alternatives.  Will you need to eliminate some programs to focus on others?  You can only continue your mission if you can stay afloat.

We’ve got some helpful sessions on these topics in our live two-day seminar, Financial Leadership Training for Emerging Nonprofit Professionals (https://www.empowering-nonprofits.com/financial-training-nonprofit-executive/)There’s a helpful session on Controllership, the layer cake of finance, as well as one on Building Your Budget—and putting it to work.

We’re also providing a new emerging leaders program, addressing some of the finance issues nonprofits encounter as they grow.  Our continuing financial leadership seminar, Raising the Bar—Preparing for Higher Expectations, includes helpful sessions on Understanding Overhead—funding the full cost of your programs, and Risk Assessment and Your Reserve—focus on financial sustainability.   Online registration coming soon for November 9, 2018 in Alexandria, Virginia.

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*Yes, it’s true per the Human Services Council; New York Nonprofits in the Aftermath of FEGS:  A Call to Action.

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