Your biggest risk is the one you don’t see coming
Joan M. Renner, CPA, CGMA, Director 501(c)(fit!)
We were just out in Denver for a conference, and took a side trip to see the sights. Late in the day, we tried to visit a cute little Dinosaur museum, but, unfortunately, it was closing time. Too bad. As we turned to leave, I gasped, finding myself face to face with a giant T-Rex skull! Five feet of jaws and teeth pointed right at me! Once my heart slowed down, we snapped a picture and had a good laugh. It just goes to show that your biggest risk is the one you don’t see coming.
That moment was funny, but risk doesn’t always play out that way. Unseen risks have led to a number of high profile nonprofit closures. In March 2015 a huge New York social services nonprofit, the Federation Employment and Guidance Service (FEGS) announced its demise after 80 years of service, leaving 120,000 beneficiaries to transfer their services to other service providers.
There have been other high profile nonprofit closures, but this one led to a study of the health of the nonprofit social services sector as a whole. A group in New York called the Human Services Council undertook the study and, in February 2016, released their report, New York Nonprofits in the Aftermath of FEGS: A Call to Action. They found that human services agencies have a higher rate of insolvency than other nonprofits, with six out of 10 human service nonprofits in financial distress, “having no more than three months of cash reserves”. (Many of you would love to have three months of cash reserves.)
The saddest part is that, in one organization after another, sincere, hard-working individuals were blindsided by their organization’s closure. When funding is tight, nonprofits cut infrastructure, which can lead to a downward spiral of skimping to the point where nonprofit employees are underpaid, roofs are leaking and equipment is in disrepair. There aren’t enough hours in the day, or enough dollars in the budget to assess where they stand, much less foresee risks.
One of FEGS’ biggest risks was their need to supplement their government grant funding with outside money to stay afloat. Because their grants didn’t cover their overhead, more grants just put more pressure on fundraising. What’s your biggest risk? Do you depend on one large source for funding? Are your leaders nearing retirement? Are your key supporters aging? Can you attract the right people for your team? In a risk assessment process, you can identify what drives your organization and make proactive plans to protect it. With the right planning, you can see what’s coming and be prepared to meet your risks head on.
What can we learn?
Update your risk assessment. Undertake a risk assessment process to prepare your organization for the future. The Human Service Council urged human service nonprofits to “affirmatively identify risks to their survival and collectively act to address them”.
To learn more about nonprofit risk assessment, check out our 501(c)(fit!) NEXT Guided Solutions webinar series; Your Nonprofit Risk Assessment.
A risk assessment process can help you turn your worries into action. In an organized risk assessment, nonprofit leaders identify and address risks through a process to “see it”, “size it up”, and prepare to “avoid it, tame it or at least watch out for it”.
Learn more about our webinar series, 501(c)(fit!)® NEXT –Guided Solutions: Your Nonprofit Risk Assessment. Your team of leaders will:
- Plan your process to get everyone on the same page,
- identify what drives your organization, what’s key to your survival,
- consider what potential events might put your future at risk,
- evaluate the possible risk events based on how bad they might be and how likely they are,
- develop mitigations to address your most severe risks, and
- put your mitigations in place so that everyone’s prepared to meet tomorrow’s challenges.
Know how many grant programs you can afford to subsidize. Calculate your true costs compared to what your grant programs cover. Unless you can get more overhead reimbursement, don’t take on more grants than you can support with outside funding. To learn more about grants, check out our 501(c)(fit!) PLUS webinar; Grant Basics—Following the strings attached.
You wouldn’t ignore the “check engine” light in your car. What makes your nonprofit any different? Don’t wait until something happens. Take action through a risk assessment process, and prepare your organization for the future.
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