The recession and its aftermath profoundly affected nonprofits. With scarcer resources, organizations were living closer to the bone and the margin for error was thinner than ever. Tight and transparent financial management was a necessity, and in its absence a handful of current and former SVP Investees merged or closed their doors.
Some of these groups had been in their communities for 30 years. It was heartbreaking. It was also painfully evident that SVP’s financial capacity building work was insufficient. We weren’t asking the right questions and we didn’t have the tools to provide the level of support our Investees needed.
“If we hold ourselves accountable to being great capacity builders, the questions become – What are we missing? What can we do better?” says Mike Quinn, Director of Community Investment at SVP.
Nonprofit finance can be a lot like swimming against the current. Most organizations rely on donors to cover costs because clients cannot afford to pay for services. Donors, on the other hand, can place restrictions on where that money is spent, creating a giant budgeting puzzle to understand what funds can be spent where. As soon as an organization receives restricted funding it becomes difficult to track their finances, particularly when restricted funding begins to outweigh overall income. And while some organizations might have board members with financial knowledge, not all do.
These obstacles are compounded by limited knowledge and skills among leadership, executive transitions, and an ever-shuffling funding system where donors shift priorities and government agencies change reimbursement practices. A revenue source that was once there might fall away, leaving the organization scrambling to fill the gaps or make cuts.
Given all these variables and the fact that financial challenges among nonprofits appear in different ways, SVP began by studying. Staff and Partners attended trainings held by the Nonprofit Finance Fund. SVP Partner Mike Cadigan spearheaded the creation of basic financial dashboards that were used internally to get a better sense of each Investee’s financial position.
Later, SVP offered trainings of their own to Partners based on the framework that was developed internally, and some began sharing what they learned at organizations where they served as board members or lead partners. It didn’t take long before conversation around creating Communities of Practice at SVP started to gain momentum as not only a way to enhance capacity building with Investees, but also a way to connect partners with similar backgrounds to share their skills and experience.
“It’s a loose concept where Partners share best practices, tools, stories,” Mike explains. “But also they can work together and organize to better serve our Investees in specific capacity building areas.”
The work around nonprofit finance became the impetus for pulling together the Finance Community of Practice in 2014. And they began by working backwards, identifying what Investees needed and how SVP was positioned to help.
A financial health assessment provided by community partners — not auditors — seemed like a natural first step. Each assessment would end with a roadmap for how the organization could move forward. For smaller organizations, the assessment could be a chance to break down the considerable anxiety that overwhelms operations, so staff can focus on programs and impact. For organizations with stronger finances, it could give them those strategic tweaks that allow them to take their work to the next level. For others, the assessment could be the reassurance they were waiting for to start expanding.
“Finance capacity building has a huge potential for impact, because if you don’t have good financial information and don’t know how to look at it, you’re in a vacuum,” says SVP Partner and financial consultant Tanya Anderson.
Tanya worked collaboratively with the Finance Community of Practice, building on the framework Mike created. The skills and perspectives other Partners brought to the team allowed deeper thinking around how reporting and tools brought forward could be helpful. SVP Partner Bill Skilton combined his finance and IT experience to brainstorm ways they could visualize financial maturity on a spectrum so that Investees have a place to aim. SVP Partner Debbie Newell dug into how to help boards understand their current finances as well as opportunities. The list goes on.
“In the end, everybody had something significant to offer the process,” Tanya says. “It was sort of the collective effort of all of us that created that whole picture, that concept.”
The result, a financial health assessment that provides executive directors a way of viewing their financial history, gauging board understanding and generating in-depth reporting on the organization’s cash flow and restricted vs. unrestricted revenue.
Open Arms Perinatal Services was the first to test this tool with members of the Finance Community of Practice. To learn about their experience, read Building Capacity Builders, Part 2: The Investee.
Cecilia Garza is SVP’s communications manager. In her free time, she enjoys sailing the Puget Sound by way of her small yet comfortable Coronado 25’ and romping the beach with her 10-pound Italian Greyhound.
Learn more about Cecilia and read more of her work here.