This article was originally published on institute.blackbaud.com in the 2017 edition of npEXPERTS, Fundraising Matters: Building a Culture of Philanthropy.
The enlightened nonprofit finance team is critical to building a nonprofit organizational culture of investment in today’s fast-moving, complicated, and competitive philanthropic world.
Gone are the days when a risk-averse interpretation of fiduciary responsibility can immobilize or slow necessary mission innovation and ambition. The forward-thinking finance team must create an organizational culture of mission investment able to turn short- and long-term mission goals into actionable realities. Otherwise, the organization may be destined to run on a frustrating financial treadmill perpetuated by indecision and self-imposed mission limitations.
The enlightened finance team is proactive, agile, focused, thoughtful, and fully aware of the value and trade-offs of resource allocation necessary to achieve short-term mission impact. This focus on relatively immediate action steps can be the precursor to the strategic energy and drive necessary to build and deploy long-term financial capital. It is apparent that in every sector of the competitive nonprofit world—social services, arts, education, and health care—
there’s an increasing number of ambitious nonprofits with the organizational leadership and fundraising drive to identify previously untapped funding sources for immediate use. The inability or unwillingness to consider a new “financial risk and mission reward” paradigm may result in an ignominious, even existential, crisis of cash and missed opportunities that compromise an organization’s mission and independence over time.
So how does the enlightened finance team create and implement a culture of mission investment? It starts with the same questions everyone in the organization must ask:
- What are your organizational mission ambitions in the short- and long-term?
- How is your organization going to achieve those aspirations and when?
- What would the world be like without your organization?
Finance is uniquely positioned to turn answers to these core mission questions into action. It understands all of the organization’s moving parts—including transactions, strategy, time frame, and financial and organizational priorities—and how they fit together to build an efficient and effective structure. The organizational business model provides the context and understanding for prioritizing a culture of mission investment and clarifying its value. The finance team must devise and tell the financial stories based on audited financial statements, fiscal year budgets and forecasts, and longer-term scenario planning to make compelling organizational investment decisions. These investments, based on the goal of building a sustainable business model, might encompass a number of different focus areas—including, for instance:
- Building and carving out financial and asset-based capital, including cash and unrestricted net assets, available for mission investment;
- Building capacity for short- and long-term revenue generation based on the determination that revenue will ultimately have a greater impact on mission sustainability than a relentless focus on administrative cost reductions;
- Building a critical mass of the development department capacity in order to turn mission achievements and ambition into a compelling case for funding;
- Aligning the finance committee, board, and management on key mission goals and strategies, a critical step toward smart investment. For example, a board’s alternative vision of mission-imperative investment might result in an all-consuming building campaign at the expense of the programs the building was meant to house.
Worthwhile investments are capable of and expected to build an organization that delivers on its mission for the long term. A list of possible investments to be budgeted, even at the expense of short-term, bottom-line impact, would prioritize the following:
- Program innovation, independence, leadership, planned incremental and/or dramatic growth, new initiatives, and strategic long-term clarity;
- A rapid-response team to react to immediate opportunities and an internal and external communication and education capacity;
- A fundraising capacity that identifies and builds long-term, diverse revenue streams and significant unrestricted net assets in order to supplement core earned income and restricted grants. This would allow the organization to pay for indirect costs and build reserves;The need for leadership at all organizational levels and for all functions, including the senior management team (ED, COO, CFO, development director, chief program officer, IT director). Competitive compensation levels for staff are often a required investment;
- Research and evaluation capacity to determine mission impact, a surprisingly underinvested area given its importance.
The corporate culture of the entire organization must still fall into line to achieve desired returns on the key investments. Aligning all components of the organization to make and implement investment decisions requires the following:
- At the board and finance committee level, all parties must give the nonprofit corporate structure—which emphasizes re-investing net income back into the mission—the respect it has earned and deserves in order to appreciate the importance of investment decisions.
- At the management level, finance must work hand-in-hand with programs, development, and administration to enthusiastically implement investment decisions based on organizational goals and vice versa. Finance should always ask, “What do you need in order for this investment to be successful?” In return, finance will expect timely communication related to budgets, forecasts, and cash flow to evaluate the financial impact of investment decisions.
- At the day-to-day level, the finance team’s transactional and analytical efforts must be viewed as an integral component of investment and mission success. Finance as a whole must be viewed as a motivated and trusted partner in the achievement of mission goals. Programming departments want consequential programs and activities that deliver a measureable societal impact.
Fundraising must generate significant revenue to fund mission priorities. Management wants an organizational structure that delivers its mission efficiently and effectively. The board wants to ensure that the strategic direction fulfills the mission over time. The enlightened finance team wants all of the above and must provide the financial capital to make it happen. A culture of investment that spans all levels, departments, and functions will propel specific organizations and the philanthropic world in general toward much-needed sustainable mission success. The nonprofit sector has to be up to the existential challenges of today and tomorrow.
About the Author
Russel Pomeranz, President and CEO, Claverack Advisory Group
Russell Pomeranz has thirty years of experience leading the finance and administrative departments of nonprofit organizations with missions related to social services, education, the arts, and think tanks. Pomeranz started his own consulting firm, Claverack Advisory Group, to focus on the critical connection between the nonprofit finance function and organizational programmatic, strategic, and financial trajectories. Before establishing a consulting practice, Pomeranz was COO/CFO of the Vera Institute of Justice, director of finance at the Council on Foreign Relations, and CFO at Spence Chapin Services to Families and Children. He served as business manager of the Maret School, where he taught geometry, and he served as adjunct assistant professor of public administration at NYU Wagner. He has served on the NPCC Nonprofit Excellence Awards Selection Committee for the past several years.
Pomeranz is chair emeritus and current treasurer of Workforce Professionals Training Institute (WPTI), president emeritus of the Columbia County Historical Society, and treasurer of JobPath NYC. He also serves on the board of several other nonprofits. He has been published in the New York Times, the Chronicle of Philanthropy, the Wall Street Journal, and the CPA Journal. He has a degree in economics from Haverford College and an MBA from the University of Michigan.