The Not-For-Profit Organization’s Life Cycle: Challenges and Opportunities Mark Growth Stage
LARRY SOPHIAN, CPA
Not-for-profit organizations generally mature along a standard life cycle. An organization’s first steps are typically followed by a period of growth, which, ideally, is less eventful and stressful than those early years. The growth stage — beginning two or three years after “birth” and continuing until “maturation” at around age seven — is not without challenges. However, this period also comes with a sense of accomplishment and the opportunity to diversify and bring in new staff and donors as the organization comes into its own.
Also, in this stage, many of the organization’s administrative and operational systems become more formalized as the organization evolves.
Evolution of the Mission
It may have seemed blasphemous to even consider when the organization was in its incubatory and birthing stages, however, a not-for-profit might adjust its mission during the growth stage in the face of new circumstances. (This is something that should be evaluated on an ongoing basis throughout the organization’s life.) Changed demographics, economic developments or simply greater knowledge might make it appropriate to revise the organization’s purpose.
An organization can hone in more intensely on a subset of the original mission, or it may shift its focus to another area. The organization may, for the first time, develop a strategic plan to incorporate the changes to the mission, or the development of the strategic plan may lead to the realization that a change in the mission makes sense. Such changes might be essential if the not-for-profit is to remain relevant and viable.
Evolution of the Board
Perhaps the most common marker of a not-for-profit organization in the growth stage is the change in the focus of the board of directors, from day-to-day operations to governance. While the board will usually continue to be active in operations to some degree, it also must begin to work on strategic matters — the policies, planning and evaluations necessary to pave the path to sustainability.
The composition of the board is likely to change during this time, as founding board members move on. The result could be a larger and more inclusive collection of individuals, preferably with a wider range of skills, talents and backgrounds. Former or current volunteers or clients may ascend to board positions, propelled by their passions for the cause. As the organization grows, the need for board members with a specific skill set may also become apparent and you may actively recruit prospective talent who possess these skills.
Boards also can establish committees at this time. It is important to resist the urge to form too many committees — particularly those concerned with operations. Some organizations implement a three-committee structure, with committees for only internal affairs (for example, finance, HR and facilities), external affairs (for example, fundraising, PR and marketing) and governance. Whatever structure you use, the formation of committees can be used as another recruitment tool. You may be able to attract individuals who are interested in your mission, but unable or unwilling to commit to the responsibilities of being on the board.
Evolution of the Staff
As the demand for services builds and the board expands programming, staffing will naturally progress, as well. The staff, like the board, should expand in the growth stage to avoid burnout. Therefore, the not-for-profit organization should design a clear organizational structure and hire experienced managers.
At this juncture, the organization should develop formal job descriptions, with greater job specialization. Employees will now be expected to work under formal systems, following policies and procedures and in a more efficient manner than seen before, during and after the organization’s launch. The executive director is generally still the primary decision maker, although he or she may not have time to be as involved in every area of the organization.
Evolution of the Finances
Growth-stage organizations are generally in a more comfortable financial position, with less uncertainty. However, for not-for-profit organizations, that uncertainty never completely evaporates.
Although organizations in the growth stage have established good relations with their key funders, there are still challenges in securing the necessary funding to support current programming. Thus, not-for-profit organizations in this stage need to look into ways of maintaining — or, better, expanding — growth, such as diversifying their revenue sources, managing cash flow and developing solid budgets. They should work with financial advisors to identify, monitor and respond to appropriate financial metrics, such as cost per primary outcome, cash reserves and working capital.
Keep Calm and Carry On
An organization that has made it to the growth stage has overcome some challenging hurdles, but cannot afford to become complacent. Rather, the growth stage is the time to leverage what has been learned and steer into even greater success.
Newsbits: Fall 2016:
CAITLIN GIBBS, CPA
Donors Say Messaging Affects Their Giving
Approximately 72% of respondents in software provider Abila’s Donor Loyalty Survey say their decision to give is affected by an organization’s messaging. In February 2016, Abila surveyed 1,136 U.S. donors of all ages who had made at least one donation during the previous 12 months. Of the respondents. 65% said they prefer a “short, self-contained e-mail” with no links; 73% prefer a short (two to three paragraphs) letter or online article; while 60% prefer short (under two minutes) YouTube videos.
About 71% of respondents feel more engaged when they receive personalized content. However, personalization gone wrong — for example, with misspelled names or irrelevant information — can alienate donors.
GuideStar Introduces Program Metrics to Profiles
GuideStar has launched a new tier of Nonprofit Profiles called GuideStar Platinum. The no-charge Platinum tier allows not-for-profit organizations to report their progress against their missions using metrics they select. GuideStar has collected about 700 suggested metrics; however, organizations may opt to share the metrics they already track and that matter the most to them. For example, a homeless shelter could report the number of people no longer living in substandard housing as a result of its efforts or a school reporting the number of students enrolled.
According to GuideStar, more than 500 not-for-profit organizations signed up within 48 hours of the first announcement of Platinum in April 2016.
FASB to Release Final Reporting Changes for Not-For-Profit Organizations
The Financial Accounting Standards Board (FASB) is expected to release a scaled-back set of changes to the financial reporting for not-for-profit organizations in the third quarter of 2016, with more far-reaching changes planned for an unknown future date. Changes made so far this year include the areas of net asset classification, asset liquidity and presentation of expenses.
The FASB has made some significant amendments to its April 2015 proposed Accounting Standards Update (ASU) No. 2015-230, Not-for-Profit Entities (Topic 958) and Health Care Entities (Topic 954): Presentation of Financial Statements of Not-for-Profit Entities. For example, not-for-profit organizations will not be required to present operating cash flows using the direct method but can continue to apply either the direct or the indirect method. Other examples include changes to the number of classes of net assets both on the face of the statement of financial position and statement of activities and changes to how underwater amounts of donor-restricted endowment funds are classified The final ASU will first apply to financial statements for calendar 2018 and fiscal 2019 year ends.
What Do Successful Fundraisers Have in Common?
A report commissioned by the Evelyn & Walter Haas Jr. Fund explores how 16 not-for-profit organizations are achieving fundraising success. The report found striking commonalities in the respondents’ mindsets about fundraising from individual donors. Notably, all of the organizations distribute fundraising responsibilities across board members, staff and volunteers and regard fundraising as core to the organization’s identity.
For more information on the topics discussed in these stories, contact Caitlin Gibbs, CPA at [email protected], or call her at 312.670.7444. Visit ORBA.com to learn more about our Not-For-Profit Group.