#142 Understanding Nonprofit Finances with Sybil & Fred Ackerman-Munson

Aug 21, 2023

Fred is excited to join Sybil today to discuss budgets and finances. Donors often do a good job at asking for very specific and detailed project proposals but then fail to be equally specific in their financial and budget requests. They discuss how to focus your request for the nonprofit’s financial information that aligns with your proposal request. This way you won’t have the nonprofit doing busywork.

It is crucial to carefully consider the financial stability and potential of a nonprofit before donating, but unnecessary to ask for too much irrelevant financial information that you may not even use in your actual decision to fund the organization.

Episode Highlights:

Importance of a understanding nonprofit's financial stability without asking for everything and the kitchen sink

Sybil Ackerman-Munson Bio:

With over 20 years of experience as a nonprofit professional and foundation advisor, I work with philanthropic institutions and foundations interested in successful, high-impact grant making, so you can make a real and lasting positive contribution to the world on your terms.

Links:

IRS - https://www.irs.gov/charities-non-profits/tax-exempt-organization-search
Charity Navigator - https://www.charitynavigator.org/
Candid Charity Check - https://www.guidestar.org/

Free mini-courses.

Be Collaborative - https://www.doyourgood.com/offers/PXGEYkWh/checkout
Be Finance Savvy - https://www.doyourgood.com/offers/kQwFWG4P/checkout
Be Legal - https://www.doyourgood.com/offers/U8SFR3mR/checkout

If you enjoyed this episode, listen to these as well:

Crack the Code: Sybil’s Successful Guide to Philanthropy

Become even better at what you do as Sybil teaches you the strategies as well as the tools you’ll need to avoid mistakes and make a career out of philanthropy.

Sybil offers resources that include special free short video mini-courses, templates, and key checklists, and words of advice summarized in easy-to-view PDFs.

Check out Sybil’s website with all the latest opportunities to learn from Sybil at

https://www.doyourgood.com

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FULL TRANSCRIPT:

OK, Fred. Yes, dear? This is going to be a great conversation. I wish my listeners could see your expression. I know you're just really excited to talk about budgets and finances.

Budgets. Oh my God.

I know it's Actually; I find it fun. But you know, I'm a geek, so I don't mind. Anyway, that's why you love Me.

I Love you.

So right now, what we're going to do is talk a lot about nonprofit's budgets and finances. So as a donor, someone who wants to give money away, a lot of times I find what we do and what my clients do is say, please be detailed in your proposal. Tell us what you're going to do, and there's a whole lot of attention paid to the narrative for fundraising.

But I find that there's not as much attention paid to things like the kinds of things, we, as donors, want to see in a nonprofit's budget are different depending on whether we're asking them for a project or just general support. The kind of things we want them to focus on. But the thing is, instead of being very specific in the finances, we end up asking these nonprofits to give us everything in the kitchen sink.

So, the point of our conversation today is that I want to talk to you about, what are the most important things to you as a person who reads and reviews proposals and has done so for, oh my gosh, I always forget, how many years?

You don't want to know, … 19 years, but before that, as a consultant.

No, I do what, like, 19 years, right?

So yeah.

And before that, you worked at a nonprofit. Right. So, I'd love your thoughts about it. You know, the folks who listen to my podcast regularly heard me just talk about this, and I also interviewed a couple of experts on the issue this month. But let's talk right now about some of your high-level thoughts. And then I would have said, you know me, I won't help, I can't help it, I'll chime in.

Well, so I would take a step back before talking about budgets and things like that and speak.

Yeah, yeah.

What is it that you care about? Right. And one of the things people are always worried about as donors is honestly, Am I getting ripped off Like, am I giving to a group that might take the money and run or not do what they said? Or maybe they'll fold and…

I always rely on you to bring up the grumpy side of things, no, no.

The reason I want to start here is because, OK, let's say you're a new person listening to this podcast for the first time. You're like budgets—what a budget! I just. I'm just worried about this group. Like, this guy came to me, and he had this plan and how do I tell if he's even telling the truth? Truth. Yeah, so before we get into, like, looking at budgets and stuff like that, I would just point out that there are a few reputable resources that people can go to check out a nonprofit just to see if they have a good reputation.

Love that.

So, Charity Navigator

Yeah, we'll have the links to that in the show notes. I also have to, and you know, one of my many courses on being legal has links to those places, too, and they're free courses for donors on my website.

So, I just wanted to start there with OK Candid, which is another one of those places you can go and get up to date and find relatively up-to-date financials.

Charity check and candid are sort of together. Now, yeah.

Yeah. What Charity Navigator is.

Also, the IRS has Charity Navigator. Thank you. So, we'll make sure we have Charity Navigator. We have a direct link to check, and then the IRS also has a direct link to check.

For United States things, but not everybody who's listening to this is just from the United States. To keep. So, if you're not if you're outside the United States, there are also equivalent opportunities for you to just double-check with the government about whether the nonprofit you're working with is legit.

And I wanted to bring that up because that is kind of one of the fears that people have to get over when they're giving money and I mean, let's face it, in the business world, there are hucksters out there, right?

Right there they are people I know we're not political, but Donald Trump was proud of the story when he was building a building in Coney Island and he was trying to get investors, and he brought them over there, and he had all these people in the backhoes and bulldozers start moving dirt around. There was nothing to do. He just had a lot of activity going, so he could convince his investors that it was a good thing.

So, you want to make sure that the charity that you think is good is real. Right 99.9% are real. But do some basic due diligence before you get into budgets.

And that's why we definitely will put those three key links if you're thinking about it in the United States: The Charity Navigator, the GuideStar charity check through candid, and then the IRS Internal Revenue Service also has a way that you can double-check to make sure that the nonprofit is officially registered, that's really and yeah, that is important. Just to make sure that You know that.

Right. And then you can take a look at their history as well. Like, do they have five, six, or seven form 990 PF.

Or audited statements.

Audited statements and that kind of thing So there's a way to get over that very first hurdle, which is: is it legit? Is your money going where it goes? Say it's going.

Right. And once you know that, I mean, a lot of folks listening to this are like, we have two, three, or four nonprofits. We already give money to them because we really love them, and you've already done that kind of research and know that they're legit, so that's great.

But I think that you still want to keep listening to this because now we're going to talk about, given that the nonprofit is something that you know about and care about, what are some of the key financial instruments that you should be asking for? Or is it everything under the kitchen sink? Or are there certain financial pieces of information that you need depending on the kind of project you're asking for, a grant you want to give, or a donation You want to give? So, Fred, I'd love to hear more about your thoughts on that.

Well, again, I would start with your goals as a donor. So, if you're supporting an organization year after year, Here, one of the things you're concerned about is its longevity. Do they have good plans for their finances? I mean, one of the best ways to tell if an organization is healthy is to ask, do they have a reserve fund? And how big is it?

And it and some organizations have endowments as well, but the importance of the Reserve Fund is that stuff happens in the world stock market. It goes up, and the stock market goes down when it goes down some donors give less, so if you're a nonprofit, you need to be ready for your finances to dry up sometimes.

So, you want to have a reserve fund that covers at least three to six months of operating expenses. So that's one measure of the longevity of the organization. Are they prepared to handle it?

I particularly care about that when it's a nonprofit. That's really small, I work with clients who fund smaller nonprofits. They like funding small upstart nonprofits that are trying things out. Their margin is very, very lean, and so we do end up making sure that I'm talking to folks about their reserve fund. If it's a smaller organization, it can be applicable. Even if it's larger as well, right?

Sure. I mean.

If you have a lot of cash out the door, and then something goes wrong, and you don't have a buffer, even if you're a large organization. It can hit you.

So that's basic. I guess what we're talking about here is basic due diligence on the organization's finances. Do they have Do they have audited financial statements? Do they have an IRS 990, which is their tax return, that you can look at?

Now you're not going to find a lot in that 990. But if you see Several years in a row, and the balances all look good, and they're not going under, that's.

What do I mean? You're not going to find a lot. Well, I feel like you can quite a bit in the 1990s.

You can see the in the 990, you can see their expenses. You can see their top-paid employees. You can see their income.

Right.

But first of all, by the time you see it, it's two years old.

Thank you for emphasizing that one.

And so that's the first thing, and the second thing is that it's a snapshot in time. Right. It's at the end of their fiscal year, whenever that is. And that doesn't give you an ongoing measure of their fiscal health. However, if you see a bunch of years in a row and they all look good, you probably don't need to look at it every year. You don't.

I mean, honestly, if you look at it, as long as they have -- going back again, what are the goals that you care about? Is the organization going to exist? Are they going to be able to do what they say with your money? Well, that comes down to financial management.

So, do they have all of the checks and balances in place? Do they have accountants? Do they have audited financials? Do they have tax forms that were accepted by the IRS? And looks legit. That is a good indication that they have basic financial due diligence in place. And you can trust what they say.

That's great, Hun. So, I do want to dig into this a little bit more. So, you want to make sure upfront that the organization is financially solid? One thing that I focus on is if you're a funder who's more of what I call a campaigner or launcher funder.

So, you're somebody who is looking at a problem you want to solve. And it may or may not have to do with the longevity of an organization is the problem you want to solve. And there happens to be five, six, or seven organizations working specifically to solve that problem over a five-year time horizon, let's say. OK, so let's say it's like there is an open parcel of land that's valuable is for sale, and it's valuable as farmland, but developers may come at it if there's not a fundraising campaign to essentially purchase that farmland so that it can stay on to support a local farmer or something like that.

So, I'm using that as an example. So that's a five-year plan; let's say the parcel is like $2,000,000. And it might require five or six different organizations to work together to solve that problem, which is that we have this land. The problem is that it might succumb to development pressure. We need an organization that's good at media so that they can advertise how amazing this property is. We need an organization that knows a ton about agriculture and farmland to be able to dig into and prioritize this. Maybe it's a Land Trust we need, and the list goes on.

We need an organization that Knows a ton about legal work, so they can help. Make the deal happen, and rarely is it the case that there's one organization that's good at all those things. Sometimes it is, but you might have a bunch of different groups, so you're looking at a campaign or something. You're also, in this case, launching something to fill a gap.

So, it's a time-limited thing, therefore. It only matters that the organizations you're funding exist for five years. Frame rather than forever, and sometimes actually. There's an organization that's created only for five years to help a campaign succeed, and then after the campaign is done, it ends. Right.

I've done that.

I know, I know.

So, I just want to flush that out a little bit because I think a lot of times the first part of what you were just talking about, looking at the different statements and all that kind of stuff, I hear that. And lots of trainers. I hear a lot of great people talking about how these are the things you need. These are the Instruments, and you need to look at this and that, and I think it's good that we're repeating all of that, but I do want to dig into if you're somebody who wants to work on an actual project that's got a five-year time horizon, is it true after you've done your due diligence on the organization and made sure that it's going to be solvent over the five-year time horizon as you're continuing to ask for proposals over that five-year time horizon, what do you think are the most important financial instruments that you want to keep an eye on?

It depends on how the project is set up. Sometimes you can have one lead organization.

Good point.

Most or all of the money goes through, and then they distribute it to organizations that are helping them. That's one model.

Perfect. Yeah.

Another model is where the organizations all get together and create a campaign budget where each organization says it needs X amount of dollars this year and next year to do its function. Whether I'm the legal person, the person doing communications, or whatever it is. That takes a lot more coordination. And goodwill between the organizations, but it is possible and works, in which case they would have a campaign budget and they all agree to it, and then they fundraise for it. A single donor will rarely have enough money to fund an entire campaign budget for five different organizations.

It's also rare that a single donor will be naturally aligned with all five nonprofits working on the campaign. one of one donor. You, as a donor, might be interested in communications, for example, but not as interested in the legal side of things.

So, you just want to fund the group; you know well that it does. The communications, but then another donor may be interested in legal and how you do that. And so, they might want to do it. That one more

You know? Yeah, it gets complicated fast because, jeez.

I know that's why I want to unpack this part, because I just feel like this is the part that isn't talked about as much, and it's really where people like intermediaries and expert organizations know how to do this kind of thing, collaborative budgets with campaigns come into the picture, but they're not talked about as much. Yeah, and you. And I've seen you do it. I see you doing it today with some of them. The work you're doing is working.

So, I'm just thinking back to the land acquisition programs that I ran.

Right. You did that.

I ran before.

You did the Loomis campaign, right?

Well, the Cascades Conservation Partnership was a partnership. We had one.

This was in Washington State.

Yeah, one organization, the one I worked for, raised most of the money, and we distributed the money.

That was conservation Northwest, yeah.

Yeah, right. We distributed the money to the various organizations that we're working with, and those organizational partners were important for several reasons.

Remind my listeners; I'm not sure if we talked about this too much what was the work you were trying to do there?

Oh, sure. Well, oh, that's complicated. But we were buying the private forest land that was in parcels inside the National Forest, and we were reconnecting parts of the forest that were Blocked both by these private lands and also by highways. We were reconnecting them for wildlife.

Right. And so, you're doing like wildlife corridors underneath freeways so that the animals could get back and forth and right.

Right. And buying the private land on either side. So, they didn't have senses, houses, or other things.

Right. And that took way more than just conservation in the Northwest. You needed to work with lots of groups, including local groups and all different kinds of organizations.

Oh, definitely, and we worked with national groups like The Nature Conservancy and the Trust for Public Land. We worked with local groups in…

So that's why you needed to campaign. So, you lived that as a non-profit person and now as a funder. Working for the foundation you work for; you're helping to give money away to campaigns like

And so, I'm trying to think of what to say about this, I mean… A project can be ambitious, like, a campaign or project.

The campaign, you mean.

You can call it either way, but it can be pretty modest. It could be one piece of farmland, and it's a relatively short, two-year program to raise the money and buy the property, and you're good to go on some projects. 5,7,10 years, and it's really hard to keep them all together.

So as a donor, you want to first figure out what you're signing up for, right? How big is the project? Who's the lead on the project? What's the structure of the coalition? And then again, as a donor, since we're talking about budgets, you want to find out which organization is the fiscal sponsor or who's in charge of the money, right? And who is doing the due diligence to make sure that it's spent properly? That's your very first thing to do.

The donor, then, helps you figure out, OK, if it's just one organization, they're the people I need to concentrate on. Do they have a good handle on the finances and all of that? If it's a coalition budget, there still has to be somebody that's distributing it, or they're asking individual donors to give money to a bunch of different groups, and we're in that position right now on a project I'm working on

Yeah, but here's the thing: I Want to emphasize this. The biggest red flag is when you don't have that, it can be challenging if there's not a good way for the organizations to figure out how to distribute campaign funds because it can also cause a lot of tension between the groups. If you're not doing your due diligence as a donor. I created a little mini-course specifically. On how to work with nonprofits to create collaborations, I shouldn't say create, but support them in an effective collaboration so that you're not, as a donor, inadvertently coming in and being like, OK, there needs to be 1 fiduciary there, and the groups aren't even ready for that yet, you know. It is tricky that way, but that's why I created that little mini-course on that piece. And I love that you're emphasizing that you need a fiduciary. You need somebody who's really sort of in charge. They wake up every day, sort of thinking about how this campaign is going to win and how the resources are going to be distributed.

Can we talk about this a little bit, though, when we're trying to make sure that in collaboration through a campaign where there's a problem that people want to solve, you do have this little bit of attention, though it's not a little? It's a pretty big tension.

In order to be able to effectively distribute funds, you do need somebody who's thinking about this as a fiduciary. But how do you make sure that some of the smaller nonprofits or people who may not feel like they have as strong a voice in the coalition does? When they're working hard, they don't end up inadvertently not getting enough resources for their work because you end up empowering one or two people through that model. And this is something that a lot of folks have thought about, but I would love to get your take on it. How do you make sure, as a funder, that you're not just giving money to the strongest, best fundraiser, who is then sort of dominating their thoughts about the next steps? How do we make sure that all voices are valued in the campaign and coalition?

That's challenging, and that's challenging even for people like you and I who are intermediaries, and we're working day-to-day with these people. That's challenging for us to do because remember, as a donor, you're not supposed to be telling the grantee what to do.

Yeah, but in a way, you're but by giving money, you are.

I know, I know, but what can we do?

Sort of you.Wwe have to own that, and be careful.

We have to be careful at the same time. I think the way to do it is to ask the grantees to work that out themselves, and do they create a steering committee where there are votes? I mean, how do they do that? You need to ask them that.

And ask, how did you make sure that all of the organizations had a voice in the campaign while at the same time having a fiduciary? Yes, and gosh, I see campaigns failing. With this, it can cause problems, so maybe as a donor, if we ask the right questions, and that's again why I sort of created that little mini-course about collaborations, and I'll have a link to that in my show notes, as well as a mini-course just on budgets. But I feel like there's an interplay here.

One thing I've loved about this month of talking about budgets and finance is. It does interplay with things like the organization's strategic plan and goal. I know that sounds obvious, but too often I think we think about them in separate silos: finances, and budget. What people are trying to get done It's not the right way to do it.

We don't think about how the money connects when there's a real campaign or something we want to launch, and how can we support the nonprofits and not have them end up spinning? And I've said this in other episodes, so I'm sorry if I'm repeating myself, but I You know, when I was in the nonprofit World, I just saw donors make mistakes so often around the campaign kind of budget where they're like, Why can't everyone just get together and put together a campaign budget? And then everyone just ends up trying to compete with each other. And the donor never really knows. And then there are the people who are from smaller nonprofits lose their voice. And it can be a mess.

And then five years go by. It's not functioning the campaign, but outwardly it might look OK, just enough. The donors don't get it, and then that can be a real problem, which is why I'm taking the time to unpack this and say that donors don't just ask for everything in the kitchen sink. If you have a problem you want to solve, you want to fund it, and you love all these groups, Ask the right questions. Make sure you're supporting the group's ability to effectively collaborate. OK, now I'm off my soapbox.

Well, I'll jump on a slightly different soapbox for just a minute.

Yeah. Yeah. Tell me.

Right.

So, this is a little bit off-topic with the collaborations and campaigns, but that's what we were talking about. As a donor, you want to know your money is being used effectively, and that's one of the reasons you're looking at their financials.

So, what do you need to know? It's really good to do if you have a new organization that you're granting to and you're giving them some significant funds. It's a good idea to do a little bit of a deep dive the first time. Take a look at their IRS Form 990. Take a look at their audited financials. You're not an accountant, most likely, but you can get a sense of whether they're doing the proper due diligence.

At some point you've got to say OK. I trust these people.

So, what do you then need to do every year to verify that trust? What I like to look at is a basic budget that has income and expenses, and you can see if they are budgeting income that is going to cover their expenses, and another tool that I love for smaller organizations is a month-by-month cash flow. The reason that I ask for those is that I only ask for them from smaller organizations. We have a dollar limit at our foundation for that. The reason. I asked for That, though, because it makes the If they haven't before, it makes them plan their incoming cash and their outgoing cash month by month. They don't have to stick to the plan, but the point is are they getting to see?

Oh, wait, we're spending money in September, October, and November, but all our donations don't come in until December, what do we do? Oh no, right. But The thing is, if they do that in January, then they have a heads-up that they might have. A problem, and they can work on it and solve it. They can either raise more money or spend less money. So, there are some things, like a budget.

So, I love the cash flow thing. I didn't include that in my highlighted work for folks, and I'm going to add it because thanks for that reminder. I think cash flow can be really helpful, but I think you shouldn't ask everybody for cash flow; it's only for specific groups that you think might be held. By that.

Right.

Request, right? Generally, smaller groups. We fund a range of groups, you and I, from big national groups with multi-million-dollar budgets down to smaller groups with one or two staff, and those groups with just a couple of staff, a lot of times, don't even have accountants nonetheless, and they have an executive director who really cares about the issue but maybe has never done this. Or so you can be really helpful with a couple of things, like, yeah, I'd like to see your budget. And do you have a cash flow, just so you can predict your income/Expenses over the year.

After that, though, as long as they have audited financials, you know that they're not embezzling money, which an audit should find. And you know that they're filing their taxes. I'm a big fan of not overloading them with stuff to send you.

Yeah, I love I love that the major conversation point for this podcast right now is don't overload the nonprofit. So, let's summarize a few things that we just talked about because I think they're important. I think first of all, there's a difference between the kind of financial documents you asked for from a sustainer donor and if, for example, you're a sustainer donor and you essentially want to fund a nonprofit year after year because you love everything they do, you're not funding a campaign right now. You're not saying we have one problem. We need to solve it within, like five years. Instead, you're saying, I love this nonprofit. It speaks to my heart if you're a sustainer donor. You, really, you just want to ask for their 990s, their audited statements, their organizational budget, and you know what?

What Fred was saying about cash flow or other things is that there are some extras that you might want to ask for. If you do some in-depth due diligence in the beginning, but then over time, once you get to know them, you don't have to ask them for a lot because you know them. Do you trust them? You like them.

If you're a campaign donor and there's a problem you want to solve or you're launching something new, then you also want to ask for a project budget. And you don't necessarily… You're not worried as much about it since you have a limited amount of time to work on it.

You're not as worried about the organization's long-term sustainability. You want to be sure that they're vibrant and solvent in the short term, within the range of whatever campaign it is you're working on.

I have a resource that I'm going to be putting on my website that sort of talks about what you want to focus on, and as a campaign donor, you want a project budget, an organizational budget, and audited statements. And then there are extras. You can ask for things if you're worried about them, like a reserve fund or other things.

And then if you hit an issue, if you're campaigning or launching, and you're funding multiple groups that are working on those campaigns, you want to be sensitive about how you go about a collaborative budget and asking the group to present to you a collaboration. To solve the problem, I'll work on the campaign, and I have a little bit of a mini-course there on the campaigner piece that I talked about before. The show notes But I just hope that you appreciated the conversation we had today because, you know, budgets and finance—you know, finances—they bring up a lot of things and really can tell a story about the nonprofit. In a way, just the pitch or just the proposal doesn't do as long as you ask the nonprofit for the right.

So, I loved our conversation, Fred. Today was a good day. It was a lot. We touched on a lot of different issues. Topics around this issue. Anything else you want to say?

To repeat the last point I was making, at some point you can trust your nonprofit, right? So do that deep dive in the beginning, but then try to back off of all the stuff that you ask them for because you don't want to have to do all that work for no reason. You know if you trust them great. Trust them. Give them money. Let them do the good work.

Yeah, I'm smiling because we've had direct experiences, plural. Folks who ask for a way too much, yes, yeah. Be focused, and efficient, and support the nonprofit in its finances and budget. They want to do that, I think our main message

And give them more time. To do good.

Right. Thanks, honey. I love the conversation.

I love you too.

I love you as well.

#142 Understanding Nonprofit Finances with Sybil & Fred Ackerman-Munson

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