Your Mantra for 2014:Improve Financial Strength &

Performance

Facilitated by:Jason Friedman, Principal &Barbara Eckblad, Associate

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The Friedman Associates Team Approach

We grow organizations thoughtfully for sustainability.

We help you maximize your impact now for long-term results.

Friedman Associates

Mission: inspire nonprofit leaders to achieve their vision for the entrepreneurs and communities they serve - and demonstrate the results that lead to increased funding and long-term success.

Services: Build Strong and Sustainable CDFIs

Assess and Strengthen Loan Fund Operations

Improve Effectiveness and Impact of Development Services

Prepare CDFIs for CARS™ Assessment

Develop KPIs and Systems to Demonstrate Impact

Strategic Planning & Business Planning

Board Development

Preparation of CDFI applications

Jason Friedman

• 26 years experience in micro and small business community development finance and asset building programs.

• Designed CDFI and related initiatives at the local, state and national levels.

• Director of Training and Education for the Association for Enterprise Opportunity (AEO).

• Vice-President of Economic Development for the Institute for Social and Economic Development.

• Economic Development Advisor for Governor Mario M. Cuomo

Barbara Eckblad

• Core expertise: CARS preparation; scaling loan programs; portfolio management; aligning of staff, products and systems; new product development/expansion; earned income strategies; loan operations systems; technical assistance deployment; building collaborations.

• Director of Lending for Wisconsin Women's Business Initiative Corp. where she oversaw all aspects of the loan fund and grew the loan portfolio by 67% over 3 years while decreasing delinquency rates to below-industry standards.

• Small business ownership experience, including building an innovative commercial and residential real estate firm from start-up to largest market share, eventually transitioning the firm to employee ownership.

Agenda

• What’s the word on the street?

• What do we mean by mission impact?

• Investments to build financial strength and performance

• What is CARSTM? Why does it mean for my organization?

Agenda

• What is Prep My CDFI!?

• How will it prepare me for CARS™?

• When is it time for Prep My CDFI!?

• What have we learned that you need to know?

• How much does it cost?

The Word on the Street….

• Mark Pinsky, OFN's CEO, delivered a "State of CDFIs" speech on the "opportunity revolution" in which he urged CDFIs to stay true to their mission as they take on greater influence and amounts of capital.

• Most organizations that fail do so "from indigestion, not starvation," he cautioned, and claimed that CDFI challenges right now "are more internal than external."

• "We may still be fleas on the tail of the dog," he said, "but we're wagging the tail, if not the dog."

Ask yourself….

• When was the last time you underwent a comprehensive review of financial and programmatic information?

• When was the last time you did an extensive review of loan files and risk management systems?

• When was the last time you had a discussion with your board about whether you are achieving mission impact?

• Do you have the data to demonstrate mission impact beyond loan portfolio stats?

What is Sustainability?

Most CDFIs view sustainability as balancing the tension between mission, organizational capacity and capitalization such that a CDFI can sustain or increase it's impact over time.

Mary Reynolds Babcock Foundation, CDFIs: A Study on Growth and Sustainability, June 2011

Sustainability Not Self-Sufficiency

• Unlikely to be achievable for loan funds - cannot survive as "spread lenders."

• Self-sufficiency ratio - ratio of earned income to total operating expenses.

• Regardless of structure, all CDFIs accept subsidy.

Sustainability through“Smart Subsidy”

"Smart subsidy" is defined as subsidy used to create efficiencies, expand capacity, implement new activities, and/or to grow.

Investments in Sustainability

• Increasing loan volume

• Increasing efficiencies

• Reducing costs (partnerships)

• More income generating services

• Cross-subsidization

• Strategic imperative: a well-defined business plan which requires human resources, operating acuity, lending capital.

Preferred Sustainability Strategies

• Invest in Technology: CRM, MIS, etc.

• Invest in staff-capacity and/or re-working staffing structures.

• Partnerships and outsourcing.

Overall Challenges

• Capital follows mission.

• Unrestricted net worth (equity capital) is a key challenge.

• Investments: Ongoing education and training on market definition, asset design, cash flow management, standardization of documentation, portfolio analysis, interest rate spreads, etc.

• Insure updated loan policies and procedures and/or capitalization assistance and definition of that assistance.

Analyzing Organization Credit Risk

• Success in raising funds?

• How well does management adjust mission program activity if they don’t hit their fundraising targets?

• What is the level of flexibility in the business model created to serve the mission?

Analyzing Organizational Credit Risk

• What is the capacity of management to manage the delicate balance between achieving mission objectives and keeping the doors open?

• How does management respond to fluctuations in grant revenue?

What is Your Mission Impact?

Impact Measurement

• To determine how well impact is aligned with mission, and how well it is performing against internal goals.

• Feedback loop to management.

• To satisfy funder reporting requirements.

Ask yourself

• Do you measure your mission impact? What indicators do you use?

• Do you have a reliable way of knowing the impact your are making?

• Do you have a strategy to increase that impact to fulfill unmet needs – your mission gap.

• Strategy: do you have a coherent, integrated, explanation of how the organization is going to guide its performance toward a breakthrough in mission impact?

Outcomes Vs. Outputs

• Outputs

• Outcome indicators

• Long-term impacts: measuring changed lives and conditions over time.

• How are people’s lives improved as a result of a particular community development effort?

• Requires investment.

How Do You Use the Data?

Funder reports

Stakeholder reports

? Annual review of impact against mission

?? Share impact data with all staff regularly to assess performance to mission

??? Use it to actively influence decisions about strategies and adjust products and services.

No Going Back…..

Your Mantra:

Measure Financial Strength and Impact

More investors require CDFIs to:

Produce positive financial returns

Produce data that demonstrate long-term impacts

Become more sophisticated in data collection and impact reporting

Become CARSTM-rated

What Is CARSTM?

The CDFI Assessment and Rating System (CARSTM) is the industry’s independent, third-party rating of impact performance and financial strength.

A CARS™ assessment includes past performance, current financial position, and risk factors in the future. Ratings are based on five years of historical performance.

With CARS™, investors have enhanced transparency, experience greater efficiency, and make smarter investments. Leading community development finance institutions CDFIs are rated.

Disclaimer

• Friedman Associates has no affiliation with CARS™ Inc.

• Advisory services are provided to CDFIs without consultation with or benefit to CARS™ Inc.

• Our reference to the CARS® brand does not imply endorsement of our services by CARS™ Inc.

• CDFIs that are CARS rated receive two performance ratings:

financial strength

impact performance

• CARS does not measure actual impact, but rather the extent to which a CDFI is having the impact it sets out to accomplish, including the institution’s capacity to measure impact and use those measures to improve performance.

Financial Strength and Performance

Creditworthiness: CAMEL Analysis

Capitalization

Asset Quality

Management

Earnings

Liquidity

Management: 25% of Score

Strategy

Governance

Management and staffing

Infrastructure and

Management information systems

Strategy

• Management’s clarity around mission, strategies, market, etc.

• The quality of the strategic plan and business plan, and how management uses each.

• To what degree the legal and organizational structure of the institution supports its strategy.

• Track record in terms of accomplishing organizational goals as defined in business plan and other documents.

• Strategy regarding sustainability, efficiency, and self-sufficiency.

Governance

• Existence of a feasible succession plan for an executive director or key management transition.

• Board expertise relative to the CDFI’s activities.

• Board effectiveness with regard to its fiduciary, supervisory, and strategic functions.

• Board policies and structure.

Management and Staffing

• Management depth, experience, and tenure in relation to the CDFI’s current and planned activities.

• Rationale for staffing structure.

• Manageable and appropriate levels of staff turnover.

• Staff recruitment and retention strategies.

• Staffing plans in relation to planned activities.

Infrastructure and MIS

• Quality and timeliness of management information.

• Accounting and internal controls (as reflected in audits and management letters).

• Existence of basic insurance coverage for major risks.

• Adequacy of information systems, data backup, and disaster recovery plans.

• Alignment of strategy and operations

• Effective use of financial resources

• Tracking of outputs that show effectiveness

• Tracking of outcomes or impacts that show effectiveness

CARS™ Ratings and ScaleImpact Performance

Are You Ready for CARS™?

• CARS™ is a demanding process, takes a significant amount of staff time, and takes 6 months to complete.

• A CDFI can be rated only once every three years.

• With so much on the line, why not invest now to assess your capacity and strengthen performance and impact?

What is Prep My CDFI?

• A process to prepare you for CARS™

• We assess your readiness for the rating process.

• We identify the gaps.

• We advise you on how to fill ‘em!

• We prepare you for the CARS™ site visit.

• We put you in the best shape to get the rating you deserve!

Prep My CDFI! Process

Understanding CARSTM

Capacity Assessment:

impact performance and financial strength

Comprehensive Management

Report and SWOT

Preparing for the site visit

After the visit: Implementation

Preparing for a CARSTM renewal

When is the right time for Prep My CDFI!?

“We have funders who have asked if we’re going to get a CARSTM rating.”

“We think it’s time we go through the rating process but don’t know where to begin.”

“We’re signed up for CARS and just got our document request list. We need help!”

“We just received our rating and want to quickly remediate the issues the analysts identified.”

Seeking or in the Process of Obtaining a CARS™ Rating?

• Introduce management and board members to CARS™ philosophy and goals.

• What CARS™ will analyze and what that means for your CDFI, including impact, financial strength, and policy advocacy.

• Scan of your CDFI and its current capacity for working on CARS™

Prepare for CARS™ With Prep My CDFI!

• Identify and review the documents you need for CARS™ and your methods for tracking performance and outcomes.

• Review the questions CARS™ may ask about your required documents.

• Analyze your loan fund policies, procedures, and more to ensure that your CDFI has the backup documentation you need and which CARS™ requires.

• Management report and SWOT analysis (excellent feedback for strategic planning).

Up for CARS™ Renewal and Want to Improve Your Rating?

• Review CARS™ analysts’ report to identify areas of improvement.

• Management report and action plan for remediation.

• Review and assess documentation required for CARS™

• Coordinate a strategy for the CARS™ visit.

Pricing

• The minimum fee is $8,000.

• Includes a one-day site visit.

• A moderately higher fee for CDFIs with a higher level of complexity. Determined after initial consultation.

• Additional support to improve or strengthen loan fund operations, governance, and impact/outcomes tracking and staff training is available.

What We Have Learned From Your Peers

• CARS™ strengthens organizations - short term and long-term.

• CARS™ challenges you to look at parts of your organizations differently.

• Preparing for CARS™ is a rigorous process.

• CARS™ is capacity draining.

Final thoughts..

• What is my vision for our CDFI?

• How important is it to meet and demonstrate industry standards?

• How can I use a CARS™ rating to our advantage?

• Can I benefit from industry experts who know the process and can guide me through it?

Let’s Take Your Questions!

Contact

Jason Friedman, PrincipalFriedman Associatesjasonj@friedmanassociates.net 319-341-3556www.friedmanassociates.net