Kay Sohlkay@kaysohlconsulting.net

Making the Case for Endowment Giving in the Midst of Recession

September 10, 2009

Recession Impact ???

•On your nonprofit’s viability?

•On building your endowment?

Recession Impact

Charitable Giving•Individuals•Business & corporate support•Foundations

Government•Stimulus •State and local

More Impact

•Program fees & product sales

•Access to credit

•Endowment & other investment losses

Recession Challenges

• Increased demand for human services

•Board, Staff, and Donor anxiety

•Decision-making amidst uncertainty

Board Roles. . . inGood Times & Bad

•Set mission & priorities

•Oversight

•Liaison with community

•Ensure availability of resources

Key NPO Goals in Recession

•Achieve mission

•Remain viable

•Ensure sustainability

•Maintain integrity

Resiliency

Ability to withstand adversity, continue operations, and fulfill the mission

Red Flags

Indicators of weakness or threat that may impair the nonprofit’s ability to meet legal obligations, protect its assets, and continue operations

Financial Resiliency Factors

•Liquidity – Cash position

•Net Assets available for operations

•Endowment

•Diversity of income sources

Organizational Resiliency Factors

•Clear understanding of business model: relationships between costs & income generation

•Capacity for timely decision-making

{Mental Map}

Resiliency •Cash

•Net Assets

•Business model: relationship between costs & generation of earned & contributed income

{Mental Map}

3 Year Trends

•Revenues

•Expenses

•Net Income

•Unrestricted Net Assets

•Cash

{Mental Map}Cash

Days of Cash

120

80 90

45

0

50

100

150

June 08 Sept 08 Dec 08 March 09

Your Cash Position?

•Days of cash on hand?

•Restrictions on use of cash?

•Recession impact?

Cash in Recession

•Collections slow downGovernment reimbursementCustomer paymentDonor pledges & contributions

•Payables pressure intensifiesVendors & consultantsCollaborative partners

Cash Challenges•Deficit problems

misidentified as Cash Flow problems

•Restricted cash drained to meet operating expenses

•Cash pressure limits ability to generate income

{Mental Map }Net Assets

Net Assets Provide:

•Ability to continue to operate despite experiencing losses

•Capacity to take risks and innovate

Nonprofit Net Worth

Assets

- Liabilities

= Net Assets

Growing Net Assets

Revenues – Exp. =Net Income

Opening Net Assets

+Net Income

= Ending Net Assets

Nonprofit Net Worth

•Unrestricted Net Assets

•Temporarily Restricted Net Assets

•Permanently Restricted Net Assets

Unrestricted Net Assets

Available for Operations

Invested in Fixed Assets

Board Designated Reserves

Total Unrestricted Net Assets

Temp. Restricted Net Assets are like a Cookie Jar

Temp. Restricted Net Assets like a Cookie Jar

• Intended to be eaten. . .

• Need to know the ingredients/restrictions. . .

• “Mission-focused” cookies can keep you going. . .

• Need to refill the jar. . .

Temp Restricted Net Assets

•Contribute to resiliency if restricted to future use for core functions

•Function as “available for operations” for future periods

Key Net Assets ???

• Target ratio of Net Assets Available for Operations to Operating Expenses?

• Board willingness to accept operating losses in order to invest in future development or sustain services?

{Mental Map }Your Business Model

•Sources of income

•Uses of resources

•Relationship between investment in expenses & and generation of income

{Mental Map}Sources

Support and Revenue

Program Fees29%

Gov Contracts

42%

Individual gifts18%

Fndns11%

Program Fees

Gov Contracts

Individual gifts

Fndns

{Mental Map}Income Trends

{Mental Map}

Uses of Resources

Expenses

Personnel82%

Non-personnel

18%Personnel

Non-personnel

{Mental Map} Business Model

•Relationship between program activity and earned & contributed income in each line of business

•Each program’s contribution to overhead

{Mental Map}Fund Development

Investment•Cost to raise $

•Allocation of fundraising resources to current & longer term strategies

•Progress indicators

Know the past –Focus on the future

Yr-to-dateAnnual Budget

Actual as % of budget

Projected year end

IncomeExpenseNet Income

Projected Impact of Operating Results on

Resiliency

Prior Year End Current Period Projected Year EndCashKey LiabilitiesNet Assets

{Mental Map} Nonprofit Net Worth

•Unrestricted Net Assets

•Temporarily Restricted Net Assets

•Permanently Restricted Net Assets

Permanently Restricted Net Assets

Endowment:

•Represents capacity & commitment to continue to serve

•Reduces the need to generate every $ every year

Endowment Building during the Recession???

•Opportunities and constraints

•Allocation of resources for fund development efforts

Endowment Building Opportunities

Endowment Donors:

•Focused on long-term vision

•Desire to be remembered

•Mission rather than activity focused

Donor Constraints

• Income and net worth reduced

•Uncertainty

•Concerns about NPO investment performance

Organizational Constraints

•Current operational resiliency

•Total resources available for fund development activities

•Allocation of development efforts

Potential Endowment Donors

•Have relationship with your org

•Long term thinkers

•Seek opportunities to make larger impact

•Think like investors

Endowment Donor Cultivation

•Personal

•Sustained

•Future needs focused

•Distinct from annual giving cultivation

Endowment Building: Key Messages

•Organizational resiliency

•Long-term vision

• Impact of endowment on current & future capacity

•Resources to support donor exploration

Board Role in Endowment Building

•Effective stewardship

•Policy direction

•Donors to endowment

•Relationship building with potential donors

Every Board Member’s {Mental Map}

•Mission & vision

•Resiliency & business model

• Impact of endowment

•Motivation for personal giving

Your Next Steps?•Evaluate financial

resiliency?

•Determine appropriate investment in endowment building

•Monitor progress?

•????