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Nonprofit News: Avoiding bankruptcy

By “Doc Warren” Corson III January 25, 2016

Depositphotos_1500242_l-2015Nonprofit News is dedicated to examining issues that are of particular interest to clinicians working in nonprofit settings.

Among the biggest fears for directors of nonprofit programs are bankruptcy, closure, takeover and termination. These problems can be headed off by providing good leadership, making wise decisions and ensuring the overall health of your programming. In fact, many of the skills you often use in general therapy can be applied to managing your program. Exploring options, consulting with others and staying current on related literature and techniques can make the difference between a stagnant program and one that is vibrant, both in the clinical and administrative positions.

There is no single way to run a successful program, but the following items may help in the decision-making process.

Don’t jump into expansion: Many nonprofit programs find themselves getting into trouble as a result of an expansion that overreaches or is simply unsustainable.

In my consulting work, I have seen startup programs that were developing a “dream sequence” of services and an office space that was impossible to pay for. Some programs used all of their startup and maintenance money (the typically two- to three-years’ worth of money set aside to cover day-to-day costs while building a client base) just to rent and renovate their space. Although their new offices were beyond amazing and often offered state-of-the-art luxuries, this did little to help the programs, which soon shuttered their doors due to a lack of funds to cover costs while they established themselves.

I have also witnessed established nonprofit programs “go for broke” and gamble on new buildings, programs or other large infrastructure items. The thinking of these programs is that the improvements will lift them to a higher level and thus “pay for itself in no time.” Only later do they realize that the anticipated demand was not there.

Doing a little homework may have helped these programs realize that it takes time to become self-sustaining, even with limited overhead. By getting into massive debt, they all but assured themselves that they would fail. Market analysis is good, but it is little more than a guide and, in my opinion, should never be considered a guarantee. Sure, there is a demand in your area, but who says the community will embrace you? You may be much better off opening modestly and growing steadily as demand dictates rather than starting off at a full gallop only to find clients trickling in.

With the nonprofit program that I started, we opened our doors with a personal loan of $7,000. We were beyond humble: hand-me-down furniture, no fax machine and no advertising other than a press release. But we had a business model that called for modest and immediate reinvestment. Within weeks, we had the basic business equipment necessary, and within a year, our offices had been greatly improved, including the addition of durable furniture, most of which is still in use and in fine shape more than a decade later. (Helpful hint: Avoid trendy furniture and go for leather. It can be timeless and, although it costs more at purchase, it lasts far longer than fabric, which tends to look dingy after a few years of constant use).

Avoid loans and other financing when possible: Only use loans when absolutely necessary. Mortgages are often a part of life, but keep them to a minimum. It’s easy to get a loan for an addition when you have collateral, but this money needs to be repaid with interest. So unless you can afford to make that payment without counting on new revenue streams that may or may not materialize as part of the remodel, you could find yourself in dire straits. Sure, the model I am promoting may slow the pace of program growth, but it allows for real and sustained growth that also provides a healthier bottom line.

Look at trends (both emerging and waning) and know your audience: Knowing the state of your profession and your area can make a big difference. Look for things that may be at the verge of a great shift. Consider trying these things so long as they fit your overall mission. Also be prepared to scale back programs that may have hit their terminal velocity and are poised for reduced demand in the near future.

Consider your core client base: What do they want? What will they likely continue to want? What are they asking for that you currently lack?

In 2006, I saw a landscape that I thought might be on the verge of changing. For years, the focus had been on city life, high finance, and flashy clothes and lifestyle. I felt this trend was becoming played out to a large extent, at least in my part of the world. Always being a naturist at heart, I began exploring more earth- and nature-centered programming while staying true to my behaviorist mindset (I have an autographed picture of Albert Ellis in my main office). We explored ways to incorporate open space and nontraditional methods. Not all of our clients embraced the change, but we made it possible so that they were able to keep the traditional programming they loved as well. In time, we leased a local farm, and in short order we purchased the first chunk of it, as well as a few buildings. We steadily improved the land and buildings and built proper offices, without loans other than our mortgage. We continue to build steadily year after year and have experienced a large following and swell of support.

Here we are in 2016, and now you can Google “therapeutic farms” and find programs in many areas. This trend too will one day wane, but when it does, we should maintain well because of our lack of extended credit lines. Find your niche, but do not go too far into debt to pay for it.

Screen staff and maintain standards: Being good at what you do will enable you and your program to do well. But as you grow and need to add additional staff, maintaining standards can be difficult. Make sure to properly screen potential employees and thoroughly impart to them your core beliefs, philosophies and expectations for performance. Even this does not ensure quality care, but it will increase the likelihood of keeping turnover low. Many nonprofit programs suffer from hiring folks who turn from the program’s core philosophy and attempt to superimpose their own. Oversight and thorough supervision can help prevent this.

Remember your core mission: Mission creep can kill a program. Although there will be a need to expand services from time to time to meet the needs of your clients and to improve programming, it is important to regularly review your mission statement and core values to ensure that the changes meet the spirit (if not the actual letter) of the original intent. Mission statements can be altered when needed, but moving too far from your original mission can cause undue dilution of an otherwise solid program. Such dilution can confuse your client base and result in a reduction of referrals and other calls for services.

Build your board of directors: A board of directors is the steering wheel of any charity. Though not directly involved in day-to-day operations and activities, the board of directors is charged with guiding the charity in areas such as programming, financing, infrastructure and future development. When selecting potential board members, it is imperative to approach individuals who have a full understanding of the program’s core values, mission statement, psychology and mindset. By selecting members who “get” the charity, you are more likely to have a group of directors that is dedicated to your core values and to sustaining the overall feel and function of the programming.

Although each new year brings many challenges, with good fiscal sense and wise planning, there is little to fear and much to become excited about. The threat of bankruptcy need not be a specter hanging over your nonprofit.

 

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Dr. Warren Corson III

Dr. Warren Corson III

“Doc Warren” Corson III is a counselor, educator, writer and the founder, developer, and clinical and executive director of Community Counseling Centers of Central CT Inc. (www.docwarren.org) and Pillwillop Therapeutic Farm (www.pillwillop.org). Contact him at docwarren@docwarren.org.

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