“Pretty Bad Best Practices” of Nonprofits and Funders

Kudos to the always-thoughtful Clara Miller for her article, The Four Horsemen of the Nonprofit Financial Apocalypse, in The Nonprofit Quarterly!

Miller, President and CEO of the Nonprofit Finance Fund, offers a compelling take on how nonprofits, and their donors and funders, put themselves in weak financial positions that were exacerbated by the recent economic downturn.  She describes nonprofits’ and funders’ “pretty bad best practices” in assessing and restricting the uses of financial capital.  Those practices – her four horsemen of financial apocalypse – are:  1) too much real estate, 2) too much debt, 3) under-water balance sheets and negative liquidity, and 4) torturous labor economics.

In my previous work at a community foundation, I saw first-hand how the siren songs of real estate ownership and endowment building pulled nonprofits into rocky financial shores (to add to Clara’s metaphors).  Unfortunately, those songs were amplified by a couple wealthy donors and funders who offered sizable endowment gifts to organizations that weren’t as liquid as they should have been.  And, I saw many requests for nonprofit real estate ownership with the false hopes that the nonprofit would be in a better financial position just because it owned instead of rented.

Donors, funders, and nonprofits should keep Clara’s article around even when the economy picks up.  It serves as a continued reminder that unrestricted cash is the surest salvation from financial apocalypse.