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Jul 20

When best-laid plans go awry: Prepare with reserves

By Finance, Leadership, Sponsor Insight, Sustainability

By Lauren Kreutzinger, supervisor, VonLehman

In any business, in any organization, even the best-laid plans can go awry.

In the nonprofit sector, this can lead to disaster.

But that doesn’t have to be the case — if you’re prepared. For example, a major grant your organization counted on could fall through. Or your facilities might require emergency repairs. And, as many nonprofits have learned in recent years, even slightly lower-than-anticipated donations can make meeting obligations difficult.

Cash reserves can help cushion the blow of unbudgeted expenses. They may also enable your nonprofit to seize growth opportunities.

Your target number

The ideal reserve depends on an organization’s unique qualities, including its operating structure, sources of funding and types of expenses. But most experts agree that a minimum of three months’ cash can help mitigate the risk of budget shortfalls and unexpected events. But some nonprofits need greater reserves and some may be safe with less.

Generally speaking, the more predictable and steady your nonprofit’s cash flow, the less you need to stash in reserves. To determine the optimal amount, however, talk to your financial advisor.

Unrestricted is best

Reserves must be easily accessible and unrestricted, if they’re to be effective in emergencies. Program-specific donations and grants aren’t much help when you need to pay your office rent or make payroll. To increase unrestricted revenue, educate donors about the inflexibility of such gifts. Although some will insist on targeting their dollars, many are likely to respond when you explain that unrestricted donations can be more valuable to your nonprofit than those with strings attached.

For their part, foundation and government grantmakers traditionally have been reluctant to give unrestricted funds to charities. But according to several recent studies, many are increasing the proportion of grant money available for general operating support. So consider asking grant providers if they can relax restrictions on funds they’re currently providing, and start looking for grants with looser restrictions.

Accessibility is just as important when you’re deciding where to store operating reserves. Avoid investments that might restrict or penalize withdrawal of funds on short notice, such as equity investments or certificates of deposit. Instead, look for the highest interest-earning checking, savings or money-market account, or possibly Treasury bills or short-term bond funds.

Justifying withdrawals

One difficult aspect of managing reserves is to know when to tap them. Using cash to address operational shortfalls or when expenses exceed income is usually justified.

Even if your nonprofit runs efficiently and typically sticks to its budget, unplanned events, such as natural disasters or economic crises, can throw a wrench in the plan. But be careful that such withdrawals don’t become routine. If you’re dipping into reserve funds every month to pay ordinary expenses, it’s time to reevaluate your budget.

Reserves aren’t just a rainy-day fund, though. Many organizations use them to seize opportunities, expand programs and services, and even improve access to credit. Prudence is essential when using reserves proactively. Your board should draw up a policy that defines reasonable uses of reserves and outlines the evaluation and approval process for specific proposals.

Too much is risky

While keeping an adequate amount of operating reserves is critical, it’s also important not to retain too much cash. Money market and other easily accessible accounts typically earn minimal interest. You can almost certainly better “invest” reserves elsewhere — for example, earning returns for your long-term endowment or helping to expand services.

What’s more, charity watchdog groups take a dim view of what they consider excessive reserves, which can negatively affect how they rate your nonprofit, and in turn, how the public perceives its effectiveness. Of course, what constitutes “excessive” depends on the organization. But several years’ worth of expenses certainly merits scrutiny.

A priority

If your nonprofit has been running lean for several years, it’s time to start fattening up your cash cushion. As the economy improves and donors increase their support, make building your operating reserves a priority.

Lauren_Graham_revLauren Kreutzinger is a supervisor at VonLehman CPA and advisory firm in Indianapolis.  Lauren focuses on audit and accounting services for nonprofit and manufacturing and distribution organizations.

 

For more information on this topic or many other tax, business and investment topics, contact your CPA, Business Advisor, or Lauren Graham of VonLehman at lgraham@vlcpa.com.

About VonLehman

Founded in 1946 and with offices in Kentucky, Ohio and Indiana, VonLehman is a leading full-service CPA and business advisory firm. VonLehman provides forward-thinking accounting, tax and strategic business advice to closely-held businesses, nonprofits and governmental entities throughout the Kentucky, Ohio and Indiana region. VonLehman provides clients with the depth of services and resources expected from larger national firms, but with an unmatched measure of personal care and attention. See http://www.vlcpa.com for more information.

DISCLAIMER: The technical information in this article is necessarily brief. No final conclusion on these topics should be drawn without further review and consultation. Please be advised that, based on current IRS rules and standards, the advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty assessed by the IRS.

Jun 30

Good intentions or intentionality: Which describes your board of directors?

By Governance, Leadership, Sponsor Insight

By Steve Sauer, senior manager, BKD |

Most historians agree the form and function of today’s board of directors began around the advent of the 20th century. English authorities decided the ultimate authority in a company was vested in the board of directors, and the nature and extent of its authority was to be enumerated in the articles of association (or incorporation).

So after 100 years of practice, these boards have evolved into exceptional governing bodies presiding over their organizations … right? Not exactly.

According to a January 2015 study conducted by BoardSource, boards of not-for-profit organizations are not as close as they think to achieve the pinnacle of effective governance. On the contrary, the study reveals that, on average, not-for-profit leaders give boards a B- in overall performance. It would appear, then, that in our age of constant political, economic, regulatory and demographic changes, significant improvements are necessary — even vital to the health of the not-for-profit sector as a whole.

BoardSource, a 501(c)(3) organization dedicated to advancing the public good by building exceptional not-for-profit boards and inspiring board service, supports, trains and educates more than 100,000 not-for-profit board leaders from across the country each year.

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Jun 30

Salaried workers could get overtime pay

By Feature, Governance, Leadership

By Katie Johnston, Boston Globe staff |

Millions of American workers who put in extra hours with no extra pay would soon be eligible for overtime under a plan unveiled Monday night by President Obama. The proposed regulations would more than double the current threshold at which many salaried employees stop getting overtime pay, covering those who make up to $50,440 a year.

That is welcome news for workers like Gassan Marzuq. As the manager of a Dunkin’ Donuts in Kingston, Gassan Marzuq sometimes worked 80 or 90 hours a week — spending most of his days serving coffee, running the cash register, and mopping the floors.

Yet because he was a salaried employee who had been deemed ineligible for overtime, his $825 a week in pay sometimes averaged out to roughly the same hourly rate his workers were paid — a reality for many managers when they work more than 40 hours a week.

The Obama administration’s proposal, revealed in an op-ed by the president on the Huffington Post Monday night and set to be officially announced Tuesday, would extend overtime protections to roughly 5 million workers in 2016.

In 1975, about 62 percent of the salaried workforce were eligible for overtime pay, according to the Economic Policy Institute, a Washington, D.C., think tank that advocates for low-income workers. Today, because of inflation, 8 percent are covered.

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Jun 30

Views

By Feature, Governance, Leadership

By Zac Kester, executive director, Charitable Allies |

After reviewing the U.S. Department of Labor’s proposed changes, I believe that this would have a significant adverse effect on the budgets and operations of small nonprofits, especially those who currently pay their executive directors (or an equivalent position) and administrative support staff less than the new thresholds.

The Department of Labor fact sheets 17C, 17B and 17A outline the requirements for the exemption that allows employers to NOT pay executive and administrative employees overtime. Among other things, those requirements are that employees make at least $23,660.

Many small nonprofits pay staff on a salary basis and do not pay overtime. With the new standards, which will move this threshold to somewhere between $42,000 and $52,000, any employee who makes below that threshold would be entitled to overtime, regardless if they otherwise met the test and qualified for the exemption. Many nonprofit organizations employ people in this range ($23,660 to $42,000/$52,000).

If this regulation is adopted, nonprofit managers and boards will have to be careful to monitor their employees’ time and pay them overtime wages to which they will be entitled.

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Jun 23

Starting a nonprofit: five tips and a warning

By Feature, Leadership

By editorial staff, Idealist |

The world is in the midst of what one observer has called an “associational revolution.” New nonprofits are being formed for every sort of purpose on every continent at the fastest rate in history. If you are thinking of joining this vast worldwide movement by starting — or helping to start — a nonprofit, here are some crucial things to think about.

Tip #1: All nonprofits are local. Even the globe-spanning, household-name organizations that operate in hundreds or thousands of places must learn about, and live with, complicated rules that differ greatly from place to place. Almost certainly, the second thing you will do when starting a nonprofit is to register with the local government agency that handles new “nongovernmental organizations” in the community where the organization will operate.

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Jun 23

Advice from the pros

By Feature, Leadership

By Lynn Sygiel, editor, Charitable Advisors |

Been there, done that. In any endeavor, experience goes a long way. In the Indianapolis’ nonprofit world, wisdom is in no short supply, particularly from longtime executives. Many have seen changes in the field over the course of their careers.

Recently, at the request of Charitable Advisors, five retired nonprofit high-profile executives participated in a roundtable discussion about their careers and shared advice for new nonprofit executives. Participants were:

  • Ellen Annala, former Central Indiana United Way president, spent 23 years with the organization and retired in 2013 after 15 years as president. Her career was spent working for Indianapolis nonprofits.
  • Betsy Bikoff spent the first 25 years of her career working for-profits and then was the first employee of the Fairbanks Foundation. She was its chief grantmaking officer and vice president until the end of last year. Early this year, she launched Betsy Bikoff Consulting.
  • Willis Bright spent 25 years at Lilly Endowment as director of youth programming before retiring in 2012. Currently, he is president of Bright Visions.
  • Hoagland Elliott, CEO for Raphael Health Center for the past decade, also served as chair of Indiana Primary Health Care Association.
  • Jim McClelland retired in April after 41 years at the helm of Goodwill.

Habitat for Humanities of Greater Indianapolis hosted the hour-and-a-half roundtable conversation. The executives’ insights will be featured in a series of stories in the next month. This week, we feature these former leaders’ advice for new nonprofit executives. These are the highlights:

WILLIS BRIGHT: I think my advice to an executive director is first of all, know thyself and be passionate about wanting to be an executive director and be clear about the kind of staff you and your board need to achieve the impact that you want in the community.

HOAGLAND ELLIOTT: My advice would be to really believe in your mission and act on it. I think many times it gets left in the drawer. Treat your clients with respect. People who are disadvantaged need more respect than others.

JIM McCLELLAND: I would add understanding your context, understanding where you fit in the communities you’re operating in, where you fit in the fields you’re engaged in and how what you’re doing relates to what others around you are doing. Don’t develop tunnel vision.

ELLEN ANNALA: I’d probably just underscore again the importance of getting it right with your board. Figuring out how to make that work so that’s it’s working for your mission.

Another piece of advice is actually something I learned from watching Goodwill. I remember when I was at Big Sisters thinking when you’re smaller you’re more nimble, and you can turn on a dime. Well, you can’t, because when you’re smaller, it’s real easy to get consumed by survival. I watched you (McClelland) be the nimble one that was able to turn on a dime.

I remember when a contract got pulled, and Goodwill turned right, and part of it was it had the resources to do that.

McCLELLAND: I so agree with you on the nimbleness. If you want to succeed over time, you’ve got to have impact and you have got to know what that impact is. You’ve got to be sustainable; if you’re constantly struggling to keep your head above water, you cannot do a good job of accomplishing your mission. You need a certain level of financial strength if you are going to do the job. The third is the adaptability. You’ve got to be able to adapt quickly and effectively as new needs and opportunities arise, and as the external environment changes. All three of those are absolutely essential over time.

BRIGHT: Jim, you said something earlier that I think is so critical. You talked about your engagement with your colleagues around the country, and finding out what they’re doing, maybe bringing some things back. Part of the tunnel vision that folks get into is just thinking about what they are doing — never even asking folks across town, executives across the street. They especially need those ideas from folks who are doing what you are doing somewhere else. Call somebody else.

BETSY BIKOFF: That’s what my advice was going to be. Go to school on other people, whether it’s next door, across the city. There is always somebody else like your nonprofit somewhere. There are other foundations, other nonprofits, other leaders whom you can ask. Somebody else has probably already invented what you are doing.

McCLELLAND: But not necessarily only in your field. There’s a quote in one of Gary Hamel’s books that says most people in an industry are blind in the same way. They’re all paying attention to the same things, and not paying attention to the same things. You have got to broaden your perspective. Learn, learn, learn, where you can. You’ve got to get outside your own arena, if you’re really going to grow and learn.

BIKOFF: Talk with people outside your age group. If you only talk with people in your own age band, you’re not going to get the other kinds of thinking.

McCLELLAND: And that’s older and younger.

BRIGHT: Borrow freely.

Jun 16

HR outsourcing: How can it work

By Leadership, Sponsor Insight

By Jeremy York, HR field representative, The Synergy Companies | 

Human resource strategy, also referred to as people strategy, is just as important as an organization’s financial, operational, and business development strategies, because a company needs people to achieve its business goals.

Human resources are an integral part of any business, but many times it is one function that falls by the wayside The problem in addressing an organization’s human resource needs often lies in the lack of time, resources or expertise within a company. Many organizations do not have the resources to dedicate a staff member to the HR function, and require employees to assume the tasks. As an add-on, that limits time that can be spent focusing on HR.

Luckily there is a solution — HR outsourcing. HR outsourcing can provide the human resources support and expertise that organizations need to help drive business.

According to the Society for Human Resource Management (SHRM), companies outsource HR in order:

to save money — realizing cost savings through efficiency

to focus on strategy — aligning people with mission, vision, values,

to improve compliance — reducing risks through expertise; and

because there is no in-house HR experience — acquiring an expert to lead the way.

HR outsourcing can also help organizations improve accuracy, increasing quality by lessening workloads and by gaining technology advances that they may not have otherwise been able to afford. All can help the organization drive a better bottom line

The most common outsourced HR functions identified by SHRM include both transactional and strategic tasks such as payroll administration, employee benefit administration, training and development and 401K administrations. These are all tasks that can be time consuming and can require advanced skill to ensure compliance with federal, state and local laws. Many organizations find that outsourcing transactional tasks allows staff to focus on more value-added work that links directly to business goals and objectives while outsourcing strategic tasks allows them to acquire the appropriate expertise to execute HR projects successfully.

Options for HR outsourcing

Several options exist for HR outsourcing, but two of the most common are Professional Employer Organizations (PEO) and HR Consultants. PEOs generally manage all components related to employment and HR (payroll, benefits, tax liability, workers compensation, employee relations, compliance, training/development, etc.) and become the administrative employer or employer of record for employees. PEOs are able to leverage buying power to offer a range of HR services, resources, and employee benefits that small employers may not have the financial capabilities to access. This allows employers to spend more time developing and growing the business without the cumbersome task of managing all of the details of the employment relationship.

HR consultants, on the other hand, take a more “a-la-carte” approach in providing their services. They work with businesses of all sizes and projects of all scopes, both tactical and strategic. Typically HR consultants assist with strategically integrating effective HR processes, programs and practices into daily business operations and usually leave management of HR responsibilities to the client. HR consultants function as a vendor or independent contractor and typically per project or “ad hoc” basis.

Selecting an HR outsourcing option

Determining whether you should select a PEO versus a HR consultant doesn’t have to be a difficult task. Honestly, it’s about what is the right fit for your organization. In order to understand what makes the most sense for your business, you’ll want to first conduct a needs analysis asking such questions as:

  • What are you attempting to gain/achieve by outsourcing the HR function?
  • What does the business need to be more efficient in people management and reduce overall HR administration costs?
  • Are you spending too much time on administrative work rather than high-level, business strategy?

Secondly, you will need to evaluate your current processes and resources understanding the answers to questions like:

  • Do you have HR processes, and if so do they align with best practices?
  • Do you have the in-house HR resources, but lack the expertise for certain projects/tasks?
  • Do you currently have the resources and time to devote to people processes and strategy?

And finally, after reflecting on internal capabilities you will need to determine what work to outsource. Ask yourself:

  • Do you want to outsource all large administrative tasks such as payroll, benefits, workers compensation, 401k, etc.?
  • Is the need to outsource projects on an as needed basis — smaller tasks such as recruitment/ selection, background/reference checks, employee training, compensation reviews etc.?

Going through the process above will assist you in determining what option is right for your business so that you can get the right kind of HR partnership to support goals and objectives.

Because the HR function is fundamental to align your people to your processes, you will want to pay special attention not overlook its impact on the bottom line. Inefficient and ineffective people processes, inexperienced people in skilled roles and noncompliance with legal requirements all have a cost. By ensuring you have a strong HR function in place you can help minimize those costs while simultaneously investing in the business.

jeremy-yorkJeremy York, SPHR, SHRM-SCP, is a Human Resources field representative for Synergy PEO Services.  He provides strategic and generalist HR support to local nonprofit organization leaders and their staffs. Jeremy has over 15 years of human resources experience working as a consultant, director of human resources, and generalist, in the insurance, healthcare, nonprofit, PEO, and other industries.  Jeremy has a bachelor’s degree from Purdue University in Organizational Leadership and Supervision and a master’s degree from Indiana Wesleyan University in Management. He is the current director of certification for the Indiana State Council of the Society for Human Resource Management (SHRM) and serves on the IndySHRM board of directors as the past president.

Jun 09

Engaging a city, building a community

By Feature, Leadership

By Efrem Bycer for The Greater Indianapolis Progress Committee |

Indianapolis has the potential to become one of the most civically engaged cities in America. Currently, Indianapolis ranks 16th, placing it behind many of its peer metros, including Charlotte, Kansas City, Milwaukee, Minneapolis, Nashville and St. Louis. To break into the top 10, Indianapolis may seek to apply successful practices in these cities.

This report aims to identify those replicable practices and provide recommendations for short-term and long-term strategies to improve volunteerism, especially among young professionals.

Young professionals, or Millennials, are a focus of this report because of the key role this generation plays in supplying talent to the region’s leading companies. The youngest generation of the workforce, Millennials are staying single longer and waiting until later in life to have children. On one hand, they have time early in their careers to get engaged in the community. On the other, they are an increasingly mobile generation able to move from one city to another

for professional opportunities or a change of pace. Civic engagement and volunteering play key roles in helping this generation develop an attachment to place, a key indicator of an individual’s likelihood to move. This makes volunteerism an important component of any comprehensive talent attraction and retention strategy.

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May 26

The time bank solution

By Feature, Fundraising, Leadership

By Edgar S. Cahn and Christine Gray, TimeBanks USA, Stanford Social Innovation Review |

Thirty-five years ago, one of us (Edgar S. Cahn) started to experiment with a new way to link untapped social capacity to unmet social needs. He created a practice known as “time banking” — a mode of exchange that lets people swap time and skill instead of money. The concept is simple: In joining a time bank, people agree to take part in a system that involves earning and spending “time credits.” When they spend an hour on an activity that helps others, they receive one time credit. When they need help from others, they can use the time credits that they have accumulated.

Long before Occupy Wall Street, time banking represented a commitment to pursuing a more equitable and inclusive economic order. Those of us who developed time banking wanted to show that a different kind of currency could exist alongside the dollar. We refused to give money a monopoly on the definition of value. The money-based market system fails to reward many types of critical work — the work of raising healthy children, building strong families, caring for the elderly, revitalizing neighborhoods, preserving the environment, advancing social justice, and sustaining democracy — and we believed that there should be a way to honor and reward that kind of work.

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May 26

Penn State researcher creates app to make time banking mobile

By Feature, Governance, Leadership

By Katie Jacobs, Penn State News |

For Katherine Watt, a cookie isn’t just a cookie. Sometimes — with the help of a system called time banking — it can be turned into a wool cape.

Time banking is the exchange of services based on the number of hours it takes to complete them. Members of a time bank earn hours by performing services, bank those hours and then redeem them for a service from another member. Someone may trade an hour of raking leaves for an hour of roof patching, for example.

Watt, a member of the local Happy Valley Timebank, earned hours baking and delivering homemade cookies before redeeming them for sewing lessons.

Until recently, time banking had been mostly managed with desktop transaction systems. But in an ever-more-mobile society, Jack Carroll — a distinguished professor in the College of Information Sciences and Technology (IST) — got the idea to create an app in which members of time banking communities could record their hours, post jobs and hire other members from their smartphones.

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