When I speak to groups I often tell them of growing up in Minneapolis and the more than one hundred groups aimed to help my fellow neighbors and I move out of poverty.  And as more and more organizations were created to help my community, the more I began to notice that there were still growing lines of those receiving free clothing at the “Free Store” on Nicollet Avenue or food from the Sabathani Food Pantry on 38th Street.  The natural question for me, at that time, became that with more and more people rolling up their sleeves to help then why were there more and more people in those lines needing the help.

Of course there are many socio-economic factors that are part of the reasons for the growth of poverty in my community and that more people helping do not necessarily mean better results. This article is not to debate my adolescent views on poverty and its causes/solutions but more to another reason I continue to see in our community challenges.  One of the main factors that many of these groups were not able to move the needle and make an impact was that most of these nonprofit organizations were simply not built to effectively tackle these issues over time. 

I wish I could step back in time and do an assessment of those organizations that worked in my community.  Most of them are not around anymore.  If they were I would almost bet that we would see all the capacity building challenges that we see in organizations today.  Challenges in the areas of governance, fund development, financial management, relevant programming and all the other areas that make up the health of a nonprofit,  I have noticed that the issue of poverty in Minneapolis is not that far removed from when I left in the mid-90s. The cards are just re-shuffled.  This is probably the main reason why I now consult troubled nonprofits, working mainly with human and social service agencies.

I bring this up because this week I saw several nonprofit organizations either close or make last ditch efforts to save their efforts, essentially “Throwing the Hail Mary”.  While many of my colleagues were discussing ACORN and its challenges, I was most surprised about how easy it was to bring down a national organization with a long history of serving the poor in the United States.  Many may blame a political actor for their demise.  I contend that at their organizational core their challenges must have been deep to have succumbed so quickly.  I trained an individual on organizational turnaround last week who is working to make sure the work of ACORN in New York might be maintained in another entity.  I am supportive of his energy, but my stomach was uneasy at whether they have the ability to shake off some of the challenges of Christmas Past.

Another group I saw was the Harlem School for the Arts, a 40-year old school that needed $500,000 in 48 hours or they were going to have to shut their doors.  This was the information I had seen through various e-mails and had heard on the radio.  I nearly broke down in tears when I saw on T.V. a 12-year old girl pleading with the public to help the school.  An interesting article later in the New York Times outlined the school’s management challenges and the most telling area I saw in the article was the conflicting statements by past leadership.  One leader stating that she left the school “believing that a listing ship had been righted” while just a short year later the new leader believe that “the finances were so dire, the school needed to shut down for a year”. 

The easy question to ask is where was the board, which upon review has an all-star cast of resumes.  You might say who was watching the books?  It is always the previously forgotten CFO in the distant corner of the building or the Board Treasurer who gets five minutes at each board meeting to discuss the finances that often get the evil eye.  The issue is more complex than finding the fall person and is often a “cancer” that has existed for many years.  According to 2009 survey data by the Nonprofit Finance Fund, 31% of nonprofits don’t have enough operating cash in hand to cover more than one month of expenses and another 31% have less than three months’ worth.  Ron Mattocks, the author of the Zone of Solvency, states that 7% of non-profit organizations are technically insolvent.  While that percentage does not seem overwhelming, think about it in relation to the approximately 1.5M nonprofits in the United States, which equals about 105,000 nonprofit organizations that have a cash flow crisis or ceiling-high debt.  These situations did not just happen, even due to the recent economy.  They are problems that have grown and festered over time, even when resources were more plentiful.

I have been involved in over a dozen turnarounds and counsel an even larger number of interim executive directors and turnaround specialists.  I am always amazed at how shocked organizations are to find out that they are on life support.  Even in New York City, the most savvy financial titans often give me the most confused look and furrowed their brow at how could this happen on their watch. 

So, if you have a feeling in your stomach that your organization could be in serious crisis but are unsure of what to do then here are six easy (but not so obvious) tell-tell signs that trouble might be on the horizon.

  • Files, Files, Files: The first thing I do when I walk into an organization is ask if I can see the file cabinets in the finance office.  If I open them up and it looks like their files have been housing small animals, then there is most likely a problem.  Ask any auditor and they will tell you that nine times out of ten, if the paperwork is abysmal then there is a very good chance that there is serious trouble in other organizational areas.  It’s a quick test so take a look at those files!
  • The Budget Versus Actual VERSUS the Budget Versus Actual: While typically organizations that are in crisis live and die by the weekly cash flow or budget v. actuals, you can see the difference between organizations who take this activity seriously versus organization’s that do not.  One of the main reasons why troubled organizations are able to turn themselves around is because at the time of crisis they were able to get a real handle on money in/money out.  The organizations that do not fare so well are those who have unforeseen variances in their expenditures and revenues.  If worried about how “real” your financials are, physically walk the cash flow through the previous week and see where the variances occurred.  The results may surprise you.
  • Talking to Family: In almost every crisis situation I enter I am most amazed at how secretive leadership believes they have to be and how uber-aware everyone else is outside of leadership about the challenges.  I met with a board who stated that they needed a communications plan to tell the staff of the challenges of the organization and they were convinced that the staff was oblivious to the financial challenges.  I asked the Board Chair to walk with me as we left the meeting past the receptionist and right before we reached the doors I asked the receptionist how she felt the organization was doing.  Without hesitation, the receptionist said, “Do you mean except for not having any money?”  Staff know, they always know.  If you can, ask some questions at the front desk or in the field.  This information may be more valuable than the information you get anywhere else.
  • Selling Food at the Ball Game: When an organization is really struggling, their development effort can look a little like that guy selling you food at the baseball game.  You know the individual who is yelling at anyone and everyone to buy what he has and is willing to walk a million flights of stairs to anyone who is willing to buy some peanuts.  An organization in trouble is similar in that their fundraising is as untargeted. They will go to anyone and everyone who might give some funding for their programs. Ask to see the fundraising asks for the last two months, i.e. grants, major donor asks and appeals.  If they are all over the map and lack strategy, start asking why?
  • Do Your Programs Have ‘Sunday Best Syndrome’: I don’t like to dress up and if I could wear basketball shorts and a t-shirt all day, I would.  As a consultant, I get to dress down more than the rest of the working world.  The only absolute time I have to dress up is when I go to church.  Not sure why but I think part of the reason is so that people don’t think I wear basketball shorts and t-shirts all day.  This is famously called “Wearing Your Sunday Best”. There is similarity in the nonprofit world and it is usually done relating to an organization’s programs.  Every good foundation program officer knows that when they do a site visit, they are usually seeing a dressed-up version of the organization and they sometimes have a trick or two that help them get a more real picture of the organization.  They may ask a client or two for a perspective or ask to see something out of left field.  Organizations hate these unexpected moves from funders but I understand why a funder might do this.  This activity should not just be for funders.  Go in and do more than just kick the tires.
  • Knights of the Dysfunctional Roundtable: When you ask most people what kind of event they would like to go to if they had a free night, most might say they would like to go to a concert, see a movie/play or go root for their favorite team.  If you can believe it, I actually love going to board meetings.  I know it is sad and I should be committed but what happens in a gathering of board members can really be interesting.  You can tell a lot about an organization by watching how a board meeting is conducted.  How are the interactions?  Who is talking and is anyone dominating?  Where do they spend their attention?  What mechanisms, if any, are they using to guide themselves? If you can step back and just watch the flow, you probably can get a really good sense of where the organization is.  Make it interesting and watch it with headphones on. 

While these tests are simple, I can attest that the results can say a great deal.  I also know that the stories of ACORN and the Harlem School for the Arts are very difficult to witness as thousands of low-income children and families will be immediately affected by their closings.  In addition, those that live in the community that I grew up in are being serviced by new faces and new letterheads but unfortunately the same practices are occurring and decades of poverty has only shifted but not changed.  While the visions and missions aim to propel or alleviate the causes and issues that we are passionate about, it is the management and operations of these efforts that prevent these missions and visions from being realized.  To really make a change in our communities, we must begin focusing more on the skeleton of an organization rather than just the flesh and the heart.

Read more stories by John Brothers.