August 17, 2011

Learning About Finance: Advice for Nonprofit Leaders

The job market is full of visionary people hoping to find a job at a nonprofit.

They are idealistic young people who envision jobs that are the perfect nexus of “helping people” and using what they have learned in their academic studies. They are nurses who hope to run free clinics and fine-arts majors who want to start community theaters.

And they are sometimes for-profit employees looking to make a career switch or nonprofit professionals looking to start or move up in an organization.

These budding nonprofit leaders bring with them the passion for service, creative rigor, and intellectual curiosity required to inspire people and communities. Why is it, then, that so many new managers find themselves burned out, off-mission, and out of cash in short order? In a word, finance.

Many experienced nonprofit executives avoid telling young people how much of a leadership job entails understanding money, in large part because they don’t want to push the most talented people away from nonprofit work. Therefore, new managers often start their careers unschooled in how to raise, save, spend, and invest their organization’s money.

In the words of a seasoned nonprofit executive, organization leaders must recognize that “margin is mission”: Nonprofits are created on dreams but run on money. For this post, I interviewed some successful nonprofit executives about how they mastered nonprofit finance and what advice they had for those considering nonprofit leadership roles.

  • Build financial literacy. Learn as much as you can about finance and take college business courses, if possible, says Margaret Huggard, president of Catholic Social Services of Oakland County, in Michigan.  Ms. Huggard, a social worker by training, recalls that early in her career she took several accounting and finance classes because she knew that any enterprise that didn’t understand its cost structure was destined to fail. She said leaders that can’t manage financial data and decisions put their programs, staffs, and integrity at risk.
  • Get expert advice. Form strong finance and investment committees of the board or engage outside advisory groups with solid financial experience, says Judy Watson Olson, president of Great Lakes Center for Youth Development, in Marquette, Mich. When she took over as chief executive, Ms. Watson Olson formed an investment committee filled with chief financial officers, bankers, and accountants to help her make decisions about programs with an understanding of how they were financed. Even though Ms. Watson Olson has MBA-level training, she welcomed advice from people who spend every day working in the financial world.
  • Look and listen. Stay constantly informed about your financial condition and recognize the rhythms of the operation or organizational ebbs and flows, says Patricia Rosen, president of Care House of Oakland County, a Michigan group that helps abused children.  Ms. Rosen says nonprofit leaders face increased scrutiny of their financial stewardship so they need to articulate and defend their financial position.  Part of that accountability requires leaders to actively and regularly talk to people on their financial staffs, donors, and others who care about the nonprofit.
  • Focus on quality. The bottom line of any organization is driven by the quality of its work, says Oliver Ragsdale, president of the Arts League of Michigan.  Clients and donors have choices and they only buy services and support organizations that are appealing and effective. Many nonprofit leaders have difficulty weathering financial cycles, Mr. Ragsdale says, because they too quickly trade quality for savings, thus diluting their future earnings and the impact of their brand.

What insights might you add for people aspiring to leadership jobs?