Strong Fiscal Management is Key to Nonprofit Sustainability

While the closure of non-profit social service organizations is relatively uncommon, when it occurs it can disrupt the lives of thousands.  In 2012, the world-famous Hull House in Chicago closed for financial reasons, leaving thousands of children and their families without services, at least temporarily. This past January, FEGS Health and Human Services, one of New York City’s largest social service agencies, closed suddenly for financial reasons.  Again, thousands were affected.

Even when financial struggles are not serious enough to cause closures, they can disrupt the delivery of services and get in the way of good program planning.  For example, programs that serve adolescents who are disconnected from school, family and work—and therefore vulnerable to multiple risks in their communities—often rely upon the development of strong relationships between staff members and youth as a way of reaching young people.  When financial challenges result in lay-offs, relationships are disrupted, threatening young people’s stability.

In the United States non-profit organizations provide critical developmental and other support to millions of American families and their children. The sustainability of these organizations is important to all communities across the country.

The Wallace Foundation’s Strengthening Financial Management (SFM) initiative recently invested in strategies to improve the financial management of nonprofit organizations providing after-school programs.  I was part of a team from MDRC and Child Trends that studied the initiative and reported on the findings in a new publication released recently.

Twenty-five Chicago organizations participated in SFM and received professional development for two years, with two additional years of light-touch follow up. Fiscal Management Associates (FMA), which provided the professional development, targeted organizations’ leaders, assuming that the needed financial changes required the involvement of the chief executive and chief financial officers. The organizations were split into two groups that varied by the intensity and expense of the assistance:

1. One group received customized coaching to organizational leaders and their staff, which cost approximately $131,000.
2. The other relied primarily on group workshops, costing approximately $32,000.

What we found has implications for grant-making organizations seeking to improve the financial management of its grantees and nonprofit leaders seeking to invest in strengthening their organizations’ capabilities.

• Almost all the organizations showed improvements in their financial practices, regardless of the type of professional development provided;
• Staff in both groups reported that better financial management contributed to better informed program planning;
• The customized coaching organizations showed slightly greater improvement, and their improvements were made more quickly than the group workshop organizations;
• However, organizations who received the group workshop improved their practices, and at a much lower cost than those who received the customized learning model. The group workshop organizations spent about 1,000 hours of their staff’s time to achieve outcomes, plus about $32,000 in software and other expenses. The customized coaching group spent about 800 hours of their staff’s time plus about $59,000 in other expenses.

My colleagues and I concluded that the customized coaching model could be cost effective, particularly if time was not an issue.