FINANCIAL LEADERSHIP: THE DIFFERENCE BETWEEN SURVIVAL AND INSOLVENCY FOR NONPROFITS
By Erica Crenshaw In Financial Leadership, Podcasts Posted September 17, 2015 0 Comments

The nonprofit community recently lost a 123 year old prolific leader and strategic partner that opened doors for many others with a strong desire to change lives. That leader was none other than the renowned, Chicago‐based Jane Addams Hull House Association – a social service agency that served more than 60,000 people each year, offering foster care, child care, domestic‐abuse counseling and job training. Hull House was established in 1889 by Jane Addams, a sociologist from Chicago, who won a Noble Peace Prize in 1931 for her courageous spirit as she helped Chicago’s immigrants assimilate into the new world of America. Although its focus was on women and children, Hull House was the voice of public health for many Chicago citizens.

 

Hull House faced a number of external challenges in recent years, but the primary reason it was forced to close its doors was internally based –a lack of financial leadership. This longstanding organization employed over 300 people, had a peak operating budget of $40M and was overseen by a board of directors comprising numerous pillars of the business community, yet it was still unable to survive. This tragedy could have been thwarted if the board demanded more financial leadership.

 

Hull House, like many organizations, took advantage of the bountiful years of easy money, creative financing, and low interest rates. The board approved approximately $3M in loans to purchase buildings and expand their programs throughout Chicago. However, program expansion and access to inexpensive debt were not the organization’s core problem – that only contributed to it.

 

The crux of the issue came from the lack of good, honest and timely financial information. It has been reported that the Hull House board was not receiving timely financial reports and the reports that they did receive were overly optimistic. The organization faltered because no one in leadership read the tea leaves. It is the responsibility of the nonprofits’ leadership to ensure that the right professionals are in place to accurately assess its financial condition, interpret financial numbers and persuade the organization to take the requisite steps to maintain its financial standing. In the case of Hull House, by the time the organization grasped the financial realities of its condition, as The Chronicle of Philanthropy appropriately put it, “Opportunities to make hard decisions had passed.”

 

It is not uncommon for nonprofit organizations to face financial challenges or even for their leaders to make the occasional bad financial decision. However, how quickly and strategically they respond to financial issues is often the difference between insolvency and survival.

 

Just as no private sector company management team is complete without a financial executive capable of peeking around corners, nonprofits must invest in the capability to operate like corporate CFOs – not simply reporting the results, but interpreting them, anticipating the future and being unafraid to be the bearer of bad news. Being honest about the depth of financial problems upfront generally makes it possible to consider a broader range of options. Alternatively, systematically delaying the day of reckoning often results in time being too short to make favorable decisions. As a result, only one viable option remains– closure.

 

As the CEO of a leading finance and accounting firm providing strategic insight to organizations throughout the country, I strongly encourage all nonprofits, regardless of their size, to go beyond simply staffing a bookkeeper or Controller to investing in unfettered strategic financial leadership. Why? Because there is a community depending on your existence.

 

 

Does your organization need strategic financial leadership? If the answer is “yes”, please contact us at 877-504-0954 to learn more about how we help nonprofits develop, analyze, and monitor forward looking financial goals. Let us help you make a difference.

 

Execute Now! is a preferred corporate member and outsourced financial partner of LANO.

 

 

 

 

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