Welcome to the Spring 2007 issue of the Nonprofit Quarterly, on the realities of nonprofit finance. When we last addressed this topic we had firmly established that there indeed are significant differences between the finances of nonprofits and businesses. In this issue we look at more of the patterns and variables which are powerful determinants in nonprofit finance, but are often unrecognized by managers.
The first article in this cluster is on a topic we have been thinking about for some time: the function of “slack” in an organization’s budget. It is not unusual to examine the budget of a nonprofit with an annual expenditure in the tens of millions and find it completely “house poor;” its overhead kept minimal by the contracts that support it, its facilities deteriorating, and information systems outmoded. Author Woods Bowman offers you a test to look at your organization’s level of financial health and agility.
In our interview with Richard Brewster, executive director of National Center on Nonprofit Enterprise (NCNE), he discusses, among other things, the variable of the “transaction costs” that accompany each funding source, walking us through the impacts of these costs on organizations.
The third piece was one we kept hearing people talk about: that the mix of funding sources was related to an organization’s size and age. They referred to the concept as “the U-shaped curve.” After a little investigation we found research that had been developed by the Bridgespan Group that looked at the budgets of two types of organizations and found that they tended to start with a few funding sources, move to many, and then return to a few types as they grew in size. The authors do not claim that their research is conclusive but propose the model as an evolutionary pattern that nonprofits may be following.
Of course, there is much more in this issue as well. We have two wonderful pieces on conflict of interest. A few months ago we asked our readers to send us their conflict of interest policy statements and an indication of how they were approaching the topic with their boards and within their organizations. Did they just have the policy and have board members sign-off or was the discussion more active than that? Mel Gill, a researcher from Canada had just finished a study of his own on this topic and volunteered to make sense of the reams of material we got back from you. Rick Cohen, our national correspondent also contributed to this topic with a survey of nonprofit conflicts in the news: sordid but informative. As Mel comments, there is a large grey area in this one, but when you slip over to the dark side and are exposed, you must certainly wish you’d stayed out of the shadows.