Balancing the Mission Checkbook

When losing business is the goal

Why would an enterprise be happy when their customers stopped using their services? Isn’t the goal of business to increase customers, services, and revenue? Would you celebrate if your organization’s revenue declined?

It’s counter-intuitive, but this is often the reality for nonprofits. Mission and values trump revenue, and sometimes this creates challenges for the mission/money balancing act.

Nonprofits Assistance Fund is a case in point. In 2012 our loan fund had a record year. In 2013 we’ll have lower loan amounts, and less interest income. And we couldn’t be happier. Why? Because the circumstance that drove the growth in loans didn’t contribute to our mission “to build financially healthy nonprofits that foster community vitality.“

NAF makes loans to nonprofits in all fields of service, including charter schools. For the last three years charter schools in Minnesota have been managing the toughest cash flow challenge you can imagine and NAF’s loan fund has been a crucial resource. State aid to public schools, including charters, is evenly distributed during the year based on the number of students. The payment schedule includes a “holdback” amount that is paid during the next budget year after verification of enrollment and other reporting. From time to time the state has increased this payment delay as a part of budget planning. What had been a 10% payment shift in 2009 increased to 40% by 2011 as one of the “tools” used to eliminate the state’s budget deficit. Schools had no choice but to deplete their reserves and borrow funds to bridge a cash flow gap that was more like a chasm. In 2012 we provided lines of credit to 23 charter schools that added up to $8 million. We’re pretty sure we were the largest single source of loans to charter schools for this purpose.

At the same time, we worked on the public policy front to address the problem. We conducted a research survey, wrote a report, and worked with partners to create awareness of the impact of the shift on the financial health and stability of charter schools. After all, that’s our mission. The policy work was effective. The legislature accelerated payments to charter schools by a few months so schools still needed to borrow, but the loans were for a shorter term.

The really good news came last fall and again in February when the state forecast showed improved financial results for the state budget. State law requires replenishing the state’s reserves and repaying the school shift before any other use. The funding shift for education funding dropped in increments down to 13.6%. Some charter schools will still need to borrow this year, but much lower amounts. We’re glad to be able to bridge the cash flow gap but we’re even gladder that it won’t be $8 million. Yes, our interest income will be lower, but these nonprofits are more likely to be financially healthy when they don’t have to borrow almost half of their annual budgets. Mission success!

For NAF and for other nonprofits that balance this mission and money question it’s important to understand the conundrum and to know your core principles. Will you hang on to the status quo in order to protect your revenue, or will you push for solutions to the larger problem? Business models change. Values shouldn’t.

And in case I alarmed you, NAF will be fine. With lower demand for loans from charter schools we’ve been able to expand our lending for building purchases and renovations for nonprofits that are growing and fostering community vitality. More mission success. 

Kate Barr believes that every nonprofit financial question relates to strategy, structure and mission impact. She enjoys interpreting financial information to find stories numbers can tell. She loves writing, teaching, and talking with interesting people.