A recent training I attended gave me pause. In a particular session, which I attended with a group of nonprofit executive directors, the focus was on financials.
On this day of the financial training, as we were reviewing balance sheets and applying the “acid test” to determine a nonprofit’s financial standing, one organization was upside down with a ratio of .0494:1.05 (.05 in assets to every $1.05 in liabilities – not a good situation.)
The facilitator asked the group to comment on what should be done based on the negative ratio; one participant responded: “You better get out and get more donations!”
Now, I am pretty sure she was kidding, but there was that fleeting moments when the only thought in my mind (after much self-editing) was: REALLY?! And it prompted me to make this short blog post to remind all of us that our donors are not a go-to source for money when we’ve mismanaged or planned poorly.
Our donors are not ATM’s.
EVER.
Executive directors have the responsibility to manage a financially solvent non-profit organization with AT LEAST a 1:1 ratio of assets to liabilities. And that really isn’t enough, because there is no room for error.
If the ratio begins to slip into the negatives, and the liabilities are greater than the assets, the Executive Director’s responsibility is to make changes within the organization to offset that dip. And where do you do that? Typically in your largest expense items: personnel, programs, etc. , or you can borrow money – not a recommended practice, but sometimes it’s necessary.
Donors are volunteers. They are partners. They are supporters. But they are not ATM’s.
I absolutely believe if management is doing their job, a donor will never be called upon to “save” the organization.
And that’s that.
REALLY.
