Recently, I have been blown away by the closure of many long-standing nonprofits. What happened to make these agencies spiral to the point of dissolution? I scratched my head thinking that these closures werenâ€™t wholly due to the economic climate, but a failure to realize trouble and institute a turnaround strategy.
Like the for-profit world, nonprofits need to operate with strong business acumen. Having good business acumen requires understanding the dynamics of the agency and its financial position for competitive positioning.
Think about it. How many nonprofits think about competitive positioning? How many know how to adapt, react, and realign? More so, how many know when to implement a turnaround strategy when the agency is under performing, especially financially?
It is astounding that some nonprofits donâ€™t know their financial position until they are on the brink of dissolution or its identified by a donor or bank institution. Having a grasp of managerial accounting is a good asset to have when identifying the need for a turnaround strategy. For example, be aware of ratios. Pay special attention to working capital and debt ratios. If working capital is on the decline and debt on an incline, then the agency should be worried and think about options. Consider expense cutting, such as human capital reductions, salary reductions, furloughs, or wasteful spending in operations. If cutting doesnâ€™t result in a better financial position, investigate problems with revenue and fix it quickly.
Nonprofits need to know when to employ a turnaround strategy and manage to solvency. Some turnaround strategies are simple fixes while others are more intricate. Identifying when to wave the â€œS-O-Sâ€ sign is important to prevent displaying the â€œGoing-Out-Of Businessâ€ sign. Manage a nonprofit for its future, not life support.