Chapter 15: Adapting to Turbulent Times

Question 1

What tends to happen to nonprofits during recessions?

Answer 1

Decreased funding

Increased demand for services

Question 2

3 Types of Long-Term Risk

Answer 2

1. Market Risk
2. Sector Risk
3. Firm Risk

Question 3

Market Risk

Answer 3

Looking at how organization’s finances are doing relative to other organizations with similar finances

Question 4

Sector Risk

Answer 4

Compare the results of organization to other organizations providing similar services, using IRS classifications

Question 5

Firm Risk

Answer 5

Evaluating revenue and spending over several years to identify trends

Question 6

What are two creative ways for nonprofits with financial problems to increase revenues?

Answer 6

1. Return to small donors

2. Expand fundraising to include corporate foundations

Question 7

What are two creative ways for nonprofits with financial problems to cut costs?

Answer 7

1. Cut personnel and outsourcing services, such as payroll processing
2. Pool resources into coordinating committees that can arrange for common services at a lesser cost

Question 8

What are ways in which nonprofits might change their structure to reduce risk?

Answer 8

1. Become landlords
2. Mergers
3. Create for-profits for administrative services, to reduce payroll

Question 9

Social Enterprise Company

Answer 9

Organization that achieves its primary mission using business methods. Any surplus revenue is put back into the organization.

Question 10

Social Entrepreneur

Answer 10

An individual with innovative solutions to society’s most pressing social problems

Question 11

Where do social entrepreneurs and social enterprise companies lie on the spectrum between nonprofit and business?

Answer 11

In the middle

They blur the line between traditional nonprofit and business. Revenue-generating with a mission.

Question 12

Venture Philanthropy

Answer 12

Enterprise that applies the tools and techniques of venture capitalism to philanthropic goals. Characterized by:

• funding on multiyear basis
• focus on capacity building rather than on programs
• high involvement of donors
• focus on measurable results
• willingness to try new approaches

Question 13

What is different about nonprofit loan funds?

Answer 13

They are provided a below-market-rates by certain organizations and/or the Nonprofit Finance Fund

Question 14

CDFIs

Answer 14

Community Development Financial Institutions
Private financial institutions dedicated to responsible, affordable lending to low-income, low-wealth, and other disadvantaged people and communities

Question 15

What are the 2 types of foundations?

Answer 15

1. Private foundations

2. Community/Public foundations

Question 16

Private Foundations

Answer 16

Funded by individuals, families, or corporations. Subject to 2% excise tax. More restrictions and fewer tax benefits than public foundations.

Question 17

How do Community/Public Foundations raise money?

Answer 17

Through public sources

Question 18

Program-Related Investments (PRIs)

Answer 18

Loans; Investments made by private foundations to for-profit ventures to support charitable activities

Question 19

L3C

Answer 19

Low-profit Limited Liability Company
Method to legalize a business structure that will protect its members and retain flexibility, between for-profit and nonprofit organizations. Pass-through entity. Members have lability protection of corp, flexibility of a partnership. Entity facilitates investments in social beneficial, for-profit ventures while complying with IRS rules concerning program-related investments.

Question 20

What 3 requirements must an L3C fulfill to quality as a recipient of PRIs?
(program-related investments)

Answer 20

1. Significantly further the accomplishment of one or more charitable or education purposes
2. Cannot make the pursuit of income its primary objective, although it may make a profit
3. Must not be organized to achieve a political purpose

Question 21

What are the 3 levels of investors in an L3C?

Answer 21

1. Equity Level - foundations invest; highest risk, lowest return
2. Mezzanine Level - individuals/banks invest; less risk, more return
3. Senior Level - pension funds invest, low risk

Question 22

What 3 concepts do L3Cs bring together, that would not otherwise be available for socially beneficial investments?

Answer 22

1. Corporate profits
2. Foundation funds
3. Pension funds

Question 23

In how many states is an L3C a legal structure?

Answer 23

About 10, plus a few Indian Nations

Question 24

B Corporation

Benefit Corporation

Answer 24

For-profit corporation that is protected from shareholder lawsuits by

• seeking to have a positive impact on society/environment
• redefining fiduciary responsibility to include non-financial interests in decision making
• it will report its impacts on society/environment using third party standards

Question 25

Which funding source for nonprofits tends to plummet more during a recession - government funding, or individual donors?

Answer 25

Government funding

Question 26

What does “inch deep and a mile wide” refer to?

Answer 26

Expanding a revenue base to include more small donors