Chapter 15: Adapting to Turbulent Times Flashcards
What tends to happen to nonprofits during recessions?
Decreased funding
Increased demand for services
3 Types of Long-Term Risk
- Market Risk
- Sector Risk
- Firm Risk
Market Risk
Looking at how organization’s finances are doing relative to other organizations with similar finances
Sector Risk
Compare the results of organization to other organizations providing similar services, using IRS classifications
Firm Risk
Evaluating revenue and spending over several years to identify trends
What are two creative ways for nonprofits with financial problems to increase revenues?
- Return to small donors
2. Expand fundraising to include corporate foundations
What are two creative ways for nonprofits with financial problems to cut costs?
- Cut personnel and outsourcing services, such as payroll processing
- Pool resources into coordinating committees that can arrange for common services at a lesser cost
What are ways in which nonprofits might change their structure to reduce risk?
- Become landlords
- Mergers
- Create for-profits for administrative services, to reduce payroll
Social Enterprise Company
Organization that achieves its primary mission using business methods. Any surplus revenue is put back into the organization.
Social Entrepreneur
An individual with innovative solutions to society’s most pressing social problems
Where do social entrepreneurs and social enterprise companies lie on the spectrum between nonprofit and business?
In the middle
They blur the line between traditional nonprofit and business. Revenue-generating with a mission.
Venture Philanthropy
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
What is different about nonprofit loan funds?
They are provided a below-market-rates by certain organizations and/or the Nonprofit Finance Fund
CDFIs
Community Development Financial Institutions
Private financial institutions dedicated to responsible, affordable lending to low-income, low-wealth, and other disadvantaged people and communities
What are the 2 types of foundations?
- Private foundations
2. Community/Public foundations
Private Foundations
Funded by individuals, families, or corporations. Subject to 2% excise tax. More restrictions and fewer tax benefits than public foundations.
How do Community/Public Foundations raise money?
Through public sources
Program-Related Investments (PRIs)
Loans; Investments made by private foundations to for-profit ventures to support charitable activities
L3C
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.
What 3 requirements must an L3C fulfill to quality as a recipient of PRIs?
(program-related investments)
- Significantly further the accomplishment of one or more charitable or education purposes
- Cannot make the pursuit of income its primary objective, although it may make a profit
- Must not be organized to achieve a political purpose
What are the 3 levels of investors in an L3C?
- Equity Level - foundations invest; highest risk, lowest return
- Mezzanine Level - individuals/banks invest; less risk, more return
- Senior Level - pension funds invest, low risk
What 3 concepts do L3Cs bring together, that would not otherwise be available for socially beneficial investments?
- Corporate profits
- Foundation funds
- Pension funds
In how many states is an L3C a legal structure?
About 10, plus a few Indian Nations
B Corporation
Benefit Corporation
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
Which funding source for nonprofits tends to plummet more during a recession - government funding, or individual donors?
Government funding
What does “inch deep and a mile wide” refer to?
Expanding a revenue base to include more small donors
