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The Full Cost of Reducing Frustration

Thursday, November 2, 2017

By Kate Seely, Director, Leadership, Culture and Community, Northern California Grantmakers

“If you don’t know where you’re going, any road will take you there.” – Yogi Berra

Recently, over tea, I found out how a friend makes it through the cash crunch when his nonprofit is between payments for government contracts: he stops paying himself. His story is the same as countless others. If I could, I’d tap my magic wand to end his stress and recover the time he spends inventing work-arounds.

Since I don’t have a magic wand, I’ve been doing the next best thing: devoting two full days locked away in a room of philanthropy and nonprofit professionals figuring out how to budget for the social good nonprofits do with far too little, and learning to have conversations about what that social good actually costs. The Full Cost Project turns the starvation cycle upside-down: instead of operating with insufficient cash flow, we need to build surpluses, just like businesses do, to cover our expenses, cash flow, effective equipment, and even to plan for growth or a transition.

This concept of building a surplus in the nonprofit sector is so counterintuitive one participant remarked, “It is such a hard thing to understand in our sector; it’s almost philosophical.”

Both funders and participants were so grateful to be in the room, learning together. “This opened a door to talking about things usually pushed aside and left unsaid. Before this workshop, ignorance was bliss. The question now is: how do we upset this cycle?”

One nonprofit participant remarked: “Many of us, nonprofits and funders alike, have just conceded to the flaws. It doesn’t have to be that way. We need more useful, transparent, and unapologetic conversations between funders and nonprofits.”

We’re re-learning the art of conversation to talk about the costs to accomplish our aims.

To get where we want to go with our work and our dollars, it’s important these are honest conversations. A nonprofit attendee remarked: “It is really scary [to talk about cash flow challenges], because we feel like we need to come off as strong and solid to receive a grant.”

For funders, it’s often about asking the right questions to create that space for honesty. One funder remarked: “Funders look at many grants through a single lens. Grants, and their larger organizations, are so different from one another, they need to be treated as so.”

Participants’ eyes widened again and again as we explored the actual cost for what they’re trying to do. “Organizations are praised for their mission work, and criticized for their business,” one funder remarked, further reflecting that “So much of what we have talked about is building a surplus. That’s normal in business speak. But it is such a hard thing to understand in our sector. It’s even hard to talk about the total expenses! Let alone a surplus.”

Full cost funding doesn’t have to happen all at once. We can make micro-moves, step by step, until one day, we look behind us and say, “Look how far we’ve come!”

One nonprofit leader reflected, on approaching the full cost of her organization’s work in chunks, “We can put numbers and a timeline to it and ask how we can do it incrementally. Will it take three years? Maybe more like ten? What one thing can we do to make inroads? Do we need to have some real conversations about whether we’re overextended? Where should we do less? We need to be patient, and courageous, and remember, it’s not going to happen right away, but perhaps we’re working toward it.”

When we think about what it costs to run a for-profit and a nonprofit, the needs are really not that different, and yet we have come to believe that they are. In non-profits, we also need working capital, we need change capital, we need to be able to grow and plan and shift. All of this requires us to upset the cycle we are in – to deepen our financial literacy and speak honestly about what we truly need. In reality, we don’t need my friend and so many others to go without paying themselves, we need to build surpluses that they can draw on when the contracts just won’t come in.

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