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Gazette forum will examine what makes healthy non-profits

[Note: This material is copyright by The Gazette, and is reproduced here as a matter of "fair use" for non-commercial, educational purposes only. Any other use may require the prior approval of The Gazette.]

  The party this fall marked the first time the museum has finished its cash operations in the black in September, typically a slow month.

  ‘‘To make it as a non-profit, it takes a lot of hard work and a lot of good luck,’’ Dunkhase said.

  The Iowa Children’s Museum is one of about 1,400 non-profit organizations operating in Linn and Johnson counties. Many of those organizations skate by on the thinnest of margins. Not all of them succeed.

  For those that don’t, one of three key elements is typically to blame, area non-profit leaders say.

  ‘ ‘ G o v e r nance, leadership and a strategic plan are the three ingredients to a successful non-profit entity,’’ said Jack Evans, president of the Hall Perrine Foundation. ‘‘If an organization drops the ball in any one of these areas, there’s a price to be paid.’’

  Whatever the blame, the price for the Cedar Rapids Science Station and McLeod/Busse IMAX Dome Theatre may be failure.

  Science Station officials announced last month that the organization, struggling under $1.3 million in debt, would close Nov. 15 without a bailout from the community. On Friday, officials said the Science Station has received enough funds to remain open through the end of January. The Science Station is the latest area non-profit organization to suffer serious financial difficulty recently.

  Money problems at Mid America Housing Partnership have hindered the organization’s mission of providing adequate affordable housing in the Cedar Rapids area.

  Earlier this year, The Carl and Mary Koehler History Center, 615 First Ave. SE, was closed temporarily after it accumulated $170,000 in debt. The History Center faced foreclosure in 2003 but was saved after city and county government, local donors and banks donated $1.4 million to retire its mortgage. The center reopened with a volunteer staff and significantly scaled back hours.

  These kinds of financial problems have serious repercussions for all non-profits and can stifle contributions by donors, area nonprofit leaders say. Non-profits succeed or fail just like forprofit businesses, but the loss of a non-profit can strike a serious blow to a community. ‘‘There’s more ownership by a community of a nonprofit than there is for a for- profit, which has shareholders. A non- profit has stakeholders that, in a broad sense, is the community,’’ Evans said.

  Still, Evans and others q u e s t i o n whether that means a nonprofit should be bailed out if it finds itself in a do-or-die situation.

  ‘‘An organization without a good strategic plan or sustainability maybe shouldn’t be here. I don’t know that you bail it out,’’ Evans said. Evans said he isn’t referring to the Science Station, which he believes is an asset to the community and can succeed with good planning. But certainly probing questions need to be asked as to how the organization found itself in the spot it’s in, experts say. First and foremost, the board of directors should take the blame, experts say, because a non-profit’s board is crucial to the organization’s success. It takes the lead role in steering the organization. One of the board’s most important jobs is to hire or fire the organization’s executive director. The board also must be engaged and vigilant.

  ‘‘Showing up for a meeting once a month or every other month is not enough,’’ said Helen Arnold Olson, president of a fund development c o n s u l t i n g firm, Arnold Olson Associates.

  Boards should not micromanage an organization once the executive director is in place, Evans said, but it’s healthy for the organization if board members push back when they don’t think staff or the board is making the right decisions.

  The board’s next responsibility is to develop and approve a strategic plan for the organization, experts say. That strategic plan should define where the organization should be in one, three, five or 10 years. It must also figure out how to get there, taking into consideration bumps in the road, Arnold Olson said.

  The board must monitor operations and make sure the organization is following that plan.

  ‘‘It’s sometimes easy for organizations to confuse activities for accomplishments, but just being busy doesn’t address the strategic plan,’’ Arnold-Olson said.

  Non- profits have become more sophisticated. They are being asked to do more and are having to compete harder for donations in a growing field of non-profits.

  To effectively govern, the board also must become more sophisticated, said Dan Baldwin, president of the Greater Cedar Rapids Community Foundation. He questions whether area boards have evolved.

  ‘‘We’re in some difficult circumstances, and I think that is exposing that we’re still in this learning curve,’’ he said. ‘‘It takes a different kind of board member to oversee these types of organizations.’’ While board members may be devoted to an organization, they might not have the expertise necessary to run one, Baldwin said.

  Lois Buntz, president and CEO of the United Way of East Central Iowa, said, ‘‘We’re seeing a shift where an organization, to be successful, has to have good strong business representation. It used to be non-profit boards were just people who worked at that non-profit, but you need to have the mix with business.’’

  At least one of those board members should be an financial expert. Buntz said it’s a myth that non- profits don’t have to make a profit.

  ‘‘In reality, you do have to at the very least . . . make a little money,’’ she said. ‘‘There are times when you might not make money, but you are still running an agency that has to cover its costs.’’

  She said sometimes nonprofits, especially in the health and human service field, find it difficult to say ‘‘no.’’

  ‘‘You have so many people who need your service that it’s hard to turn them away, but the reality is, if you don’t have enough money to pay the bills, that becomes a challenge.’’

  Experts also say transparency and accountability are keys to a non-profit’s success. That means sharing financial statements and providing strategic plans to those who are interested in seeing them. ‘‘Donors are becoming real sophisticated. They want to make sure their money is not being thrown away,’’ Arnold Olson said.

  To receive United Way funding, health and human service non-profit organizations must submit detailed financial and strategic plans, which are scrutinized by United Way officials. That requires organizations to stay on top of their plans.

  ‘‘I think the accountability process is good. We have a built-in way for organizations to look at what they are doing every year because we ask them to,’’ Buntz said. ‘‘Our goal is to be helpful. We want a non-profit to be successful.’’

  Another important element to a successful non-profit is an endowment. While it takes time and discipline to build, an endowment helps diversify funding and relieves the pressure of seeking donations for annual operations, experts say.

  ‘‘They ensure the sustainability of an organization. An endowment bodes well for the future,’’ Evans said.

  A $1 million endowment, for example, will provide between $40,000 to $50,000 of income each year, Baldwin said.

  He said many non-profit organizations, including the Science Station, rely too much on annual giving.

  ‘‘There are a lot of agencies that have very successfully built an endowment while implementing operational plans, but a majority of them have done it through planned gifts,’’ Baldwin said.

  Organizations should strive to put 10 percent of every dollar given into a restricted endowment, experts say. The size of an organization’s operations dictate how much it should have in an endowment, Arnold-Olson said.

  ‘‘In a perfect world it would be great to see 30 percent (of funding) come out of an endowment, although for more organizations 5 to 10 percent would be a gift from God,’’ she said.

  The trick is for organizations not to get defeated in building up that endowment. It takes many years to raise that kind of money.

  While the Science Station and the History Center’s financial problems stemmed partly from debt, it doesn’t have to be the kiss of death for a non-profit organization, experts say.

  ‘‘It’s not having debt. It’s how it’s managed,’’ Arnold Olson said. ‘‘There needs to be a plan on how to retire the debt.’’

  The Gazette will be the host for a community discussion Tuesday on what makes for healthy non-profit organizations.

  The forum begins at 7 p.m. in Beems Auditorium at the Cedar Rapids Public Library, 500 First St. SE.

  The discussion follows the financial difficulties faced by two local non-profits — the Science Station and The Carl and Mary Koehler History Center.

  Appearing on the panel will be Terri Christoffersen, chairwoman of the St. Luke’s Hospital board of directors and a member of numerous non-profit boards; Rich Patterson, director of the Indian Creek Nature Center; and Peggy Boyle Whitworth, executive director of Brucemore.

  Gazette Editor Mark Bowden will moderate.

  Discussion topics will include how the public can tell if a non-profit is well-managed; how a non-profit gets into — and out of — financial trouble; how fair are bailouts of struggling nonprofits; and what is a nonprofit board member’s responsibility to the organization.

  The forum is open to the public, with a time provided for questions after the panel discussion.