Case Study: financial management at a small charity

This article is in response to a brief exchange that Dave Hutchinson and I had a few weeks ago. I will include the exchange here first, in order to provide context to my post below.

[Dave Hutchinson's original post]:

Just because an organization is registered as a "charity" does not make it any less a business. It still needs to be led well and run well and it still needs to make a "profit" so that the mission can actually be accomplished.

[me] Agreed. We recently turned around a charity that has been making a huge impact on the program side, but really struggled financially to the point of nearly closing its doors. It would have been a huge loss for the community and the thousands of people we serve each year had that happened.

One thing I find fascinating is that part of me has been hesitant to share the story of how we have turned things around on the financial side, as I can almost hear some donors and grantors saying: "what, you made a 'profit' last year?"

From my experience, the reality for smaller charities is that we need to run a profit each year in order to grow our impact and fulfill our mission. There are no equivalents to hedge funds willing to invest for 10 years in the start up or growth phase of a charity. Grantors often provide one-off funding which can't be relied on over time. So we may need to be even more "profit"-focused than some businesses.

[DH]: Thanks Allan. I think it would be great if you could find the right forum to share your turnaround experience. Many leaders and organizations would likely benefit from it. I know it's accounting and programming symantics related to cost allocations but tangibly, if there is no "profit," then education doesn't happen, social services falter, healthcare declines, homelessness and hunger increase, etc., etc. Essentially, stakeholders need to know that "charity" costs money and without a healthy charitable sector in Canada, a lot of good things just would not get done.

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Thanks for the nudge, Dave. Not sure of the right forum to share our turnaround story, so I will share a few notes from our experience here, in the hopes that it may be helpful to other leaders and charities.

Introduction

Since 2010, Matthew House Ottawa has provided shelter, food and essential settlement support to hundreds of homeless refugee claimants, and furnished the homes of more than 6000 families in need.

A few years ago, our board was faced with some significant challenges. While Matthew House Ottawa (MHO) was making a big impact in the community and demand for our services was very high, there had never been any investment on the revenue side, and the charity was really struggling to bring in enough income to sustain the operations.

After nearly 2 years without an executive director, I was hired in September 2018 to develop a fundraising program; increase our community, stakeholder and brand engagement; and focus on strategy, leadership and organizational performance.

While there are many facets of MHO we could discuss, I will focus on the financial management side of things for this case study, and provide a brief summary of our experience over the last couple years.

The First 4 Months

It was clear that while there is always room for improvement, we did not need to prioritize making immediate changes to our programs in 2018.

While developing a fundraising program was a priority, it can 1-2 years to see significant results when starting from scratch. So we needed to buy some time by finding ways to strengthen our balance sheet and increase cash flow, which would give us a runway to expand our donor base and increase the financial sustainability of the charity.

Implementation

In the first 4 months, our initial strategy was to focus on the following:

• Reducing expenses: I did a fairly deep dive into the profit and loss statements, seeking any expenses that might be reduced or cut (in areas that were not related to bringing in revenues).
• Increasing recurring revenues: we tested a monthly donor campaign, with a matching offer to entice one-time donors and other supporters, and started asking for monthly donations any chance we could.
• Yearend (YE) appeal: carried out a small, yearend 4-channel appeal to anyone we had contact info for, primarily donors from the last few years.
• Major gifts: given I was new to MHO and there wasn’t a fundraising program in place, there wasn’t a lot to immediately work. But I reached out to anyone I thought had potential on the donor file, and some people within my own network.
• Stewardship: We wanted to show gratitude for every donor, so we implemented a number of simple personal touches including a thank you email from the executive director; a handwritten thank you card from a volunteer after donation; and handwritten Christmas postcard highlighting 2018 impact, from board director or executive director.

Results from the first 4 months

After a review of the profit and loss statements, well….as you can imagine there wasn’t many places to cut costs. That said, the process exposed high bank account and internet fees, and we were able to save over a $1000/year after a couple quick conversations.

We saw an increase of 33 monthly donors and $16,000+ in annualized monthly gifts.

Our 2018 YE appeal led to a more than 3x year-over-year (YOY) jump in online donors and donations in the month of December.

Efforts on the major gifts front paid off with a total of $100k in gifts (of $5k of more), plus an additional $25k pledged for 2019.

In sum, fundraising income increased 84% YOY in 2018, and we saw a $115k or 62% increase in cash on our balance sheet in the final 4 months of 2018.

We were building our runway.

The Next 2 Years

As I said to my board at the time, “That is all good news, however we should also acknowledge that we are starting from quite a low point in terms of our fundraising program, and have a fair distance to go to achieve sustainability financially.”

For the next 2 years our priorities were to continue increasing income (especially recurring revenues where possible) and developing our fundraising capacity.

Given we had a small staff team of 3 full-timers at MHO, the themes we kept in mind throughout this time were testing, learning, and incremental improvements in areas where we saw results. This set the stage for low-stress small gains that compounded over time.

Implementation

• Increase recurring revenues:

1. Investments: We moved reserve funds from cash account earning $0 interest into short-term/flexible GICs
2. Consulting: We developed a monthly retainer agreement with a new nonprofit doing some similar work, that wanted support as they were getting established.
3. Income from operations: where possible, we made increases to our fees in both programs (refugee services and furniture bank), taking into consideration what the “market” would bear and maintaining a policy where money would never be a barrier to our services.

• Grants: we hired a grant-writing consultant (shout out to Laura Bonnett, who has been amazing) to develop a grant strategy, find and apply for potential grants that showed significant alignment with our programs/impact.
• Donor stewardship, communications, appeals etc: made improvements to our website and e-newsletter, created infographics to highlight our impact (community/high level) alongside a monthly story series (individual/personal level), more regular appeals.

Results from the next 2 years

We increased recurring revenue by $10k/month (60%), as follows:

• Income from operations/program: $5000/month
• Monthly donors: $3500/month
• Consulting: $1000/month
• Interest from reserve fund: $300-500/month

We applied for nearly every grant we could find (where we thought there was a high likelihood of success), and grant income increased 4.5x from about $23,500 in 2017 to $106,000 in 2020.

We added 3500 net subscribers to our e-newsletter list, increased online donors by 10x and online gift amounts by about 6x.

Total revenue increased more than 2x from $268k in 2017 to $638k in 2020. And we are now at a place where we can sustain and grow our programs to fulfill our mission.

Conclusion

Many of us who work in the charitable sector naturally focus on the program/impact side because we care so much about the end result: people’s lives improved and communities changed for the better. But charities can’t sustain and grow their impact unless the financial side is managed well. As Dave said, "if there is no 'profit,' then education doesn't happen, social services falter, healthcare declines, homelessness and hunger increase, etc., etc. Essentially, stakeholders need to know that 'charity' costs money and without a healthy charitable sector in Canada, a lot of good things just would not get done."

The turnaround in our financial situation at Matthew House Ottawa has meant less furniture poverty and less homelessness in Ottawa. Had the pandemic hit in 2018 it is quite possible that MHO would not be serving the community today - or at best we would be limping along with a significant reduction in our impact.

Instead, our board and leadership team now have the confidence and capacity to invest in growing our programs. We have increased our capacity to shelter and feed homeless refugees by 3x. With the second truck we recently secured, we are on track to double the number of homes we can furnish. The end result is more homes furnished, fewer homeless refugees, and a healthier community.

And we are just getting started: my hope and vision for Matthew House Ottawa is that we continue to expand our programs until we abolish furniture poverty in Ottawa (alongside other charities doing amazing work like Helping With Furniture), and that every homeless refugee claimant that finds their way to the capital is provided shelter, food, and essential settlement support until they are on their feet.

But that vision would never be realized unless the financial management side of our charity was given sufficient attention.

Hope that helps. Happy to chat further if anyone has questions. Have a great day!