The organizational retirement mindset and its implications

Posted by Matthew Thomas

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The Organizational Retirement Mindset and Its Implications

Since 2008, many non-profit and faith-based sector organizations have run deficits that require them to spend down their reserve funds. Even before that, many endowed organizations depended largely on funds that were donated in a previous time by a previous generation. In both cases, along the way both types of organizations became dependent on spending assets to meet their obligations (not just the income off of their invested assets). Habitually spending down assets to maintain current programs and services creates or reinforces a “retirement mindset” in these organizations.

organizational retirement mindset, matthew thomasThe retirement mindset is that the organization has worked hard to get where it is today, with great effort, sacrifice and glory. Its peak earning years are behind it, and now it has to spend its assets to maintain its daily life – its programs and services. It knows that this situation cannot last forever, but often has sufficient funds that it can last long enough for the current board not to have to deal with it immediately. This creates crisis around budget-time, but then allows a relaxed fiscal attitude the rest of the year.

This retirement mindset is fine if the organization believes that its purpose is winding down and its goals are fulfilled, and the slow “fade to black” is the best for the organization’s purpose and organizing principles. However, most organizations don’t actually believe that, even though their behaviors will lead them directly to that point.

Spending assets in order to maintain current programs often locks organizations into the mindset that their glory days are behind them, nobody is listening to them and that nobody needs them like they once did – even though they still want to be relevant and feel they should be. And in their current state, that all may be true. Nevertheless, it also reinforces the lack of vision and innovation that led to what is most likely declining income as the primary cause of the fiscal crisis, and will not prolong institutional longevity more than a few years. Much of the time, then, the people involved will re-state their purpose as being the martyrs making their last stand for the cause that no one seems to care about anymore – when, in fact, it is their own responsibility to invite, persuade and inspire people to care.

Does your organization have a retirement mindset?

-Matthew Thomas

matthew thomas, design group international

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Topics: sustainable vision, Matthew Thomas, Design Group International, organizational development, organizational retirement mindset

Use of Restricted Income

Posted by Matthew Thomas

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Use of Restricted Income

Many non-profit and faith-based sector organizations have revenue that comes from a variety of sources: some donated with no restrictions for its use, other revenue with restrictions for particular programs or initiatives. Most organizations do not take full fiscal advantage of their restricted funds within their restricted parameters.

restricted income, matthew thomasOrganizations should take note of what the restrictions are and what they are not: in many cases, restricted program funds are not item-specific (yes, sometimes they are, but not usually). In most cases, organizations neglect to calculate in the portion of facility costs (with accompanying custodial costs) and the use of paid staff for the program funded through restricted revenue. Unless otherwise prohibited by the restrictions, these things are typically fair game to be expenses charged against restricted revenue.

Why would an organization want to do this? Using restricted funds in this way frees up unrestricted revenues to be used in other ways to maintain or expand the reach of the organization. Moreover, establishing the building and staff costs of a program invites the organization to apply for larger and broader grants to fund the program down the road, since they aren’t just looking for the bare minimum items. This helps to keep the organization spry and innovative, and frees unrestricted revenues to fund initiatives not supported by restricted revenues or even start up new programs in the middle of a budget cycle as needs arise, since the funds are available.

-Matthew M. Thomas

Matthew Thomas

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Topics: restricted income, sustainable vision, Matthew Thomas, Design Group International, process consulting, organizational development