8 Lessons From Nonprofit Bankruptcy

As I collected success stories for 7 Nonprofit Income Streams, I met an executive director recovering from near bankruptcy. The entity’s challenges have not become public. To support their recovery, they remain nameless in this paper. However, nameless or not, they have important lessons I’m pleased to share with you that might help protect your organization.

Don’t

1. Create a profitable annual event and commit 80 percent of its expected revenue before the money arrives. Eventually unforeseen contingencies, such as inclement weather, will happen.
2. Mix grant income with general funds.
3. Take on mortgages without income to retire them.

Do

4. Recognize and embrace industry trends. This nonprofit flew high by joining a growing field in a growing economy. While the Great Recession hurt, the industry had peaked long before the downturn. Stop wishing things were different and respond to what is.
5. Take advantages of growth niches. The industry now predicts personnel shortages. Reducing personnel challenges is one key recovery focus.
6. Apprise staff. Let staff know about the situation’s seriousness. When informed, staff can be part of the solution.
7. Be creative solving grant and donor challenges. When it’s clear that the promises can’t be fulfilled, find a substitute project or return the funds.
8. Meet often. Boards need to meet regularly to build relationships and to learn so they can make good decisions.

Pick one lesson. Re-read it. Decide how you will apply it to strengthen and protect your organization.