No option: Nonprofits must run like business

 

Bringing the thrill of bicycles to children from lower-income families, and also providing safety training as well as maintenance, has made Kids on Bikes a successful nonprofit operation.

Bringing the thrill of bicycles to children from lower-income families, and also providing safety training as well as maintenance, has made Kids on Bikes a successful nonprofit operation.

Imagine being in fifth grade, still using training wheels on a bicycle — unable to keep up with other kids your age.

Through local nonprofit Kids on Bikes, and its Earn-A-Bike program, Jessica, who lives in Colorado Springs, learned to ride without training wheels, leaving her overjoyed. Not only that, but she received a bike that fit. Now her knees don’t hit the handlebars when she pedals.

Teaching children to ride and making strategic financial decisions became all in a day’s work for Nikki McComsey when she took on the role of executive director for Kids on Bikes, which seeks to give children from low-income families access to bicycles, safety training and maintenance for their bikes.

A certified public accountant with a bachelor’s in business administration and a minor in accounting, McComsey arguably brings a different background to the nonprofit sector from many executive directors.

Pathway to the present

Four years ago, after realizing how nonprofits need to be operated, she switched from studying nonprofit management to studying for the CPA exam. While working at BKD for two years in public accounting, she learned much about nonprofits through analyzing nonprofit and government agency audits. Next, she spent two years at Cheyenne Mountain Resort as an assistant controller, gaining private sector experience in accounting.

“I was involved in the day-to-day business decisions that have to be made when you look at the bottom line,” McComsey said. “Your financial statements tell the story of the health of your business.”

With that mindset, McComsey took over her current role in October 2012 at Kids on Bikes, which was started by Paige Carmichael (former Olympic cyclist Chris Carmichael’s wife) in 2005.

Her decisions begin with analyzing numbers — just as business owners and CEOs do.

“Will we make a profit? Should we hire staff, raise prices, start a new project? I’ve been able to bring that [decision-making process] and analysis to Kids on Bikes,” she said.

Such thinking remains vital for nonprofit leaders, according to Dave Somers, executive director at Center for Nonprofit Excellence.

“I would like to dispel the myth that nonprofits don’t operate like a business,” Somers said, listing a few of the operations necessary for nonprofits: strategic plans, financial records, audits, human resource policies, federal regulations, marketing and legal compliance.

“I would flip [that notion] on its head and ask, ‘Why don’t businesses run more like nonprofits?’ ” he said, adding that nonprofits tend to operate very efficiently on limited resources.

Emulating nonprofits

One of the key factors business owners ought to emulate, Somers says, is social responsibility.

“Over and over, for-profits have found they are more profitable when they demonstrate social responsibility — and that’s what nonprofits do,” Somers said.

Company owners who understand that necessity often form entities that reflect it, such as benefit corporations, social enterprises and certified B corporations.

By federal law, nonprofits are held to higher standards in certain areas than their business counterparts.

“Businesses should mimic some of our practices, particularly in the area of accountability and transparency,” Somers said.

Less fraud at nonprofits

Speaking of accountability, in its 2012 Report to the Nations on Occupational Fraud and Abuse, the national Association of Certified Fraud Examiners showed which types of organizations were victims of fraud: 39.3 percent of fraud was found in privately owned companies, compared to just 10.4 percent in nonprofits.

IRS Form 990s, which nonprofits must file each year, are public documents.

“Our books are open … that kind of transparency we don’t see in the private sector,” Somers said.

Other leaders in the industry would concur.

“In the nonprofit world you’re almost communicating in a fish bowl,” said Jason Wood, president and CEO of Pikes Peak United Way. “It’s central to effective leadership — we have to spend a lot more time communicating with stakeholders, investors and the community [than private companies].”

Many financial measurements translate from the business world to the nonprofit world.

However, nonprofits tend to run leaner.

“We have to do more with less in the nonprofit [sector], from staffing to resources. We have to think differently and be more creative and innovative,” Wood said, citing a TED talk, given by Dan Pallotta, titled “The way we think about charity is dead wrong.”

“In order for us to be successful, we have to acquire talent and invest in it — and there’s a cost to that,” Wood said. “We have to use a lot of the business models for talent management. In addition, nonprofits need specific financial and operational metrics to measure results.

“Donors want to invest in solutions.”

Although many people want to end poverty or homelessness, for instance, there are costs involved.

“Donors trust us with those dollars, so we have to demonstrate credibility, results. It’s a challenge not only to evaluate the organization but also to evaluate our impact in the community,” Wood said.

Where the rubber meets the road

McComsey and her organization’s board of directors adhere to three clearly understood priorities: access to bikes, encouragement to ride more frequently, and empowerment and bike safety — making sure that programs and spending align with that overall mission.

Rather than “boots-on-the-ground fundraising or gala dinners,” McComsey spends time developing creative strategies for events people will pay for, in turn funneling that money into core services.

For example, last year she launched a week-long summer mountain-bike day camp, which will be staged again this year.

“A business could have taken on that camp — but we did it and turned it into a profit, [which] we used to serve disadvantaged kids,” she said. “I’ve tried really hard to create things [people need], rather than knocking on doors asking for money.”

In addition, programs and events must dovetail with the nonprofit’s goal to draw people in to the mission for a long-term relationship. Sustainability remains key, she said.

Fundraising events can be a “trap” in which people may give once, but may not participate, volunteer and give back for a long time — “and that’s far more important than a one-time donation. If you can’t sustain that level of giving year after year, then you have to cut programs, cut staff or pull out of projects.”

Therefore, McComsey and the board share the goal of long-term, sustained growth at, say, 5 to 10 percent annually, rather than 50 percent growth one year and then back to prior levels.

“I don’t want to start something that we can’t finish. Part of sustainability is knowing what your core is as an organization,” McComsey said.

For a nonprofit, financial decisions must be carefully calculated, to sustain and support its goals and programs.

For Kids on Bikes, the bottom line includes watching a child ride a bike for the first time, shouting: “This is the best day of my life!”