The Perils of Risk Management

There are hundreds of thousands active nonprofits in the United States. Nonprofits fail every day. Some in small ways, some failures are colossal. Some studies report as many at 80% of nonprofits fail in their first three years.

However, many nonprofits succeed with spectacular results. Here is some advice to help your organization succeed with spectacular results and keep your organization on a healthy path to success.

Failure doesn’t come because people intend to fail. Failure comes because people fail to plan and protect. Yes, it’s really that simple. Here are four warnings to be aware of that will help you be one of those success stories.

Red Light #1: Ignoring your own policies. Possibly the most severe negligence comes when an organization, its staff, volunteers and Board of Directors fail to follow their own policies and procedures. For example, if your financial policy says your accountant must be bonded and complete a background check completed and you choose to engage an accountant without those processes, you have just placed your organization at risk.

Red Light #2: Flying by the seat of your pants. Knowledge of basic nonprofit management is critical to risk management. If you are a new executive director do yourself and your organization a favor – find a basic nonprofit boot camp like the one offered by my colleague Sean Kosofsky. Understanding the fundamentals of nonprofit operation is essential to navigating the many decisions and situations you will encounter.

Red Light #3: Hiring friends and family. Make sure the people you hire are best suited and best skilled for the job. People are your greatest asset and investment. They can also be one of your biggest risks. Don’t squander it on people you might not be able to direct or discipline as necessary. Remember, nonprofits are “public benefit charities”, not your personal project.

Red Light #4: Not knowing the difference between restricted and unrestricted funds. It is imperative you learn early in your career how to read your organization’s financial statements. There is a legal difference between restricted and unrestricted funds, how they are tracked and recorded. Knowing the difference will bring you many happy returns.

If you’d like to learn more about minimizing risk to you and your agency please check out my more extensive blog on risk management. If you’d like help in creating a successful path forward for you and your agency please contact us at Pen in Hand LLC – “Planning for and Achieving Your Success”.