Clara Miller’s Four Horsemen

Clara Miller from the Nonprofit Finance Fund works with nonprofits at all stages of crisis — from the highly stable and responsive to the oppressively unstable and inert. Some are going with flow of the economic thrill ride, others are hanging on by their fingertips. She summarizes the key challenges that have been plaguing nonprofits in all industries in her recent article for the Nonprofit Quarterly, ominously titled ”The Four Horsemen of the Nonprofit Financial Apocalypse.”

If one horseman visits you, you’ll feel the pinch. If they arrive in a group, it might be time to read the want ads. Here’s a quick summary of the four horsemen, but the entire article is well worth the read:

• Horseman One: Too Much Real Estate
  The lure of buildings and land of their very own has seduced many nonprofits, sometimes beyond the point of reason. Those carrying disproportionate real estate also carry disproportionate fixed costs, in the face of declining earned and contributed income, and collapsing real estate values.
• Horseman Two: Too Much Debt
  ”In the recent downturn, debt — especially high levels of debt where borrowers and lenders overestimated the amount of reliable revenue available for repayment — has affected even strong organizations. Those taking out mortgages or issuing bonds to finance purchase or construction have found that their debt is an additional component of increasing fixed costs. And ironically, some of the most creditworthy — medium-size and large organizations with excellent bond ratings — find themselves working their way out of this fix.”
• Horseman Three: ”Under Water” Balance Sheets and Negative Liquidity
  Endowment efforts and market forces have left many nonprofits with non-liquid assets that drag them down rather than boost them along. Their auto-pilot efforts to build the balance sheet through assets have flown them off course.
• Horseman Four: Torturous Labor Economics
  ”Some nonprofits require highly specialized talent, which is expensive and requires ongoing care, feeding, and investment. Economies of scale available in the for-profit world are not always applicable to nonprofits (consider symphony orchestras and research universities). Other nonprofits are labor-intensive because of quality and regulatory considerations (consider skilled nursing facilities and day-care centers).”

In the long run, the nonprofit financial version of the four horsemen are pale riders compared to their Biblical counterparts (pestilence, war, famine, and death). But as your organization weathers the economy and plans for the future, they’re important reminders of what to avoid.