"A mind that his stretched by a new experience can never go back to its old dimensions"

Oliver Wendell Holmes, Jr

From chaos to order
Case Study (Commercial Advisory): Lessons from a nonprofit turnaround
Turning around a nonprofit organisation can be a tricky business; the charity sector is known more for compassion than financial sustainability.

We have always argued strongly that to manage a nonprofit successfully requires you to think like a business and develop a sustainable business model; growing a surplus to cushion a downturn and reinvest in programs that maximise the impact of your purpose.

To put this into context, we previously led an intensive long-term turnaround of an international nonprofit organisation operating in a conflict zone. The organisation was facing an insolvency crisis, particularly:

  • Minimal cash reserves
  • High-value conditional debtors and creditors
  • Zero financial visibility
  • Unsustainable projects
  • No pipeline certainty

The organisation felt like it was being steered off a cliff. With zero visibility, no one in the organisation could say with any certainty how much time was left until funds ran out.

As an outsider coming in, it is easy to get caught up in the drama and opinions of the best way forward. As a first step, we stood back and collated evidence to distinguish between facts and fiction so that we could make decisions from a single source of information. When information and analysis is trusted as an accurate reflection of the situation, people can focus and logically consider realistic future scenarios. This process builds cohesion and encourages buy-in, resigning blame to history and agreeing to proactively solve issues together as a team.
The impact of significant short-term uncertainty is in itself destabilising, resulting in irrational decision making - reacting on impulse rather than relying on proactive analysis.
These are our lessons from this turnaround situation.

Bring in specialists
Poor leadership often accompanies insolvency, and no-one wants to admit they are a poor leader. Bringing in specialists that have crisis experience is crucial to design and deliver a focussed turnaround plan, enabling a critical and objective view of the organisation's situation and prospects whilst injecting fresh energy, enthusiasm and ideas when they are needed most.

Cash is king, it buys you time
With insolvency looming, cash, the lifeblood of any business, is key. We worked hard to collect high-value debtors and defer creditors to extend the time required to develop and implement the turnaround plan. This brought quick results with outstanding debtors collected while building relationships with donors who were likely to be sources of future work.

Adapt the business model, strive for sustainability
One of the major historical issues was poor budgeting, resulting in significant project overspends and a fundamentally unsustainable business model. With the growing availability of freelance specialists and consultants it made sense to cut back and operate with a lean core group of staff that embodied the organisation's vision, mission and purpose while retaining institutional memory.

We adapted the business model, resource pricing and budgeting approach and measured the impact against a new cash reserve policy with the aim of holding 3-6 months of operational overheads to weather future downturns.
Pricing is a signal of future intentions and must take into account future growth; otherwise an organisation will never have sufficient funds to grow without subsidy or external investment.
Refuel, drive, re-invest
Once the new business model was agreed, now was the time to win new work. We mapped the stakeholder environment, focussing on "low hanging fruit" and established high-value relationships using the organisation's strengths and existing products as a foundation for growth.

Fortunately, the organisation had a strong brand, reputation and fundraising team. We identified and bid for short-term, high-value work while developing multi-year projects, priced properly with milestone payment structures to encourage a cohesive push towards common goals. This linked output to performance which kickstarted the organisation in a newly inspired direction.
Do not underestimate the time and resources required to win new work. In this case, on average, engagement to contract took 6 months.
Transparency underpins accountability

The failure of financial systems was a major cause for the crisis. Designing and repairing systems to produce reliable, accurate and timely information was crucial for high-stake decision making. The repaired financial systems and processes enabled reconciled monthly reporting, analysis and cash flow forecasting. Reports were scrutinised and justified at regular management meetings encouraging a culture of transparency, constructive debate and accountability.

Stabilise outgoings
While new work was being developed, an extensive review and cost-cutting exercise was undertaken to stabilise the organisation and make best use of the cash available.
Unfortunately, cost cutting in a crisis situation often means redundancies as historic staff roles are reconsidered and redesigned in favour of more flexible and dynamic organisational structures. Please note that it is crucial to follow due process when undertaking a redundancy process to reduce the likelihood of legal recourse.

Reward performance
Once new projects were agreed, funds flowed through the new business model, generating cash reserves. Staff had not received a pay rise in two years and so we restructured the organisation's salaries into transparent bands to ensure salaries were competitive and progressive. Two pay rises in Year 1 brought all staff in line with market rates, significantly boosting morale and commitment to the organisation's future.

Bring ethics to the surface
Values are crucial for nonprofits as those who choose to work for them are usually motivated and inspired by a cause. We designed and implemented an ethical guide to underpin the behaviour of all staff and align individual and organisational values. In difficult situations, a common set of values has a galvanising effect on a team.
Working with people who rally around a common set of ethical principles and express a diverse mix of opinions enables a healthy atmosphere and culture for constructive debate and justified action.
Giving people a voice that is listened to is often the most powerful thing an organisation can do.
Delegate responsibility
A highly centralised structure contributed to historically poor decision-making. We empowered staff and devolved responsibilities, particularly budget holders, a signal across the organisation that trust and accountability were key pillars to the organisation's success. New experienced hires brought fresh energy, enthusiasm and ideas and enabled devolved management of a growing and increasingly complex operation.

"Get back on the balcony"
Conflict and disagreement is natural, and giving people the space to address conflict themselves is a positive process, reinforcing relationships and encouraging a problem-solving culture.

When conflict did spill over, we intervened and solved the problem together. Once resolved we always reminded ourselves to "get back on the balcony", giving people the space to get on with their work rather than fostering a stifling micromanagement culture.

Communicate positive change
We rebranded with a fresh style guide and digital communications strategy to reach and engage beneficiaries and donors while investing in graphic design to ensure project outputs projected a renewed image of professionalism.

Audits are your friend
We monitored the financial systems quarterly. Considerable time was spent developing the capacity of the finance team as this was a major risk area of the organisation and across civil society in general.

Irrespective of size, international nonprofits are often required to undertake annual audits, stipulated in donor contracts. This marks a stark difference from the private sector where SMEs are not usually subject to external financial audits.

The new financial systems were validated when the organisation achieved its first unqualified consolidated audit, followed by another successful audit the following year; further reinforcing a reputation of a robust, transparent and accountable social investment route into a conflict zone.
Audits are incredibly useful as objective and independent tools to test and improve systems.
Test, validate, learn, adapt
Small projects turned into large projects and the organisation grew in confidence and capability. However, the real test came with an invitation to bid for a very large project funded by a major international government. This was an exciting opportunity, but with large high-stake projects come serious risks. Such a project can cause a destabilising effect on an organisation with systems and people stretched to their limits.

With all these learnings, risks and challenges in mind, the project was won and delivered intensively across a two year period. It was extremely challenging, however, the organisation handled it well, mitigating many of the risks through extensive planning, listening and confident delegated decision-making underpinned by robust analysis.

Our validation came when the organisation successfully passed the detailed project audit. The new organisational structure was stress tested to the limit and proved capable to undertake the challenges and strains of a large, intensive project.

Know when the job is done
The turnaround plan resulted in the organisation's income increasing fourfold, creditors reduced to minimal levels with reserves held at 3 months of overhead costs. The restructured organisation was an efficient, effective and professional outfit employing 3 times more staff than when we started the process. As the next cycle loomed it was important to reflect on what had been achieved and what was to come.

A newly stabilised organisation requires a different kind of management, focussed on consolidation and sustained growth. We embarked on a careful transition process to hire in new people to bring in fresh ideas, energy and commitment to the organisation's cause. The fact that we were able to hire competent and experienced full-time professionals to continue the organisations journey validated the entire turnaround process.

Our work was done.
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