William Harper Associates

October 2007 NEWSLETTER

William Harper Associates Newsletter

This newsletter is a free service to the North American not-for-profit community from William Harper Associates. Its focus, like everything we do, is on helping organizations that do good, do better!

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In this issue:



FEATURE ARTICLE: Advertising and Sponsorships

Every not-for-profit organization has supporters and friends. In an association, they include members; in a charity they may be members, volunteers, donors, or other. But the key is that many individuals have an affinity to your organization because of who you are and what you do.

This affinity relationship has value … to the individual, of course, but also to the organization. And, one way of monetizing that value is through advertising and sponsorship arrangements.

The true beauty of such arrangements, however, is that unlike traditional commercial advertising relationships, these can be win-win-win. A win for your supporters, your advertisers and your organization. Let's find out how, but first let's explore the range of possible activities.

What can carry a sponsor's message? Just about any activity that you undertake lends itself to advertising or sponsorship arrangements. Simply consider all of your communications activities, broadly defined. There is a parallel sponsorship arrangement that can tag along with the activity itself. Examples range from the obvious to the artful:

  • newsletters and other publications can carry advertisements, of course, but they can also include sponsorships, "advertorial" content, and other "product placement" activities
  • brochures, flyers, catalogues, etc. that are used to promote a product or service can be a natural vehicle for similar messages from affinity partners and others
  • emails (either broadcast or individual) can also carry a range of paid content. Broadcast promotional emails are natural carriers for these messages, but individual emails could as easily profile a "sponsor of the month" or similar
  • websites can carry banner advertisements or other types of placed advertising, and the range of advertorial options applies equally well to web content
  • events can carry a host of sponsorships, with everything from meal, session or program sponsors, mini- (or maxi-) trade shows and exhibits, advertorial content in programs and presentations, and so on
  • education programs can equally be supported by sponsors, particularly from relevant supporting products keyed to the content of the session, "placed" into the program itself
  • annual meetings, and even Board and committee meetings offer a highly targeted audience that can be leveraged by sponsorships

What to look for in a sponsor

So, with a world of possible sponsors out there, who do we want to work with? The key is to look for sponsors that will find your audience particularly valuable. Seek out organizations that see your audience as their primary market.

If you are an association or other member-driven organization, this is easy to identify: it is the suppliers of goods and services relevant to your particular nexus of interest. Photography clubs look to camera manufacturers; book clubs to publishers; doctors to pharmaceutical companies; and so on.

If you don't have such an inherently cohesive audience, however, you may need to do a bit of homework. Consider the demographics of your audience, and find a way of substantiating/confirming this (as a means of attracting sponsors' interest in you). Are your audience members disproportionately seniors, homeowners, avid environmentalists, or parents? Any strong representation in your audience(s) will provide a hook for finding the most relevant sponsor.

You also want to look at organizations with a good track record and reputation in your community or region; ones that exhibit solid ethics and honourable behaviour. Remember, while the organization will be seeking to present their goods or services to your audience, in doing so they will also reflect on your organization. We are all judged by the company we keep!

Making it cost-effective

The key to making sponsorship activities cost-effective is to minimize the ongoing maintenance and management of the process. One important aspect of this is having a limited number of sponsor partners to work with. Better a handful of significant partners, than a whole collection of minor, one-off sponsors. Better for you, the sponsors, and even for the audience.

It is also worthwhile to establish long-term arrangements. Again, mutual success and satisfaction is the best guarantee of lengthy relationships, but success will generally only come after an initial period of working together. If you can, try to make arrangements for two or three years … long enough to truly judge the effectiveness of the arrangement for everyone, but short enough to move on if it just isn't working.

Finally, clarity in the terms of agreement is crucial. Who will be responsible for preparing artwork? Who has editorial control, how tightly is it exercised, and at what stage in the process? What happens if a publishing deadline is missed or an event canceled or rescheduled? What collateral benefits go along with the sponsorship (e.g. free event tickets, speaking opportunities, and so on)? What restrictions are there on accepting competing sponsors? Think through and address these matters up front to avoid time-consuming and expensive sorting out later on.

Win-Win-Win?

The key to making these relationships win-win-win is relevance. Because of who you are, and who your audience is, your sponsors can offer targeted, relevant and valuable offers (and you should satisfy yourself of this if the sponsor doesn't). This should prove to be of interest to your audience, rather than another intrusion into their days with the noise of irrelevant advertising. As such, the arrangement should be rewarding to the sponsor. And that, in turn, is the basis for making the arrangement equally rewarding for you!

SECTOR BULLETIN: CICA Planning NPO Accounting Changes

The Canadian Institute of Chartered Accountants (CICA) has released an "exposure draft" of proposed changes to accounting standards for Not-for-Profit Organizations in Canada. These are the first substantive changes to NPO accounting standards in over a decade.

An exposure draft is issued to generate comments on specific proposals that the CICA is developing. The deadline for comments is November 15, 2007, and you are encouraged to provide your comments. In the absence of persuasive comments opposing the proposals, they will generally proceed to be implemented. (Because CICA is the accounting standard-setter in Canada, its requirements must be followed in order to get a clean audit opinion.)

According to the CICA, "[t]he following proposed changes are expected to be the most significant:

  • the change to no longer require net assets invested in capital assets to be a separate component of net assets;
  • the requirement to consolidate controlled entities; and
  • the requirement to disclose allocations of fundraising and general support expenses."

You can download a free copy of the full exposure draft.

QUICK TIP: New Member Referrals

Yet another benefit to keeping your members really happy is that they can be an important source of new members. Referrals from existing members are particularly attractive membership prospects, since they have been "sold" by a friend, colleague, family member, or other trusted source, and are likely to have a set of needs and expectations similar to those that you are currently serving well.

Why not take steps to actively encourage and promote referrals? You can incent current members with offers of added services that are inexpensive for you to provide relative to the value delivered.

An added benefit: members that have referred others are likely to become even more positively inclined to continuing their own membership. They become ever greater users of the value-added services and programs you offer.

FINANCIAL LITERACY TERM OF THE MONTH: Prepaid Expenses

Prepaid expenses are amounts paid for services that have not yet been delivered to the organization. A common example is prepaid insurance, where the insurance premium is normally due at the beginning of the period of coverage. Because the coverage has not yet occurred at the time of payment (i.e. the service has not yet been delivered), the amount paid cannot be an expense when paid. Therefore, it is "prepaid", and will be charged to expense in the period of coverage.

Prepaid expenses are assets of the organization, because they have future value to the organization. For example, if the insurance coverage was canceled, the organization might receive a cash refund of the premium (less some administrative charge). But, if the insurance coverage remains in force, the organization receives the value of that coverage in the later period.

Other common types of prepaid expenses include rent, professional or membership dues, subscriptions, software support payments, etc.

FROM THE ARCHIVE: Put your idle cash to work! (from April 2007)

The focus of this article is on the small- to mid-sized organization that relies extensively, if not exclusively, on current donations, member dues, or other funding sources, and doesn't ordinarily consider itself as an investor.

With interest rates at fairly low levels by historical standards, some not-for-profits have reduced their focus on their investment income and investable cash. Sad, because every additional dollar of investment income can be put directly into improved programming. And, improving your investment return doesn't tap into your precious and heavily worked donor base.

So, how to do it? There are really only a few ways to improve your overall rate of return: invest more, earn more on what's invested, or reduce your costs. Fortunately, all of these are easier than you might imagine, and the combined effect of them can be quite worth the effort.

Let's look at each, and review how to actually make these changes happen, particularly if you don't have the time or expertise in this area.

Invest more

Well, if we had more, we'd invest it - right? Stop and make sure, since many organizations have "hidden" cash in several places.

Some NPOs don't realize that they have any funds to invest! They may think that all they have is a bank account that generates only bank charges. So, the first place to start is by identifying all of the amounts that you really have, and to start thinking in terms of getting a return on every dollar, even (especially!) if the dollar in question is simply sitting in a bank account.

Start by looking no further than your main operating bank account. How much is in that account today, right this minute? And, how much is there most days? A simple analysis of daily balances will likely show more cash in that account than necessary. And, with it being so easy to transfer funds on-line these days, why not keep that money invested in a high-rate savings account, and move it back as you need it? With some proper cash management, you can even increase this available cash further (see our March 2007 "5 Minutes to Improve …" Newsletter for more information on this).

Now, look at all the other places where funds may be residing, and look to combine them into one manageable pool wherever possible. For example, local chapters or branches, sometimes even different departments, may maintain funds in separate accounts, and sometimes special-purpose funds have been maintained in separate accounts, "to keep the accounting simple" (talk about the tail wagging the dog!). You can even look at petty cash that isn't used too often - maybe it's better used earning interest! Wherever you can (for example, if there are no specific trust requirements), consolidate these funds into one place that can be managed and invested for maximum effect, with minimum effort.

Earn more on your investments

Before we get to the actual investing, here are some questions to ask yourself:

  • What is my investment horizon? That is, when will I need this money? How quickly might I need to free it up for operating or other purposes?
  • What is my risk tolerance? If I invest this money, can I stand to see its value decline, even for a short time?
  • What can't/won't I invest in? Are there types of investments, or certain companies or geographic areas that my organization simply wouldn't or couldn't invest in as a matter of ethics or policy? (For example, would a health-related organization want to invest in a tobacco company?)
  • What experience do the organization and its senior people have with investments?
  • Do you plan to spend any investment income earned on current operations, or can you wait for longer term growth?
  • Do you have other funds invested, and if so, how?

With these important constraints and issues addressed, it becomes much easier to decide what to do, as a number of options will be off the table.

Since most organizations will need to have at least some funds kept very accessible (i.e. liquid) to cover possible funding shortfalls, variations in the timing of receiving funds, etc., let's consider how to get more value out of these funds. Right now, they may be sitting in that operating account earning very little or no interest. But, you say, a bank account is where they need to be, since these funds will be potentially required in a matter of weeks or even days. A quick and easy solution is a dedicated savings account.

With just a bit of shopping around, you will find a wide range of interest rates payable on simple savings accounts. For example, I checked the rates at one of the big banks the other day, and a chequing/savings account paid 0.5% interest, while their straight savings account paid 2.6% interest. I also checked out one of the smaller banks (one without branches …), and the rate was 3.5%. On $10,000 invested over the course of the year, you could increase your earnings from $50 to $260 or even $350 with very little effort. And, remember, this is free money, with no donor acquisition cost, and no donor fatigue - it keeps paying you every year.

A savings account gives you essentially complete liquidity, zero investment risk (just ensure the account comes with CDIC coverage - now up to $100,000), and a reasonable return on your money. Most accounts will let you transfer funds into and out of your chequing account on-line and at any time, so it's basically ready to use whenever you need it. There is one caveat - bank charges - that you need to keep in mind, and this is discussed later in this article.

If you need to keep funds very liquid, even as much as $50,000 to $100,000, you will be hard pressed to do a lot better than savings account rates. It starts to be worthwhile to have someone on the Board or as a trusted adviser with investment expertise, however, to know when you should be increasing your level of sophistication beyond this.

If you have even as little as $25,000 available for longer term investment (perhaps a restricted bequest or endowment), there may be better long-term options, such as mutual funds. This can be a minefield of risk, fees and costs, and administration, however, so it still may not be worthwhile. And, at this level, you will need the benevolent support of an investment advisor to make it viable, since nobody will be knocking down your door to get your business, unless you are in the early stages of accumulating significantly more investments. Often, the savings account approach still looks pretty good.

Once you get over about $50,000 of long-term investable assets, it is time to bring in some expertise. Again, the first step is to answer those risk and diversification questions, and have a good handle on your investment horizon, risk tolerance, and other constraints before you talk to a professional. Until your portfolio is into six or even seven figures, most investment professionals just can't spend the time doing a lot of hand-holding while you sort these issues out.

Reduce your costs

As you move to increase your earnings on otherwise idle cash, you also need to manage your cost of doing so. Bank charges and fees can easily reduce or even eliminate your net return if you aren't careful.

That big bank that pays 2.6% on a savings account also charges a $2-per-month account fee - it takes about $1,000 kept in the account just to cover this small service charge. Deposit and withdrawal fees can increase this, though this bank offers free customer-initiated transfers. The other bank (the bank with no branches), in addition to offering 3.5% interest, charges no service fees, so you are even further ahead.

The other type of charge to watch for is the waived fee. Some banks will waive certain fees in return for maintaining a minimum balance in the account. You should evaluate whether this is a good deal by simply thinking of the waived fee as interest. Do the calculation and see if it's a good rate. For example, if a bank waived its $10 monthly account fee if a minimum balance of $5,000 was held in the account, this would translate roughly into a 4% rate of return - not bad these days. Of course, slip below the minimum for just one day in the month, and your return drops to 0% for the whole month, so manage your cash accordingly!

The other cost, of course, is in someone's time to manage your cash. If you find yourself transferring funds back and forth every day or two, maybe you're cutting things just a bit too close. The time and distraction of staying on top of cash balances every single day may not be worth the extra income. And remember, one NSF charge can undermine several days of good cash management, not to mention causing some ill will with a supplier or partner!

SECTOR BULLETIN: Ontario Government Issues 2nd Consultation Paper

Ontario's Ministry of Government Services has released a second consultation paper on reform of the Ontario Corporations Act, under which many charities and not-for-profits are incorporated.

According to the Ministry site, the Corporations Act "is an organizational statute, not a regulatory statute. In other words, enforcement of the rights and duties under the statute lies primarily with the corporation, its directors and its members. Hence, the focus of this consultation is not on the regulation of charitable and other not-for-profit corporations.

This paper focuses on the subject of directors and officers and requests comments on various issues, including:

  • Board Composition
  • Term of Office
  • Delegation of Powers
  • Directors' Meetings
  • Resignation, Removal, and Vacancies
  • Directors' and Officers' Liability
  • Conflict of Interest

The Ministry kindly requests your input, views, and feedback on the issues and consultation questions outlined in this paper."

The comment deadline on the paper is December 31, 2007.

You can download a free copy of the consultation paper.


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