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Streetsmart Financial Basics for Nonprofit Managers by Thomas A. McLaughlin

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Chapter 15Managing Money-Losing Programs

We once spent some time on a lovely early summer morning in the offices of a medium-sized nonprofit behavioral health organization in a former manufacturing city that hadn't caught an economic break in decades. The top three executives were smart, committed, and energetic. The offices were well-situated in a rebounding part of the city, and the organization enjoyed a good reputation locally. The only thing to mar the occasion was the financial black cloud hanging over the management team's heads: the nonprofit was insolvent, meaning they were effectively bankrupt but that no bankruptcy court had been asked to give them that protection. Less than a year later it had lost its CEO to retirement, added 20 percent more to their deficit, and now the human resources (HR) director was bravely trying to resuscitate the entire organization.

The organization's public cost report described the problem. Their largest service was funded by Medicaid, and it had been bleeding money for many years. Every one of their other programs turned at least a small profit. For a while this balancing act had worked, but eventually the cumulative amount of those profitable programs was not enough to cancel out the disproportionate Medicaid program loss. The result was that in each of the last several years the behavioral health organization had seen its net assets dwindle until the last few years when they began to have negative net assets, and the organization was ...

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