Floundering Warning Signs

1. Chronic cash-flow problems: Most nonprofits, especially small or new ones, have limited cash reserves and high uncertainty about the timing and sources of revenues, so a reasonable grantmaker will not take occasional cash-flow problems as a sign of financial distress. But chronic cash-flow problems are almost certainly a sign of deeper trouble.
2. Desperate chase for dollars: Given how strapped many nonprofits are for resources, grantmakers would do well to tolerate some dollar- chasing — where a nonprofit reshapes its programs at the margins to be eligible for funding, or where a nonprofit might start a new program that satisfies a funder’s requirements but is not entirely consistent with the organization’s real strengths or strategies. But grantmakers who wound up embroiled in grantees’ financial meltdowns usually noticed a particularly desperate type of dollar chasing.
3. Dubious funding breakthroughs: Sometimes the pursuit of a single bold idea can mark the first steps toward improved financial health. Or it can be a misguided attempt to sidestep the hard work of financial analysis and management by chasing after a miracle cure.
4. Inattentive boards of directors: A disengaged board can often be a sign of trouble to come, so any impression that the board is inattentive, lacks appropriate committees to track programs and financial performance, or does not seem reflective of or in tune with constituents’ needs can signal an environment where staff are not regularly challenged or supported in carrying out their work.