The success of a nonprofit, including its financial footing, falls largely to its board of directors, a longtime CEO said.

And having multi-year funding commitments can help reduce the potential for stress if some donors stop giving, said Marc Levy, a former United Way of Allen County executive.

“It’s a fragile environment,” Levy said this week, noting that many donors make decisions annually about their giving.

About two thirds of Headwaters Counseling clients benefited from subsidized fees, the nonprofit said Tuesday with its initial announcement.

Funding shortfalls and rising operational costs pushed the organization into a “precarious situation,” although a financial adviser helped Headwaters Counseling develop a 90-Day Stability and Recovery Plan.

Employees learned Tuesday that Headwaters Counseling didn’t have money to distribute paychecks this week. But Vanessa Jones, executive director and CEO of the organization, said Wednesday that most of the small staff of 10 still showed up for work.

Levy said he tried to reach out to Headwaters Counseling this week to find out more and whether he might be able to help. As of mid-Friday afternoon, Levy said he had not heard back.

From 1994 to 2002, Levy led the local United Way. He is also a former executive director of the Questa Education Foundation.

Headwaters Counseling did not publicly detail the extent of the financial concerns, but a form that tax-exempt organizations file annually with the government provides some insight.

The last Form 990 showed the organization’s total revenue for July 1, 2022, to June 30, 2023, was $1,123,230, which compares with $971,750 the prior year. But revenue after expenses for the year ending June 30, 2023, showed a $274,376 deficit.

In the year before, according to the 990, the loss was even greater – $468,854.

The most recent filing listed total liabilities and net assets/fund balances of $508,342, down from $707,717 at the beginning of that calendar year.

The organization that filed the 990 is Family & Children’s Services Inc., which is doing business as Headwaters Counseling, 2712 S. Calhoun St.

How quickly a financially strapped organization can emerge from crisis depends on how deep-pocketed donors are and how big the contributor base is, Levy said.

A key question, however, is whether donors will be inclined to give if an organization is not currently operating.

“If they’re really serious about continuing to exist,” Levy said, “what’s their plan to get back on solid ground?... It’s very difficult to get people to pay off your past debt.”

“My advice to all nonprofits is, hopefully, they’d be able to have an adequate reserve that you can respond to the ups and downs,” Levy said. And sometimes you have to make adjustments to operations, such as limiting employee hours even if there are more clients than you can serve.

Opinions vary on how much money should be in reserve. Some advise three months of operating costs, Levy said, some say six months and others suggest up to one year.

“Organizations have to shorten the period of time they’re functioning on cash flow coming in,” he added.

On Wednesday, Headwaters Counseling said its plan included discussions with local foundations to seek an emergency grant of $50,000. That would help cover payroll, benefits and operations for an additional 30 days.

Other key elements of the plan include exploring partnerships to temporarily employ some of its therapists, ensuring continuity of care while alleviating financial pressure. Headwaters Counseling also said it was enlisting the help of an attorney for documentation and process support should layoffs become necessary.

Leslie Lenkowsky, professor emeritus with Indiana University, said Friday that employees might notice some signs of financial stress or the potential.

Most nonprofits receive the bulk of their money in fees for services, so if services decline, that could signal trouble, said Lenkowsky, who is not familiar with Headwaters Counseling.

Program expansions could also be cause for concern, even if part of long-term planning, if funding is inadequate to build and sustain the additional operation, he said.

All nonprofits should have a board of directors and a subcommittee to oversee finances, Lenkowsky said. That includes not just the spending, but also the budgeting and generation of revenue.

Levy also noted the need for boards to have a finance committee. Other key areas, for which board committees may exist, can include resource development for fundraising and seeking donors, he said. Strategic planning and marketing are also important.

Organizations that support nonprofits also stress the importance of financial management.

“One of the primary responsibilities of any nonprofit board member is the maintain the financial integrity of the organization they serve,” according to a Foundation Group article on the website 501c3.org.

“Board members act as trustees of the organization’s assets and must exercise due diligence and oversight to ensure that the nonprofit is well-managed and that its financial status remains sound,” the article, posted in May 2022, said. It was written by Foundation Group Founder and CEO Greg McRay.

“Whether or not the budget is put together by others and presented to the board for approval, or the board members develop the budget directly themselves, it should be the board that signs off on the annual expenditure picture for the upcoming year,” the article said.

An article on boardsource.org said common responsibilities for nonprofit boards include providing oversight and accountability for the organization. That includes “ensuring that the organization is appropriately stewarding” the resources entrusted to it.

Board Source, a global network of leaders, serves a diverse mix of nonprofits in the social sector, according to its website.

One common practice for nonprofit boards is to review the Form 990 before it is filed “to ensure it accurately reflects the organization’s financial and operating environment.”

Board involvement and responsibilities, Levy said, “help determine the viability of an organization, short term and long term.”

Often, nonprofits operate with a goal of hitting zero, where income and expenses level, but that’s not necessarily healthy.

“There’s a difference between a not-for-profit and something that is actually not profitable,” Levy said. Most nonprofits that are viable generally have better income than expenses. That then covers the years when you don’t.

“It’s still a business,” he added.

See also • Head-waters Counseling board chair optimistic, but future services may look different Page 4A