Every financial crisis starts in the same place

Thank you for having me.

I think there was some sort of moment. when I was working at the Curtis Institute of Music, which was my last full-time in-house CFO job. when I was in my last year, I had a conversation with the board chair and with the president. And I said, Look, when I came in here, we had this strategic plan. You brought me in because you wanted me to be able to implement and execute it. We've sort of reached this point now where Things are just humming along really well, really nicely. We've we've brought in a great senior management team that's doing a lot of great work. And frankly, I I feel like I'm overpaid relative to what I am providing you at this time because I'm able to delegate so much to other people here. And we have, and on top of that, we have addressed some of the structural issues that I was originally brought in to solve. So I said, you know, I really want this to be my last year. and after that, I don't really know what I want to do, but I want to be able to take that summer off. This was so this was in the beginning, this was in the twenty three, twenty-four school year, and I really wanted to have the twenty-four summer completely off where I could just spend some time with my kids. I had as I said, I've been making good money and I've been saving money, so I I I was able to take that breather. My kids were getting older, one was you know, one was already in middle school, one was about to be out of elementary school. And I didn't want to regret many years later coming back and feeling like I didn't spend enough quality time with my kids. So when I when I quit that job, as I said, I didn't really know what I wanted to do. I looked at lots of different pathways. I thought maybe I'll do a another CFO job, but in a completely different industry. I was I was getting bored doing some of this work at at an organization that was was very stable. So I thought, okay, maybe I can go to another organization that might have an issue and I could try to work with them. so I I I looked for some full-time jobs in that path. I also went all the way down many different paths around franchising. I was like, maybe I'll become a small business owner and I'll find a really good brand and and and franchise it. I learned very quickly, I did a lot of research on franchise business models, spoke to a ton of franchisors and franchisees, and I learned very quickly that this was not something that I wanted to do. I certainly did not want to be a franchisee. I was interested in being a franchiseor, but I didn't feel that I had enough capital to invest at that point in time to be able to to really do that from a franchise side, become a you know. become a member of the of the main franchise and provide a very significant investment. I didn't feel that I was really ready to do that. But I definitely went down a a pretty long path there. I almost I almost started a franchise selling fried chicken at some place here in in Philadelphia. I'm very glad I didn't. and then the third the third path the third path I looked at was well maybe I'll just become a a solopreneur. Maybe I could try to, you know, do this fractional thing that I keep hearing about.

and maybe I could piece together, you know, two clients part-time and I could make the same amount of money I was making at my former place. And within a month in that summer, through my network connections from my previous job and just through my own network, I was actually able to get two part-time gigs really, really fast that covered what I was making before. So I was very lucky in that regard that I didn't have to worry about sort of financial insecurity when I started. What was interesting though is that those two companies, through word of mouth and their own networks, talked to other leaders of other nonprofits and said, you know, hey, you should really speak to Larry. He's fantastic. He works so fast. He's so productive. He's giving us insights we never had before. And two very quickly blossomed to to six within just a couple of months. And I was I was the CFO for six different companies of all different sizes. And It was too much. I was getting overwhelmed. And I had this moment where I I, you know, sat down with my wife and my kids and I said, I've got to figure out what we're gonna do here. Like, am I gonna scale back and just take you know one or two at a time and continue to make what I was making before and we'll have that sort of quality of life? Or should I really go whole hog now? Because when I had six, I was making more money than I ever had before, but it was all me and I was working nonstop and it was driving me crazy. And they said you you they said you do you do what you think you need to do. And I spoke to a lot of folks, some former mentors of mine, and I ultimately decided that I was going to start my own company. And it was the best decision I ever made because now, you know, two years later, we've got almost 30 clients in the roster. I've got 10 staff. we're gonna hit two million in revenue this year. We've got great EBITDA. we got a lot of exciting projects in the pipeline for 27 and 28. there's already some people in private equity who are talking to me, and I'm keeping them very, very far away because I have no desire to do that at this time. It's still a very young business. but we are growing very fast. And the reputation is really strong. and yes, it was it is it is scary because you move from a situation when when you're when you're working for somebody else, your in-house CFO at a company, you're dealing with other people's money, the company's money, right? And when you create your own business, it's your own money. Every decision now is mine when it comes to. financial decision making. And the blurred line between the business's net income and my own personal net worth has become very blurry and gray. And I would say that's the part that's very scary about starting one's own business, but it's also the most exciting part of the business because you can effectively continue to grow and make more money. and hire more people and create more impact and do a lot of other things that you never thought you'd be able to do before because because you took that risk and you had a really good idea and you were solving a problem that existed in your sector.

So we we don't serve exclusively nonprofits, but we do serve mostly nonprofits. The other types of organizations that are in our client base that are for-profit companies tend to have what I would describe as like a double bottom line. They're not necessarily selling a widget or a product, like a sneaker or something like that. they are in some sort of allied trade or business that has a nonprofit corollary. So I'm thinking of things like environmental services, healthcare is another one, where there's a there's an appreciation for us because we understand that that delicate balance between maximizing profit. And in the case of healthcare, for example, maximizing patient outcomes or in environmental spaces again maximizing profit but also being exceptionally green and demonstrating that that greenin'ness which can sometimes be more expensive for for a company. So companies that are B Corps for example, certified B Corps here in the United States are examples of the types of companies that we would work with that aren't truly nonprofits. but they do that double bottom line. In addition in the United States, when we think about nonprofits, we normally think about a traditional public charity where an individual donor, and this is very different than in Europe, but an individual donor is highly incentivized from a tax standpoint to make a contributed donation to the nonprofit. And when they make that donation, they are able to get a tax benefit as a result of that. And that's why philanthropy in America, especially among individuals, has been so prominent in a way that it hasn't been, for example, in in Europe. Europe is starting to catch up now as as government subsidies in Europe have have have come down in some kind of key Western nations in Europe. But this has kind of been baked into America's DNA for 150 years almost. So as part of just the US tax code. The so there are some nonprofits though that do not Offer that tax benefit, but they still have the nonprofit tax status. And those are also organizations that we work with. So I'm thinking of things like cooperatives, which are kind of membership-owned co-ops. Like for example, Ace Hardware is a co-op. Most people don't know that. They think it's a franchise because you see Ace Hardware stuff all around the country, but that's actually part of a membership co-op. USAA, which is an automobile insurance and home and home insurance company, is also a nonprofit co-op, as opposed to like a GEICO or a progressive, which is truly a for-profit insurance company. so co-ops are an example of of nonprofits that don't offer that tax benefit from donations, but they still follow the same sort of nonprofit accounting principles. lobbying firms are another one, which are called 501c4s. So lobbying firms are a form of nonprofits in the United States. However, you can't make a charitable donation to a lobbying firm. Otherwise you know we'd have a we'd have a lot of problems there with with with politics. And 501c6s are another example. Those are those are those are trade associations. so trade associations which you know like for example like the American pork association which oversees all the pork producing entities across the country. So I'm just giving examples of of types of nonprofits. But yes, to your point, the majority of the nonprofits that we work with are the ones that that fit the typical mold of a US nonprofit. So we're thinking about things like arts and cultural organizations, institutions of higher education, independent schools, social services organizations, racial justice organizations, faith-based organizations.

We have clients in pretty much every single one of the verticals of the nonprofit sector. And it gives us great insight into how different verticals are doing and the types of things that they're doing. Because what you'll discover really in any type of industry, whether it's for-profit or for or nonprofit, people tend to stay within their silo. And what they know and what they talk about is what happens in their silo. so we can bring in expertise and say, hey, you there's some there's some interesting stuff that that this industry does that hasn't really been applied to this industry yet and we're gonna we're gonna introduce that to your industry and I think you're gonna find that it's gonna make you a much more efficient and and productive organization.

Sure. Yeah, I mean, I don't think this is unique to the nonprofit sector. I really think all businesses that find themselves getting into a financial crisis largely start from the same place, which is that their cost structure is no longer aligned with the recurring revenues that they can bring in on the top line. And regardless of what you sell, whether it's a service or a product, if you are spending more money, more cash is going out the door than you are bringing in on a regular recurring basis. You will eventually be in financial crisis if you are not already in there. the first step in really any turnaround does require a very hard conversation with key stakeholders at the nonprofit about right sizing the cost structure and bringing it in line with what is the truly recurring revenue that we can expect with very high degrees of confidence. And that's where we always start. because nonprofits are not selling products, they're really service organizations. Not surprisingly, the largest cost center in really any nonprofit is going to be its people costs. they will always be the majority of the total cost structure. And people costs are not just your employees, those who are on W-2, for example, those who you're giving retirement benefits to, those who are giving health care to. They can often be hidden in lines in your general ledger that are called consultants or contract fees or outside services. You might be paying a firm, but that is a firm made of people. And those are also people costs in our definition of people costs, because you're probably paying some of these firms and consultants a dollar amount that's commensurate with having hired a full-time employee or even a part-time employee anyway. and we really have to look at them together. So people's the first thing that we always take a look at. and we help organizations get through people decisions, which obviously do lead to layoffs sometimes. oftentimes, because if it's your largest cost structure and you're gonna have to bring it down, there probably gonna have to be some difficult decisions with respect to people. But we try to do this in the most humane way possible and in a way that's very fair and equitable. We use two different frameworks and we overlap those frameworks on top of each other. One is actually a performance framework where we put every employee on a quadrant where the x-axis looks at their productivity and the y-axis looks at their alignment with the institution's core values, priorities. Strategic direction from the CEO. So that's one slice that we use. And then we overlay that slice with with with a pay analysis, where we basically chop the organization up into thirds and bottom third of pay, middle third of pay, top third of pay. And then when you lay those two together, you can start to see who, for example, is Someone who's not particularly productive, maybe they're super aligned with the core values of the institution, but they're not super productive. And maybe they've been with the organization for 30 years, and they've their salary has just been compounding over and over and over again, and they're doing the same job today that they did 30 years ago, but they've now priced themselves out of the market from a compensation standpoint. So, you know, this is these are the types of hard conversations. that we need to have with leadership teams and leadership teams often don't want to let people like that go who've been here forever and and we help them work through the the the most humane way to to have those conversations and we can also take the heat f for for for being that outside consultant who has no emotional baggage, who has no history with the organization, and can make truly rational decisions. So people's number one, and that's how we do it. Number two is we look at programs. Nonprofits always started with some original mission that had some program that they were doing that really demonstrated their impact, why they were formed, who their beneficiary is, right? And over time, as they've grown, they've started to layer stuff on top of that. And they start doing different things. And we try to help organizations understand. When we're going through a cost-cutting process on programs, is let's try to first start by getting back to basics. If you kind of think of this in terms of concentric circles, like this is where you started off at. And let's identify what you're currently doing today that is still truly core to that original mission and vision for when this nonprofit started. Then we go a little bit f and we call those core mission. and those are really untouchable programs. We can try to find some efficiencies in there, but we really don't want to touch any of those programs in terms of the impact they're creating. One circle deeper than that. Is what we would call mission adjacent. So perhaps there's something that's been created that may be sort of aligned with what you do. Maybe it's like an ancillary program that's connected to a core program. And we want to understand the economics of that. and those are those are some areas where we will have some recommendations and maybe asked to actually implement the changes there. And then the last group, Which is a which is usually easier to identify as low-hanging fruit that one can cut, sometimes is difficult because these are mission-confused programs. And these programs were probably created many years ago by someone who's no longer with the organization, or if they are with the organization, they're someone with a lot of influential power. They might be a a board member or a staff member who has a pet project that they always wanted to do. and but when you kind of look at it, it's like Why are we doing this? This really has nothing to do with what our core mission is. And maybe at some point when this project was originally created, there was a more direct connection. But now where the organization is today, it sort of makes no sense. and again, being able to come in and speak honestly and openly and transparently and and put these questions on the table in a way that's not accusatory, we're really asking from a perspective of affirmative inquiry and We don't want to hear the thing, because it's always been done that way. Like we expect them to say that. We are we are asking from a genuine point of, hey, look, we're trying to cut costs and we want to make sure that we're not just doing across the board lazy cuts and saying everybody's taking ten percent, because that's that's silly. We should actually use this moment, never let a crisis go to waste. Let's use this moment to bring the organization back to basics, and then once we've got a good cost structure that matches what we can actually bring in on a recurring basis, then we can build back stronger and better and smart.

That is such a great question. And it really does depend on where the organization is in terms of their financial health at the moment. We are asked to be brought in. Think about organizations in sort three buckets. There are organizations that are like legitimately in some sort of financial crisis. It may be a big structural deficit that's just been accumulating year after year after year. It might be a short term thing that resulted from some material one time issue, but that's one bucket. Then there's groups that I would call sort of steady eddies. These are groups that are able to balance their budget every year. They're bringing in enough recurring revenue to deal with their cost structure. They're not making any big drastic changes. And then there's groups. The third group is a group that I would describe as a group that has really outpaced on a growth perspective its financial function and financial foundation. It's usually because they're doing something really awesome. They've got some great idea or service. that they're offering to the nonprofit community. A whole bunch of funders want to invest in them, but they don't have the financial systems and processes and discipline in place because they've been receiving too much money and they haven't been able to just kind of slow down and take a moment to bring in the right financial resources. We really like to work with those two bookends. We're not particularly interested in working with groups that just want to stay the ship. Frankly, we're too expensive for those organizations. Like we're not really worth it to them.

They could they they should find an outsourced accounting and bookkeeping shop that really just takes an organization from the past to the present and focuses specifically on making sure that books are closed on a monthly basis, that financial reports are being produced, that that boards and leadership are are getting financial statements in a timely and accurate way. These two groups, on the other hand, need someone in the finance seat who can focus on bringing the organization from the present to the future. And that is a very distinct attribute of our company that we that we are insistent that if you bring us in, we are not only going to be helping you identify areas where we can assist you as you grow and seize this opportunity or help turn your organization around. we will not only make those recommendations, but we will implement them on your behalf. As well, so that you don't have to take the heat for anything that you don't want to take the heat for. But in order to make that work, before we even start with the organization, we need to have a very careful conversation with the chief executive and the chair of the board. Because if those two people are not aligned and not in lock step, this will not work. And we make that clear to them. We interview them one at a time first. Then we interview them together because we want to make sure what they tell us privately is consistent with what we're hearing when they talk to each other in the room. Because when you're in one of these situations, a growth opportunity or a financial crisis, that triangle of chief executive, chief financial officer, and board chair need to be totally aligned. They can disagree in private with one another, absolutely. But when they're in front of any other stakeholder group, they have to be singing from the same playbook. and we've had to we've had to turn down clients because we didn't see that alignment when we were in during the interview process with the board chair and the chief executive. So that's a really important point. And that didn't happen when we started the company. That was something we learned. in in some of in some of our cases where we didn't feel things worked out well. things work out well and they succeed. When there is that really great alignment between CEO, board chair and CFO.

So amazingly, all these clients have come through word of mouth and and referrals. I haven't had to spend really any money on direct marketing. I believe I'm starting to reach a saturation point in terms of how much word of mouth marketing we're getting. And our company, which has kind of been going like this in terms of growth, could could could go kind of two ways now. It could just kind of continue to coast along with referrals that'll just happen through through word of mouth. or we could invest more heavily in marketing, which then could get our name out there in a much more robust way. But look, I'm a financial guy, and I'm not gonna really spend a lot of money on marketing and lead gen and things like that until I've got the right systems and processes in place to make sure that If I hire a lead gen firm and they give me 10,000 leads, that I can actually do something with those leads and not just pay whatever monthly fee. And that was another learning thing, right? Like early on in the business, I did spend some money on lead gen and it was a complete waste of money because I got all these leads, couldn't do anything with them because I didn't have the capacity to serve them. I didn't have my team yet. and you know, next year I'll probably re engage that company, not to give me any more leads, but to help move those leads down the funnel. because now I've got infrastructure from a staff capacity standpoint to be able to handle those leads.

But I do do but I do do a lot of but I do do a lot of speaking. I do do a lot of writing. I don't think any of that necessarily has generated tons of business. I post on LinkedIn a lot. I speak at conferences. I'll I'll be at a conference in Buffalo next month, I'll be at a conference in Charleston, South Carolina next month, I'm doing a A webinar for a college in in Florida next month as well. I do publish a lot. I've in I publish a monthly article in Forbes. I have publications that probably hit once a month in various trade publications, whether it's the Chronicle of Philanthropy, Chronicle of Higher Educations, or nonprofit specific trade publications. So my my name is getting out there in a in a more organic. way rather than kind of like a pay-to-play type way. I'm also writing a book that is under peer review at a major university press outlet here in the United States. I can't see the name yet, but hopefully next month I'll be able to say who it is. It's a name everyone knows. So that'll be really exciting. That will definitely give me some great earned media coverage once once I'm able to fully announce that. But you know, in it I think I've had maybe one client that found us because of some LinkedIn post that I made. Turns out to be a great client. We still work with them. I love them to death. They're out in California. They're like one of my favorite clients within our company. and they are definitely in that bucket of They have grown so fast and have totally outpaced their they're not an organization in financial crisis. They have a situation where they've way outgrown their financial function. and they brought us in to stabilize that and to provide that leadership so that they can capitalize on all these incredible growth opportunities that are that are coming their way.

So they can go to strategic nonprofitfinance.com. They can also go to proCfo partners.com, which is another organization I'm affiliated with. If they're involved in higher education and they're looking for interim support specifically, which is something that we offer, you can do that either directly through us or you can do that through the registry, which is another wonderful organization. so we do have some good strategic partnerships with other With other more established firms that do have their name out there because they've been around for longer than us. but if you want to come directly to us, www.strategic nonprofitfinance.com. And if you are interested in having me speak or write for you, Larry Bomback.com is my personal site. You'll also see there. I don't want to get inundated with requests, but I do make some angel investments in particular businesses that I feel are aligned with my own core values. These are businesses that are not necessarily selling widgets. They are doing something that is very good for humanity. And I want to invest in them because even though I might be giving up a little bit of market return, I want to be in on the ground floor with them because I believe they have some concept that is both solving a true community need, which is very much aligned with my core values and nonprofits. But also have the potential to make a lot of money. And that is, and even if you're a nonprofit organization, I'm gonna work with you to try to get you to think that way. Like community is everything to me. I recently purchased an old firehouse in a in a small town outside of Philadelphia. This firehouse had it was a volunteer fire company and it merged with the neighboring town. It's a small town, only it's like 400 people in it. And this firehouse was gonna be sold to a brewery and a pizzeria together. And while that would have been nice, it would have been loud. It's a brewery after all. It would have been a lot of late nights. And I don't think that the from my conversations with neighbors there, there was some concern about loudness, because it's a small little downtown area in the downtown in this in this little town. Is pocketed with lots of residential homes. A lot of people live down there. So I swooped in and was able to get this firehouse. And we're really going to turn this into a true community center. It's going to have both an artisan market on the weekends where makers and creators can sell their crafts and their wares. And then during the weekdays, it's going to have a co-working space for entrepreneurs, solopreneurs, nonprofits, et cetera. Any clients of ours will get to use the space for free. It'll be sort of the benefits of being part of our our network. but the whole purpose there, when I kind of think about back to my old my own core values, and obviously this is an investment that I've that I've made in purchasing this, it's going to be a commercial endeavor. It's gonna open around Thanksgiving. So I'm very excited. Renovations have already started. what I am the the the when people ask, like, why in the world would you have Done this. It just seems so like different than everything you do. And I said, but but is it really like I'm I'm obsessed with creating community? This is what I like to do. And this is going to be a place that's going to help create community in this small town and the neighboring towns around it, which have much, much more which have a much much larger population than this small town. there were community spaces prior to COVID in In this small town. They have since been taken over by by wonderful businesses that are there and they're providing great services to the town. But that that one single place where everybody can kind of gather, do events together, work together, shop together, meet all different people from the community, that's that's very exciting to me and feels very mission aligned.

Thank you. Absolutely. Thank you so much, Nicholas.