MGMT 602 Week 7 DB Forum 4 Thread Example

Discussion Board Forum 4: Thread

MGMT 602 Non-Profit Management, Discussion Board Forum 4: Thread

Thread by [Student Name]

The prompt and the music school are composites standing in for the course's own forum and its assigned reading; Tuckman and Chang's and Calabrese's articles, Worth's textbook and Scripture are real; the requirements follow Liberty's public course guide for MGMT 602.

Tuckman and Chang (1991) define a charitable nonprofit as financially vulnerable if it is likely to cut its services immediately when a financial shock occurs. Studying the tax returns of 4,730 charities, they proposed four warning signs. The first is inadequate equity, little in net assets relative to revenue, which leaves nothing to draw on. The second is revenue concentration, reliance on few sources, so that the loss of one is severe. The third is low administrative costs, which sounds like good stewardship but means there is little to trim before programs are cut. The fourth is a low operating margin, little surplus in normal years.

A community music school in the North Carolina mountains shows how those signs work together. Before the flooding of September 2024, the school served about 480 students a year in lessons, ensembles and summer camps on a budget of $1.1 million. Its net assets, excluding the building, equaled about five weeks of expenses. Tuition supplied 71 percent of revenue. Administrative costs were 8 percent of expenses, a figure the board proudly reported to donors, and the operating margin had been under one percent for four years. Only revenue concentration was arguably moderate, since tuition came from hundreds of families, but tuition depends on the building, which made it a single source in practice.

When the flood closed the building for five months, tuition stopped. The school had no reserve to bridge the gap and no administrative budget to cut, so it laid off eleven of its nineteen teachers within six weeks. Tuckman and Chang's framework predicted almost exactly this sequence. The school reopened in March with a smaller faculty, a waiting list for lessons it could no longer staff and a line of credit from a local bank that it will be repaying for years. Its program quality had never been the problem; its finances simply had no room for a bad season.

Calabrese (2013) found that significant numbers of nonprofits hold no operating reserves at all, and that the lack is not limited to small organizations, partly because nonprofits are judged on what they spend rather than what they save. The music school's board celebrated its low overhead precisely because donors rewarded it. Worth (2017) treats reserves as part of sound financial management, not hoarding.

When Joseph interpreted Pharaoh's dreams, his counsel was to gather grain during seven years of plenty and hold it in the cities against the famine that would follow (English Standard Version Bible, 2001/2016, Genesis 41:34-36). The school's good years went entirely to programs, and the famine came anyway. A reserve policy targeting three months of expenses, built from a small share of each year's surplus, would be a modest start.

Classmates: does your organization meet any of Tuckman and Chang's four tests, and would its board know?

References

Calabrese, T. (2013). Running on empty: The operating reserves of U.S. nonprofit organizations. Nonprofit Management and Leadership, 23(3), 281-302. https://doi.org/10.1002/nml.21064

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Tuckman, H. P., & Chang, C. F. (1991). A methodology for measuring the financial vulnerability of charitable nonprofit organizations. Nonprofit and Voluntary Sector Quarterly, 20(4), 445-460. https://doi.org/10.1177/089976409102000407

Worth, M. J. (2017). Nonprofit management: Principles and practice (4th ed.). SAGE Publications.