Russ: This is PKF Texas – The Entrepreneur’s Playbook. I’m Russ Capper, this week’s guest host, and I’m coming to you from the Gulf Coast Regional Family Forum. I’m here with Scott Clemons, Partner and Chief Investment Strategist of Brown Brothers Harriman. Scott, welcome to The Playbook.

Scott: Good morning, Russ. Thank you for having me.

Russ: You bet. Tell us about your firm.

Scott: Brown Brothers Harriman & Company is a rather old firm. We were founded in 1818 as a private partnership, which, in 1818, every bank on Wall Street was a private partnership. What’s unique about us today is that we’ve never changed that ownership structure. Over the past 200 years, one by one, firms have gone public; they’ve limited their liability in some way. We’ve retained that unlimited liability structure. There are 31 people who own the firm outright – no outside capital, no debt on the balance sheet. And those 31 people, all of whom operate the business, carry joint and several unlimited liability for the activities of the business.

Russ: So, that includes you.

Scott: That includes me. It tends to focus the mind. It makes risk management a core competence. What we really like about it is it really does align the interests of the owner operators with those of our clients. Every firm has that alignment, but for us it’s embedded within the DNA of the ownership structure for the business itself. That’s rather special to us.

Russ: My goodness. So, 1818, so this is like a birthday year.

Scott: We had a big party—we had a series of big parties last year. We had big cakes and celebrated the history of the firm and also the future of the firm. One of our events in New York, we had a guest speaker, George W. Bush, former President Bush. We had him because his grandfather, Prescott Bush, H.W.’s father—Houston connection here, was a partner of the firm back in the 1930s and the early 1940s. So, we celebrate that history, and the challenge, of course, is to be informed and influenced by the history and the legacy without having that legacy dictate what you do. We have to weave into our business a certain amount of entrepreneurship for our third century, which we’ve embarked on in 2019.

Continue Reading The Economic Cycle: Where it’s Been and Where it’s Going

In our continuing effort to help co-create solutions for business’ future, we offer the following ideas, insights and perspectives in the latest edition of the Leading Edge Digital Magazine. These thought leadership pieces are ready to be accessed any time, anywhere at LeadingEdgeMag.com/PKFTexas.

If you have topics you would like us to cover, contact us. As always, we enjoy receiving comments and feedback from our clients and the friends of our firm.

Continue Reading Winter 2019 Leading Edge Magazine is Now Live

The results are in! The report of the third annual National Manufacturing Outlook and Insights Survey with Leading Edge Alliance (LEA Global) has been published and released.

The survey was conducted in association with leading accounting firms across the country, and the report benefits our clients as part of our ongoing efforts to help co-develop the client experience with us as trusted advisors.

Over 350 manufacturers participated in this year’s survey, providing their expectations, predictions and opinions for 2019. Located in over 20 states and Canada, the participants produce a wide variety of product, including machine/industrial, automotive/transportation, food and beverage, textiles, construction and more.

Results from the survey include:

  • The top 3 priorities for 2019 are growing sales, improving profitability and addressing workforce shortage.
  • More than 60% of manufacturers expect their sector to expand in 2019
  • Organic growth in the U.S., new product development and strategic alliances provide greatest opportunity for business in 2019.
  • The major hurdles for the year are increased raw material costs from new tariffs, rising labor costs due to inflation, lack of available talent and increased competition.

For the full report, visit www.PKFTexas.com/Manufacturing.

We are excited to announce we have a new Director joining our firm. His name is Matthew Goldston, CPA, CM&AA, CVA, and he is joining our Entrepreneurial Advisory Services team.

Matthew’s experience as a CFO includes leading multiple companies through transactions from mergers and acquisitions to integrations, spin-offs and successful exits. Additionally, he has extensive experience with growth consulting, audit and business valuation. In addition, he has served industries including manufacturing, technology, construction, industrial services and private equity.

“PKF Texas continually evaluates ways to further enhance our client service offerings,” said Byron Hebert, CPA, CTP, Chief Growth Officer. “With the experience Matt brings to the firm, we have added another layer to our ability to co-develop solutions with our clients who may be considering a transaction.”

To learn more about Matthew, visit our website!

Traditionally, Americans have supported charities not only for tax breaks and a vague sense of “giving back,” but also for a variety of other financial, emotional and social reasons. Understanding what motivates donors and how their motivations vary across demographic groups can help your not-for-profit more effectively reach and engage potential supporters.

Money Matters
Asset protection and capital preservation traditionally have motivated many wealthy individuals to make charitable donations. And certain strategies — such as gifting appreciated stock or real estate to get “more bang for the buck” — may be particularly appealing to donors who make charitable giving a piece of their larger financial plans.

But high-income donors sometimes have less-obvious financial motivations, such as a wish to limit the amount their children inherit to prevent a “burden of wealth.” Warren Buffett, for example, plans to leave the vast majority of his wealth to charity rather than to his children. As he told Fortune, wealthy parents should leave their children “enough money so that they would feel they could do anything, but not so much that they could do nothing.” To appeal to these kinds of donors, you may want to offer to work with the entire family so that they can begin a multi-generational tradition of giving.

Social Considerations
Research by the Center on Philanthropy at Indiana University has found that younger donors — those between 20 and 45 — as well as wealthier and better-educated individuals are more likely to want to “make a difference” with their gifts. Those with lower incomes and a high school degree or less often donate to meet basic needs in their communities or to “help the poor help themselves.”

Donors of all stripes are motivated by the perceived social effects of giving. Research published in American Economic Review reported that donors typically gave more when their gifts were announced publicly.

Similarly, numerous studies have found that people are more likely to give — and to give in greater amounts — if asked personally, particularly if they know the person making the appeal. These donors may want to make an altruistic impression, and some may seek the prestige of being connected with a well-established and admired not-for-profit “brand.” Such individuals are more likely to buy pricey tickets to annual galas or join a not-for-profit’s board to meet and socialize with others in their socioeconomic group or business community.

Get — and Keep — Their Attention
There are probably as many motivations as there are donors, and most people have more than one reason to support a particular charity. To get — and keep — donors’ attention, perform some basic market research to learn who they are.

Communication breakdowns between a not-for-profit’s accounting and development departments can lead to confusion, embarrassment and even financial problems. Here are three ways your organization can facilitate cooperation between these two critical functions.

1. Recognize Differences
Accounting and development typically record their financial information differently, which is why they can produce numbers that vary but nonetheless are both correct. Development may use a cash basis of accounting, while accounting records contributions, grants, donations and pledges in accordance with Generally Accepted Accounting Principles (GAAP).

Let’s say a donor makes a payment in March 2018 on a pledge made in December 2017. The development department will enter the amount of the payment as a receipt in its donor database in March. But accounting will record the payment against the pledge receivable that was recorded as revenue when the pledge was made in December. Receipt of the check won’t result in any new revenue in March because the accounting department recorded the revenue in December. Both departments’ figures for March 2018 (and for December 2017) will be accurate, but they’ll disagree with each other.

2. Establish Policies and Procedures
Your not-for-profit should try to reconcile its accounting and development schedules at least monthly. It also needs clear protocols for communicating important activity — or both departments, and your organization, could experience negative consequences.

If, for example, development fails to inform accounting about grants on a timely basis, the latter won’t be aware of the grants’ financial reporting requirements and could forfeit funds for noncompliance. If the accounting department doesn’t record grants or pledges in the proper financial period according to GAAP, your organization could run into significant issues during an audit, which could jeopardize funding.

3. Require Regular Communication
Schedule meetings so that accounting representatives can educate development staff about the information it needs, when it needs it and the consequences of not receiving that information. For its part, development should provide accounting with ample notice about prospective activity such as pending grant applications and proposed capital campaigns.

Development should also present status reports on different types of giving, including gifts, grants and pledges. This is especially important for those items received in multiple payments, because accounting may need to discount them when recording them on the financial statements.

Two-way Road
The activities of your accounting and development departments directly affect each other, so careful coordination is essential.

Fiscal sponsorships occur when an established charity provides a kind of legal and financial umbrella to a charitable project that lacks 501(c)(3) status. This type of arrangement can benefit both groups. But before agreeing to be a sponsor, be sure you understand how these arrangements work and the risks involved.

Mutually Beneficial
In a fiscal sponsorship, the 501(c)(3) sponsor is legally responsible for the charitable project. It acts as employer to the project’s paid workers and manages all of its funds. Donations and grants are made directly to the fiscal sponsor, thus qualifying their donors for a charitable deduction (if the donors itemize deductions and other applicable requirements are met).

It’s easy to see why small charitable projects seek fiscal sponsorships. Such relationships can provide much-needed infrastructure and fiscal management to a project. By making it possible to receive charitable donations, sponsorships can make more funds available. Plus, associating with an established charity can enhance the project’s credibility.

These arrangements benefit sponsors, too. A sponsorship can provide greater exposure for the 501(c)(3) organization, possibly resulting in new donors for established programs. When you choose a project that shares your mission and basic objectives, it can enhance your own program offerings with minimal monetary outlay. Although a sponsorship isn’t intended to be a source of income for the sponsor, nonprofits often charge a nominal fee to offset their overhead costs.

Prime Candidates
Projects that can best benefit from a fiscal sponsorship generally include those that are:

  • Too small to have staff or much infrastructure,
  • Temporary or periodic,
  • Waiting to secure 501(c)(3) status, but that want to operate sooner, or
  • Based outside the United States.

When you find a good candidate, make sure you thoroughly discuss each partner’s expectations and roles. Mutually agree on start and termination dates and decide which group will make decisions about what. Because nothing causes conflict like money issues, be sure to decide on the sponsorship charge (up to 10% is typical), how disbursements will be handled and who will handle audit and reporting requirements.

Both parties must understand the key responsibilities in the relationship. First and foremost, the fiscal sponsor is responsible because the project and its sponsoring nonprofit are legally one entity.

Consult Advisors
Keep in mind that any fiscal sponsorship involves some risk to your organization’s finances and reputation. So it’s important to discuss your plans with legal and financial advisors before entering into one of these arrangements.

A not-for-profit’s growth stage generally starts two or three years after formation and continues until maturity at around age seven. This period comes with a sense of accomplishment and the opportunity to refine and expand, but these “adolescent” years can pose challenges as well.

Board Shifts
Perhaps the most common marker of a growth-stage not-for-profit is changes in the composition and focus of its board of directors. Boards usually continue to be active in operations to some degree, but also must begin to work on strategic matters — the policies, planning and evaluations necessary for long-term sustainability.

Founding board members may move on at this stage. The result could be a larger and more inclusive group of individuals, preferably with a wider range of skills, talents and backgrounds. Boards also can establish committees at this time.

Staff Expansion
As demand for services builds and you expand programming, staffing needs increase. Adding to staff in the growth stage will help avoid burnout. Your not-for-profit should design a clear organizational structure and hire experienced managers.

You should also develop formal job descriptions. Employees will now be expected to work under formal systems, following policies and procedures and in a more efficient manner. Your organization’s executive director is still the primary decision maker, but he or she may not have time to be as involved in every area.

Mission Adjustment
You might want to adjust your not-for-profit’s mission during the growth stage. Changed demographics or economic developments could make it appropriate to revise your organization’s purpose.

You can home in more intensely on a subset of the original mission or shift focus to another area. For example, a literacy organization that started out helping native English speakers improve their reading skills might expand to include teaching English as a second language. The charity may then develop a strategic plan to incorporate the changes to its mission.

Funding Augmentation
Growth-stage organizations are generally in a more comfortable financial position, with less uncertainty. You may have developed good relations with key funders, but there are still obstacles in securing necessary funding (and cash flow) to support current programming. To maintain growth, you’ll need to diversify revenue sources, manage cash flow and develop solid budgets. We can help you.

Most charitable not-for-profits have a never-ending need for volunteers. But finding new ones can be time-consuming — and volunteer searches aren’t always successful. Here are recruitment ideas that can help your not-for-profit.

Look Nearby
Is your not-for-profit familiar to businesses, residents and schools in the surrounding community? People often are drawn to volunteer because they learn of a worthwhile organization that’s located close to where they live or work.

Start to get to know your neighbors by performing an inventory of the surrounding area. Perhaps there’s a large apartment building you’ve never paid much attention to. Consider the people who live there to be potential volunteers. Likewise, if there’s an office building nearby, learn about the businesses that occupy it. Their employees might have skills, such as website design or bookkeeping experience, that perfectly match your volunteer opportunities.

Once you’ve identified some good outreach targets, mail or hand-deliver literature introducing your not-for-profit as a neighbor and describing your needs. Consider inviting your neighbors to a celebration or informational open house at your offices.

Fine-tune Your Pitch
By making your pitches as informative and compelling as possible, you’re more likely to inspire potential volunteers to action. Specifically, explain the:

  • Types of volunteer jobs currently available,
  • Skills most in demand,
  • Times when volunteers are needed, and
  • Rewards and challenges your volunteers might experience.

When possible, incorporate photographs of volunteers at work — along with their testimonials. And make it easy for people to take the next step by including your contact information or directing them to your website for an application.

Reach Out to Your Network
Develop a system for keeping those closest to your organization — major donors, board members and active volunteers — informed of your volunteer needs. These individuals often are influential in their communities, so a request from them is more likely to get people’s attention. They may even frame a request for assistance in the form of a challenge, with the solicitor being the first to volunteer their time or funds, of course.

Remain in Pursuit
No matter how precise or thorough your initial recruiting efforts, remember that one-time or sporadic efforts are insufficient to attract a steady supply of volunteers. To get the resources you need, make volunteer recruitment a continuous process that draws on several strategies.

PR tips for nonprofits

For most nonprofit organizations, there’s no such thing as too much good publicity. If you’re struggling to get enough attention from media outlets, follow these tips:

1. Seize the day. Raise your nonprofit’s profile by putting out news releases regularly rather than just occasionally. A variety of events, such as the addition of a key staff member, an operational milestone, a new grant you’ve received or the kick-off of a fundraising campaign, can warrant a press release.

2. Target the right media. Go beyond simply sending out news releases and become familiar with potential media targets. Focus on outlets that are most likely to use your press releases — for example, local newspapers that have a section devoted to community news. Get to know assignment editors, their key sections and special features, target audiences, and publication and broadcast schedules. By taking the time, you can pinpoint the most suitable outlets for your news.

3. Time your news. When it comes to good publicity, timing can be everything. You might increase your odds of coverage by submitting requests at the start of a new publication cycle. Another tactic is to host an event or release an important announcement on a typically slow news day. For example, daily newspapers and local television stations may be particularly receptive to requests for coverage on Sundays.

4. Make it local. Providing a local angle on an issue of national importance will increase your appeal to the media. Whenever possible, offer an expert source from your organization who can talk knowledgeably about the local impact of a national story. By positioning yourself and your organization as an authority and noting trends and other interesting items, you can grab the attention of reporters and editors.

Getting your nonprofit in the news in a positive way broadens its exposure, enhances its credibility and enables you to spread the word about your mission to potential donors — all free of charge. It just takes a little strategic planning on your part.