“Economic bullying” is a good example: paying some people inequitable salaries and relying on free labor. Why are we willing to let those practices go unchallenged?

In a recent scholarly paper, John Tropman and Emily Nicklett, both professors of social work at the University of Michigan, attempt to reckon with our collective reluctance to confront economic bullying. The authors pull no punches in addressing social exploitation: the structures that force some people to contribute low- or no-cost labor so that others can get richer.

Social exploitation isn’t new. It has been practiced in its most vile form as slavery, but the principles of exploitation are still with us and disturbingly widespread. As the abolitionist Frederick Douglass put it, “Find out just what any people will quietly submit to and you have found out the exact measure of injustice and wrong which will be imposed upon them.”

When I caught up with Professor Tropman at his office, I asked how social exploitation plays out today and what effect it has on nonprofits.

He pointed to two ways in which the nonprofit world is both victim and victimizer:  Women and human-service workers are systematically underpaid, and organizations are increasingly turning to volunteers as unpaid but essential labor. He doesn’t knock volunteerism, but he argues that, because nonprofits haven’t clearly articulated their value to society or, in many cases, what it costs them to provide that value, they have developed the bad practice of paying people as little as possible. Philanthropy, for its part, tends to reward those organizations with the lowest investment in human resources while simultaneously creating programs aimed at lifting underpaid laborers such as immigrants, single parents, and veterans out of poverty.

The government plays a role, too. As the major purchaser of social services, it often seeks to force costs down to bargain-basement levels as a way to balance the budget. This was thrown into relief during the 2008 recession when unemployment was high, especially among low-wage workers. Demand for nonprofit services like food assistance was up, but some government buyers were not paying on their nonprofit contracts or were canceling them altogether.

While statistics point to an economic recovery, many families can’t recover because they started out under water.

Professor Tropman believes that the government’s best response to this problem is to defend and expand entitlements and reduce inequalities in taxation policy, though he is clear in his position that “capitalism works, but it has a cost.” When I asked him why civil society accepts economic bullying, he said that the prevailing attitude seems to be “to whom much has been given more will be given.”  He cites as an example the increasing disparity between executive and rank-and-file salaries.  In short, the social contract through which we assume shared responsibility for the community is broken. And the prospect of rebuilding this sense of community is challenged by the ease with which people increasingly live, work, and play in isolation. As we retire to our respective corners of the internet, our empathy for one another dissipates accordingly.

Unfortunately, these days when we see the proverbial bully holding the kid upside down, we raise our hands but not to help the victim or to strike back but to catch the falling coins for ourselves. It may not occur to us that we will be the next target in the bully’s sights.

How do you think the nonprofit world can draw attention to social exploitation? How can it reverse the conditions that lead to and perpetuate it? Add your comments below.

Nonprofit collaborations are no better and no worse than those done by for-profits. They’re simply different. As I wrote in a previous post, for-profit collaborations and mergers are driven by financial motivations including cost savings, but charities are unlikely to reap any savings for years, if at all. For nonprofits, the primary driver to merge or collaborate should be to help them achieve their missions. Mergers and collaborations are strategic tools. They do not have to be a last resort.

The Great Recession and the protracted recovery have sparked renewed interest in nonprofit collaborations. But resources dedicated to helping them carry out their plans are scarce, so many groups don’t know where to begin.

For two years, the Nonprofit Finance Fund has worked with five major grant makers on the Catalyst Fund for Nonprofits, which provides guidance and technical assistance for Boston-area organizations that are exploring, planning, or implementing strategic collaborations and mergers. And in an effort to demystify the process for all nonprofits, the fund has produced two free publications—a case study and a report about the first two years of the Catalyst Fund’s work.

The case study tells the story of one nonprofit merger, and the report includes interviews with 40 people involved in various ways with mergers or collaborations: those who have provided financial support, executives and board members of groups that received support—and of some that were denied support—as well as consultants and others.

So what are we learning about successful collaboration? What does it take?

Effective leadership.  The level of organizational change dictated by a collaboration or merger requires leadership from many people close to the nonprofit. Leaders—both board and staff—with prior collaboration experience can be invaluable assets, lending perspective and raising important issues.  And a talented and organized chief financial officer can help facilitate the exchange of information and reporting that is a critical part of due diligence.

Part of what makes leaders effective in nonprofit collaborations is the ability to build trusting relationships. In the merger featured in our case study, between two agencies that provide services for the homeless, an executive reflected that early in the process “someone should have held a cocktail party” to help build personal relationships between staff and board members. In her experience, when conversations got tense or an agreement felt elusive, personal relationships helped move conversations forward.

Clear and aligned objectives.  Partner organizations with a strong sense of their own priorities are often better positioned to achieve the common goals of their collaboration. We’ve found that when organizations have recently undertaken a strategic-planning process, their reasons and goals for collaboration were clearer and it was more likely to be a success. In my experience, it’s when the goals of the groups were unclear or conflicted that the collaborative venture can stall or stop altogether. The simple question, “What are we trying to achieve together and why?” can lead to candid conversations among partners and help prevent roadblocks. The motivations and goals of the partners don’t have to be identical, but articulating them clearly fosters transparency and helps manage expectations throughout the process.

Resources and expertise.  The reality is that strategic collaborations are expensive and require professional guidance. Experts can provide technical assistance and help with governance, finance, program design, and legal issues, and they can facilitate challenging discussions and negotiations. In Catalyst Fund ventures, nonprofits rely on the fund’s technical assistance but are also urged to tap experts on their board or draw on staff members who have collaboration experience. Pro bono help is great when you can get it, but expert assistance isn’t always free.

Costs can add up, and the participating groups may need additional dollars for advisory services, new technology, severance pay, or a re-direction of staff time. Once the merger is complete, the groups may be able to save money, but there is a long time horizon for realizing those savings.

Sources of financial support for collaborations, like the Catalyst Fund, can go a long way, but there’s a limit to how much they can do. In Boston, we aren’t able to support every proposal, and as groups that we do support move closer to their objectives, their needs may grow beyond the level that the fund can finance.

As the landscape of the social sector changes, it’s incumbent upon all grant makers and donors who care about preserving, improving, and expanding programs and services to support these strategic organizational tools.

At the Catalyst Fund, we hope that insights from our work supporting collaboration can help change inaccurate perceptions about nonprofit collaborations and mergers–and we are not alone. Grant makers in Charlotte, N.C.; Cuyahoga County, Ohio; New York City, and across California have also been working together to advance strategic collaboration in their communities. Their work, too, is enriching the available body of knowledge and building a track record of inspiring examples.

Yet, we know from our work with small nonprofits (most recently through the Capital and Capacity for Economic Recovery Initiative) that they often struggle with financial challenges that are unique to their size and structure.

Executive directors of small groups often assume leadership through a deep knowledge and understanding of programs and generally have less experience in finance than those of larger ones. On top of that, it can be hard for groups with limited budgets to bring financial expertise in-house. So the executive director often handles finances, relying on part-time bookkeepers who aren’t committed to the organization’s strategic goals. Without financial expertise, staff members struggle to analyze their audit data or ask the right questions, and data-driven decision making is just not possible.

Compounding the problem, small nonprofits’ resources generally go directly into program delivery, so they can’t invest in infrastructure, let alone provide competitive compensation for their employees. They may borrow free space in a basement or operate exclusively with donated (and outdated) computers and servers. The executive director may work nights and weekends to deliver programs, run the organization, raise money, and pay the bills. Supporters encourage and applaud their grantees for such ingenuity, but straining staff and overstretching resources isn’t a sustainable way to run any organization. .

Running lean also means that small nonprofits rarely have a surplus. They also have limited access to credit, which can be essential when managing government payment delays or other risks.

This fragile combination of overworked staff, tight budgets, and less developed financial training leaves small nonprofits deeply vulnerable—particularly in an era of economic uncertainty. But there are ways these groups can improve their financial condition:

• Pay as much attention to financial practices as you do to mission. If you don’t have adequate resources to develop your own financial tools, borrow templates from a peer organization or bring in board or staff members (or both!) with expertise in nonprofit finance.
• Recruit board members based on needs. Small organizations often need more than just governance and fundraising support from the board. Put in writing the function that your board is meant to serve, revise expectations as your organization evolves, and work toward specific goals in terms of board composition and purpose.
• Embrace in-kind donations—but have a concrete plan for replacing volunteer labor or worn-out equipment when necessary. It’s OK to turn down donations that you don’t want or need.
• Make smart decisions about facilities. We’ve seen organizations jump at cheap facilities and then drown under the costs of upkeep. Depreciation is a very real cost that must be planned for.
• Remember that growth is not always good. Be wary of mission creep and imbalances that can come from tacking on new programs. Added revenue means added expenses.

Grant makers can help:

• Support important infrastructure or operating needs like financial-reporting systems, development staff, and improved technology. Returns from these investments can be just as large as those from program grants, because organizations are most effective when they have the appropriate infrastructure.
• Support what already works, rather than just new or innovative approaches.
• Encourage long-term planning for facility replacements and repairs by supporting planning and contributing to building reserves. Funding only urgent requests validates an “emergency only” approach.
• Match requirements to grant size. A $5,000 grant should come with different application and reporting requirements than a $500,000 award.
• Make payments timely. For many small nonprofits, the arrival of the check is just as important as when the grant is awarded.

But VAWA, arguably one of the most important pieces of legislation on women’s rights in decades, is now under attack. The House of Representatives has proposed massive cuts to VAWA, continuing a downward trend of support for domestic-violence programs. Previously set at $795.8-million a year, the proposed bill calls for  $136.5-million in cuts. Among the proposed changes are those eroding protections for immigrant women and men, gay and transgender victims of abuse, communities of color, and college-age women—changes that practitioners across the sector say will undo 30 years of forward movement. (Read more from the White House, 4Vawa, and Change.org.)

Over the last four years, Nonprofit Finance Fund has partnered with Blue Shield of California to provide financial analysis and management consultation to over 50 domestic-violence service providers in California. For many of our clients, including Women’s Crisis Support Defensa de Mujeres, the proposed changes would dramatically reduce their ability to serve immigrants and women of color, who are already hard to reach. “Many immigrants in abusive situations depend on their partners for legal residency and are less likely to know of the available resources,” says Laura Segura, the group’s executive director. “They’re also often less trusting of law enforcement, who may be perceived differently in their countries of origin, which has only worsened through new immigration policies such as Secure Communities. If we are to effectively serve all the women in our communities, we need to provide services that understand and address these cultural differences. The cuts would make that impossible.”

Unfortunately, the threats to VAWA make a bad situation worse. In California, the domestic-violence organizations we work with have shown signs of post-recession crisis for years, exacerbated by California’s 2010 budget cuts and delays. To adjust for shrinking revenue, many organizations have been forced to shut down or scale back services, leaving women vulnerable and alone in their communities. What’s even worse: Faced with absurdly tight budgets and restricted funds, leaders of these groups are frequently forced to focus entirely on short-term financial decisions (how to manage cash flow this month, how to make payroll) and emergency programs (running shelters and only the most vital support services). What’s been cut are the preventive services and time for strategic thinking that are absolutely essential to eradicating domestic violence.

Organizations are forced to cut counseling programs, community outreach, vocational training, and other services that focus on long-term solutions for victims. These services keep domestic-violence organizations from becoming a kind of “nonprofit hotel,” as Patrice Kuerschner, executive director of Emmaus House, in Hollister, CA, describes: “When we’re reduced to only offering shelter-based services, we’re just moving people in and out of our facility without any understanding of what they might face when they leave. If the pattern of abuse continues, what have we truly done to solve the problem?”

When charities are unable to provide a full spectrum of services, it can be devastating for victims. In years when Emmaus House was able to offer more comprehensive services, as little as 4 percent of their clients returned to abusive situations. In contrast, when stretched budgets have forced them to cut back on the full spectrum of services, the percentage of clients returning to abusive situations has skyrocketed—to as high as 19 percent in 2008.

These kinds of statistics are the unfortunate reality for the entire social-service sector as they try to tread water with their hands tied. In order for all of us—practitioners, investors, thought leaders—to move from the tactical to the strategic, we need to evaluate the cost of financial cuts within the framework of our larger social objectives. If the right organizations receive the right amounts and kinds of capital and other support to fulfill their missions, it’s possible for us to envision a world in which domestic violence is a shadow of what it is today.

Rachel Heitler, an associate at Nonprofit Finance Fund, is a member of NFF’s San Francisco consulting team. Rachel works with domestic-violence service providers across the State of California and the Pacific Northwest.

But since normal expenses often increase faster than revenue during times of growth, charities must also have a plan for plugging the budget gaps and a good sense of how long it will take the revenue and expenses to balance out again.

One organization that decided to undertake growth is Legal Outreach, a New York City nonprofit that works to prepare students for college.

NFF worked with Legal Outreach to project its direct and indirect costs over several years, and Legal Outreach estimated how much of the growth it could cover each year through a combination of fundraising and drawing down its reserves.

Once the plan was in place, the organization knew the full range of costs associated with delivering more results, how long it would likely take to raise enough extra money, which organizational resources would be depleted, and what contingency plans could be built into the process.

We sat down with Legal Outreach’s executive director, James O’Neal, to discuss how the organization approached the process of planning for growth and the financial challenges that came with it. The following has been condensed from the original conversation.

NFF: Many nonprofits are struggling in this economy but also seeing an increase in need. What did you consider in deciding that now was the right time for Legal Outreach to grow?

Mr. O’Neal: Every year about 100 students apply for our four-year College Bound program, but because of financial concerns, we’ve only been able to take half of those. Not accepting applicants is one of the hardest decisions we have to make every year because these are always young people who have proven that they’re willing to make the sacrifices necessary to achieve their goals So, the agony of having to turn students away every year is something that led us to look seriously at growing.

An external factor was a push from our funders, who have seen that we’ve been very successful at helping students not only complete the College Bound program but graduate from high school and matriculate at some very competitive colleges. So those funders are looking at those results and asking us whether we can take on more students.

NFF: What kinds of financial concerns did Legal Outreach take into account in the planning process?

Mr. O’Neal: One thing we were not willing to do was to sacrifice the quality of what we were doing. We had to consider expanded staff to support additional students and the implication for how many additional students we could take on per year.

When you’re talking about growing programs, you also have to look at what growth means in terms of back-office functions like accounting and bookkeeping. What does it mean in terms of your fundraising capacity? What does it mean in terms of how often our facility is going to be open? We needed to get a sense of what our numbers would look like from year to year and then formulate a plan that we could first present to our board and staff and then to funders so that they know what they’re buying into.

NFF: What would you say to other organizations preparing to scale up?

Mr. O’Neal: Many of us in the nonprofit sector had this idea, particularly before the 2008 financial crisis, that you just go for it. We have been idealists and have been of the mind-set that if you just do more programming, particularly when the needs are great, the resources will follow.  What this process has shown me and what the financial crisis has taught me is that you really have to be systematic and methodical in how you go about planning for growth.

Numbers are always eye-opening. You’re not just saying, “Here’s what I think it’s going to take.” You’re actually seeing a model that tells you what you will actually need to get to where you want to go.

Emily Triggs is a program coordinator at Nonprofit Finance Fund and is a member of the consulting and lending teams in New York City.  She also manages NFF’s Pay For Success Learning Hub. Phil Rosenbloom is a senior associate at Nonprofit Finance Fund and is a member of the consulting team in New York City.  He also writes for NFF’s Social Currency blog.

Organizing strategic collaborations solely to reduce costs does not set up collaborating partners for success, and it ignores a fundamental function: to do a better job of accomplishing  the mission.

So why do we associate tough economic times with collaborations and mergers? Because of money. When resources are scarce, competition for those resources increases, and the financial stresses drive nonprofits to explore collaborations or mergers—particularly groups in a financially precarious position.

As manager of the Catalyst Fund for Nonprofits, which supports collaborations in Boston, I hear this argument time and again. But in reality, the cost savings can be elusive or won’t be realized for years. The notion that nonprofit mergers lead to improved economics comes from businesses, whose mergers and acquisitions result in cost savings mostly through mass layoffs. But mass layoffs are often absent from nonprofit collaborations and mergers.

In a 2010 piece for the Stanford Social Innovation Review, David La Piana describes the challenge of reducing expenses by sharing back-office resources, creating a joint venture, or merging two nonprofits. To implement each can necessitate higher expenses, which can offset any savings that may have been achieved.

While a recession can lift the curtain on outdated nonprofit business models, nonprofits would be better off shifting their focus from money to mission as the primary reason to collaborate or merge. Keeping strategy and mission at the heart of collaborative ventures changes the conversation from fearful (recession, competition, cost-cutting) to hopeful (strategic, mission-focused, greater impact).

Fostering this shift toward collaboration as a strategic option is just one of the goals of the Catalyst Fund for Nonprofits, a five-year funding collaborative managed by Nonprofit Finance Fund that includes the Boston Foundation, Boston LISC, the Hyams Foundation, the Kresge Foundation, and United Way of Massachusetts Bay and the Merrimack Valley. After a year and a half of operations, the Catalyst Fund has supported nine collaborations and mergers and provided $340,000 for technical assistance. We have seen real-world examples of the importance of keeping mission and strategy at the heart of collaborative ventures.

One such example is a nascent joint venture of diverse organizations—human-service providers, community-development corporations, education nonprofits, and even a credit union. These partners are aligning and co-locating their services to create a more seamless system that helps individuals and families in the greater Boston area build financial resilience. If you asked any of the partner organizations why they’re taking part in this collaboration, cost savings wouldn’t appear on anyone’s list. (In fact, they’re adding expenses.) At the top of their lists would be doing a better job of achieving their mission.

Collaborations and mergers are a strategic option to be deployed for the right reasons when times are tough—and when times are good. For every headline of economic recovery, let’s hope to see one (or two!) more headlines championing mission-driven collaborations.

Peter Kramer is a member of the Nonprofit Finance Fund’s national consulting team and also manages the Catalyst Fund for Nonprofits in the greater Boston area.

Myth #1: A strong, sustainable nonprofit needs an endowment.

The one thing that sustainable nonprofits need is enough income to run their programs and pay for salaries, facilities, etc.  An endowment is one of many ways nonprofits can generate income. But for some groups, it is unnecessary or even a bad idea.

So before deciding to establish an endowment, nonprofits should decide if doing so addresses how income will be used to achieve the mission, when it will be needed, and how much will be needed. Organizations that are in financial crisis, that have limited capacity to attract more donors, or that have short-term missions should avoid establishing endowments.

Myth #2: An endowment must be continuously funded and can never be drawn down.

Nonprofits can choose when it’s most feasible to add to their endowments. For example, if it’s important to increase direct aid during a natural disaster, a relief organization might reduce or even forgo endowment funding for some period of time and redirect donors to an emergency appeal.  Alternatively, the board might continue to fund the endowment regardless of its current needs if, for example, it has a far-reaching goal, such as to eradicate hunger.

While most endowments have permanent restrictions on the use of their principal, others have only temporarily restrictions or even completely unrestricted components that allow the money to be spent. Endowments can also have end dates rather than existing in perpetuity.

Myth #3: An endowment is the same as a board-designated reserve account.

A designated reserve account is a pool of funds established by the board to provide certain types of capital to the organization. There are several kinds of designated reserve accounts: A working-capital reserve can provide funds during normal parts of the business cycle when cash is low–for example, when awaiting payment on a contract. A “rainy day” reserve is available for unexpected challenges or opportunities. Funds can also be reserved to help an organization recover from financial distress or to expand or acquire facilities. These pools are managed internally, though the board may place restrictions on their use.

Endowments, on the other hand, are not intended to fund routine operating activities and are often managed externally or held outside of the reach of the nonprofits’ general business managers.

Myth #4: There are limits on the amount of interest income that a nonprofit can take from its endowment

There are no such legal limits. The amount and timing of distributions is determined by the governing body of the endowment. Interest income is often used to fund board-designated reserves for future projects and to expand current programs and services. Nonprofits should, however, have realistic expectations about the yield on endowment investments. Only a large endowment that is professionally invested to maximize returns is likely to generate enough earnings to make a dent in the operating budget. Community foundations are well suited to manage smaller endowments.

When nonprofits recognize how fluid money can be, they can better assess the types of capital and cash flow they need to support both short- and long-term objectives and avoid making unnecessary trade-offs. They will also be able to tell a more compelling financial story to donors, clearly articulating their rationale and timing needs for a range of funding options including endowments, reserve accounts, grants, loans, and investments.

How does baseball point a path forward for those of us struggling to support a just and vibrant society in our troubled times?

The answer lies in the story of Billy Beane, general manager of the Oakland Athletics, who demonstrated how radical innovation can allow anyone to achieve positive transformation even against seemingly impossible constraints.

Mr. Beane, immortalized in print and film by Moneyball, watched his baseball team lose the 2001 playoffs to the much wealthier New York Yankees. He approached the Athletics owner for more money to spend on salaries and was turned down—the money just wasn’t available. Yet Mr. Beane refused to take that as defeat. He still wanted his team to achieve greatness.

Mr. Beane’s staff members offered to work harder and put in longer hours to help the team win. However, he sensed that even an improved version of business-as-usual would lead to failure. He did not have access to the funding others had used to solve similar problems. He needed to radically reinvent how he ran the team to have any chance of success.

Billy Beane’s journey offers a powerful map for health clinics, homeless shelters, schools,  theaters, and other organizations that weave the essential fabric of our communities. If this sounds like a stretch, consider their parallel path:

Like the Oakland Athletics, these organizations are facing crushing budget constraints. And like Mr. Beane, their first response is often to try to tap traditional financing sources for more money. Operating in a small market, the Oakland Athletics could not sustainably spend more on salaries.

Similarly, given the economic pressures we will continue to face for years to come, we do not have the resources or financing that we used to have to support our social organizations. Yet the needs these organizations address must continue to be met.

So what can we do with lower budgets? I side with the romantics who refuse to accept that we must lower our standards for how just and vibrant our communities can and will be. But like Billy Beane, we are gradually realizing that just getting better at business-as-usual approaches is not going to be good enough for long-term sustainable impact. Even many of our most efficient organizations are going bankrupt.

If we accept these budget constraints and refuse to lower our ambitions, we must embrace radical innovation. Billy Beane adopted data-driven analysis to put together a winning team.

For nonprofits,, innovation will take more diverse forms. It will lead organizations previously competing over shrinking resources to collaborate. It will inspire visionary leaders to rethink their approaches to the problems they want to solve. It will mobilize “complete capital” approaches that draw on for-profit investment alongside charity and government subsidy. And it will require us to support these organizations smartly as they shift from old business models to new, more sustainable ones.

So how can we better support game-changing innovations in the social sector?

For a donor or socially minded investor, a key piece of the puzzle is to look at the organizations you support in the greater context of the social problems you wish to influence. Billy Beane didn’t just think about winning a single game; he lifted his head up to look at the bigger picture of how baseball could be played in a different way. Similarly, for example, do you want to help a single organization or be part of the greater solution to solve homelessness in your community?

Two of Boston’s most important organizations that serve the homeless, Pine Street Inn and HopeFound, asked themselves that question two years ago.  After a careful evaluation assessing how to create the most significant social change, HopeFound and Pine Street Inn recently announced a merger that will allow the combined entity to offer a more comprehensive set of homeless services than either organization could achieve alone. Through the support of the Catalyst Fund, a five-year fund to support the exploration of nonprofit collaboration and mergers in the Boston metropolitan area, homeless men and women will have better access to the services they need to get off the streets, out of shelters, and into permanent housing, bringing us one step closer to ending homelessness in Boston.

If you donate to nonprofits or sit on their boards, you can support these kinds of transformations by keeping an eye on the ultimate social impact you wish to achieve. As a board member, how might the organization you support work with other organizations in the community to achieve its mission? As a donor, what is the full scope of financial resources it takes for an organization to implement the change needed to achieve this kind of innovation? And how can you contribute to that?

The lesson for all of us is that we need to provide flexible, unrestricted funding that can allow innovative organizations to figure out new ways to meet their mission, rather than just paying for the services they have provided in the past. We also need to provide the “change capital” that will allow organizations the flexibility to build the capabilities they will need in the future. Focusing on overhead ratio as a proxy for efficiency when we consider where to donate has never made sense and is only more destructive now.

Like Billy Beane, those of us who work in the social sector must embrace his winning spirit by relentlessly asking, “What works better?” rather than, “What have we done in the past?” And we can all support the practical romantics who are figuring out how to change the game to create the type of society we all want to live in.

Like most nonprofits, they’ve grown used to doing more with less. Their mission commands it. But there’s a growing constellation of organizations committed to furnishing them with enough capital to do more with more.

Owing to its sheer size, the future of American health care is perhaps the most consequential issue facing nonprofits. So, while the healthcare political battles continue in Washington and around the country, nonprofit and philanthropic organizations can’t wait for government wheels to turn. Health-care providers in low-income communities are seeing dramatic increases in demand for services: One center I visited recently has a waiting list of 3,000 patients.

For investors of any kind looking to make an immediate social impact on communities in need and introduce greater efficiency into the market, health-care centers are a great deal. Located in neighborhoods with limited medical-care options, community health centers that have won federal certification are required to serve everyone, regardless of whether they have insurance or can afford the care. In 2010, such centers served 19.5 million patients, 38 percent of whom were uninsured.

These numbers are expected to grow fast. According to Capital Link, a nonprofit consultancy, serving new patients will require more than $16- billion to build or expand facilities.

Though we don’t often think of them this way, community health centers are a critical part of our social and physical infrastructure, true workhorses of our neighborhoods, treating patients, educating residents about healthy behavior, and providing jobs.

One reason these centers are so good at saving money for communities is that their patients are not visiting emergency departments at hospitals where care is much more expensive. In fact, that has prompted some local hospitals to finance community health centers. And the upfront investment in long-term habits like eating healthily, treating diabetes, and monitoring asthma have well-established financial and health benefits that translate more or less directly into cost savings for communities.

Increasingly, communities are recognizing the value of health centers as nonprofit enterprises that consolidate government, private, and consumer dollars. These centers are critical engines of well-being in distressed communities, and we must continue to encourage efforts to ensure that their growth is done smartly and sustainably.

That’s why nonprofits need liability and property insurance, which are critical tools for protecting assets and preserving financial health when the unexpected happens.

However, the insurance trade is a complicated, regulated industry. So I’ve enlisted the help of two seasoned insurance professionals to explain how it works: Pamela Davis, chief executive of Nonprofits Insurance Alliance Group, which insures 10,000 nonprofits across the country, and Valissa Naganashe, an agent at Brownrigg, which insures nonprofits and businesses..

Q: What is general-liability insurance?

Ms. Naganashe: General liability is the most basic form of business insurance. This is the protection you have whenever you or your business will be held responsible for causing damage to a property or injury to a person. General liability covers both on- and off-site services—programs, special events, and meetings—that board, staff, contract workers, and volunteers may be involved in.

Q: Once a nonprofit has purchased insurance, does it have further obligations to the insurer?

Ms. Naganashe: Nonprofits need to regularly communicate with their insurance agent and their board or finance committee about the status of financial, program, and funding obligations. Changes in operations, for example, managing funds for others, adding or abandoning locations, hiring new staff, or undergoing a merger can have a huge impact on both the validity and cost of an insurance policy.

Ms. Davis: Organizations need to report claims–or issues that could become claims–to their insurer as soon as they become aware of them. Private settlements should be avoided for two key reasons:

* The insurance company is not obligated to reimburse any cost.

* The resolution may not be legally binding or might have unintended consequences.

Q: Why do some grant makers ask the nonprofit to name them as an “additional insured” entity on the nonprofit’s insurance policy?

Ms. Davis: If someone is injured doing work funded by a city or foundation, a claim could be made against both the funder and the nonprofit. When the funder is named as an additional insured, the insurance company will (with some exceptions) defend them. These endorsements can often be obtained at no charge.

Q: How can a nonprofit protect itself from theft, fraud, or other bad acts?

Ms. Davis: Good oversight of people and resources is a nonprofit’s first line of defense against bad acts. Nonprofits can also obtain fidelity insurance as a part of their property insurance, which covers the theft of cash or goods.  Make sure that the fidelity insurance covers both employees and volunteers. Separately, every nonprofit with employees should have directors’ and officers’ liability insurance, which includes coverage for “employment practices” (acts directed toward or committed by an employee, such as sexual harassment).

Q: Are there special considerations for nonprofits that own autos or whose employees use their personal cars for work-related business?

Ms. Naganashe: The financial and emotional cost of an auto accident can be devastating, so it is important to maintain insurance coverage. Organizations can get broad coverage for any auto that is owned, hired, borrowed (including employee-owned vehicles), or otherwise used by the named insured. If a nonprofit doesn’t own vehicles, then more limited coverage is available.

Ms. Davis: While some nonprofits may feel that they can’t afford adequate insurance in these tough economic times, the experts caution that nonprofits can’t afford to let policies lapse. Organizations that are experiencing cash-flow problems should contact their insurer to discuss possible cost-saving adjustments to their policies or revised payment plans.