Last week I led a planning call among the panelists on the “Supporting Nonprofit Sustainability” session I am moderating at April’s Center for Effective Philanthropy conference (which I described in an earlier post). One of the panelist suggested that we start the session by defining what we mean by “nonprofit sustainability.”
As we started to discuss this, it quickly became apparent that some of us had different definitions of “nonprofit sustainability.” And indeed, in the social change sector more broadly there is a long list of definitions of nonprofit sustainability.
Sometimes people use “nonprofit sustainability” to mean nonprofits moving away from private philanthropy and becoming self-sufficient through earned income sources (the sale of goods or services). I don’t believe that that is ever possible. Nonprofits are often borne as a response to a disequilibrium that the market created (income inequality, racial injustice, failing education). So it is rare that a nonprofit can figure out a way to make the market pay for something that it created. The vast majority of nonprofits will never be fully self-sustaining through earned income efforts; rather they will always be subsidized by non-earned sources, like philanthropy and government.
Others define “nonprofit sustainability” as the ability to attract multi-year, unrestricted funding. While that would be a positive step, foundations are largely the only nonprofit funding source able or willing to make unrestricted, multi-year commitments. Government funding is never unrestricted, and individuals rarely make multi-year commitments. And even if all foundation funders made these commitments, foundation funding only ever totals 2-3% of all of the revenue flowing to the nonprofit sector. So that’s not a big enough piece of the pie to ensure nonprofit sustainability.
Still others talk about “nonprofit sustainability” as having a diversified revenue stream. It may make sense for some nonprofits to focus on one or two revenue streams if that’s where their core competencies lie. So it is not a foregone conclusion that revenue diversification fits every nonprofit business model.
And other people define “nonprofit sustainability” as understanding and funding a nonprofit’s full costs, including direct and indirect costs. While this is absolutely a part of nonprofit sustainability, I don’t think it tells the whole story.
Therefore, none of these definitions of nonprofit sustainability satisfy me. They are either two narrow, too unrealistic, or inaccurate.
My definition, then, is:
Nonprofit sustainability occurs when a nonprofit attracts and effectively uses
enough and the right kinds of money necessary to achieve their long-term outcome goals.
So to break that down, nonprofit sustainability includes these elements:
Knowing Your Long-Term Outcome Goals
To be sustainable, a nonprofit must articulate the long-term outcomes that they are ultimately trying to accomplish (through a Theory of Change). You cannot hope to be sustainable if you can’t articulate why you exist and what you ultimately want to accomplish as a social change organization.
Having a Strategy to Achieve Those Goals
And you won’t achieve those outcomes (and be sustainable) if you don’t have a long-term strategy to get there. The strategy doesn’t have to be set in stone — it should be malleable as internal and external circumstances change — but it should ultimately guide your course to achieving those outcome goals.
Effectively Using Enough Money
But its not enough to simply plan for the future, you must then figure out what staff, board, volunteers, systems, technology, marketing, and other resources you need to bring your strategy to fruition. You must articulate the business model you will employ, and the corresponding money required, to realize your long-term outcome goals. And I don’t mean the band-aid version — I mean what it will really take to achieve the long-term outcomes you seek.
Attracting the Right Kinds of Money
But it’s also not enough to figure out what it’s going to cost. You have to figure out the other side of the money equation, which is how to bring that money in the door. A smart financial strategy attracts money that is the right fit for your organization. You have to be strategic (not reactive) about how money flows to the organization (fundraising, government grants, earned income). It might be that you focus solely on private sources, or you may have a mix of government and earned sources. But your financial model must align with your core competencies and your mission.
Nonprofit sustainability means that a nonprofit board and staff know what they want to accomplish, develop a smart strategy and business model, and use money as a tool to make it happen.
But nonprofit sustainability should not be up to just nonprofit leaders to figure out. Anyone who wants to realize social change (the government, private funders, social change leaders) must advocate for and support more sustainability in the sector. It must be a larger conversation. I hope that conversation grows far beyond the CEP conference in April.
Photo Credit: Philip Taylor
One of my predicted “5 Nonprofit Trends to Watch in 2017” is that we will see “More Analysis of What Nonprofit Financial Sustainability Requires.” In other words, I think (hope) in this new year that nonprofit leaders and their funders will work to figure out how to make nonprofits more financial sustainable.
Financial sustainability means that both the way money comes in the door (revenue) and the way money goes out the door (expenses) happen in a smart, strategic way. When they do, you have a robust financial model.
In my mind, one of the first steps toward that sustainability is for nonprofit leaders to look inward. While there are many reasons for the financial instability that plagues the nonprofit sector — from the Overhead Myth, to restricted funding, to lack of financial training — nonprofit leaders sometimes perpetuate the dysfunction themselves with an unhealthy attitude toward money.
Nonprofit leaders must embrace money as a tool — rather than a scourge — that can help them better achieve their mission.
So in this new year, in order to get closer to financial sustainability in your own nonprofit, I challenge you to ask yourself these questions about money:
- Do I embrace money as a tool to achieve our mission?
As the ultimate cheerleader of your nonprofit’s board and staff, you must ask whether you yourself fully embrace money. Money has long been viewed as a necessary evil in the nonprofit sector. We don’t want too much of it (for fear of scaring off donors); we don’t want to ask people for it (for fear of rejection); we don’t want to make our board go out and get it (for fear they will bolt). But it is your role as leader of your nonprofit to eschew those outdated notions and instead recognize that a smart, well-executed money strategy can be instrumental to achieving your mission.
- Do we know our actual costs?
Not just the full costs to run each of your programs (which is important), but the overall costs of executing on your strategic plan. I can’t tell you how many nonprofit leaders I meet who a) don’t have a strategic plan in place or b) if they do, they haven’t tied it to money. You simply will not accomplish anything if you don’t analyze and plan for what it will truly cost to accomplish your goals as an organization. So start by using this Bridgespan tool to figure out the full costs of your programs and then add to that the other organizational and infrastructure costs necessary to achieve your overall strategic goals.
- Do we have a financial model?
So that’s how money flows out of the organization, but to fully flesh out your financial model you need to plan for how money will flow into the organization. The funny thing about money is that if you are smarter and more strategic about it, you will attract more of it. So instead of hoping and praying that enough money will show up at your doorstep, create an overall financial strategy that includes your tactics for how you will attract each applicable revenue line (individuals, foundations, corporations, government, and/or earned income) that flows into your financial model.
- Does our board understand and contribute to our financial model?
Once you’ve figured out your financial model, you must get your board fully involved in it. A nonprofit will never be financially sustainable if money is left solely to the staff to figure out. That means the board needs to understand revenue and expenses, over the long-term, and how they apply to the overall strategy of the organization. And it is not enough for them just to understand it, they must contribute (in many and various ways) to the successful implementation of that financial model.
- Do we ask funders to support the effective execution of our financial model?
You can’t just have a great financial strategy on paper, you also need to invest in the structure and systems necessary to execute on that strategy. That means you have to hire talented money-raising staff, acquire functional technology, develop capable donor systems, create compelling marketing and communications. Those elements make up your money-raising function, and in order to make it effective you have to invest in those elements. So figure out what that will cost and convince some funders to pay for it.
It’s time to get over your money issues. You will not achieve financial sustainability unless you fully embrace money as a critical conduit to the social change you seek.
Photo Credit: Daniel Borman
There was a bit of a dust up in the (social change) Twitterverse yesterday. Ryan Seashore from CodeNow wrote a post on TechCrunch arguing that the majority of nonprofits are “broken,” and should act more like for-profit startups in order to create impact. The post follows a similar line of other arguments over the years (most recently Carrie Rich’s argument that nonprofits should all become social enterprises) that the nonprofit form is so dysfunctional that it should be tossed out. But there is a real danger to this idea of abandoning the nonprofit sector.
Debates like these are crucial not because of the entertainment value (although I do love good drama), but because they force us to uncover and analyze our underlying assumptions. Yesterday’s debate, and others like it, which take the nonprofit sector to task for being inefficient, broken, unbusinesslike, lay bare some false and destructive assumptions about nonprofits and about social change in general.
Ryan sees nonprofits as aging dinosaurs with “too much overhead, too much bureaucracy, and a lack of focus on impact. Everything feels slow.” But for real change to happen you have to integrate the institutions that already exist with the networks, or “startups,” that want change, as I discussed in an earlier post. The two (institutions and networks) must work together. Ryan’s argument that nonprofits need to be more like startups is fundamentally flawed because if everything were a startup, change wouldn’t happen.
To quote David Brooks from a recent The New York Times piece, “Post-Internet, many people assume that big problems can be solved by swarms of small, loosely networked…social entrepreneurs. Big hierarchical organizations are dinosaurs…[but] this is misguided…Public and nonprofit management, the stuff that gets derided as ‘overhead,’ really matters. It’s as important to attract talent to health ministries as it is to spend money on specific medicines.”
To be sure, in his blog post Ryan outlines some areas where many nonprofits could improve (becoming more focused, continually innovating, diversifying revenue sources, thinking big), but these are best practices that any organization (startup or established institution, for-profit or nonprofit) should embrace. It is simplistic and misguided to think, as Ryan writes, that “the nonprofit world must embrace the nimble ways of successful startups to become more effective, and do better.” I know its not sexy, but real social change is much more complex than startup versus institution.
So let’s move on from this either/or mentality. Effective social change requires institutions AND networks, it requires Millennials AND Boomers, it requires startups AND established organizations, it requires public AND private money (and lots of it), and it requires for-profit and nonprofit solutions. We are wasting our time (and our keystrokes) by creating false dichotomies. Let’s work together toward strategic, sustainable social change.
There is an article in Forbes this month that bothered me. Carrie Rich, co-founder and CEO of The Global Good Fund, argues that more nonprofits should move from a “donor-driven organization” to a “revenue-producing social enterprise.” Instead of “relying on donor funding” more organizations should “create revenue-producing services.” In essence she is encouraging more nonprofits to figure out how to sell their services.
The problem with her argument, though, is that it encourages nonprofits to think one-dimensionally about funding sources instead of developing an overall financial strategy that may or may not include earned income.
Rich’s argument is that earned income, or what she calls “revenue-producing social enterprise” is a more sustainable and impactful way to create social change. She goes on to list all sorts of reasons (10 actually) that revenue generation (or earned income) is better than contributed income. These reasons include that revenue generation allows nonprofits to be “more responsive to change,” “attract employees who seek growth,” “accelerate growth and impact,” “become more financially sustainable and mature,” and the list goes on.
Rich is echoing a repeated dichotomy in the social change space between traditional, broken nonprofit approaches, and new, more sustainable and impactful social entrepreneurship approaches. Her line of argument stems from a distaste for fundraising done badly.
Believe me, I get it. Fundraising is broken. But just because traditional fundraising is flawed doesn’t mean we should eschew all contributed income.Yes there is deep dysfunction within the nonprofit sector – I talk about it all the time. But the answer is not to simply dismiss the sector and all of its trappings (and revenue sources).
Let’s remember that a nonprofit organization is often created to provide a public good that is not offered by the market. In other words, nonprofits are selling what someone is unable to purchase.
Thus, nonprofits typically have two customers:
- Those who benefit from the services (“Clients”), and
- Those who buy the services (“Donors”)
When social change organizations are able to conflate the two – when the client becomes the buyer – a social enterprise is born. And while that is great, it is rarely the case. Therefore, market-based solutions will never provide all the social change we need.
Every social change organization must analyze their overall strategy and develop a financial model that best delivers on that strategy. That financial model may have earned income elements, contributed income (individual, corporate and foundation grants) elements, government funding or, most likely, some combination of all of these. And every nonprofit should at least analyze whether earned income is right for their financial model. But social enterprise will never be right for all nonprofits, or even a majority of them.
Instead of completely throwing out “traditional charity models,” let’s make them better. Rich argues that one of the many reasons earned income is better is that it allows organizations to “afford the best technologies to help them succeed.” If social change organizations need more capital investments for technology (which they definitely do) then let’s make capacity capital ubiquitous in the sector. But let’s not erroneously assume that more earned income equates to more capital investment.
Let’s move past these social enterprise vs. charity debates and instead focus on helping social change organizations develop smart, sustainable financial engines that include the right revenue (and capital) mix.
Photo Credit: Yoel Ben-Avraham
In today’s Social Velocity interview, I’m talking with Ted Levinson. Ted is the Director of Lending at RSF Social Finance, a San Francisco-based financial services non-profit dedicated to transforming the way the world works with money. Levinson manages RSF’s flagship $75 million Social Investment Fund which provides debt capital to US and Canadian social enterprises.
You can read past interviews in the Social Innovation Interview Series here.
Nell: RSF Social Finance is really the leader in the social finance market, you’ve been doing this long before anyone started talking about a “social capital marketplace.” Given that long history, how do you view the current state of the social capital market? Are we where we need to be to funnel enough and the right kinds of capital to social change efforts? And if not, how do we get there?
Ted: RSF has a twenty-nine year operating history, but it’s still early days for the field of social finance. The industry is at the same stage of development as natural food stores were thirty years ago – we’re established, we’re growing, we’re doing good work, and yet we’re still considered a fringe movement. I believe we are on the cusp of mainstream acceptance which will mean a much broader audience of impact investors (especially young people and unaccredited investors) and far greater demand for social capital from the growing number of social enterprises that are just now becoming investment-ready.
There’s been a shift in society’s view of natural food stores – we’ve overcome our fear of the bulk bins and now all grocery stores look more like natural food stores. I expect the same thing to happen with our conventional financial institutions which are just now beginning to pay attention to social finance.
What the field really needs is to expand the financial products available to social enterprises and address some of the existing gaps. Frustrated social entrepreneurs may disagree, but I think the angel capital and large-scale venture capital spaces are meeting the needs of for-profits. Incubators, business plan competitions and seed funds are providing modest amounts of funding to emerging non-profits and for-profits. RSF and some of our friends including Nonprofit Finance Fund, Calvert and New Resource Bank are addressing the middle market market.
The big voids in social finance include:
- True “risk capital” for non-profit social enterprises. We need more foundations willing to place bets on high-potential organizations.
- Bigger finance players or (better yet) a more robust consortium of social finance organizations that can band together to meet the $5 million + needs of high growth social enterprises such as Evergreen Lodge, Playworks and other organizations that are reaching scale.
I believe the field will get there but we’re playing “catch-up” now and social entrepreneurs are an impatient bunch.
Nell: RSF does something pretty revolutionary in that you combine philanthropic giving with impact investing, whereas these two sides of the social capital marketplace have not yet really found a way to work together in any large scale or significant way. Why do you think that is? And what needs to change in order to encourage foundations and impact investors to work more closely together?
Ted: We call our approach of combining debt and philanthropic dollars “integrated capital,” and we think it’s going to have a profound effect on impact investors, philanthropists and the social enterprises it serves.
Most non-profit social enterprises rely on a combination of earned revenue and gift money. There’s no reason why a single transaction can’t bridge these two forms of capital. With integrated capital we can leverage philanthropic grants or loan guarantees to push high-impact loan prospects from the “just barely declined” category into the “approved” category. In fact, even some for-profit social enterprises are eligible for this. Our loan to EcoScraps – a fast-growing, national, composting business was made possible by a foundation that shared in some of RSF’s risk.
Integrated capital is possible because RSF works with individuals and foundations that have overcome the prevailing view that how you invest your money and how you give are distinct activities. We’re also fortunate to work with an enlightened bunch of people who recognize that philanthropic support for social enterprises isn’t a crutch or a sign of a failed enterprise.
Our work at RSF is driven by a belief that money ought to serve the highest intentions of the human spirit. Conscientiously investing money, giving money and spending money can all further this goal.
Nell: What do you make of the emerging social impact bond movement? Is this a social finance vehicle that you think will work?
Ted: I’m deeply hopeful and deeply skeptical of the future of social impact bonds. I’m hopeful because our government is notoriously risk-adverse and slow to adopt new ways of improving education, reducing recidivism, or curbing our runaway health care costs. I think spending money on early interventions could go a long ways towards improving these fields societal challenges, but paying now to save in the future is at loggerheads with the short-term view which prevails in politics. Social impact bonds are a clever way to push the risk on to investors who are willing to take a longer view for the potential of a big upside.
I’m also a fan because social impact bonds are an alternative to the financial engineering which brought us collateralized debt obligations. They demonstrate that Wall Street doesn’t have a monopoly on financial innovation.
That being said, I’m skeptical that this market can ever reach a stage where transactions costs can drop enough to make it economically viable. Bringing together the multiple parties that are required for such a transaction (the government, the investor, the non-profit, a monitoring entity, a social finance organization, an attorney and possibly a foundation) just seems unaffordable to me.
Nell: What sets the nonprofits and social enterprises you invest in apart? What characteristics do you look for in the investments you make?
Ted: All of our borrowers fall into one or more of three focus areas – sustainable food systems, the environment and education & the arts. These borrowers all have capable, committed management who recognize that financial sustainability is a prerequisite for lasting change. Our best borrowers have strong communities supporting them whether it is donors, customers or suppliers.
Evaluating these stakeholders is a key component of our underwriting process at RSF.
Our experience demonstrates that performance improves when social enterprises engage all of their stakeholders. RSF’s long-standing support of fair trade is an example of this commitment. We also regularly expect borrowers to solicit their community members to join RSF’s investor community as a precondition to approval. We take community seriously at RSF!
Our borrowers are all addressing major social or environmental problems such as a lack of adequate housing for developmentally disabled adults (Foundation for the Challenged), inefficiencies in the wind industry (FrontierPro) and poverty and environmental degradation from rice farming (Lotus Foods.) As social enterprises, they’re primary activities are DIRECTLY making the world a better place. We believe our borrowers have the potential to scale their organizations and make a real dent in these problems, or become a model for others to do the same.
For example, we were one of the first lenders to Revolution Foods when they were operating out of a defunct fast food restaurant in Alameda, CA. Today they deliver over 200,000 healthy meals a day to public school children.
Similarly, we think DC Central Kitchen’s model of combining culinary training for adults with barriers to employment with a robust meals business (they deliver 5,000 meals a day to schools and homeless shelters) is a winning approach that can be replicated throughout the country.
Nell: Some have argued that nonprofit leaders lack a level of sophistication when it comes to financial strategy and use of financial tools. Obviously you find nonprofits and social enterprises that are able to effectively employ sophisticated financial vehicles, so how do you respond to that argument?
Ted: Rather than argue I prefer to let the results of our borrowers speak for themselves. DePaul Industries, for example, is a $30 million non-profit that employs over a thousand disabled Oregonians. The Portland Business Journal ranked them one of the most admired companies in the state and they did this all with 98% earned revenue. Network for Good processes over $150 million of online donations every year while Digital Divide Data has a decade of year over year revenue growth in the field of impact outsourcing.
I see no lack of financial sophistication in the non-profit sector. I do, however, see a lack of risk-taking, which can sometimes be misinterpreted as unsophistication when compared with the for-profit world. It’s a shame this mentality is so pervasive because of the importance and urgency of the work that so many non-profits do. Many icons of industry have biographies filled with risky expansion, leverage, false starts and failures. We need to de-stigmatize failure in the non-profit sector and adopt that same boldness which has led to so many of the biggest successes in the commercial world.
It happens all too often. A nonprofit executive director called me the other day because they have just completed a beautiful strategic plan with some exciting goals and a new direction for the organization, but they don’t know how to bring the money in the door to make the plan a reality. They don’t have a financing plan for their nonprofit, so they are just hoping for the best.
A financing plan galvanizes board and staff to bring enough of the right kinds of money in the door to make the organization’s goals a reality. It creates a sustainable financial model for the nonprofit so that it can survive and thrive. Instead of rolling the dice and hoping for the best, a financing plan puts your nonprofit’s financial destiny squarely in your control.
But very few nonprofits have a financing plan. Which is why I’m excited to be offering one of my most popular webinars again this month. In the April 24th Creating a Financing Plan webinar I will take you step-by-step through what a financing plan looks like and how to create one for your nonprofit. If you truly want to break free from the exhausting hamster wheel of fundraising and start bringing enough money in the door to achieve your goals, you need a financing plan.
The Creating a Financing webinar will help you create an overall financing plan for your nonprofit, which includes:
- All revenue streams flowing to the organization
- A strategy for funding programs and operations
- Opportunities to raise money for infrastructure
- Tactical steps with activities, deliverables, people responsible
- Ways to divide tasks by staff and board members
- A process for monitoring the plan going forward
Here’s what some past Creating a Financing Plan webinar participants have said:
“This session was one of the best on this topic I have seen…presented in an excellent and logical manner.”
“I loved the reframing of financing for desired results instead of funding for operations… your message to wed money to the mission was a big AHA moment and I am now figuring out how to bring this to life for staff and Board.”
And remember, as with all of our webinars, if you can’t make this day and time, don’t worry. When you register for the webinar you will gain access to the slides and the on demand recording of the webinar which you can watch whenever you want.
I hope to see you there!
Photo Credit: jDevaun
The news is not good lately about how effective the head fundraiser is at nonprofit organizations. A new study by CompassPoint reveals some startling realities about the fundraiser role in the nonprofit sector:
- 25% of executive directors fired their last development director
- 33% of executive directors are lukewarm about their current development director
- More than 50% of executive directors say they can’t find well-qualified fundraisers
- 50% of development directors plan to leave within the next two years
- And 40% plan to leave fundraising altogether
That sounds like a fundraising crisis to me. And it’s just another example of why fundraising in the nonprofit sector is broken. So in today’s installment of my regular Financing Not Fundraising blog series, I’m talking about how to find and keep a great fundraiser.
If you’re new to this series, Financing Not Fundraising recognizes that fundraising in the nonprofit sector just doesn’t work anymore. Nonprofits have to break out of the narrow view that traditional FUNDRAISING (individual donor appeals, events, foundation grants) will completely fund all of their activities and instead work to create a broader approach to securing the overall FINANCING necessary to create social change. You can read the entire series here.
What I find most troubling about CompassPoint’s recent study is that it makes nonprofits sound so powerless to do anything about this deep dissatisfaction with fundraising performance. But I think it’s not staff, board or donors who are lacking, rather it’s the entire fundraising approach.
Here is how to go about finding and keeping a great fundraiser.
- Hire a Money Head. Don’t hire someone who can just write grants or someone who can just work with individual donors. Take a look at the entire financial engine of your organization and hire someone who can develop and execute a strategy for strengthening and growing ALL aspects of that financial engine. If you have significant government grants or earned income, make sure you have someone on board who understands and can work with those aspects as well as the private money that flows to the organization.
- Develop a Financing Plan. Don’t just expect to hire someone who will magically make money appear. Your head fundraiser has to be in charge of developing and executing an overall financing strategy for your organization. And that means that you need an overall financing strategy for your organization. Without a strategy, your chief fundraiser and your nonprofit are sunk.
- Pay a Real Salary. It amazes me how many nonprofits expect to entice a great fundraiser by offering a salary that is comparable to someone with only a few years of experience . If you don’t have the current budget to pay a market rate, raise capacity capital to fund the first 1-2 years of the position. Once you have a great fundraiser on board he will raise his own salary while growing your nonprofit’s overall revenue.
- Work WITH Them. It drives me crazy how many times a nonprofit’s lone fundraiser is trying to raise all the money by herself. If you are going to align mission and money, you have to make sure that EVERYONE in the organization (board and staff) understand their role in bringing money in the door. Create a culture of philanthropy among the staff so that even a staff member who doesn’t have dollar goals in her job description understands that talking to prospects and donors, giving tours, writing thank you notes are critical to keeping the organization going. And make sure the board is trained in fundraising, has a give/get requirement, and has specific individual and board money goals.
- Hire Enough Fundraisers. The rule of thumb is that it takes one full time person to raise $500K, including anyone who touches prospects and donors (database manager, prospect researcher, etc). If you are asking a single fundraiser to raise $1.5 million there is little wonder why she is (and you are) miserable.
- Give Them Tools. Don’t hire a great fundraiser and then fail to give him a donor database, an interactive website, marketing materials, prospect research, support. It does no good to hire someone with great ideas but no way to bring those ideas to fruition. If you don’t have the budget for additional support and tools, raise capacity capital to find it.
- Train Them. No one knows it all. In every other profession we expect to send employees to conferences, provide them classes, coach them along the way. Don’t expect that your fundraiser automatically knows all there is to know. Give him opportunities to gain new knowledge, meet others in the field, and continue to grow his skills.
If you want to attract and retain someone who will develop a sustainable financial engine for your nonprofit, don’t leave her out in the cold. Fully integrate your head fundraiser into your organization and give her the tools, support and resources necessary to succeed.
If you want to move your nonprofit from fundraising to financing, check out the Financing Not Fundraising page of our website with articles, e-books and webinars to get you started. Or if you’d like to find out more about how I could help your nonprofit develop a financing plan or coach your fundraising staff to greater success, send me an email at firstname.lastname@example.org.
Photo Credit: Sahaja
I can’t tell you how often I hear nonprofit leaders complain about how difficult it is to raise money, how tired they are of banging their head against the wall, how difficult this economy is. Well, there really is a better way. And it starts with a really good money plan for your organization. But again and again I see the same mistakes being made in nonprofit fundraising plans, which is the topic of today’s installment of our regular Financing Not Fundraising blog series.
If you’re new to the series, our Financing Not Fundraising blog series shows nonprofits how to break out of the narrow view that traditional FUNDRAISING (individual donor appeals, events, foundation grants) will completely fund all of their activities and instead work to create a broader approach to securing the overall FINANCING necessary to create social change. You can read the entire series here.
Here are the 7 mistakes to avoid in your fundraising plan:
- Not Having A Plan At All. Yeah, not even having a plan is a huge mistake. It boggles my mind how many nonprofit organizations expect that money will magically appear at their doorstep. It takes an overall money strategy, what I call a Financing Plan, to effectively marshal your resources (staff, board, other volunteers, technology, materials) so that enough, and the right kind of, money comes in the door to achieve your goals.
- Creating Just A One Year Plan. You cannot expect to create a financially sustainable organization if you are only planning for money one year at a time. Your financing plan should project at least 3-years into the future in order to ensure that you have sound financial footing from which to operate. A true financial strategy takes a long view and plans accordingly.
- Including Only Private Dollars. Your money strategy must include ALL sources of money flowing to your organization, making it a Financing Plan. You cannot just plan for individual, corporate and foundation dollars, you also must plan for how government and earned income sources will flow, if they are appropriate to your model. And if you don’t have other sources of money beyond private dollars, you probably need to at least explore whether diversifying makes sense for your organization.
- Not Connecting It to Your Strategic Plan. Ok, I’m going to assume that your nonprofit has a strategic plan, even though many nonprofits don’t have one or they have a poor one. But once you have a strategic plan in place, you have to connect your money strategy to that plan. What good is it to have lofty program goals if you have no idea what those goals will cost (expenses) and how you will raise the money to make them a reality (revenue). You must have a multi-year financing plan that directly relates to your multi-year strategic plan.
- Ignoring Capital Goals. You can’t just raise revenue (the day-to-day money to keep the organization going), you also probably need capital (the money to build infrastructure, technology, systems) once in awhile. If you don’t include dollar goals for the amount of capacity capital your nonprofit needs, I doubt you will ever raise it. You cannot continue to operate with infrastructure, staffing, technology and systems that are inferior to your needs and goals. Determine how much capacity capital you need and include those goals in your financing plan.
- Not Giving Your Board a Role. You cannot leave the burden of raising money solely on the shoulders of your staff. One of the key responsibilities of a nonprofit board of directors is to ensure the financial viability of the organization they serve. So this means that the board as a whole and each individual board member must understand and play a role in the money strategy of the organization. So start by requiring each board member to give and/or get a certain amount (usually your major donor level) and then make sure your board “money committee” is active and engaged, and finally integrate money into every meeting and conversation your board has. Money MUST be top of mind for the entire board.
- Not Focusing On High Return Activities. Some fundraising plans include activities that a nonprofit has always done to bring money in the door without analyzing their effectiveness or expanding into new or more profitable activities. Start by analyzing the return of every money raising activity you engage in and then focus your money strategy on those that actually have a positive return.
I would love to see more nonprofits create a smart, long-term financing plan for their organizations. Because the reality is that those that do so will create more sustainable social change.
If you want to learn more about how to creating a financing plan for your nonprofit, sign up for our Creating a Financing Plan webinar.
And if you want to apply the other concepts of Financing Not Fundraising to your nonprofit, check out our Financing Not Fundraising Webinar Series, or download the 27-page Financing Not Fundraising e-book.
Photo Credit: Hiking Artist