Fundraising is, for the most part, a fundamentally misunderstood activity. There are a lot of misconceptions, among nonprofit leaders, board members — even donors — about effective ways to bring money in the door.
Here are are a few of the worst delusions about fundraising that persist in the sector:
- Events Are Fundraisers
Very few nonprofit events generate a net income after you factor in the direct (food, venue, invitations, entertainment) and indirect (board and staff time) costs that go into them. They simply are not profit-generating activities. If you are looking to your events to bring in a profit, calculate the cost to raise a dollar to see if they actually are. Some nonprofit leaders argue that events generate value beyond profit, vague terms like “awareness” or “goodwill.” That may be, but unless you follow-up with individual event attendees to turn that increased “awareness” or “goodwill” into money, there is little financial value to events. Turn your energies instead to low-cost, mission-focused cultivation and stewardship events for your major donors and major donor prospects, then you might have something.
- Crowdfunding Creates Revenue
Nope, it doesn’t. Revenue is the on-going money you need to keep your doors open and your operations running. A crowdfunding campaign, by definition, is a one-time deal. It is organized around a specific need or timeframe. Therefore the money it generates is not easily or regularly repeated. Crowdfunding could make sense for a nonprofit hoping to raise startup, growth or capacity capital (all one-time infusions of money). But that Kickstarter campaign is not going to keep the lights on, so look elsewhere (like a financing plan) for sustainable revenue.
- Major Donors Can Be Recruited En Masse
Major donors are secured through a long-term, systematic, one-on-one process. There is no quick way to bring large donors on board. My issue with mass major donor fundraising programs (like the Benevon model) is that when you ask people as a group to pull out their checkbooks, you are leaving money on the table. The check someone feels compelled to write after watching a 20-minute presentation with their friends pales in comparison to the one they will write after you’ve built a one-on-one relationship with them over time. Put together a strategic major donor campaign, along with the infrastructure and systems to execute on it, and you will create a long-term major donor base (and its corresponding revenue stream) for years to come.
- Skimping on Fundraising Staff and Systems Saves Money
While you may save a few thousand dollars in salary by hiring a novice fundraiser (instead of an experienced one), you will cost the organization hundreds of thousands of dollars in missed revenue. The same is true with cheap fundraising systems like an ineffective donor database, an unresponsive website, a cumbersome email marketing system, or a poor (or non-existent) marketing strategy. Figure out what it will really cost to build the fundraising team and systems you need and then raise the capacity capital to get there.
- Endowments Solve Money Woes
Let’s face it, an endowment makes sense for very few nonprofits. Even if you were able to convince donors to let their money just sit in a bank account (which is a big “if”), that money won’t really impact your bottomline. Even if you raise an endowment of $1 million, it will only generate $50,000 (assuming a 5% return) of operating revenue each year. Instead raise a much smaller amount of capacity capital which you could use to strengthen your fundraising infrastructure (more staff, better technology). Those improvements could increase your annual revenue by many times more than $50,000.
It’s time to face the facts. There are smart ways to raise money and there are delusional ways to (not) do it. Embrace the power of money and use it as a tool to create a more effective, sustainable organization.
Photo Credit: TaxCredits
One of the things I love about summer – aside from the obvious loves like swimming, family trips and watermelon – is that the slower pace allows time to take a step back and find a better way forward. For nonprofit leaders, summer is a great time to take a hard look at how you bring money in the door and figure out a more sustainable way to do so.
It’s time to trash your ineffective fundraising plan.
A Financing Plan, unlike a traditional fundraising plan, is an integrated, thoughtful, and strategic way to help a nonprofit raise enough money to achieve its programmatic and organizational goals. Instead of asking the question:
“How much can we accomplish with what we can raise?”
you are asking the question:
“How much should we raise to accomplish our goals?”
The Build a Nonprofit Financing Plan Guide walks you, step-by-step, through building a financing plan for your nonprofit. It shows you how to:
- Align Money, Mission and Competence
- Create Revenue Goals
- Create a Capital Goal
- Create a Fundraising Infrastructure Goal
- Operationalize the Plan
- Monitor the Plan
This guide gives you the knowledge and the step-by-step guidance to get more effective at bringing money in the door.
Here’s an excerpt from the Build a Nonprofit Financing Plan Guide:
The Financing Plan Framework
Your final financing plan will be made up of goals, objectives and an operational plan. Here’s how the financing plan framework breaks down.
Your final financing plan will have approximately 5 broad goals. These goals come in three types: revenue goals, a capital goal, and a financing infrastructure goal. Below is what differentiates these three types of goals. And don’t worry if this is still a little muddy, I will go into more detail and give you some examples a little later in the guide.
1. Revenue Goals
Remember, revenue is the day-to-day money you need to meet the expenses of your strategic plan. You will have 1 revenue goal for each revenue source that is appropriate to your organization:
- Private dollars (foundations, corporations, individuals)
- Public dollars (government grants)
- Earned revenue (sales of goods or services)
Your revenue goals will make up 3 of the 5 goals of your final financing plan.
2. Capital Goal
Remember, capital is the one-time organization-building money you need to fund special or infrastructure-related purchases within your strategic plan. So it might be the money you need for a program evaluation, or a new data-gathering system, a new database, etc. If you require capital investments to make your strategic plan a reality, one of the goals of your financing plan will be a capital goal.
3. Financing Infrastructure Goal
This goal is not a money goal, but rather an activity goal. If you want to significantly grow the revenue that flows to your nonprofit, you will have to make some improvements to the financing infrastructure of your organization. This means you might want to add additional development staff, buy a new donor database, upgrade your website, create marketing materials, etc. One of the goals of your financing plan should focus on what improvements you will make to the internal systems, staffing and technology you use to bring money in the door.
Each of these goals will be broken down into objectives (or pieces) to make them achievable. For example, you might have a revenue goal that describes how much private money you will raise. You would then break that total private revenue goal into the individual donor, corporate donor and foundation grant objectives necessary to achieve that goal.
Once you establish your goals and objectives, you will break each objective into the activities, deliverables, people responsible, and due dates. This becomes your very tactical operational plan with which you will execute on and monitor the financing plan. It ensures that the goals and objectives actually come to fruition.
So let’s get started creating your financing plan…
To continue reading and building your nonprofit’s financing plan, download the Build a Nonprofit Financing Plan Guide now.
Photo Credit: Steven Depolo
I am really in to Slideshare lately. I uploaded my first Slideshare presentation, Calculating the Cost of Fundraising, last month and people seemed to really like it. So I plan to create regular Slideshare presentations and share them on the Social Velocity Slideshare site.
Today’s Slideshare is 7 Ways to Kiss Fundraising Goodbye. Traditional nonprofit fundraising is broken. It lock nonprofits in an endless cycle of chasing low return activities. A much better approach is to create a sustainable financial model that aligns well with your mission and core competencies. Nonprofits must move from Fundraising to Financing.
If you want to move your nonprofit from a Fundraising to a Financing approach, download the Build a Nonprofit Financing Plan Step-by-Step Guide.
I am amazed by the reaction of some nonprofit leaders when faced with a budget shortfall. Some simply shake their head in innocent confusion, some blame an “inexperienced” development director or a “checked-out” board, and others throw together a knee-jerk fundraising event in order to stem the tide.
But a much better approach, when you don’t have the money your nonprofit needs, is to step back and assess the viability of your nonprofit’s overall money function, which is the topic of today’s installment in the ongoing Financing Not Fundraising series.
If you want greater, more reliable funding for your nonprofit, you must get strategic. And the first step to any real strategy is analysis.
Instead of viewing the money that flows to your nonprofit as a side note, or worse, a completely uncontrollable force, you must view money as a very necessary and integrated function that is just as important as your nonprofit’s programmatic function. And in order to determine how well your money function operates and how to transform it, you must assess it.
A transformative financial model assessment uncovers how all aspects of the organization contribute to or detract from money flowing through the doors. It analyzes the financial impact of 7 areas of the organization, like this:
Does your nonprofit have a long-term strategy that integrates money, programs and operations? Does your strategy help articulate the value your nonprofit provides the community in order to compel outsiders to invest? Does your strategy include measures for whether that value is actually being created?
- Mission and Vision
Does your nonprofit have clear, compelling vision and mission statements? The two statements are not “nice to have” marketing language, rather they articulate the very essence of why your nonprofit exists. Does your vision paint a bold description of the social change you seek? Does your mission describe the day-to-day work towards that vision?
- Board and Staff Leadership
Does your board have the skills, experience and networks necessary to execute on your strategic plan? Are they engaged and invested? Are they actively connecting the organization to people, resources, partnerships? Does your staff have the knowledge and experience necessary to make money flow? And are they structured and managed effectively?
- Program Delivery and Impact
As a nonprofit you have two sets of “customers.” Those you serve (or your “clients”), and those who fund those services (or your “donors”). Without a compelling and effective delivery of services to clients, donors won’t fund those services. Is your nonprofit strategic about which programs to grow and which to cut? Do you measure the effect of your programs on clients? Are your programs financially viable, or are too many of your programs mission-rich, but cash-poor?
- Marketing and Communications
Do you make a compelling case for your work and for support of it? Once you’ve made the case, are you using the right marketing channels (website, social media, events, email, etc.) to attract and engage your target funders, volunteers, advocates, board members and other supporters?
- External Partnerships
In order to move the mission forward and in order to attract funders, volunteers, advocates you must be strategic about building alliances that make sense. Do you have the necessary external relationships to execute on your strategy? Are you constantly working to strengthen or grow the right partnerships in the right ways?
- Financial Model
And only now do we look specifically at money. Because without all the previous elements (thoughtful strategy, compelling vision and mission, strong leadership) money simply will not follow. Does your funding mix fit well with your mission and core competencies? Are there other revenue streams that make sense to pursue? Are there fundraising activities that are actually costly rather than profitable?
When money isn’t working the way you want it to, don’t stick your head in the sand. Wrest the money sword from the beast of chance by taking a hard look at your nonprofit’s money function.
If you want to learn more about the Financial Model Assessment I provide clients, click here. And if you want to learn more about the Financing Not Fundraising approach, download the newest e-book in the Financing Not Fundraising series, Financing Not Fundraising volume 3.
Photo Credit: Pen Waggener
If I had one wish for the nonprofit sector in this new year it would be for nonprofits to get much smarter about money and finally start using it as a robust, strategic tool for creating more social change.
But you can’t get smarter about something that you fear, or don’t understand, or avoid, or can’t access.
Which is why I’m really excited about one of the new tool bundles I’m offering in the newly revamped Tools section of my website. The Develop a Financial Model Tool Bundle provides the guidance you need to create a financing plan for your nonprofit in this new year.
A financing plan (as opposed to a fundraising plan) is a long-term strategy for bringing enough money in the door to achieve your mission, ultimately bringing you closer to creating sustainable social change.
The Develop a Financial Model Tool Bundle will help move your board, staff and donors to truly understand a financing approach and give you the roadmap for developing your nonprofit’s own financing plan. It will help move your nonprofit from the exhausting hamster wheel of fundraising to a robust, sustainable financial model.
The tool bundle includes 4 components:
- The Financing Not Fundraising, vol. 1 E-book that describes the theory behind moving from fundraising to financing, why financing is a much more sustainable and effective approach, and how to begin moving your organization to a much more sustainable way of thinking about and securing money.
- The Financing Not Fundraisng, vol. 2 E-book expands on the ideas behind a financing approach, gives concrete examples of this new approach, and describes how to change your, and your board and donors’ thinking in order to fully make the switch to this new approach of financing your work.
- The 60-minute Create a Financing Plan On-Demand Webinar moves you from embracing the theory of a financing approach to fully understanding what a financing plan is, how it differs from a fundraising plan, the framework for a plan, and the steps necessary to create one. This webinar can be watched whenever you want and however many times you need.
- The Build a Nonprofit Financing Plan Step-by-Step Guide is the final piece of the puzzle. This guide helps you create your nonprofit’s own financing plan. The guide walks you, step-by-step, through the questions, calculations and frameworks you need to build your nonprofit’s financing plan.
This Develop a Financial Model Tool Bundle takes you from understanding the theory behind a financing approach all the way to creating your nonprofit’s own financing plan. As a bundle, the cost is 15% less than the cost of purchasing the e-books, guide and webinar separately. Download the Develop a Financial Model Tool Bundle Now.
This tool bundle, along with all of the other guides, e-books, webinars and bundles available on the Tools page, is designed for smaller and younger nonprofits that may not have the resources to seek customized consulting help, or just need some initial guidance to find a new way on their own.
But if you would rather find out about the customized consulting I provide for creating a financing plan and/or coaching your board and staff to adopt this new approach, let me know.
Note: I wrote the following article for the Summer Issue of Advancing Philanthropy. You can download the Nonprofit Finance section of the magazine, of which this article is part, on the Association of Fundraising Professionals website here.
It has been a really difficult few years for nonprofits, particularly their fundraisers. But the bad news is that the situation won’t get easier any time soon. In order to keep up, nonprofit leaders have to recognize that traditional fundraising doesn’t work anymore.
In fact, traditional fundraising is holding nonprofits back by forcing them to wear out their boards, staffs, and donors, focus efforts on low-return activities, subsist with inadequate technology and infrastructure, and ultimately distance them from their missions.
Nonprofits must emerge from the broken fundraising mold and instead develop a sustainable financing strategy that will bring mission to fruition. That means that 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. Instead, nonprofits must take a big step back and create an overall financing strategy. Nonprofits must move from fundraising to financing.
And this fundamental shift needs to happen not just because of a poor economy, but also because of deeper, long-term shifts in our world.
Donors are changing. A recent study by the Johnson Center for Philanthropy found that the next generation of donors is very different than preceding generations. The study looked at Millennial and GenX donors (wealthy individuals, or individuals who will inherit wealth, born between 1964-2000). These donors will control more philanthropic dollars than any previous generation — it’s estimated that $41 trillion will transfer from the Baby Boom to these next generations in the next 40 years. And these donors, unlike their predecessors, are focusing their money on nonprofits that demonstrate change to a social problem, or impact. According to the report, “They see previous generations as more motivated by a desire for recognition or social requirements, while they see themselves as focused on impact, first and foremost.”
At the same time, the fundraising function at most nonprofits is showing real signs of strain. A recent study by CompassPoint reveals that executive directors and their fundraisers are fundamentally unhappy with the results that fundraising achieves. Twenty-five percent of executive directors fired their last development director and 33% are lukewarm about their current one. While 50% of development directors plan to leave within the next two years.
In order to stay relevant to donors, be sustainable and achieve their missions, nonprofits need to shift from fundraising to financing.
Here’s what a financing approach looks like.
Move to Impact
It is no longer enough for nonprofits to just do good work. There is a growing demand for nonprofits to 1) articulate what results they hope their work will achieve, and 2) track whether those results are actually happening. Nonprofits have long discussed the outputs of their work: number of people served, number of services provided. But the sector is increasingly being asked to articulate and track the outcomes they are achieving. How are people’s lives changing because of the work a nonprofit does? Increasing competition for shrinking dollars means nonprofits must develop their own theory of change (how they use community resources to create change to a social problem) and then measure whether that theory is becoming a reality. The more a nonprofit can talk about outcomes and impact, the more donors it will attract.
Connect Mission and Money
The financial woes of nonprofits often stem from a misalignment of mission and money. A nonprofit leader who creates a financial engine for her organization that is fully connected to and supportive of the mission (instead of detracting or isolated from it) will enjoy financial sustainability. Nonprofits must make money one of the goals of the strategic plan of the organization and no longer separate fundraising from mission. All elements of a nonprofit’s operations, including the moneymaking ones, must be fully integrated and moving forward together.
Create a Financing Plan
Once money and mission are connected, a nonprofit leader must create a comprehensive strategy for bringing enough, and the right kind of, money in the door to achieve his strategic goals. This includes revenue and capital, programs and infrastructure dollars, and all funding sources. Money must be understood and used as a tool, instead of feared or ignored. A financing plan integrates all activities that bring money in the door (individual donors, foundation grants, earned income, government contracts) and funds both the short and long term goals, as well as the programs and infrastructure of the organization.
Relying on only one or two funding sources, particularly foundation grants — which make up less than 2% of all the money flowing to the nonprofit sector, is a dangerous strategy. It is far better to create a robust and diverse money mix that fits well with and builds on the nonprofit’s mission and competencies.
Find Money to Build
In such a stark economic environment those nonprofits that don’t have adequate infrastructure simply will not survive, let alone be able to adequately address the social problem they were organized to solve. Nonprofit leaders must become savvy about capacity capital and start raising the money they need to build the organization their mission requires. There are two kinds of money in the sector: revenue and capital. Revenue is the day-to-day money necessary to run programs (staff, beds in a homeless shelter, books in a reading program). Capital is a one-time infusion of significant money to strengthen or grow the organization so that it can create more impact. The band-aid reality of inadequate technology, underpaid staffs, and underfunded systems that riddle the nonprofit sector is not sustainable. A nonprofit will only get better at delivering impact if it has an effective organization behind its work.
So how do you go about creating a financing plan for your nonprofit? Here are the steps:
- Develop a Budget for Your Strategic Plan
The most important first step in creating a financing plan is connecting money to the work of your strategic plan. It continues to amaze me how many nonprofits create a strategic plan but attach no dollars to it. If you truly want to bring your strategic plan to fruition, you must connect that plan to the money it will take to execute on it. Go through your strategic plan and ask yourself how much it will cost to make the strategic plan a reality. Project those expenses out over the time frame of the strategic plan. If you have a 3-year strategic plan, determine what your organization’s expenses must be each year over the next three years in order to achieve the goals of your strategic plan.
- Create Revenue Goals
To meet these expenses of your strategic plan, your final financing plan will have approximately 5 broad goals. These goals come in three types: revenue goals, a capital goal, and a financing infrastructure goal. Revenue is the day-to-day money you need to meet the expenses of your strategic plan. You will have 1 revenue goal for each revenue source that is appropriate to your organization (private dollars from foundations, corporations and/or individuals; government dollars; and earned income – the sale of goods or services). Your revenue goals will make up 3 of the 5 goals of your final financing plan.
- Create a Capital Goal
As mentioned earlier, capital is the one-time organization-building money you need to fund special or infrastructure-related purchases within your strategic plan. It might be the money you need for a program evaluation, or a new data-gathering system, or a new database. If you require capital investments to make your strategic plan a reality, one of the goals of your financing plan will be a capital goal.
- Create a Financing Infrastructure Goal
The last goal of your financing plan should focus on what improvements you will make to the internal systems, staffing and technology you use to bring money in the door. This goal is not a money goal, but rather an activity goal. If you want to significantly grow the revenue that flows to your nonprofit you will have to make some improvements to the financing infrastructure of your organization. This means you might want to add additional development staff, buy a new donor database, upgrade your website, or create marketing materials.
- Create Objectives
Each of the goals in your financing plan will be broken down into objectives (or pieces) to make them achievable. For example, you might have a revenue goal that describes how much private money you will raise. You would then break that total private revenue goal into the individual donor, corporate donor, and foundation grant objectives necessary to achieve that goal.
- Create an Operational Plan
Once you establish your goals and objectives you will break each objective into the activities, deliverables, people responsible, and due dates necessary. This becomes your very tactical operational plan with which you will execute on and monitor the financing plan. It ensures that the goals and objectives actually come to fruition.
In the end, the goals and objectives of a nonprofit’s financing plan might look like this:
Fiscal Years 2014-2016 Financing Plan
1. Goal 1: Raise $548,625 annually from private sources by 2016
- Objective 1: Raise $288,750 from individuals by 2016
- Objective 2: Raise $86,625 annually from corporations by 2016
- Objective 3: Raise $173,250 annually from foundations by 2016
2. Goal 2: Raise $346,500 annually from government sources by 2016
- Objective 1: Raise $120,500 from county grant by 2016
- Objective 2: Raise $226,000 from federal grant by 2016
3. Goal 3: Raise $17,325 annually from earned income sources by 2016
- Objective 1: Raise $5,000 from t-shirt sales
- Objective 2: Raise $12,325 from classes
4. Goal 4: Raise $220,000 in capital
5. Goal 5: Improve our financing infrastructure in order to meet our revenue and capital goals
- Objective 1: Increase the staff and board’s ability to bring money in the door by adding positions and training
- Objective 2: Add key technology
- Objective 3: Improve the quality and effectiveness of our marketing efforts
You would then be ready to create the very tactical operational plan to bring each of these goals and objectives to life.
It’s not just semantics. There really is a better way. Nonprofits don’t have to wear out their fundraisers, their donors, their staffs and their messages. By creating a financing strategy, as opposed to a fundraising plan, a nonprofit can get a lot closer to sustainable social change.
If you’d like to explore how I can help your nonprofit develop a Financing Plan, visit the Financing Plan Consulting page of the website.
Photo Credit: MIT Libraries
As I mentioned in an earlier post, I am leading a Financing Not Fundraising E-Course for nonprofit leaders who are ready to create a more sustainable financial engine for their nonprofit. I would like to give one nonprofit that can’t afford the registration fee the opportunity to participate in the class for free.
But because this E-Course requires not only a financial investment, but more importantly an investment of time and mind-share, I want to select a nonprofit leader who has a compelling case for why they are ready to move their nonprofit from fundraising to financing. So I am introducing this contest.
To recap, the Financing Not Fundraising E-Course will take a small group of nonprofit leaders who are ready to chart a more sustainable financial future for their nonprofit from fundraising to financing.
Over the course of two months under my guidance you will:
• Undertake a comprehensive fundraising assessment of your nonprofit
• Gain new money-raising ideas
• Create a detailed financing plan
• Hear from other nonprofit leaders in your shoes, and
• Learn how to move your organization forward
To watch a video that describes the Financing Not Fundraising E-Course in more detail go here.
If you’d like to enter to win a free registration to the Financing Not Fundraising E-Course, fill out the form below. The nonprofit leader who makes the most compelling case for why they are ready to take their organization to the next level will be selected this Wednesday, May 1st. So submit your entry soon.
Update: A contest winner was selected so the contest is now closed.
Photo Credit: Library of Congress
I’ve had a lot of great questions about the upcoming Financing Not Fundraising E-Course for nonprofit leaders. So I created a video that breaks the e-course down and explains exactly how it will work.
The Financing Not Fundraising E-Course is an excellent opportunity for nonprofits stuck in the starvation cycle to figure out what they can do to more effectively raise money and then create a plan for a more sustainable financial engine. The registration fee is per organization, so if you would like your executive director, development director and a board member, for example, to participate, they all can for one fee. You will just simply appoint one person as representative of the organization to participate in the coaching calls, and the others are free to “listen in” and help you with each step along the way.
The total time commitment over the course of two months is approximately 10-15 hours, which includes the webinars, coaching calls, Google Hangouts and homework assignments.
This E-Course is truly an investment in the future of your organization. By making the investment of the time and cost you will transform the money engine of your organization and recoup that investment many, many times over.
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