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.
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
I’m delighted to announce the release of the newest Social Velocity step-by-step guide, Creating a Nonprofit Financing Plan. This guide is designed to help you build a financing plan for your nonprofit and joins the growing list of Social Velocity tools available to nonprofits.
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. When you finance, instead of fundraise for, your nonprofit you are developing a long-term strategy for bringing enough money in the door to achieve your mission.
Financing means that instead of asking the question:
“How much can we accomplish with what we can raise?”
you start asking the question:
“How much should we raise to accomplish our goals?”
A financing plan differs from a fundraising plan in a number of ways. Unlike a fundraising plan, a financing plan:
- Raises all of the necessary revenue AND capital required to achieve the goals of your strategic plan
- Includes ALL activities that bring money in the door
- Supports the short AND long term goals of your nonprofit
- Funds your programs AND infrastructure
- Employs activities in line with your core competencies and mission
The Creating a Nonprofit Financing Plan Guide walks you step-by-step through the process of creating your nonprofit’s financing plan and is divided into 8 sections:
1. Align Money, Mission and Competence
2. The Financing Plan Framework
3. Create Revenue Goals
4. Create A Capital Goal
5. Create A Fundraising Infrastructure Goal
6. Operationalize the Plan
7. Monitor the Plan
8. Next Steps
With a clear financing plan, your nonprofit will bring more money in the door, in a more sustainable way, ultimately bringing you closer to achieving your mission and creating change in your community.
One of my resolutions this new year is to add more video to the Social Velocity site. I love watching video, and I’d love to see more nonprofits using the medium, so I thought I should probably follow suit. A few months ago I created a Social Velocity YouTube channel and will continue to add video to it over the course of the year. I also plan to do some video blogging this year, which I’m pretty excited about.
But today I want to introduce my new consulting video. Here I discuss how I consult with nonprofit clients. If you are reading this in an email, you can see the video by clicking here. Take a look!
With the new year comes new year’s resolutions and one I’d love to see more nonprofits embrace is getting smarter about raising money. Imagine if more nonprofit leaders were to take a big step back and develop an overall financing strategy for their organizations that integrates money with their mission and allows them to play on their assets. In so doing, we could move away from a sector that struggles to get by.
To help you along in developing a smarter way to raise money in 2013 I’m offering two webinars this month.
This webinar builds on the earlier Financing Not Fundraising: Evaluating Earned Income webinar and is intended for those nonprofits that have a business idea and are ready to pursue an earned income stream. This webinar, complete with case studies of other nonprofits that have launched earned income businesses, will show participants how to:
- Pilot a new business idea
- Find customers
- Price products/services
- Project future business income and expenses
- Create goals for the business and monitor progress on them
- Report progress on the business to the board
Next is a repeat of November’s sold out “Creating a Financing Plan” webinar:
Creating a Financing Plan Webinar
This webinar will help nonprofit leaders understand the steps to creating an overall financing plan for their organization that results in sustainable, long-term money coming in the door. Webinar participants will learn how to:
- Set goals for ALL revenue streams flowing to the organization
- Determine the infrastructure dollars they need to raise
- Tie their financing plan to their strategic plan
- Create tactical steps to make the plan a reality, with activities, deliverables, people responsible, timeline
- Divide tasks by staff and board members
- Develop ways to monitor and revise the plan going forward
And remember, all of our webinars are recorded and available as on demand downloads right after the live webinar, so even if you can’t make the time of the live webinar, you can still register and have access to all of the content. The registration fee for any Social Velocity webinar will get you:
- Access to the live, interactive webinar (live webinar only)
- A link to a recording of the webinar, which you can watch as many times as you like
- The PowerPoint slides from the webinar
- The ability to ask additional follow-up questions after the webinar
You can see the complete list of all Social Velocity webinars here.
I hope to see you at one of these webinars!
Photo Credit: sylvester
As 2012 winds down I wanted to take a minute to thank you, the Social Velocity community, for an amazing year. You are an incredibly smart, innovative, inspiring group, and I’m honored that you take time to read, comment and engage with the Social Velocity blog.
As I did last year around this time, I want to provide a list of the ten most popular Social Velocity blog posts from this year in case you missed some of them. Then I’m taking a break from the blog until January, but I’ll be scheduling some archive posts while I’m out of the office.
I wish you all a fun and relaxing holiday season. I look forward to another year of interacting with the great Social Velocity community in 2013. Happy Holidays!
The 10 most popular Social Velocity blog posts of 2012 were:
- 9 Ways Board Members Can Raise Money Without Fundraising
- Why I Love Pinterest and Nonprofits Should Too
- Jump Start Your Board
- Tools to Build a Stronger Nonprofit Sector
- How to Raise Money To Strengthen Your Nonprofit
- How to Rebut Crazy Donor Demands
- Connect Money to Your Strategic Plan
- 4 Times When a Nonprofit Needs a Strategic Plan
- 10 Traits of a Groundbreaking Nonprofit Board
- 7 Mistakes in Your Nonprofit’s Fundraising Plan
Photo Credit: ccpixel.net
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