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
I see it all the time. A nonprofit leader wants to expand services to meet growing demand, or she is frustrated with a stalled fundraising effort, or concerned that a key revenue source is drying up, or lacks the staff or expertise to analyze where to diversify their fundraising efforts. She wants to raise more money, but she doesn’t know how to prioritize resources to do so.
But a Financial Model Assessment can turn the tide.
A Financial Model Assessment can be eye-opening and, ultimately, game changing. It can give your nonprofit a deep understanding of where you need to focus your efforts and a clear road map for growing the financial viability of your organization.
A Financial Model Assessment is for nonprofits that want (or need) to raise more money, but don’t know how to get there.
Here are the steps I go through in a Financial Model Assessment:
Interview Board, Staff, Funders
I conduct in-depth, one-on-one interviews with the executive director, revenue-generating staff, key board members, and some funders and others outside the nonprofit to understand what is working and what isn’t.
Analyze the Current Organization
I analyze all organization documents, policies, procedures, financials, systems, and materials to understand the internal and external processes for raising money. But because a nonprofit’s ability to raise money depends on much more than their fundraising efforts, I look at six areas of the organizational structure to determine how well they contribute to fundraising effectiveness, these areas are:
- Mission and Vision
- Overall Strategy
- Board and Staff
- Program Delivery and Impact
- Marketing and Communications
- Infrastructure and Systems
Uncover Opportunities for Current and Potential Funding
I look at all current and potential funding streams to uncover opportunities for increases. I also review all aspects of the organization’s back-end functionality for raising money (such as donor database, materials, systems, technology) in order to uncover areas for increased efficiencies.
I create a 20-30 page detailed analysis with recommended actions for increasing funding streams. I present the assessment and recommendations in-person to staff and board for an engaging session of questions and discussion.The nonprofits that receive the completed Financial Model Assessment hold in their hands an in-depth analysis of where they need to focus time and resources in order to increase the funding flowing to their organization. Often the Financial Model Assessment is the catalyst for big insights among board and staff and sets the organization on a path toward fundamental changes to how they bring money in the door.
It doesn’t have to be so hard. With a clear road map, your nonprofit can move from financial insecurity to financial sustainability.
Photo Credit: Images_of_Money
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 been talking lately about nonprofits needing to make more investments in their organization, in their sustainability, and in their future. Well, I have the perfect opportunity for you to do just that. I’m excited to announce the newest Social Velocity tool — the Financing Not Fundraising E-Course. Over the course of two months I will be leading a group of 15 nonprofit Executive and Development Directors to determine what’s holding them back from raising more money and create a comprehensive financing plan for their organizations.
This e-course will take you from Fundraising to Financing. We’ll start with a fundraising assessment of where your organization currently is in your efforts to bring money in the door, and we’ll end with a comprehensive, actionable financing plan to move your organization forward.
Here’s how it will work:
- We’ll kick off with a webinar to help everyone understand what a fundraising assessment looks like and what it includes.
- Everyone will be sent away to complete the detailed fundraising assessment I will provide them.
- I will then analyze each individual fundraising assessment.
- The 15 participants will be split into two groups. I will lead a 90-minute coaching session with each group to go individual-by-individual to explain what their fundraising assessment revealed and where they should focus their change efforts.
- After the coaching sessions I’ll host an informal Google Hangout where participants can discuss questions, hurdles they are encountering, where they need help.
- Then I’ll lead a second webinar to explain how to create a financing plan.
- I’ll give everyone a Financing Plan template and detailed instructions on how to create their own financing plan.
- Then I’ll analyze everyone’s completed financing plan.
- We’ll do a second round of coaching sessions where I will go individual-by-individual to explain where their financing plans can be improved.
- We’ll end with a final Google Hangout where everyone can discuss, ask questions, get support and move forward.
- And throughout the process you can always reach out to me via phone and email with additional questions or for guidance.
The registration fee for the e-course is $499.
Of course I’m biased, but to me this investment just makes sense. With this e-course you can set your nonprofit on a path to a much larger, more sustainable financial engine. This is about making an investment now in order to enjoy a much larger payoff down the road.
If you’d like to join us, register soon. The e-course is limited to 15 people, and it’s already filling fast.
I hope to see you there!
I was in Atlanta last week speaking at NeighborWorks America’s National Fundraising Symposium. I really love speaking to nonprofit staff and board members who are in the trenches trying to raise money for their organizations. The same thing that happened in Atlanta always happens. The group started out tired, uninspired, worn out with fundraising. But then I started to describe Financing and the light bulb went on. And for the rest of the day when I talked with attendees, or heard them talking to each other, they would try out this new word, this new concept, “Financing.”
But it’s not just semantics. Financing is a fundamentally different approach to every aspect of a nonprofit organization. For the group in Atlanta, I laid out the five main elements of it:
- Create A Financing Plan
Nonprofits must create a comprehensive strategy for bringing enough, and the right kind of, money in the door to achieve their 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 and sequestered.
- Connect Mission & Money
The financial woes of many nonprofit organizations 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 its mission (instead of detracting or isolated from it) will enjoy financial sustainability.
- Diversify Funding
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 in the nonprofit sector. It is far better to create a robust and diverse money mix that fits well with your nonprofit’s mission and competencies.
- Invest Supporters
As mounting research demonstrates, donors are increasingly looking to become engaged in the nonprofits they support. And they are looking for impact, not just a place to write a check. In order to attract these donors, nonprofits must articulate their value and convince supporters to become a partner in creating social change.
- Find Money to Build
The time for scraping by and never having enough money for the right technology, staff, and systems is over. Instead nonprofits must become savvy about capacity capital and start raising the money they need to build the organization their mission requires.
It is so inspiring to see people who are on the front lines of creating stronger schools, neighborhoods, communities in this country suddenly realize that it doesn’t have to be so hard. You can stop beating your head against the fundraising wall.
Photo Credit: billaday
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
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!
I’ve written before about when nonprofit fundraising goes really wrong. An organization that I donated to a few times refused to leave me alone after 11 years of ignored solicitations. Today I want to flip it and talk about a nonprofit that has done a great job at fundraising. (In some ways they mirror my earlier post about when fundraising goes really right.)
Foundation Communities is a nonprofit in Austin, Texas that provides affordable housing and support services to low income families and individuals. About 4 years ago a friend invited me to a lunch at a Foundation Communities housing complex. It was NOT the traditional nonprofit gala luncheon.
Instead, when we walked into the common area of the housing complex there were box lunches waiting for us. The executive director and a couple of board members gave us a 5-minute description of what Foundation Communities is and does and why they are passionate about it. Then we watched a 10-minute video of the program in action and interviews with their some of their clients.
Finally our group was split into smaller groups led by a board member to tour the complex. On the tour, the board member explained how Foundation Communities uses an innovative financing model to acquire ineffective housing, renovate it and make it livable and affordable, while providing much needed after-school care, financial services and other help to the residents there.
At the end of the presentations and the tour we were asked to fill out a brief card with our name, contact info, and if/how we’d like to get involved with Foundation Communities (volunteer, take another tour, meet with a staff member). We were also asked if we could recommend a friend who might like to come to a future lunch. Foundation Communities holds these informal lunches every month. With that, the hour was up and we were on our way.
After that interesting and compelling introduction to the organization I started giving an annual gift. They were always very prompt with both an email thank you (since I made my donation online) and a paper thank you explaining how my gift would be used and all of the great work Foundation Communities is doing. Every once in awhile I would get an email about another specific campaign for which they needed my help. For example, right before school started one year they asked me to contribute the cost of a back pack and supplies for one of the children in their program. I found the email timely and compelling, so I complied.
When I gave my annual contribution again this year at Christmastime, I received a very nice voice mail from their Development Director thanking me for the gift and inviting me to call her back if I wanted to learn more about the program or had questions. I also received my usual email and paper thank yous, but this time with a special handwritten note from the executive director on the paper thank you.
I continue to give year after year to Foundation Communities because I am impressed by the organization, the results they are achieving, and the organization’s leadership. But I also continue to give because I appreciate how they treat me as a donor. They are informative, gracious, timely, transparent, but not annoying or needy.
Obviously Foundation Communities is way ahead of the curve, but I think they could take it further and gain even more support in the process:
- Instead of assuming that I want their paper newsletter every month (which I do not), they could ask me via email, phone or letter how and when to best communicate their results with me (email, phone call, social media, etc).
- Because I have a giving history with the organization, they could attempt (via email, phone, social media) to get to know me and my interests in order to 1) understand how to find more donors like me and 2) to explore whether they can increase my giving level.
- Since I have given to them over time, and I am active with social media they might explore whether I would be willing to tap into my networks to find others interested in supporting their organization.
Foundation Communities is doing a lot of things right. Other nonprofits could learn from their example about how to consistently and effectively build a donor base. But I’d also love to see Foundation Communities build on their great work to secure even more support.
Photo Credit: Foundation Communities
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