Financing Not Fundraising: Find Money for Building Capacity

Part 6 of our ongoing blog series, Financing Not Fundraising, demonstrates the critical importance of money for building nonprofit capacity and describes how to find it.

There must be a recognition in the nonprofit sector, and among the philanthropy that funds it, that nonprofits need money to support not only their direct services, but also the infrastructure (technology, systems, evaluation, training, fundraising) of the organization. Nonprofits will only get better at creating social change if they have a strong and effective organization behind their work.

In case you’re new to this series, our Financing Not Fundraising blog series seeks to address the reality that fundraising in the nonprofit sector is broken.  In fact, traditional fundraising is holding the sector back by keeping nonprofits in the starvation cycle of trying to do more and more with less and less. The nonprofit sector needs a financing strategy, not a fundraising one.  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 work to create a broader approach to securing the overall FINANCING necessary to create social change. You can read the entire series here.

George Overholser, from the Nonprofit Finance Fund, is the pioneer of this critical distinction in the nonprofit sector between money to BUY services and money to BUILD organizations.  The idea is simple. There are two types of dollars in the nonprofit sector. Those that BUY nonprofit direct services (dollars for more beds for the homeless, more hours of ESL instruction) and those that BUILD a stronger nonprofit organization (dollars for technology, systems, fundraising staff, etc).

A nonprofit that wants to get out of the vicious fundraising cycle needs to make a commitment to building their organization and finding, and convincing, donors to fund that building effort.

Let’s take fundraising infrastructure for example. Most nonprofit organizations lack sufficient infrastructure to bring enough money in the door.  They don’t have enough money to hire experienced fundraisers, buy efficient and effective technology to track donors, create compelling messaging and collateral, train their board in fundraising, and so on.  But with dollars to invest in staff, technology, planning and expertise, the organization could transform their fundraising function into one that raises many more times the amount of money that they currently do.

So how does a nonprofit organization find money to build their organization? Here are the steps:

1. Create a Plan. Develop a road map for the future that includes a budget for the real costs of the real infrastructure and capacity you need to get there.
2. Determine the Ask. Split the overall cost for these infrastructure elements into reasonable ask amounts given the relative capacity of your donors.
3. Create the Pitch. Create a compelling capacity funding pitch that connects these infrastructure elements to an increase in your ability to create impact in the community.  A more seasoned development director means that you can raise more money, more effectively, more quickly. With that additional revenue, your services can reach more people.
4. Analyze your Donors. Look for the individuals, foundations, and corporations who love what your organization does, have the ability to give at the ask levels you determined in #2, and could be made to understand the argument that money to build can allow your organization to do so much more.
5. Explore Alternative Funding. Find new ways to fund capacity building. For example, PRIs, or program-related investments, (essentially loans to nonprofits) could be used to build fundraising  infrastructure because once a nonprofit’s capacity to raise money has been increased, the loan could be paid back out of the additional revenue. Explore creative options like this with funders.
6. Make the Ask. Present your plan and pitch to the donors you have identified and educate them about the critical importance of capacity capital.

Money to build nonprofit organizations isn’t just lying around. Indeed, most donors claim that they aren’t interested in funding anything beyond direct services. But with a compelling argument for how money to build an organization can result in much greater impact, many more donors can become builders.

If you want to learn more about applying the 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: y_katsuuu