Creating the Right Funding Mix for Long-Term Sustainability

Published on Tuesday, April 01, 2008
ARTICLES

Not long ago, I was speaking to the staff of a well-established nonprofit organization that was facing a dilemma. For the past several years, they were fortunate enough not to have to worry about raising funds. Most of their contributions came from a handful of donors who provided the necessary operating support.

But then one of their major donors had a falling out with a board member and stopped giving. Another donor died unexpectedly. Suddenly, this financially stable organization became extremely unstable. The organization was forced to eliminate several programs, and the executive director wondered what could have been done to avoid this situation.

One solution may have been to develop more diverse sources of support so the organization would not be unduly reliant on a handful of donors. As this group experienced, a few unanticipated events were the difference between meeting their expenses and cutting programs and staff.

There are other good reasons for diversifying your funding sources. First, nonprofit organizations must pass the public support test, which stipulates that at least one third of their total revenue must come from "public sources." A rather complicated formula is used to calculate this, but it is easy to recognize the need to diversify if you currently rely on only a few major donors.

Second, a diverse funding portfolio helps organizations weather economic downturns. It stands to reason that you will have more chance to recoup from a loss if you are able to turn to a large number of donors to make up the difference.

Finally, a broad base of support ensures that no one donor, or small group of donors, controls the mission or programs of your organization. It is certainly a good feeling to know you can walk away from a gift if it will not advance your vision. By contrast, if you have only a handful of donors, you may not feel like you have that luxury.

So what is the correct mix of funding sources for long-term stability? The answer is: It depends.

During their formative years, some organizations rely heavily on grants from foundations as their major source of support. Over time, as they add direct mail and other solicitation programs, the groups may find that individuals account for the majority of their contributions.

To determine the right funding mix for your organization at this time, you may want to take the following steps:

Create a strategic plan

Review the history of your organization's fundraising programs and list the contributions you have received historically and from what source - individuals, business, foundations and sales. By comparing the trends over time, you may find certain areas offer more potential.

Also, take into account your organization's specific situation. Consider your current programs, audiences, funding needs, marketing plans as well as your resources, including personnel and fundraising. For instance, if you decide to embark on a direct mail campaign, you should be ready to make a significant investment in terms of money and staff time.

Determine where new opportunities exist

Most of us are aware of the national grantmaking foundations that support work on the state level. While these generous contributors should be approached with appropriate projects that fit their giving guidelines, we should also consider the opportunities in our own states and communities. There are a growing number of state-based family and community foundations that are good prospects for support. These organizations may not understand instinctively the value of new policy ideas, but it pays to consider creative ways where your interests may intersect. For example, a community foundation that would not fund your school choice proposal may contribute to an intern program.

Secure board support

Before embarking on a new fundraising program, be sure to inform and engage your board of directors. You will be grateful to have their support, especially when new initiatives take time to show a return on investment.

A final benefit of diversifying your funding is that you will introduce more people to the principles of individual liberty, limited government and free enterprise. That will not only help your organization but the movement as a whole.

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Ann C. Fitzgerald is president of A.C. Fitzgerald & Associates LLC, a national consulting firm providing business solutions for charities and other non-profit organizations. Write her at acfitzgerald@comcast.net.