I assume that you are a frustrated NonProfit leader who is slowly fighting your way forward and you need strength for the battle. I’m Dr. Ron Tompkins of TurnAround NonProfit Coaching. If you’re stressed, you’re not alone. There are over 1.5 million nonprofits in the USA and sometimes we’re in competition with each other, with forprofits, and with government. In the midst of the struggle to do good, it’s tempting to consider 5 sources of funding which may not match your agency needs:
- Where are the grants? At the beginning, NonProfits usually need capacity grants and they are offered program grants or tiny grants. So you complete a lengthy application for a $500 grant from XMart and the grant is so small that winning the grant actually destroyed some of your time for program and strategy leadership. Someone applied for a 21st Century grant for Afterschool. They won the award but only 2% is allowed for overhead. The grant assumes that you will do extra fundraising in addition to the grant. You may have raised your revenue and your deficit at the same time. Revenue is vanity, surplus is sanity, cash is Queen/King!
Grants are a necessary part of your capital structure as you grow. Set limits on the amount and types of grants for which you will apply. Study the grant carefully to match the grant to your strategic plan.
- Where are the donors? Donors help you start an agency but most agencies can’t grow with donors. A $10 million agency may raise $1 million in donations. To do this, they have a department with Chief Development Officer and staff. They keep donors informed with pictures, regular stories of success, and donation campaigns. Let’s assume that you are an agency under $6 million in revenue. Are you ready to hire a professional and set up the department with costs for social media and mailings?
If you’re not ready for that, most leaders decide to do it themselves with some volunteer help from the Board. This often fails because small-gift donors require regular contact. One of the more difficult Ways to Raise Funds. Pew Charitable Trust also reports that the number of small donors is decreasing. You may look at a $20 gift as a tip, but many donors feel as though that $20 gift had three more zeroes behind it.
Willie Sutton understood that if you need money, you have to go where it is. He said that he robbed banks because ‘that’s where the money is.’ If you are a smaller NonProfit, your best fund raising is to make a list of people who can give $5,000 and work with the Board systematically to develop a few relationships that you have the capacity to maintain.
- What about an unrelated business as a captive corporation and use the profits? Large NonProfits do this all the time. Think of your college and the food court. It’s highly profitable but 4 conditions have to be right. Does the business require a small up-front investment? You don’t have the upfront cash to also be a bus company. Are competitors unlikely? Are the profits high enough to cover unplanned problems? Do you have the management capacity?
All four conditions need to be present or you could lose money for your nonprofit instead of adding more. A senior daycare opened a Russian curios and arts shop. Competitors are unlikely but the travel to Russia frequently for inventory is a high cost and the inventory may not sell quickly due to world conditions. Suddenly they have a lease on the shop to pay and unsold inventory. The senior daycare will pay for the curio shop! Don’t create a business where the funding goes in reverse! Not Ways to Raise Funds when cash disappears 🙂
- What about one of those new corporations? Let’s make a Certified B Corp, Public Benefit Corp, Conscious Capitalism, or L3C instead of a NonProfit. There are many experiments in the Social Sector to do good in the world. Most universities have some type of Social Sector program now.
Ben and Jerry’s is a famous example. Do good and give some of the profits away. How is this different from a captive corporation? The difference on the upside is that most of these corporate forms can attract investors. You get quick cash to get started. NonProfits aren’t owned by anyone so there is no way to ask Ron to invest $100,000. Ben and Jerry’s did well and grew and the profits attracted a takeover bid from Unilever. Unilever investors want dividends and high share prices. This was illustrated when Ben and Jerry’s took at stand on social sector issues in Israel. So these corporate forms have serious limitations and not enough examples of success.
- What about just doing good? – Most NonProfits are not willing to set a risk appetite. ForProfits set risk rather easily. Let’s assume that Ron opens a bakery so he takes a mortgage on his home and spends $100,000 to get started. If he is successful, he will get $100,000 back in a year and another $200,000 in profit. His risk is that he might have to pay the $100,000 to keep his home if his business does poorly. His hopes and assumptions allow an aggressive risk appetite. He will also work day and night to make the bakery succeed. Everything is on the line. NonProfits have a much lower risk appetite. Boards typically don’t give bonuses for success. The traditional high-performing managers are not attracted to nonprofit leadership where they accept risk, sleepless nights, and anxiety but don’t share in success. If you have a high risk appetite and happy to split the profit on doing good and doing good for yourself, you might just pay property, sales, and income tax on profits and just do good.
We’ve looked at 5 Ways to Raise Funds that lure NonProfits. Could any of these be right for your agency? Definitely! Grants, donations, unrelated business, new business forms or high risk appetites may be a perfect match to get you going and growing. Coaching helps you match your business model to your capacity. You know your business but the coach asks questions so that you make right decisions. You do more good for more people. If this makes sense to you, call me to take a risk free step! Thank you for being with me today!