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Archive for the ‘Nonprofit Budgeting’ Category

Are your Expectations for Grant Success Reasonable? How About your Timeline?

Posted in Fundraising Success, Nonprofit Budgeting, Setting Reasonable Expectations, Strategic planning on April 13, 2010 | Leave a Comment »

Does your board have a formula for determining how much of the budget can reasonably be covered by grants? Or do they typically expect grants to cover all expenses not covered by any other revenue source? If your answer is the latter, beware. You may be setting the wrong expectation.

For the average organization, grants typically cover no more than 25% of the operating budget over the long-term.

And if you qualify for government grants, they typically account for no more than 30% of the budget. Why? Because other funders want to know you really need them, and once you get up above that number, you suddenly look like a government supported agency. If you’re government dependent, you’re also a higher risk investment, especially given the current economic climate. One big cut and your organization could shut down. Not a pretty prospect.

The most common type of grant is a program grant; some of these grants allow for program salaries, others do not. That should be taken into account as you build your budget. Every grant agreement forms a contract, an exchange of money for services you provide to the community. It is critical that grant funds are used only as specified by the funder.

The most sought after type of grant is a general operating grant because of the flexibility it provides, but these are far less common than a program grant since they’re harder to tie to specific results. These grants allow your organization to fund any operating expense, including administrative and program salaries.

The size of the grant you are requesting should always be in proportion to your overall operations. As a general rule of thumb, your organization should not request a program or general operating grant greater than 10% of your program or organizational budget. Few organizations want to be the sole supporter of your programs and services; they want to know they are one of many groups supporting your cause.

In today’s competitive nonprofit sector, grant makers are granting funds to organizations that demonstrate the capacity to make a large scale difference in cooperation with other community benefit organizations.

Grant makers would also like to see that you are not solely reliant on grants for your ongoing operations. As such, it is important to demonstrate a relatively diversified funding base that includes support from individuals, program fees, events, endowment income, and/or other sources.

More supporters and diverse sources of revenue show your organization is sustainable over the long-term, and sustainability means that you are a better investment of their limited resources.

Grants are not a quick-fix revenue solution. Most grant makers review grant applications on a quarterly (or less frequent) basis. Government grants may take a year or more to come through. So if you need money quickly, grants are not the way to go. To be successful requires a sustained effort.

Allow up to three years to uncover giving patterns and assess the overall impact of a new grant seeking effort.

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When Is Your Organization Ready to Start Writing Grants?

Posted in Board Giving, Fundraising Success, Getting Grant Ready, Nonprofit Budgeting, Proposal Success on April 13, 2010 | Leave a Comment »

In my consulting practice, I have worked with many organizations at the grassroots and start-up level. And like many business owners, they have the idea that grants will give them the fuel they need to get started or to grow. But this is often false thinking. Why? Because so many other things need to be in place before you can be truly successful.

Before beginning any grant outreach effort, I recommend that most organizations have a minimum of $20,000 in cash set aside for the first year of any grant seeking effort. More would be better. Here’s why …

    1. On-going grant outreach has a higher success rate than one-time grant requests. Your first few grants are usually the hardest to get. New funders like to know that someone else has already supported you and found you reliable, trustworthy, a good investment.

    So how do you show that others have already supported you?

    Usually … individual donors, like members of your board, staff, volunteers, and other community members have already committed support to your mission, either directly or through their participation in events. Individuals provide the unrestricted dollars you need for grant seeking efforts, and their commitment demonstrates to larger funders that you have a solid foundation on which to grow.

    2. Most grants do not provide funding to support fundraising efforts. Your organization needs to have reliable funding available to pay for the services of a grant professional, just as it would for any other part-time or full-time staff position, before you hire someone.

Keep in mind … grants should not be your first or last source of funding. They are inherently short-term and must be renewed annually.

Relationship building is a key element of strategic grant seeking efforts, and you may need to apply multiple times before an organization knows you well enough to consider funding your efforts. In some cases, an organization will commit volunteer resources before they commit financial resources. It is important to remember this as you develop your programs.

Before investing in your organization, grant making institutions also want to see that you have an engaged, well-rounded working board, with capacity for developing key relationships with local community partners. A grant-ready board and staff demonstrates fiscal responsibility, a commitment to raising both dollars and awareness, and a personal financial commitment to your mission.

If these elements are not in place, your time and talent would be better spent on securing them before you begin large-scale grant seeking efforts. This way, when you do get started, you can maximize your chances for success.

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Ten Nonprofit Funding Models

Posted in Funding Models, Nonprofit, Nonprofit Budgeting on June 29, 2009 | Leave a Comment »

As a grant writer, have you ever considered how your work fits into the larger funding model of your organization? In Spring of 2009, the Stanford Social Innovation Review published an article on “Ten Nonprofit Funding Models“. These models represent different combinations of three factors: source of funds, types of decision makers, and motivations of decision makers.

The first three models (Heartfelt Connector, Beneficiary Builder, Member Motivator) tend to be driven by individual donations. Big Bettor is funded by either a single benefactor or a small number of benefactors. The next three models (Public Provider, Policy Innovator, Beneficiary Broker) are funded largely by the government. Resource Recycler is supported by corporations. And the last two models (Market Maker, Local Nationalizer) have a mix of funders.

The article provides an interesting framework as you consider your organization’s fundraising model and how grant writing fits into the mix.

Stanford Social Innovation Review: Ten Nonprofit Funding Models

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Interested in Learning More About Earned Income?

Posted in Earned Income, Nonprofit Budgeting, Recommended Reading on June 11, 2009 | Leave a Comment »

Another publication I recommend regular perusal of is FundRaising Success magazine. Though it covers the full field of fundraising, it provides high quality content that will complement your work as a grant writer. You can sign up for free access to either the print or online edition.

The cover story in the June 2009 issue of FundRaising Success is a perfect complement to my previous post on earned income. If you are interested in reading more about how nonprofits have put earned income strategies into action, check out the article, “Safety Line”.

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Nonprofit Budgeting Basics – Program Fees, Membership Fees, Fees for Service & Other Sources of Earned Income

Posted in Earned Income, Fees for Service, Membership Fees, Nonprofit Budgeting, Program Fees on June 9, 2009 | 2 Comments »

In previous posts, we discussed Nonprofit Budgeting Basics – An Overview, Grants, Events, and In-Kind Donations, and Board Giving & Direct Mail. In this post, we cover several more potential sources of revenue for your organization: Program Fees, Membership Fees, Fees for Service & Other Sources of Earned Income.

Program fees, membership fees, and fees for service are all closely related. For each source of revenue, there is something the organization gives in return.

Program fees

Program fees are paid by program participants, i.e., student registration fees, tuition, museum entrance fees, fees charged for tours, etc.

Membership fees

Probably most commonly related to museums and other cultural attractions, membership fees entitle donors to special perks, like unlimited visits, special seating, exclusive engagements, etc.

Membership fees may also be used as a way of classifying donors based on their giving level among smaller community organizations. In this case, they would fall under the budget category of individual donations.

Fees for Service

This type of fee is charged to a program partner. In a cooperative agreement to provide a service to their clientele, you charge a set fee.

Other Types of Earned Income

As part of a capital project, you may want to build in an on-going source of earned income. For example, you can create a space available to community organizations that can be reserved for special events. For use of the space, you could charge a rental fee. This is earned income that can be used toward any operational expense; it gives you the flexibility of unrestricted funds.

If you have a museum or other cultural attraction that draws tourism, you could also consider having a gift shop with theme-related and promotional items for sale. Some missionary work is paid for through the sale of donated items to a thrift store. In either case, the store provides unrestricted earned income.

Some organizations may have another means by which they earn income that is not specifically related to their mission. In this case, taxes may need to be paid on income earned, but the flexibility of having an unrestricted source of funding is often worthwhile.

Conclusion

So as you consider your annual organizational budget, you have many options. If the organization you are working with is still developing its long-term financial strategy, encourage them to consider all revenue options and how they will work together. Grants may be an excellent starting point, but they should not be the sole source of revenue for any organization intent on growth.

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Basics of Nonprofit Budgeting: Board Giving & Direct Mail

Posted in Board Giving, Direct Mail, Grant Writers, Nonprofit, Nonprofit Budgeting on May 29, 2009 | 1 Comment »

In the previous post on revenue sources, we discussed unrestricted vs. restricted funds, government vs. foundation & corporate Grants, fundraising vs. community events, and in-kind donations. In this post, I will discuss sources of revenue related to individuals.

Industry-wide, individual giving accounts for an average of 70% of total revenue for nonprofit organizations. Planning giving/bequests account for an additional percentage. Bequests typically come from donors that have been engaged with your organization and its programs for an extended time. So cultivating individual donors is a critical stage of development for any organization, and as grant writers, we often have the opportunity to encourage our organizations to consider expanding their stewardship strategy beyond that of corporate, foundation, and government supporters.

Board Giving

There are many different viewpoints on how to cultivate the ideal number and mix of board members. Some philanthropic leaders insist that all board members should have strong ties to the community that they could leverage into fundraising relationships and that all board members should contribute a minimum cash donation to the organization to support its efforts. My viewpoint is that all potential board members, regardless of their age, income status, or number of connections, bring something to the table. Some may be better at connecting with the community. Others will be better at getting the hard work of organizational management done. All will contribute professional expertise. Some will contribute cash donations. Most likely all board members contribute financially to the organization, either directly, through contributions of in-kind professional services, or through their participation in fundraising events. All contributions count.

Some grant proposals will ask what level of participation your board has. 100% would mean that all board members contribute financially to the organization at least once during the fiscal year. The proposal may also ask for the dollar amount contributed by the board. It’s good to set at least a board giving goal in your budget for the year. Then each board member can contribute what they are able.

Direct Mail

For me, there is no line between marketing and fundraising. It is critical that these fields of expertise overlap in any organization to ensure that messaging is consistent and communication with donors is streamlined. After all, if you’re donor communications are not fluid and complementary, your organization could appear inefficient, and you could lose the donor because he doesn’t feel like you know him anymore.

Personalize your Communications

Whenever possible, donor communications should be personalized. And donor records should be confirmed and maintained consistently to ensure that you have the correct donor name (i.e., Mrs. Smith, Mr. Smith, Mr. & Mrs. Smith, or The Smith Family), the name is spelled correctly, the address is correct, the donor’s connections to your organization are recorded appropriately (i.e., Mrs. Smith helped with a particular campaign in the past, not Mr. Smith), the donor’s communication preferences are recorded (i.e., send an appeal once a year vs. 6 times per year, include me on your newsletter list, calls are ok, emails are ok, would love to be invited to events or to volunteer), and the donor’s giving history is taken into consideration.

You want to know the most time and cost efficient way to personally connect with your donors. Don’t bombard them with information on your own terms. Know what they want and give it to them.

Think about it. How often do you send a donation to someone who addresses their letter, “Dear Friend”. It’s worth the time and money to really get to know your donors (at every giving level). You never know what will make them think of you when they’ve had a windfall and want to do something good.

Treat Donors Like Family

There are, of course, many ways to reach current and potential donors directly. Newsletters, annual reports, postcards, event invitations and save the date cards, email, solicitations to buy something or donate online, etc. You can also make your web site a real destination to engage your supporters. Not every touch point needs to be a funding solicitation. You don’t want your donors thinking that you see them as a bank.

Think about it. Say you’ve just graduated college and you need money to launch your new life. If you touch base with family just to ask for money, how long do you think they’ll give it to you? Now if you are a truly engaged member of that family, participating in holiday gatherings and other family events, would they be more likely or less likely to help you out when you need them? Building relationships goes beyond raising money. Your donors should be considered a part of your organization’s family.

Start a Conversation

What you should include in every type of donor communication is a call to action. After all, each touch point should be an opportunity to have a conversation. Whether it’s sharing their story with a friend and engaging them as a volunteer or a donor, attending an event, contacting their senator, or contributing something to an upcoming event like an auction. If it’s possible to customize the call to action based on your relationship and history with a donor, do. The more you show them you know them, the more likely they are to follow through on the call to action. And the conversation can begin.

Next week: program fees, member fees, and earned income.

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Basics of Nonprofit Budgeting: Grants, Events, & In-Kind Donations

Posted in Events, Grant Writers, Grants, In-Kind Donations, Nonprofit, Nonprofit Budgeting on May 21, 2009 | 4 Comments »

As grant writers, we are often intimately aware of an organization’s finances, particularly as they relate to incoming revenues. Each nonprofit organization is best positioned to rely on one or two sources of primary funding, with additional attention given to sources that could provide unrestricted funding. Here are some options for generating revenue.

Note: In this post, I cover Restricted vs. Unrestricted Funds, Government vs. Foundation & Corporate Grants, Fundraising vs. Community Events, and In-Kind Donations. Stay tuned for Part II.

Restricted vs. Unrestricted Funds

The holy grail in fundraising is the solicitation and receipt of unrestricted funds, funds that can be used to pay expenses in any category, including administrative salaries and fundraising expenses. Because many foundations and corporations prefer to supply targeted program grants, unrestricted funds may be far more difficult to obtain than program funding. In addition, unrestricted grants, also called general operating grants, may be smaller than grants for programs. Nonetheless, unrestricted grants are out there.

Restricted funds, on the other hand, are typically targeted toward a specific program or project, or perhaps even toward a capital or endowment campaign. Tracking use of these funds is critical to ensure that your donor’s intentions for the money are carried through.

Government vs. Corporate & Foundation Grants

In some areas, like community development, education, and housing, grants can make up a significant portion of an organization’s revenue. Numerous government agencies are often involved, and networking with your local and state-level politicians is very likely to help. To apply for government funding, a single application requesting funds from multiple government agencies may be available. Sometimes you can even request discretionary funds from your local government supporters through this application.

In other areas, organizations rely on grants from foundations and corporations. In this case, application processes for each of the prospective funders can vary dramatically. It is critical to tailor your proposal to each funder and address how supporting your program allows them to fulfill stated objectives.

On average, grants should cover approximately 20-25% of your budget. Budget more and you risk disqualifying your organization for corporate and foundation grants that seek to support organizations that do not rely on government support to sustain their programs.

Fundraising Events vs. Community Events

Events are often the most expensive fundraiser to organize and host, but if done right, they can yield a large sum of unrestricted dollars for your organization. Typically the best way to make money on events is through corporate sponsorships. Ticket prices, silent auctions, and other add-ons may not break even on their own. In today’s down economy, nearly all events are being scaled back to demonstrate to supporters that an organization is taking steps to minimize expenses while continuing to provide vital services.

There are typically two types of events organizations consider, private fundraising events such as galas and community events like fundraising walks and raffles. Corporations often prefer to sponsor community-involved events because of the increased exposure.

In-kind donations

There are a large number of small nonprofit organizations that exist to facilitate in-kind donations or that rely heavily on in-kind donations to run their programs. These supplies could include books for a reading program or medical supplies for a mission to an impoverished country. In-kind donations may also include volunteer time, use of facility space, or an agreement to pay certain expenses directly from a program partner’s own set of funds. As such, in-kind donations could make up a significant portion of your budget.

You can track the current value of volunteer time at Independent Sector. The current value of volunteer time (from 2008) is $20.25.

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Basics of Nonprofit Budgeting: An Overview

Posted in Grant Writers, Nonprofit, Nonprofit Budgeting on May 12, 2009 | 1 Comment »

Like it or not, as grant writers we are often asked to help prepare or at least to review the budgets that accompany the grants we prepare. It is helpful to understand how the financial statements of nonprofit organizations are different from those of for-profit corporations.

Here’s is a primer.

For nonprofit organizations, both large and small, there is a lot of attention paid to the ratio of general and administration expenses versus program expenses. Because of this, something you’ll see in nonprofit financials versus for-profit financials is a breakdown of expenses into three categories:

1. Management & General; 2. Fundraising; 3. Program

The expectation is that well-managed organizations have general and administrative expenses (#1 + #2) of no more than 30%, allowing at least 70% for programs. So if you are starting a nonprofit or working with one that is ready to present itself to potential donors, this is one measure to be aware of.

Salaries

You should also expect to breakdown salaries + fringe benefits versus all other costs in each of these categories. Why? Because many grant makers will specifically state in their guidelines that they do not support salaries and related expenses.

Balanced Budget

All in all, the goal is to develop a balanced budget, one that shows a realistic net profit (loss). In a nonprofit environment, that usually means a net profit approximating $0. That doesn’t mean that if your revenues exceed your expenses from time to time you’ll be in trouble. So do your best to control expenses and bring in revenue, but don’t get too crazy about hitting $0.

Fiscal Year

It is important to note what your organization’s fiscal year is. Many follow the January-December timeline, but others, like educational institutions, may follow an academic year schedule to more closely align with when their services are offered. Consider this carefully as you get started. Changing your fiscal year later on could lead to confusion regarding your financial soundness and extra work on your part as you’ll need to include multiple sets of financials during a year-long transition. It shouldn’t be an arbitrary decision.

Need to know more?

Watch this space to learn more about sources of revenue, general and administrative expenses, fundraising expenses, program expenses, endowments, capital campaigns, and more.

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