Dear Nonprofiteer, Is this a balanced diet?

Dear Nonprofiteer,

A small nonprofit, inviting me to its board, shared some unaudited summary information about its income in the last fiscal year.  It received just north of $100,000 in foundation grants and $20,000 in "gifts."  It reports no other income.  The report details the foundation amounts by source but aggregates all the gifts into one opaque entry.

Because the outfit is young, I don’t worry about its low bottom line; instead I am concerned about the proportions of its income.  Should the foundation percentage be lower and the "other" sources higher?  Having once served on a foundation grant committee, I fear these funders’ caprice.  Are there origin-of-money precepts I should know about?

Signed, New to the Party

Dear New,

You may be a debutante, but you seem to have scoped out the scene quite completely.  Both issues you raise–preponderance of institutional support and lack of detail of individual support–are properly cause for concern, though not necessarily alarm. 

Let’s start with the easy one: what the hell is that $20,000?  It could be lots of things: two of your fellow Board members giving $10K each while the others sit there and pick the lint out of their navels; or serious giving from every member of the Board, meaning the institution has hit a ceiling without having figured out how to crash through it; or a donation from someone’s mother, who soon will need those funds for her own nursing-home expenses; or (from the Nonprofiteer’s mouth to God’s ear) 20 gifts of $1000 each from people who can be asked for $2000 next year; or the Executive Director’s turning back a portion of her salary just to keep things afloat, in which case it’s not really a "gift" at all, or at least not a sustainable one. 

So you need to find out, and I suggest you do so before you accept the invitation to join the Board.   You certainly want to know what’s expected from Board members in terms of giving, and these are data of the action-speaks-louder-than-words variety.  Beyond that, though, the content of that "gift" line will give you a quick but thorough sketch of the agency’s fundraising picture–how many people support it and at what level, requiring what sort of effort (a solicitation mailing?  a fancy-dress ball?  a conversation over coffee?).  From this you can help it develop more and bigger gifts. 

And–as you’ve guessed–this is something you want to do now, if not yesterday.  Because while early in the life of a nonprofit, it’s okay to have the bulk of money coming from institutional funders–that’s one of the things foundations do best, giving flat green seals of approval while agencies take their baby steps–the longer the group is in business the more salient the issue of foundation caprice will become.  How old is this group?  If in Year 3 it’s still getting more than 80% of its funding from foundations–and if the remainder comes from a single source, or two–then you’ve got trouble.

It would be nice if there were an algorithm to offer, that you’re safe at 75% foundation grants, or 65%; there may be one, but the Nonprofiteer has never found or learned it.  (Readers, any help here?)  But given the numbers you’ve provided, it’s clear you should ask for (or propose) a step-by-step plan to reduce the group’s dependence on institutional funding by 10% a year over the next five years.  And again, do it now: it’s a lot easier to write a plan like that when the overall numbers are low–don’t wait til you’ve got a budget nudging $1 million.  The temptation is always to grow fast, but that’s why so many organizations face a day of serious reckoning around the time they’re picking out 10th anniversary tchotchkies.

The only possible plan involves strengthening outreach for, and accounting of, those selfsame "gifts" we were talking about–individual contributions.  At the very least, the plan should include a line-item for Board gifts; a line-item for major gifts (What’s "major"?  That $20K if it turns out to represent fewer than 5 gifts, plus anything from a non-Board member that equals or exceeds a Board member’s annual gift); and a line-item for annual campaign/small gifts, including any events (or none!  None is fine, too!  Don’t imagine the Nonprofiteer requires events!).

Just raising the questions you’ve asked will help the ED and your fellow Board members seize responsibility for this all-important issue–so you’ll have made a great contribution to the group, even before (and whether or not) you get on Board.


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