Beyond the obvious: what a “funding problem” may reveal about a nonprofit

Ask any nonprofit board member or executive director what poses the greatest challenge to his/her organization and you are likely to hear this: “We need more funding.” While s/he may not be able to offer a complex analysis of the organization’s financial circumstances, the conclusion is…well, obvious: Not enough money is coming in the door to meet the cost of delivering our programs.

At the root of the problem?

It is my belief that for many nonprofits, funding shortfalls are not the core problem. Rather, fiscal stress is a symptom of other, more deeply-rooted problems that lie beneath the surface of monthly profits and losses. If your organization falls into the category of the financially-challenged, what might this reveal about other aspects of the organization? Below are four questions a board should ask to properly diagnose the root cause of the seemingly obvious.

1. Do we have a coherent resource strategy?

Writing more grants isn’t always the solution to a budget deficit, though it seems to be a popular response among nonprofits. The same is true for traditional fundraising: The answer isn’t always to go out and raise more money. The fact is grant writing and fundraising are pieces of an overall resource strategy that may include government contracts, fee-for-service,earnings from investments, in-kind gifts, volunteers and bartering arrangements. Some nonprofits have generated revenue through alternative ventures, such as the mental health agency in my hometown that opened a sandwich franchise that produces revenue while providing employment to its clients. A full exploration of all funding options will help the organization identify the possibilities and the limitations before it, which in turn provides the proper context for the development of a fundraising strategy.

2. Do we have a targeted fundraising strategy?

Deciding that your organization needs to raise money from individuals and corporations as part of its resource strategy is a good start. But the real work of strategy development is in knowing where you are likely to be successful: Who is likely to support you? What do they need to know about your organization? How can you best solicit the actual gifts? And while nonprofits like to claim to be the best-kept secret in town, the ability tocraft and deliver a compelling story is what separates the successful organizations from the frustrated ones. Absent these deliberations and subsequent choices, nonprofits will continue to “fish with a net,” hoping to nab the big fish that just happens to be in the right place at the right time.

3. Do we have the infrastructure to support the fundraising strategy?

Having the board members instruct the executive director to go raise money and let them know if s/he needs their help does little more than increase the pressure on him or her to do even more with already-constrained resources. Indeed, some nonprofits view fundraising as the addition of another glass of water into the large bucket of organizational activity. But fundraising is an orientation, more akin to adding a drop of food coloring into that bucket of water. It changes everything. So before rewriting the executive director job description or hiring a development director, nonprofit boards need to engage in a realistic inventory of the human, financial and technological resources available to support the fundraising strategy. Especially in the age of social media, the ability to connect the right message to the target audience becomes key. Without adequate infrastructure, fundraising may actually deplete more resources than it produces.

4. Are we still relevant?

In the for-profit environment, the market will determine the relevance of a particular business. Are there too many gas stations? Not if they can all make a profit. Is the family-owned hardware store relevant in the age of the big box store? Again, the market will answer that question. Having no similar market mechanism in place, nonprofits may continue to function long after their market position has begun to evaporate. Loss of funding or the inability to attract additional funding may indicate an external perception that the social good produced by your organization no longer matters relative to other priorities. Complicating the analysis of relevance is the ability of struggling nonprofits, through desperation appeals, to attract just enough funding to live to see another month or year. But nonprofit boards need to recognize that maintaining an organizational pulse is not the same as meeting a social mission.

Conclusion

Even in good times, the unpredictability of external funding requires vigilance in monitoring the financial standing of nonprofits. And there is no reason to expect that funding challenges will subside any time soon. Only through proper and thorough diagnosis will nonprofits be able to respond effectively to the root causes ofthe financial challenges they face.

See also:

The Zone ofInsolvency: How Nonprofits Avoid Hidden Liabilities and Build Financial Strength

The Cash FlowSolution: A Nonprofit Board Member’s Guide to Financial Success

Nonprofit Sustainability: Making Strategic Decisions for Financial Viability

Image credit: 123rf.com

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