Gov’t Funds Not Free

Although the economy is on the mend, the recession has changed the landscape for many families and the communities they live in. Pre-recession, many were part of the middle class living in their own homes with well paying jobs. After the recession, their full time jobs turned into two part time jobs often for minimum wage. People who were once donors are now looking for financial support to make ends meet.

With demand this large, many nonprofits continue to look for new sources of funding. Often this funding stems from the government, whether federal, state, or local. As discussed in previous posts, government funding is one of the few alternatives to scale an essential program in an attempt to serve the overflow of need in the community.

Programs this large often require internal administrative structures and controls to document services rendered and “draw down” or request reimbursement from the government source. Without these strong administrative functions, the nonprofit will struggle to develop the back up needed to generate the revenue leading to a failure to carry out the contract.

Creating these essential internal functions takes time and dedication. Often government grants require quick program start up. Smart leaders prepare for these grants by exploring and strengthening their administrative systems before the grant is received. Additionally since these expenses are rarely fully covered by the grant, organizations need to think creatively to develop long term efficient solutions.

Another essential element of an efficient program is a strong recruitment and referral system. Creating relationships with organizations providing complimentary services builds comprehensive services for families in need as well as cross recruitment efforts.

Additionally, by constructing a strong network, the organization creates a robust advocacy effort engaging leaders for the long term. This force will lead to additional grants and public support for the services so many depend on.

Because government funds are shrinking, many organizations are using  new methods to fund innovative programs including crowdfunding, and social enterprises and investors. We will begin exploring these sources in our next post.


Scaling with Gov. Funds

In response to large deficits and decreased tax revenue, many government services continue to shrink compelling many communities to turn to nonprofits for help. Although nonprofits deliver these essential services, often they remain financed by government bodies.

Nonprofit programs funded by the government  (federal, state, or local) are usually large but they are also lean. Receiving government funds has advantages and disadvantages. Exploring these advantages and disadvantages will encourage leadership to build a long term plan including the tools needed to sustain and develop comprehensive services.

The main advantage to obtaining government funds is the quantity of funds received through a single grant or contract. These funds create an opportunity to serve a large number of people and evaluate the outcomes on a greater scale.

Accessing these government funds requires nonprofit resources to build the relationships, identify government sources, write the proposals, and create the internal systems to administer the program efficiently and effectively. Rarely are these costs remunerated or reimbursed through the grant. Since these resources are essential but not compensated, nonprofits find it difficult to identify and access other grants to fund these programs once the government grant or contract ends.  In other words, it is easy for nonprofits to become dependent on government funding since they don’t have the resources to develop other funding options.

Government grants or contracts are usually distributed through a reimbursement process once services are provided. Reimbursing for services rendered, requires the nonprofit to supply the services and incur the expenses first and then wait for the governing body to disperse the funds. This type of system requires a comprehensive accounting system to keep track of services rendered and request reimbursement. Often the resources required to run these systems are not covered by the grant. Additionally due to deficits, many states are behind in payments some for nine months or more. Many nonprofits are forced to open a line of credit to float the government until these payments are received. This delay leads to other challenges discussed in a previous blog post:

Another disadvantage, government funding requires a quick turn around once the grant is awarded. After nonprofits submit their proposal, they should expand and create  new partnerships and internal systems. With these in place, the organization can quickly ramp up once the grant notification is received. In the next post, we will discuss the essential preparations required to smoothly provide services funded by a government grant or contract.

Why Advocate

Few words evoke more terror in nonprofit leaders than advocacy. Because of the fear, organizations without social change missions tend to forgo advocacy activities. Yet governments continue to shrink leaving more and more communities to depend on nonprofits instead of government for essential services.

At the same time, governments, whether federal, state, or local. are still a major source of funding for these programs and services.  This dependence on government funds requires nonprofit leaders to educate government officials on the need for and cost incurred to run these essential programs. After all, government leaders will not prioritize a program, if they do not understand the need behind it particularly in their own community.

Additionally, government leaders are connected to their communities. Many constituents advise their representatives of their social service needs. Educated government representatives will refer their constituents to nonprofit programs and services.

Many nonprofit missions include a desire to educate the community on the needs of their clients. Often this education takes the form of presentations to diverse audiences, public service announcements, and other media opportunities. Reaching out to government leaders and personally inviting them to come as well as asking them to help with publicity is often vital to turnout success.

For all of these reasons, building relationships with government leaders is a key duty of nonprofit leadership. Surprisingly it is also a form of advocacy. In fact advocacy is educating government leaders on a topic whether it is connected to legislation, funding, or a general discussion of the needs of their communities. Given the competition for funding, organizations not involved in these activities are finding it increasingly difficult to survive let alone thrive.

Nonprofits are limited in the types of advocacy they can participate in. Those that are not careful can put their 501(c)3 or charity status in jeopardy. Nonprofits can and increasingly must educate leaders on the needs of the community, but they cannot advocate for a specific candidate or align themselves with a particular political party. This distinction can be easily crossed in election season. Nonprofit leaders (volunteer or staff) can advocate, financially support, and volunteer for a specific candidate or party but they need to make the distinction between their own activities rather than their activities as nonprofit leaders.

One of the mistakes I see most often is leaders sending candidate or party material using their nonprofit email address. Leaders carelessly leaving their position or connection to the nonprofit in their email signature line can also put the nonprofit at risk. Additionally, using nonprofit funds to attend a political event or support a candidate is prohibited.

Realizing the importance of advocacy activities for all nonprofits, the next post will discuss how leaders can advocate successfully.

You Can Count on Me!

Volunteers are the backbone of nonprofit organizations and the first step toward growth in program capacity. If they are so important, why are volunteers often unaware of their position duties and responsibilities, what the client is depending on them to accomplish, or how they are making an impact?

Most organizations would never hire a new staff person without exploring their skills, providing them with a detailed job description, or evaluating their performance. Volunteers deserve nothing less. Yet many volunteers are thrown into an opportunity without this information leading to disappointment and frustration for staff, volunteers, and most importantly clients.

To communicate this essential information, leadership should develop and provide the volunteer with a volunteer commitment form before they begin a new position. The one to two page document outlines position expectations in a nonconfrontational manner, including the time commitment, the skills required, and what they are responsible for. With that information in mind, the volunteer can communicate whether they have the capacity to fill the position. 

Although the volunteer commitment form is similar to a job description, the tone is distinct. Many organizations creatively weave the mission and impact into the form, using it as an opportunity to remind and educate the volunteer before they begin serving clients. The form is also another opportunity to thank the volunteer for their service. At the end of the form, the volunteer and organization leaders sign their name.

For board members in particular, the first part of the form should outline their responsibility to financially support the organization.  It should include the specific format of their gift as well as timing: including tickets for events, activities during end of year appeal, and other responsibilities to raise funds for the organization.  Once this is completed, staff and fellow leaders can remind board members of their commitment rather than ask.

Leaders should revisit their commitment on an annual basis. Does the form accurately describe the duties of the position? Is the volunteer fulfilling it? Are they interested in a different position or expanding their commitment? Ask them for help reporting the organization’s work by identifying clients that have compelling stories. Finally, provide the volunteer with an evaluation form that they can fill out anonymously.

Some leaders will focus on the legality of the form. Although volunteer commitment forms will probably not be useful in court, many volunteers will feel emotionally bound. Once they sign their name, they will treat their duties differently.

Organizations that have not used these in the past, often wonder how to start. Creating volunteer commitment forms can signal a new level of accountability and impact. Perhaps board members keep saying they are going to give but do not or a volunteer is undependable. By providing these forms, leaders can take responsibility for not clearly outlining duties and ask volunteers if they are willing to do what the position requires.

Volunteers are organization ambassadors and are responsible for advocating for client’s and community needs. Many organizations are scared of advocacy and if it will impact their legal status as nonprofit organizations, we will begin to discuss the role of advocacy in the next post.

Long Term Leaders Impact the Mission

To build capacity a nonprofit needs to engage leaders in their mission and the services and programs it provides. As leaders become more engaged they further strengthen the organization and partner to generate social change.

Often the biggest challenge is gaining potential leaders’ attention. Once they are attracted, nonprofits focus on engaging them for the long term. As the last post discussed, monthly giving programs create the opportunity to strengthen the relationship. The next step is full engagement.   

Full engagement includes volunteering in the programs, board leadership, and supporting the organization with a planned or major gift. Connecting at this level is a long term process. Leaders pushing the envelope and asking before the connection is fully developed threaten to lose potential leaders. Since these are substantial gifts, the key is connecting the potential leaders’ passion and capacity to give with the organization’s mission.

Nonprofits provide leaders with the opportunity to grow their passion and make an impact on their community. By giving, leaders are an essential part of the social change the nonprofit is fighting for. Leaders want to make an impact with their money as well as their time.  Most leaders start by giving what they consider a small amount. With education and engagement the gift increases and so does their impact.

Successful volunteer development plans, encourage buy-in by asking leaders how they want to participate. Capacity is a key word. Not every leader has the time, energy, ability or desire to become a board member or make a substantial financial commitment. Creating many different types of giving opportunities encourages all leaders to find a level they are comfortable with and can be accountable for. 

Sometimes the commitment leads to the leader making a major or planned gift.  To identify which one is right for the donor, look at the donor’s financial situation. A donor in the position to make a major gift has ample income beyond his daily needs. An organization defines a major gift by examining the donor’s and their own finances. These type of gifts stretch the donor’s ability to give and substantially increase the organization’s ability to serve.

There are many types of planned gifts. Donors interested in making a planned gift have valuable assets and may be looking for additional income. Some planned giving opportunities create a return for the donor as well as provide a gift to the nonprofit. Creating this opportunity leads to a win for the donor as well as the community.

Nonprofits and the community depend on their leaders to donate their time and financial resources. Leaders can not succeed if they are not aware or don’t understand the expectations. Communicating these expectations through a volunteer commitment form leads to a strong relationship between leaders. We will discuss this essential tool in our next post.  

The How to’s of Monthly Giving Programs

More and more nonprofits are building monthly giving programs and there is no doubt why. Regular monthly donations add up to a steady stream of income funding day-to-day expenses as well as strengthening the connections between donors, leaders, and the nonprofit. But like any funding stream, monthly giving programs come with additional costs and logistical challenges. Preparing for these challenges is the key to a stronger bottom line.

Monthly giving programs provide an opportunity for donors to break down their donation into twelve smaller chunks instead of a large gift once a year. Often the donor realizes a monthly giving program encourages him to give more as well as connects him to the nonprofit year after year.

Beginning the program is easy. Provide the donor with the choice of making their gift monthly instead of once a year. Then the donor provides his credit or debit card information along with the amount he wishes to give. Ask the donor if he wants a monthly receipt or a single one at the end of the year. Finally, create a new monthly donor category in the database.

The consistent stream of income is a huge advantage, but there are some additional costs. First, small monthly credit card donations lead to additional credit card fees. Second, since the gift is automatic, donors do not have a regular opportunity to assess their budget to determine whether they can afford to increase their donation. Third, the regular credit card breaches require nonprofit staff to follow up with donors to gather new credit card information. 

Since the donation continues year to year, there is not a built in time to thank the donor for his donation. Clearly, a letter at the end of the calendar year is important for tax purposes but adding a handwritten thank you note in the middle of the year adds a personal touch. Providing thank you notes and donor information before every board meeting encourages board members to participate in raising funds and creates connections between donors and leaders.

A monthly donation program also creates a stronger incentive for organizations to create a regular newsletter. The newsletter reminds donors why their donation is important. Including a donation envelope with the newsletter encourages the donor to give a little more. E-newsletters are a cheaper more efficient way to connect with donors. The email should include just the beginning of each of the articles (total of three or four) with a link to the website where donors can read the rest. Linking to the website encourages the donor to visit the website and hopefully land on the donation or volunteer pages.

Even though the donor gives monthly, the organization should still send an ask letter during the end of the year campaign. This letter, tailored specifically for monthly donors, encourages the donor to assess their year end financial position and make a second gift if they are able. The letter should thank the donor for their monthly gift as well as ask for a second smaller donation to fulfill a special need.

Monthly donors may seem like obvious candidates for major gifts and some may be, but others are better candidates for planned gifts. We will discuss what to look for when making that distinction in the next post.

Leaders Bolster the Bottom Line

Running a nonprofit is a balancing act for leaders and staff. The Great Recession led to a huge spike in the demand for services that continues to linger. Sadly, many of the people requesting services were once donors and others who found gaping holes in their once secure middle class lives.

The Recession also led to ballooning deficits for many state and local governments due to pension costs and unrealistic revenue expectations. Many eliminated funding for essential programs and services. Grants that were not eliminated turned into contracts requiring nonprofits to provide services and wait for reimbursement. As the Recession continued, the delay in reimbursements grew forcing many nonprofits to float the government, (if they could) or close their doors. 

Although the recession has ended, the reimbursement delay continues.  The “lucky” nonprofits are those that provide services to children that are wards of the state. Since states are required to provide these services, these reimbursements are prioritized.

The only way for many nonprofits to make ends meet is to open a line of credit to fund salaries and other costs until reimbursements come. But banks require that line of credit to be secured by an asset, and most nonprofits don’t own the space they operate in. Before the recession, nonprofits could secure their line of credit with government invoices but now they are the reason the nonprofit needs the line of credit. What other options are there?

Smart nonprofits open a line of credit when they don’t need to, knowing that they might need one later. Leaders thinking about opening a line of credit should talk to some of the organization’s most loyal donors, foundations or individuals, and ask them to pledge a multi year gift. Many banks will use this pledge as security for the line.

Another option is to ask board members to place their own funds in a combined Certificate of Deposit (CD) at the organization’s bank. The CD secures the line, but remains the property of the donors. Giving to this CD becomes one of the obligations of being a board member. Since the funds are not a donation, board members should be required to make an actual donation as well. One advantage of this option is now board members have skin in the game and often become more involved in financial and fundraising goals.

As part of this obligation, all interest received from the CD should be donated to the nonprofit. These interest payments are donations from the CD owners. They should be transferred to a second CD or account specified for large purchases or non daily expenses. This account becomes the organization’s asset.

Once board members’ terms ends, leaders should ask the leaving members to donate all or part of their portion. If the board members agree, the nonprofit should transfer these funds to the second account or CD as well.

Since many leaders will be unable to make a large gift in addition to the required contribution to the CD, fellow leaders should ask them to make a monthly gift. These gifts also strengthen a nonprofit’s balance sheet. We will discuss monthly giving programs in our next post.