A Delicate Dance: Keys to unlocking a nonprofit’s financial survival

overhead view of people clustered together forming the shape of a key

Nonprofit organizations generally exist with one goal in mind – to improve the quality of life for others in some way. It’s a noble goal with the best of intentions that can quickly get subsumed by the reality that it takes money to achieve the mission.

The key to a nonprofit’s financial survival is diversity. Relying on one source of funding leaves a nonprofit vulnerable.

“Nonprofits have a strong passion to meet a need,” said Mari Kuraishi, president of the Jessie Ball duPont Fund. “Sometimes the start of that impetus includes a funder who is also passionate about meeting that need. What starts out small can quickly become big — more funding is needed for increased capacity, and you decide it’s important to diversify that funding.”

In general, nonprofits derive their revenue from three sources — contributions from individuals, charitable foundations and grantmaking entities; government funds; and earned income. For comparison, health institutions receive most of their funding from earned income while religious institutions receive the majority of their funds from contributions by individuals primarily. According to The Nonprofit Center for Northeast Florida’s 2019 State of the Sector Report there is no single funding model for nonprofit organizations. The financial plan for a homeless shelter is very different from that for a symphony or a health clinic or a university.

Charitable foundations are an important source of funding for any nonprofit. They are required by law to disburse at least 5% of their assets. There is no legal limit to how much they can spend, but in practice they try to retain most of their holdings to ensure that they can continue to exist in the long term.

But depending on foundations as the primary source of funding has its downside, especially if a nonprofit is heavily dependent on a specific foundation for the majority or all of the funding for one service or program. Grantmakers shift giving priorities with relative frequency for a variety of justifiable reasons, and that may leave a nonprofit high and dry. Building a positive relationship with foundation funders can be a delicate dance.

Family foundations change their priorities over time, as new generations take over their leadership. Private foundations may shift their giving priorities as needed to meet urgent needs and government funding cuts. As individual contributions decline or rise in response to the economy, foundations may adjust the size of their grants as needed to fund the gaps.

“One positive aspect about the pandemic was several foundations immediately stepped up to the plate and either made more funding available or accelerated their grant processes. This was in contrast with the 2008 recession, when some funders tightened their belts,” said Beth Mixson, development director for Family Promise of Jacksonville. “I believe funders have become more sensitive to the impact of financial contractions.”

Kathleen Shaw
Kathleen Shaw

“Most foundations undergo strategic planning to help guide them with their decisions regarding a shift in giving priorities,” said Kathleen Shaw, vice president of programs for The Community Foundation for Northeast Florida. “If a nonprofit that has been a longtime recipient of funding from a foundation finds that it is no longer a match with the evolving direction of a foundation, I would suggest meeting with the foundation to discuss the possibility of a bridge grant to help it with the transition.”

Shaw notes that many foundations begin discussions at the outset of the grant application process with their grantees about how the nonprofit will sustain its work beyond their funding, to encourage nonprofits to not be dependent on them as their one funding source.

“At the back of most funders’ minds is the realization that they can’t keep funding this one project forever if they want to meet other needs,” Kuraishi said. “They may wonder why the organization isn’t using their funding to scale to meet more needs. Foundations also don’t want to be the Dutch boy sticking his finger in the dike. Most people have a hunger to see that they are making progress by changing lives, the community or trajectories.”

According to the Jacksonville Symphony’s vice president and chief advancement officer, Bryan De Boer, “open and frequent communication is critical in all fundraising relationships. Nonprofits are best served to share successes and challenges in fulfilling one’s mission with a foundation throughout each granting period to elicit feedback, understand how funds are being utilized and develop a rapport, which should help eliminate the surprise of ‘changing priorities.’”

Erin Mangan
Erin Mangan

Erin Mangan, chief development officer for Community In Schools of Jacksonville, agrees.

“It’s very helpful to nonprofits to have open communication with their funders, especially long-term ones, where if there’s a change in funding focus for the foundation, they can provide a heads-up with enough time for the nonprofit to adjust their budgets, search for new funding streams and prepare for the gap that would occur,” she said.

“It’s important to show a funder how your nonprofit is getting more efficient or reaching more people or how you’re able to do more year after year,” Kuraishi said. “Foundations have an expectation of movement. It’s also the responsibility of the funder to be as transparent as possible concerning what the funder cares about and what’s top of mind by being as specific as possible.”

Kuraishi encourages nonprofits to focus on their own visibility if they want to grow. For example, she notes that Guidestar makes nonprofits’ Form 990s public and includes online profiles that share nonprofits’ data to provide a level of accountability and trust to funders.

“The more transparent you are as a nonprofit, the more likely you are to gain attention by funders,” Kuraishi said. “Take the time to let the community know what you’re doing and why it should trust you.”

“Nonprofit agencies are always looking for more funding sources whether it’s for program expansion or to replace funders. That’s why it’s so important to tell the story, to share why services are needed, the impact made and the lives changed,” Mixson said. “Illustrating how an agency is a good investment is critical to keeping current donors. It’s just as important for inviting new donors to be a part of the success story.”

“Building a diverse community of institutional and individual donors, public and private, is a must, perhaps now more than ever, to sustain a nonprofit’s fundraising goals during these most uncertain times,” De Boer said.