Are donors and nonprofits contributing to income inequality?

A  lot has been said recently about the shrinking middle class, the stagnation or even decline in middle class wages, and the job nonparticipation rate.

Meanwhile, businesses are complaining that the skills they really need are being ignored or even denigrated by both politicians and educators.

Case in point. During one area development group's public meeting they asked existing and prospective business owners what they needed to consider relocating or expanding their businesses to the area.

They responded with answers that largely followed this vein.

                                               

They need people that are willing, able  and trained to do hands-on "blue-collar" tasks. They need mechanics, welders, manufacturing assembly line workers, and even freight handlers. As one business owner commented "It doesn't do any good to design a better mousetrap if there is no one to build, box and deliver it."

Salary.com reports that an entry-level welder with 0-2 years experience can expect a starting salary of over $ 27,000/yr. or $13.24/hr and a top salary of just under $48K, which is not exactly minimum wage. 

One area college responded by sending out a press release touting their current and future  increases in STEM classes. One of the clips played was that of someone saying that they were in business to train "the labor force of the future, and the future is not in a field or a factory."

This single incident illustrates the disconnect between the realities of day-to-day business needs and a certain intellectual naiveté about the future.

   

Nonprofits offer a funding avenue for some low-income students. Since they don't produce a revenue stream of their own, they are totally dependent on the largesse of both the government and private donors. These gifts and grants (or contracts) are the source of some truly big funding pools, such as the $20 million dollar scholarship fund established at Notre Dame.

That money tends to follow what's trending at the moment and that trend isn't money for trade or vocational schools.

While no one would argue that the future does indeed indicate a need for a well-educated workforce with different skills than those of the 20^th century,  the yardstick that we use to define "well-educated" needs to reflect an awareness of functional reality.

When education-based nonprofits set their program goals, and donors at every level write their checks or set up their trusts, it would behoove us all if they could keep that perspective in mind.

Philanthropy without relevancy is as counterproductive as no philanthropy at all. 

Holiday fundraising – Planning ahead

Many nonprofit organizations are looking at the end of the year, particularly in terms of revenue raised. Those that met or exceeded their goal have one thing in common – they thought ahead.

Every year about this time the internet blossoms with ads seeking help to "design a holiday appeal" or "boost our end-of-year giving campaign".

If you've waited until now to think about holiday revenue, you are about six months late.

In terms of grants, most foundations have already closed their application window for the year. While it is true that many grantors disburse a lot of their funding at year's end, they already know who is going to receive it.

In terms of local funding and many of the traditional campaigns such as Giving Tuesday (which occurs  December 2 this year) the participants have already been selected and the advertising, web pages, emails and even snail mail reminders have been delivered.

At best, your choices are social media blasts, and at this point that can throw you into competition with a maelstrom of carefully planned campaigns, many of them coordinated with big-budget marketing strategies.

Social media usually succeeds best with a broader, well-defined base of followers, so if your pages are mainly being visited by a few friends and relatives, social media may not immediately provide the oomph you need for serious fundraising.

One of the things that many organizations fail to account for is other people's budgeting.

Whether it is a huge foundation or your next-door neighbor, most available funding has already been allocated.

There is and will always be a certain type of last-minute donor, just as there are last-minute shoppers, but these tend to be one-time gifts.

Your goal is, or should be building  sustainable donor relationships well in advance of seasonal campaigns.

Seasonal campaigns rely on traditional marketing tactics. Building your contact lists, developing your media kits, lining up success stores or examples of need and tracking your appeal success rate all require implementing a cohesive plan with clearly defined steps and goals.

Any holiday fundraising is likely to  produce some revenue.  If you come up short of your goals, it might be a good time to consider preparing for the spring grant season, and begin developing next year's holiday campaign plans now by broadening your contact list and seeking out partners to help you expand your prospective donor base. 

Understanding how program development increases funding

All nonprofits have goals, or as they are usually stated, missions. Feeding the hungry, providing shelter for victims of domestic violence, supporting veterans, or rescuing animals are all goals, or missions. They are the reason your nonprofit exists.

To support the main mission, action plans, i.e. programs, are developed to reach the main goal.

In addition to solving or alleviating an adverse condition or circumstance, programs also provide funding parameters for supporters. To put it another way, they provide opportunities for people sympathetic to the main goal or mission to collaborate in achieving that goal, without being directly involved in the management and operation of a nonprofit.

Criticism of nonprofit effectiveness is seldom related to mission. Almost without fail, when nonprofits get in trouble with donors or grantors it is related to failure of the program or programs to achieve the mission.

One of the shortcomings of newer nonprofits is failing to communicate how a program advances mission accomplishment.

Interestingly, sometimes that goes back to the mission concept. Vague or overly ambitious missions can make it difficult to design realistic programs that can be developed to deliver the desired results.

Go back and re-read that last sentence, especially this part. " …design realistic programs that can be developed to deliver measurable optimum results." This is often one of the first things I address when working with new clients.

If your program, or programs aren't designed well, they can't possibly develop methods that achieve the best possible outcomes.

To design realistic programs you need to have a realistic program model in relation to your ability to deliver results.

Reality trumps vision

By way of explanation, let's look at the "No Child Left Behind" mission, a product of the George W. Bush presidency resulting in the 2001 legislation of the same name. The goal was to see that every child in the United States receives access to a quality education.

That's a totally realistic mission in terms of the resources available to support it, i.e. the Federal budget.

If that same nationwide mission was to be undertaken by a nonprofit in a town of 400 people in rural America, then the mission is not realistic in terms of scope, and no program could be designed that would achieve it.

Organizations need to take the availability of resources to achieve the mission into account at the time they decide to become a nonprofit. That limiting factor will determine the initial design and development of the programs. Ideally, future planning incorporates an "if-then" component so the program can be expanded as resources become available.

Well-designed programs provide better funding opportunities

Funding, especially from grants, is seldom sustainable from one source, so having a variety of funding opportunities is critical to mission success.

If a program is designed to provide both an immediate benefit and an opportunity for expansion, it can continue to grow as resources become available.

Setting realistic goals that are measurable and achievable allows the nonprofit to show donors that the program does provide tangible benefits at varying levels. When the organization can document positive results, it can attract more funding.

Thus, a neighborhood literacy program for ESL learners can start with a phased in program that first funds community outreach to raise awareness of the mission, then seeks funding for books or electronic readers, then expands to purchase furniture for a rented space, and finally seeks funding for a building to provide a permanent base of operations.

Each of those phases will attract a slightly different donor audience. For instance a corporate donor in the public relations field might fund a PR campaign, a tech company might provide in-kind donations of tablets or e-readers, a furniture company might grant funds to purchase desks and chairs, and finally, major foundations might grant  substantial funds to purchase the building.

Instead, far too many newly formed nonprofits start out with trying to fund the building before they can even prove that the community is deriving a benefit from the mission. All that accomplishes is to drive grantors and major supporters away.

As frustrating as it can be, good program planning pays dividends far beyond the time it takes to do it.

Is your charity meeting donor expectations?

Given the high trust level that charities are expected to measure up to, could you look a donor in the eye and swear that all their donations will go to the mission?  More importantly, should you?

Donor confidence is not just important to your nonprofit, it is critical. If donors get even a faint whiff of something a little off, it can take years to regain that confidence.

In an article on 9/11 of this year, the Huffington Post noted that  even the venerable Red Cross took a hit for misleading donors after 9/11/01. The article noted that in the wake of the problem, donor and public confidence in charities in general dropped from 25% approval in July 2001 to 18% by May of 2002.

Charities that lose donor confidence don't survive intact. Some may not survive at all. The above-referenced article also noted that out of about 300 9/11-related charities started after 9/11, only five were surviving by 2006.

The best way to retain donor confidence is to be able to prove effectiveness and be up-front with the donors regarding the use of funds.

Given what I do, i.e. grant writing and funding research, I see this statement a lot.

"Once we get some grant money coming in, we can use part of it to pay you."

Ah…no, you can't. Nor can you pay the back rent or the overdue power bill. Almost every RFP plainly states that funds may not be used to pay debts incurred prior to the grant award. This is known as "restricted" funding, i.e. the use of the funds is restricted by the donor to certain costs for defined programs.

Most of them also state that "usual and customary expenses unrelated to the delivery of mission-related goods and services" (or words to that effect) are not eligible to be paid out of grant funds. The exception would be any grant funds received that state the use of the funds is unrestricted, or may be used for "general operating support".

But what about those individual donors?  The ones that chip in a few dollars every month, or write one check a year?  Of course you would never outright lie, but should you sort of gloss over the fact that you are paying the utility bills with their money? After all, shouldn't they just know that you have to pay some administrative expenses out of donations?

Maybe they should, but they don't. However naïve it may be, casual donors think that every dollar buys a meal, a coat, a bag of dog food, or whatever else your appeal is highlighting.

The best way to avoid that is to either define the percentage of each donated dollar that goes to the charitable purpose, or state in the appeal that funds received are used for both general and program support.

In the beginning, that administrative percentage could be 50% or more. Once you have your infrastructure in place, it should be reflected in your program-to-administrative cost ratio.

Just don't over-promise. It is usually unrealistic to claim that your administrative expense-to-mission allocation goal is five or ten percent of total donations. If you've done a proper business plan, you should have at least a rough idea of what percentage of the money will eventually be used for organizational support versus program expenses.

Be sure to let donors know about the good things their money has purchased. If your food pantry  fed 100 people every Wednesday of the last year, put it in your year-end report and plaster it all over your website and social media accounts. If your program participants are willing, tell a few personal stories. Have an animal rescue?  Along with all the animals needing homes, have a page for those that found their forever homes.

Like your Mom always said…honesty is the best policy. 

Growing your unrestricted funding.

Grants, whether government or privately funded, normally do not allow their funds to be used  for ongoing administrative costs, i.e. overhead. While that may seem somewhat shortsighted on the part of the grantors, it is nonetheless a fact of nonprofit life. Grants usually support programs, not organizations. They are booked as restricted funding, meaning that you can't use it to pay the rent or fund the administrative staff salaries.

So, where does the money come from to keep the lights on and pay the staff?

From unrestricted donations, i.e. donors that designate their gifts as "general support" for your organization.

Some very few foundation grantors do say that their donations can be used at least in part for general support, but mostly, these donors originate from two sources.

Who gives unrestricted donations?

First, the ones that donate small amounts of money or support an event simply because they believe in your overall mission strategy. Secondly, from individual  donors that commit large sums in the form of endowments or a single big donation or bequest.

When designing your fundraising plan, courting these donor categories is at least as important as mapping out a grant strategy. Nationally, over fifty per cent of all nonprofit funding not related to fee-based services comes from individuals. Less than fifteen percent comes from grants.

That should tell you that donor development at the individual level should be at the top of your fundraising priorities.

Tired of the grant rat race?

If I could recommend a few things that nonprofits can do to end the grant rat race, it would be to go out and shake hands, speak at applicable venues, and just generally actively recruit donors that will write "general support" on the memo line of their check.

Take the case of a community event. When you advertise it, be up front with the allocation of the funds received. Tell your donors that while you need money for program Y, that program will not exist, much less accomplish its goal, if your organization ceases to exist. If you feel that the program is the major draw for the event, you could say that funds generated will be used 70% for the program and 30% for overhead.

Relate general support to the donors everyday existence. If you equate your need for general support to the donor's need to keep your organization viable to accomplish your mission, they'll get it.

Honesty pays dividends

Honesty is definitely the best policy. Donors that think their ten dollar donation is going to buy ten meals for the hungry feel ripped off when they find out that three dollars went toward your rent or mortgage payment. If they understand in advance that you will have no place to put the food if you can't pay the rent on your warehouse, they are generally fine with that.

The same thing goes for your major gifts strategy (you do have one, right?). You have to educate the prospective donor so that person understands that while your mission may be rescuing animals, you can only accomplish that if you can pay your day-to-day operating costs, and that includes paying the receptionist that takes the initial call or keeping the lights on in the kennels.

Don't beg. Educate!

Educating the donor community regarding where nonprofit funding comes from is just as important as the feel-good stories about who or what got helped. Ask most ordinary citizens where nonprofits get the money to operate, and they are going to say grants or events as often as they will say "from people like me".

That's at least partially because nonprofits only get in the news when they get a huge donation from a foundation or a big government grant. If that's the only time the general public hears about your organization, who can blame them for thinking you don't need their money?

Tell the whole story, tell it well and tell it often.

Unrestricted funding is the key to your organization's survival. Learning how to develop it should be a top priority.