Seven nonprofit dream killers (and how to avoid them)

Many good people want to start nonprofits. They usually have great passion for their cause, and want to solve problems. They expect smooth seas and clear sailing on the way to their destination. Unfortunately, they often run aground on the rocks of reality. Here are some common pitfalls associated with starting a nonprofit.

1. You haven't developed a support network.

Nonprofits don't function well as one-man (or woman) shows. Start by identifying supporters, and hold a well-publicized informational meeting or two to assess the interest in your nonprofit. These folks will be your potential board members, donors and volunteers and the meetings may generate immediate financial support.  

2. You think your organization is the only one that can address the problem you want to solve.

It is unlikely that no one else has seen the problem you are seeing. Don't re-invent the wheel. Check for nonprofits in your area that are addressing the same issues, especially those that are currently receiving funding. There is a good chance that you may find not only kindred spirits, but organizations that are already dealing effectively with the issues that you can join. If no one else is in the arena, there is probably a good reason why they aren't.

3. You believe it is easy to get money to support the organization.

You may be willing to invest every dime you have in your organization, but the world of nonprofit funding is competitive and notoriously difficult to access for fledgling organizations, particularly for day-to-day expenses. Only about 20% of nonprofit support nationwide comes from grants and unrestricted donations. The other  80% is up to you to figure out.

4. You haven't researched the skills needed to operate the organization.

The mission is important, but it takes real-world business skills to achieve success and longevity. There are serious legal, financial and administrative aspects involved in being a nonprofit. If you don't have all the skills needed, you will need to attract or hire people that can fill in the blanks.

5. You are easily frustrated when things don't immediately go your way.

Growing a viable nonprofit is often arduous, expensive, frustrating and time-consuming. Starting a nonprofit is not the place to find instant gratification.

6. You think it will be an easy way to create a paying job for yourself.

Founders usually form part of the board of directors, since their goal is (or should be) to guide and expand the organization. Board members normally don't and can't receive a salary for serving on the board. If you can accept being an employee of the nonprofit as the CEO or executive director and understand the potential risks associated with that, there may be income potential, but it isn't a sure thing.

7. You don't have a coherent plan for long-term success.

You may know what you want to accomplish, but you need to have a way to get there. The time you spend on a five-year plan now will save you innumerable wasted and expensive hours spent in crisis management later.

Knowledge really is power. Know what you are getting yourself into before you start. For more in-depth insight into the realities of starting a nonprofit, I offer a free whitepaper, "Climbing the Ladder to Nonprofit Success". Request your copy at granthelp@ida.net. If you need assistance  in implementing or understanding  any of the steps, or just have a comment, drop me a line. Want to know more about my services? You can view my website here.

Five tips to increase your grant funding success

There are a number of things that determine whether your mission will be adequately funded.  Here are five things you can do today to bring in more dollars.

1. Match your organization to the right grantor prospect.

All grantors have a specific mission focus.  For instance, while the grantor may generally support programs for low-income women, they may actually only support a single facet of that group.  There's no use in applying for funds for heating cost support if the grantor is only funding breast pumps to allow working mothers to stay in the job market. Read all of the information you can find on the organization and decide if it is a good fit for your nonprofit.

2.  Refine your focus to emphasize grantor/grantee alignment.

 

Don't rely on a one-size-fits-all application.  If you have a general emphasis on a specific client profile, emphasize the portions that have direct alignment to the prospective grantor.  Each grantor and their mission focus is different and should be developed as such.

3.  Match your grant development costs to the potential award.

If the grantor specifically states that their maximum grant is $1,000, and it's going to cost $500 for your staff or your contracted grant professional to produce the grant application and administer the funds, that might not be cost effective. All grants have non-reimbursable costs, and you want to get the most return for your investment of time and/or money.

4.  Be sure you meet the minimum requirements to apply

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Most grants stipulate that you must be a 501(c)(3) to apply, and may include time in business, minimum existing revenue amounts, ability to show matching fund potential, formal organization and program budgets, audited financial statements or other qualifiers as well. If you can't meet ALL of the requirements, your application is likely to be discarded without even being considered.

5.  Document your results to date before you apply

Grantors want to know that your program is effective and/or sustainable.  Even if you are currently seeking funding for a one-time event, such as the coming year's holiday turkey giveaway, show how you will reach the maximum number of intended recipients and why your program is using the funds to the best possible advantage (things like getting wholesale pricing for the birds, for example).  Long-term existing programs need to show that they have made a lasting positive impact and have a good chance of continuing to do so.

None of these things will guarantee an award, but doing them well will greatly improve your success rate. 

Grantmaker Research

Sometimes I get lists from clients that were obviously compiled from some website like the Foundation Center. Not too long ago I actually got a list printed directly from that website of over 100 "youth-oriented" foundations from a prospective client.

  

I have a subscription to that resource and several more just like it.  If grantor research was that easy, no one would need professional funding consultants and/or grant writers. The reality is, that list is simply a baby step in finding prospective funding.

There are many steps that go into approaching and qualifying a viable funding partner. Does the grantmaker ever support NPOs in your geographical area? What do they mean when they say they make grants nationally?  What makes them choose one nonprofit over another? Does their controlling philosophy match yours? Are you looking for a one-shot funding source, or is a continuing relationship important? What other nonprofit or ideological themes do their individual board members support away from that particular foundation?

There are dozens of things that can influence acceptance of a grant application. Not too long ago, I researched a large family foundation in the eastern U.S. for an Idaho client. I felt that the client's program might fit in with the foundation's underlying interests, but according to their public face, it looked like a stretch.

I literally built a profile for the board members and the history of their involvement in Idaho.  And I mean every consequential board member, all 22 of them. In the end, I was able to help the client craft a customized proposal that stayed true to the client's mission, but still appealed personally to the foundation's board members. This is the first three sentences of the acceptance letter from that foundation:

"Thank you for making our board aware of your program. We have been interested in this type of highly targeted program for many years. Normally, the program would not fit our giving parameters, but we are making an exception due to our personal interest in (the program). We are pleased to inform you that we are funding (the specific area of the program) in the amount of $10,000 for each of the next three years."

This was a highly targeted, well documented and very personal appeal to the specific interests of three of the board members as evidenced by their personal participation in similar projects. I spent almost a month, off and on doing that.

Very large nonprofits may have the resources to do that type of in-depth relationship building, but often they rely on actual personal contacts.  They know the board members they are trying to court. They go to dinner with them, attend the same functions, and often the actual application is simply a formality.

If you don't rub elbows on a personal basis with your target funding source, consider hiring out the research, and acting on it with something more than stale boilerplate copy. It could be profitable.   

Why do you need audited financials?

This is a common question that I answer for prospective clients several times a month. 

1. Audited financials provide assurance that you have an actual bookkeeping system, have properly and honestly entered data, and have approved financial controls in place. That helps to reassure granting agencies that you will use their funds properly.

2. Audits are not cheap. If you can afford annual audited financials, you are more likely to be financially solvent and organized enough to meet other grantor criteria.

3. Financial statements give the grantor an idea of your organizational costs vs. program costs.

4. Financials provide a rough idea of what other types of income you are receiving. No grantor wants to see that grants are the sole source of support for your nonprofit.

5. Grantors or any other donor should use due diligence, (verify that your agency is a financially solid and effective agency) to decide if you are a safe place to invest their funds. Organized granting agencies, be they government or private, are required to do due diligence. Audited financials are part of that due diligence.

Many of the questions I get also ask why their in-house bookkeeper or an accountant on the board can't do the audit. The purpose of the audit is quite simply, to be sure you are telling the truth, the whole truth and nothing but the truth regarding your financial position, to ensure that you have financial control procedures in place, and that those controls are actually used. Therefore, audited financials must be done by an accountant who is removed from the day-to-day operation of your agency to provide objectivity.

The financial statements also provide the input to decide if you should be filing the long form 990, or the so-called postcard (actually an online form) format. It makes filing the 990 much easier. The accountant that does the audit can also file the 990, although there is usually a separate charge for doing so.

Very rarely, some granting agencies will accept an accountant's review letter for a comparatively new nonprofit that is less than three years old. This also has to be done by an outside accountant or accounting firm and requires much of the same raw data from you. 

Audits typically take from two to three months to complete for most agencies, although ones for large nonprofits can take much longer. This isn't a case of picking up the phone and hiring a firm to produce audited financials in a week. As soon as you close your current fiscal year books, you should plan on starting the audit. If you don't have a formal bookkeeping procedure, most firms will not even bid on the job. And by all means check the firm or individual's qualifications. You definitely want someone who has done nonprofit audits before.

When requested by the grantor, audited financials are not optional. If you don't have them, you will not be funded, and that may be the reason you can best understand about necessity for the process.