You don't need a grant writer to start a non-profit

Fully 50% of the calls or emails I get regarding my services involve a desire to hire me to help acquire funding for someone to start a non-profit venture or fund one that has just received a determination letter.

I'm flattered, but you don't need me to find you money, because neither I nor any other grant writer can "get" you a grant at that point in time.

The cold hard truth is there are zero grants available from either foundations or government agencies to start a nonprofit.

That's because true grants (money with no repayment required) have to be made to existing nonprofits. Legally, private grantmakers are prohibited by statute from advancing funds they receive or administer for charitable purposes to a for-profit or an individual.

In the case of  newly approved organizations, while it is technically possible for grantmakers to fund you, in practice that seldom happens.

Here's why.

Typically, every grantmaker will require  that you furnish them with a long-form 990 (the nonprofit equivalent of a 1040 or 1120) for at least the prior two taxable years. Some will even go back five years. They may also require audited financials or have a minimum revenue requirement that you must meet before you can even apply for funding.

Additionally, very few foundations or government agencies have rolling grant open application periods.  Thus, you typically can only apply at specific times, and the awards are actually funded as much as a year later. That means that you never have grant funds available at a moment's notice.

Grantmakers do not fund organizations. They fund programs that align with their interests and produce their desired outcomes. For that reason, they are very picky about what organizations they fund, and look for partners with a proven track record. Only about 1 in 10 grant applications submitted are funded.

Grants should never comprise more than 30-35% of your revenue stream, since they seldom if ever provide unrestricted funding, and almost never fund your normal costs of doing business, like utilities or rent.

In this 2012 report, on page 3,the National Center for Charitable Statistics (NCCS) reports that nearly 75% of all nonprofit income originated as fees for services paid by government and private businesses. 

In other words, you must find another way to fund your operations and programs 100% for a minimum of the first two years, and you must maintain varied income streams for the life of your nonprofit.

How do you do that?

The normal funding development progression happens like this:

·         Self funding – the board members either personally contribute the start-up funding or use their contacts to solicit funds from their business or social networks. BTW – don't state that donations may be tax deductible until you receive your determination letter.

·         Community events –think along the lines of auctions, car washes, bake sales, galas, sponsorships etc.

·         Social impact investors – although this option has not taken off the way the nonprofit industry hoped, there are still investor groups that are active in this field. Note that the funds received have to be paid back with interest, just like a traditional business loan or any other sort of angel financing. The investor's ROI expectations are typically within periods ranging from 90 days to three years.

·         Online appeals – Platforms such as GoFundMe don't require that you have nonprofit status to solicit funds. Other online fundraising options may or may not ask you to provide proof of status. There are fees and commissions involved so don't budget for gross donations. As an aside, the "Donate Here" button on your website will only generate a small portion of your needed funds until you have a track record and good outcomes to share.

·         Fees for services – for most nonprofits this is the largest single source of funds. Studies such as the one refernced above have concluded that from 60 to 75 percent of all nonprofit funding comes from contractual arrangements with government agencies or for-profit businesses.

What a grant professional CAN do to help.

Many grant writers, myself included, can and do provide research and development services to start-up organizations.

For instance I provide a feasibility service for would-be nonprofit founders. Think of it as a preliminary SWOT analysis as found in a business or more properly, a strategic plan. It evaluates such things as your mission goals, monetary support available for your mission and any other competitors working in your field, both for- and non-profit.

I can't possibly stress enough that you need to have at least a basic plan before you even apply for your nonprofit validation from the Internal Revenue Service.

In essence and assuming that you are just in the planning stages, a well researched and prepared strategic plan provides a step-by-step organizational development roadmap, as well as a series of benchmarks that allow you to evaluate your progress.

When I produce (with your input) a full strategic plan, it will cover such things as setting up your initial budget, based on operational and program costs for the first two to three years, whether to apply using the 1023EZ or the full 1023 application form, board development, what type of state corporation you need to form (a step required in advance of your 1023 application) and a brief overview of solicitation law affecting your fundraising. If desired, it may also have a mission development section that defines not just what your mission will be, but what programs and how much money, property  and manpower will be needed to produce your desired outcomes.

I hope this gives you a brief glimpse into world of non-profit financing.  Feel free to contact me at 208-525-2071, or email me at rightwords@ida.net if you have further questions.

Avoiding self-made financial disasters

A three-year old human services nonprofit was dealing with serious discord between board members and the executive director. The board felt that overhead costs at 20% of revenue were too high and that the perceived imbalance was taking too much money away from programs. The ED countered that the reduced effectiveness was due to not having enough qualified staff. The board issued an ultimatum. Reduce staff costs by 20%, or the ED would be replaced.

The ED responded by cutting hours, wages and benefits, whereupon 4 of 14 staff members quit. Citing failure to deliver client services, the board fired the ED anyway. The ED then filed a wrongful termination lawsuit, since the board mandate to reduce costs by 20% was achieved due to having fewer employees, and having fewer employees impacted client services. The ED eventually won the case.

On the face of it, this seems like a classic case of a power struggle between the board and the executive director, with the staff and clients caught in the middle.

Upon further examination, the actual cause of the imbalance between overhead and program budgets proves to be more complicated.

The board had previously voted to expand a program by 50%, as outlined in the five-year plan. They mandated that the counseling center be open two more hours daily, and four hours on Saturday. This increased payroll and other overhead costs such as utilities and office supplies by about 12%. In addition, a change in state regulations required that there had to be an upper-level professional physically on duty whenever the client services center was open. Heretofore, the master's level staff only had to be available on call during evening and weekend hours. Shortly after the expanded program started, state and county funding for the program was abruptly scaled back by 15% due to decreased tax revenue.

The immediate problem was that the board failed to re-assess the challenges to the program and when the problems became obvious, they responded by trying to cover funding shortfalls by cost reduction alone. In the long term, their desire to hold administrative and other overhead costs at 10% of revenues was simply unrealistic, given their need for highly qualified professional staff.

The problem seems very simple. In their zeal to help more people, the fundraising part of the equation had been overlooked. Instead of diversifying and expanding sources of non-governmental funding, the nonprofit was relying solely on  government fee-for-service revenue to pay for the expansion.

The real problem was a failure by the board to adequately develop contingency planning and funding. As many organizations often do, they neglected the unpleasant parts of strategic planning. They developed the strengths and opportunities section well, but failed to acknowledge the threats and weaknesses portions, taking the rose-colored glasses approach.

You cannot plan adequately without considering worst-case scenarios. This organization was relying solely on one source of funding and that source had historically been very sensitive to outside influences, in this case a substantial drop in state tax revenues coupled with increased regulatory costs. In addition the board was highly resistant to developing an emergency fund. All revenue had to be spent on the mission annually, and even the idea of having excess funds (called profit outside of the nonprofit sector) at the end of the year was abhorrent to the board.

The board had made half-hearted attempts at fundraising, but felt that it was unnecessary due to their fee-for-service model. Donor development or grant research wasn't even mentioned in their financial plan.

The obvious answer was to postpone the planned expansion and start developing a more diversified funding stream. The NPO's mission was still being fulfilled in regard to their existing client base, and a 15% fee-based income reduction was realistic to try to cover with income from fundraisers and grants.

Instead, this nonprofit came very close to shutting down. Client services had to be curtailed by a full 75%. The staff eventually settled at just four paid professionals. In press releases, the nonprofit blamed the recession and the resulting loss in government funding. In reality, the reason was poor planning.

Bad things do happen to good people and organizations. Some things truly are beyond one's immediate control. Recognizing and planning for that can make the difference between success and failure.