It frustrates the executive director when the board tells her, “We should cut down on the amount of government funding we receive,” and then settles back and allows her to work on the problem.
A board is on the right track when it wishes to diversify the nonprofit’s funding, but it needs to play its part in making sure that occurs.
Consultant Carol Weisman (boardbuilders.com) said it drives her crazy when a board member says smugly: “We need to run this organization like a business.”
The problem comes from having too many funding eggs in one basket to begin with, Weisman said.
Nonprofit organizations are funded differently. Some receive government funding, Weisman said, and some rely on earned revenue or a large gift from an individual, she said.
It’s risky for the nonprofit when too much revenue comes from one source, Weisman said. “There is no way any nonprofit should ever receive 50 to 70 percent of its revenue from one source,” Weisman said. That makes the organization “highly vulnerable” to future financial difficulties, she said.
“I tell boards and executives these percentages and they sit up straight and their jaws drop,” Weisman said. “They look at me like I am walking outside with no clothes on.”
Board and staff members who hear this message don’t operate this way in their personal lives. “They don’t put all their money in any one vehicle, a house or a stock,” Weisman said.
The best practice is to have diversified revenue, whether you are a business, a family or a nonprofit, Weisman said.
How can board members help the organization achieve more stable funding? What they often believe is the answer turns out to be no answer at all, Weisman said.
“The first thing board members often suggest is ‘Let’s get a bunch of fundraisers in here and pay them a percentage of what they raise,’” Weisman said.
“That might not be illegal,” Weisman said, “but it is considered unethical.”
And if you are a member of the Association of Fundraising Professionals, it violates their Code of Ethical Standards, she said.
Another harsh reality board members encounter if they wish the organization to develop its fundraising capacity is that the return on investment for various fundraising strategies varies wildly, Weisman said. For instance, the average return for special events, Weisman said, is 50 percent.
Depending on the mailing list used, the ROI on direct mail can be as little as 1 to 3 percent, while phone solicitation when using a vendor returns about three cents on the dollar, she said.
But board members don’t think about fundraising return on investment, Weisman said.
“I have been doing nonprofit consulting work for 23 years and worked with nonprofits for 40 years, and in that time I have never had a businessperson/board member ask me the ROI question,” Weisman said. “And plenty of them work in very tight-margin businesses.”
The executive director can help his board by helping them ask the right questions, Weisman said. In the case of fundraising to diversify revenue, the question for the board to ask is “What works best?” she said.
But beware: It’s not easy to launch into planned giving and major gifts—where the money is—as a starting point, Weisman said.
So what does the board and administrator do? Be aware of trends in government funding and ensure your board is active and informed on the funding diversification issue.
- Have your finger on the pulse of where government money is flowing. “The only thing politicians agree on now is funding for preschool education,” Weisman said. “But that won’t last forever. If it is your day as a nonprofit to benefit from this, step out now or lose it.”
- Give the board data, let them analyze it and then probe. How do you get your board involved in discussing solutions to the “diversify revenue” mandate? “You don’t lecture them: You ask them questions,” Weisman said.
That means showing them the data. If you are receiving 50 percent of your revenue from one source, ask your board: Where do you think we should be going for diversification? What are our options?
“Keep feeding the board data, and let them discuss it so they own it,” Weisman said.
- Tie strategic planning to a fundraising plan. If you have a strategic plan for your organization, make sure there is a fundraising plan attached to it, Weisman said. “Too many strategic plans don’t,” she said.
That mistake is like missing a step in the strategic planning process if you make it, Weisman said.
- Seek the services of an outside expert. Consider hiring a consultant to lead this discussion with your board. “The outsider can ask the rude questions of board members,” Weisman said.
The consultant can grill board members as to why they ask things of the nonprofit they serve that they would never even consider in their own business, she said.
- Train your board. If you expect board members to fundraise, you have to teach them how to do it. Most board members have never raised money for a nonprofit and they don’t want to look like a fool when they try, so teach them how or arrange for a trainer, Weisman said.
For more information, contact Weisman at 314.863.4422.