Building Your Nonprofit’s Sustainability We will begin shortly. Strengthening Your Nonprofit’s Income Portfolio What We Will Cover • Steps in developing an income strategy • Judging whether a nonprofit’s income portfolio meets its needs and protects against risk • The types of support available to nonprofits • How to identify a nonprofit’s most likely sources of support • How to assess the real value and costs of potential sources of support 1
Steps in Developing a Nonprofit Income Strategy 1. Initial review of income mix 2. Define the details and expenses of programs that achieve the nonprofit’s mission 3. Using this information, identify the nonprofit’s likely sources of support 4. Apply initial screens: Is the source of support readily tapped and does – it seem to be available in sufficient amounts? Does tapping the source seem feasible? – Is the source broadly consistent with the – nonprofit’s values? Steps in Developing a Nonprofit Income Strategy , continued 5. Conduct market research into $ value and direct costs of the sources that pass the initial screen 6. Develop “value vs. cost” analysis for each main income source that you are considering for investment 7. Test each main income source that you are considering for investment 8. Make the investment decision Case Study: SUSTAIN Review of Income Portfolio City contract: Day Service 1,050,000 Community Outreach 483,000 Subtotal 1,533,000 DRS contracts: 292,000 Fundraising: Foundation grants 403,000 Corporate partnerships 82,000 Net proceeds of golf tournament 73,000 Subtotal 558,000 Other income: 13,000 GRAND TOTAL 2,396,000 2
Initial Review of Income Mix , continued Diversified revenues: More than one type of financing • (e.g. government contracts, bequests) Several payers in each type • (e.g. individual donors, different government streams) Unrestricted as part of the mix • One dominant source, 2 – 3 “supporting streams” • Steps in Developing a Nonprofit Income Strategy 1. Initial review of income mix 2. Define the details and expenses of programs that achieve the nonprofit’s mission 3. Using this information, identify the nonprofit’s likely sources of support 4. Apply initial screen: Is the source of support readily tapped and does – it seem to be available in sufficient amounts? Does tapping the source seem feasible? – Is the source broadly consistent with the – nonprofit’s values? Types of Support Available to Nonprofits • Traditional categories of nonprofit income – Private contributions – Fees/Earned income – Government funding – Interest on investments and dividends • Partly defined by IRS categories • There are >12 sources of revenue that require different management and/or technical approaches • “Support” includes both cash and in-kind support 3
Nonprofit Finance: Forms of Support Identifying the Nonprofit’s Likely Sources of Support Services Nature of Who will Income Mission offered benefits pay? Portfolio Analyze: • Availability and sufficiency • Consistency with nonprofit’s values Identifying the Nonprofit’s Likely Sources of Support: Benefits Type of Benefit Who Gets the Benefits 4
Identifying the Most Likely Sources of Support: Private Benefits • Nonprofit service or activity generates direct benefit to individual; individual can be excluded from service – e.g. health care, counseling, theater performance • Type of payment: fee in direct exchange for service Identifying the Most Likely Sources of Support: Public Benefits • Nonprofit activity or service generates benefit that, once produced, everyone gets – e.g. clean air, national defense • Nonprofit activity produces benefits that have political support and mandate – e.g. workforce development, support for veterans Types of payment: • – Federal/state/local grants and contracts – Vouchers – Medicaid and Medicare Identifying the Most Likely Sources of Support: Group Benefits Number of people or a community benefit, and • difficult to exclude, but benefits not sufficiently widespread or popular to attract public funds – e.g. research into rare medical condition, support for victims of disasters, avant-garde theater Who pays?: people with affinity or interest, • or brief/policy to support a given area Types of payment: • – Donation – Bequest – Grant 5
Identifying the Most Likely Sources of Support: Trade Benefits Activity generates economic or social benefit for third party • (other organization or individual not in receipt of service) – e.g. traders who retain customers because of nonprofit transport scheme for seniors, advocacy coalition (exchange of one nonprofit’s resources for another’s staff), corporations that buy nonprofit’s reputation to increase their own sales Types of payment: • – Membership/affiliation – Barter – Sponsorship/Cause related marketing deal Identifying the Most Likely Sources of Support Combined benefits = multiple potential sources of income Private Benefits Group Benefits Public Benefits Trade Benefits Combined Benefits = Multiple Potential Sources of Support Income combo Example Why? Gift shop Consumer benefit only Fees only Gifts only Rare disease research Benefits those afflicted or at risk Government Offender rehab services Increases public safety only Fees & gifts Performing arts Private benefits to attendees; collective benefits to art lovers Fees & Pre-school care Private consumer and general public government benefits Government & Monitoring Benefits to outdoor enthusiasts and gifts environmental quality general public Fees, gifts & University education Private student, collective alumni, and government general public benefits 6
Applying the Approach to Your Nonprofit • Describe in some detail each main program: nature of service/activity, including its location and any equipment/technology it employs • Brainstorm who benefits and who might pay • Capture potential sources of support for each program Your nonprofit’s overall potential portfolio Case Study: SUSTAIN Identifying the Nonprofit’s Likely Sources of Support Program/ Who benefits How they benefit Type of Who might pay How they Service benefit might pay Employment Individuals with Independent living and Private The individual Fees Services experience of contributions to the community substance abuse Family, friends and Someone they care for being Private Family, friends and other Fees other carers helped/less of a burden to them, carers and succeeding Local Employers Need skilled labor; opportunity Trade Local Employers Partnerships to be good corporate citizen in training and work-provision People with experience Recovery and independent Group Family and friends, Donations of substance abuse as a living; reduction in stigma people with experience of group mental illness, community groups Other nonprofits SUSTAIN make it easier to have Trade The other nonprofits Partnerships dealing with mental an impact with their services in referrals and illness and training; Joint homelessness Ventures Dept. of Rehabilitation SUSTAIN seen as cost-efficient Trade The Dept. of Rehab. Contract to Services way of providing service, services supply delivering mandate employment service The city and Less homelessness, fewer visits Public The Dept. of Rehab. Contract to surrounding to the ER, lower policing costs, services supply communities increase in tax base employment service Steps in Developing a Nonprofit Income Strategy 1. Initial review of income mix 2. Define the details and expenses of programs that achieve the nonprofit’s mission 3. Using this information, identify the nonprofit’s likely sources of support 4. Apply Screens: Is the source of support readily tapped and does it seem to – be available in sufficient amounts? Does tapping the source seem feasible? – Is the source broadly consistent with the nonprofit’s values? – 7
Case Study: SUSTAIN Applying Screens First screen: Looked for potential sources that could be ignored: • – Insignificant amount – Impractical Ruled out: • – More government contracts in Fractious City: saturation point – Healthcare providers: previously unsympathetic – Referral and training partnerships with other nonprofits: too small – Police, Community bodies, Retailers: interesting, but potentially complicated Case Study: SUSTAIN Applying Screens , continued Case Study: SUSTAIN Applying Screens , continued Summary of position after SUSTAIN has applied screens • Two sources of support that justify the next step – detailed market research – Individual donations – Partnerships with other nonprofits: coalition to campaign to change legislation 8
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