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Essentials of a Funding Plan
"Under-funding threatens the very survival of charities delivering public services. Charities themselves, commissioning authorities and Government all have to address this urgently" so Dame Suzi Leather memorably reminded us at the NCVO Conference in 2009 - words that are as true in 2012 as the day she gave her speech.
This article will look at the full spectrum of funding available to not-for-profits and those issues that organisations should consider before embarking on any of these funding routes.
Figure 1 below provides an illustration of the spectrum of funding available to not-for-profits with the underlying sources of bridging or support financing available.
Figure 1 - Spectrum of Funding
These four main streams of funding are quite distinct, and some have subsections.
Looking first at the Donor and Funder streams, the subsections are set out in Figure 2 below, along with the changing degree of requirements. The focus of the type funding of any programme or project can change from Mission-driven to Business-driven (which should ultimately link back to the Mission of the organisation).
Traditionally not-for-profits have spent a great deal of time on Mission and Vision funding streams. This can be very successful in a growing economy, however, as indicated in a recent survey by the Charity Finance Directors' Group and the Institute of Fundraising, 45% of respondents reported that there had been a decline in giving, and 56% predicted there would be a decline in the coming year.
Figure 2 - Subsection of Donors and Funders
Charities therefore must change emphasis to Business-focused funding schemes if they are to survive.
As an organisation moves into the last two areas of funding, the entire emphasis changes to business outcomes and commercial viability. These are linked to the Mission and Vision, rather than the other way around.
For example, running a charity shop may be viewed as aligned with the Mission of the organisation. In fact, the starting point must be the Business case for the charity shop, and how its success can contribute to raising awareness of the organisation's Mission and Vision.
So where to start - Mission case or Business case? The answer is provided by focusing on three aspects of the proposed income stream:
Stability of income stream Suitability of income stream Sufficient funding from the stream
Why are these so important?
It comes down to sustainability. If an organisation starts down any of these routes without clear understanding of the implications, it could end up building operations on funding streams that are unstable and out of their control. The result of which in recessionary times can come home to roost very quickly if control of the funding streams rests with a third party.
If an organisation starts with the Business case it can be linked directly or indirectly to the Mission case. The Business case should address all three areas listed above, as it lays out the rationale for a) undertaking the activity and b) what the risks associated with that are.
Going back to our charity shop the rationale should be to maximise the raising of unfettered revenues. The risks associated with it are numerous (eg location, offering, economy, competitors, etc) and this may then determine that opening a charity shop is not the right funding stream.
Seems simple? You would be surprised at how many organisations do not do this analysis and then end up in trouble.
The question now turns to how to ensure that your Business case supports your funding stream.
The approach I would recommend is as follows:
- Review your current income streams and determine the weighting of them in relation to the Spectrum of Funding Streams (Fig 1).
- If you are biased towards Donor and Funder streams you should diversify and look to develop streams that are more under your control.
- Consider the implications for your organisation. Does it have the skills and resources to manage contracts and commercial revenue streams? Though these streams might be linked to the Mission, ultimately they are there to generate a surplus and therefore are commercial by nature.
- Build your business case for the funding stream that you are looking to develop by setting out the following: The objective of developing the stream The fit within the organisation The risks, advantages and disadvantages associated with it The lead time for implementation Financials associated with start up Financials associated with ongoing running
Also have a look at our detailed business planning article as this will provide more detail as to how to pull together a business plan.
By following this approach a charity should be able very quickly to determine:
a) Whether this is a funding stream they wish to pursue
b) Whether the risks outweigh the financial benefits
c) Whether to continue with this funding stream in the future.
You will then be well placed to ask yourself a final question - if it is not sustainable...then why do it?
Mark E Freeman CA (Canada)