The word “charity” may be synonymous with “doing good” but how effective are organizations in achieving that goal? The question was at the heart of a recent conference organized by the Charity Law Information Program (CLIP), a project of Capacity Builders (a division of OCSA) and supported by the Canada Revenue Agency (CRA). Titled Being Good at Doing Good: Safeguarding Yourself and Your Charity in a Complex World, the two-day event boasted an array of educational topics, animated speakers, and inspired conversation.

The morning session on the first day was presented by nonprofit financial management consultant, William Harper. Using his extensive nonprofit knowledge and experience, he provided an especially timely lecture: Dealing with the Challenges of Uncertain Funding. The first thing all charities must understand, he began, is that funding by its very nature is uncertain, and that reality is not about to change anytime soon. Charities can rise above, however, by implementing a number of practical strategies, tactics and tools.

Charities must diversify!

Hands-down, the most important strategy is diversification of an organization’s funding sources. Charities need to pursue a number of unrelated sources and ensure one isn’t solely keeping them afloat. “Dealing with the effects of losing one of several sources of funding is unpleasant, but generally manageable,” Harper explained. “But losing the vast majority of funding at one time means the organization is now in a fight for its very life, without regard for specific programs or activities.”

Cynthia Armour, an expert in fundraising and strategic management (and one of the conference organizers) couldn’t agree more. It’s wishful thinking for complacent organizations to pursue one funder who will underwrite most of their work. “People get lulled into a false sense of security,” she says. “If you have all your eggs in one basket and you drop your basket, you need to go back to the source for more or find alternatives for breakfast.”

Diversification needs to be pursued from two levels: across funding sectors and within sectors themselves. But, said Harper, what constitutes the right mix for a particular organization depends on many factors including: the type of programming and mission, the nature of current support, staff, and volunteer resourcing, and the diversity of funding within the current funding sectors.

Finding the greatest number and mix of individuals, businesses, foundations, government, and events, is key. “Understanding that every funding source has a finite life, efforts must be made to mitigate the effect of this on one’s revenue stream,” he said, making special reference to events. It would be best for an organization to adopt a portfolio management approach to fundraising by bringing in new funders that can replace those dropping off. “You always need to try and replace those in decline,” he said.

Harper then shared an example of how Windfall, a charity whose board he sits on, is successfully pursuing multiple events. The organization has recently introduced three or four to their roster. But keep in mind, he said, even one event is a huge undertaking so one needs to be careful and adopt a long-term approach to the process. Adds Armour, “Generally we can say they are more friend-raising than fundraising provided you have a way of figuring who actually attended,” she says, explaining attendance is often not taken, and calling it missed opportunities.

As for obtaining funds from several sources within a sector, examples include looking to various departments and levels of government or reaching out to different-sized businesses, representing a spectrum of economic sectors and business activities. “You really want the broadest portfolio possible,” echoes Armour. “But don’t neglect existing donors while running off to get new ones.” After all, she says, the most expensive part of fundraising is donor acquisition and strategies should be in place to keep current donors for the long-term.

On reserve: Charities must prepare for the future

Another strategy, according to Harper, is building reserves to ensure charities have cash on hand beyond what’s required for day-to-day needs. How much is enough? “It’s a tough question with no right answer,” he explained, though the typical response is three to six months’ worth of operating expenses. Where is an organization meant to find this money? Another tough one but best to start with the organization’s budget for the coming year, Harper said. Instead of budgeting to break even, budget for a surplus. “If the organization doesn’t budget for a surplus, it starts with at least one strike against itself.”

What’s more, he adds, “not only is it prudent to budget for a surplus when operating reserves are low, but it sends the right message to funders that the organization is actively planning for its financial stability.” Harper acknowledged some may have trouble with that advice, thinking funders don’t want to see a surplus. But that’s a misperception. “Funders want to know you’ll still be around to run the programs they’re funding.”

Organizations also need to budget conservatively. If an organization could add one to three percent of annual operating expenses each year into building reserves, they’d be well on their way. And investing those reserves would be a smart next step, he added.

It comes down to planning for the future, says Armour, who has witnessed many unfortunate grassroots organizations working in reactive mode. “When I do strategic planning with boards,” she explains, “the image that comes to mind is people running alongside the train trying to get into the caboose as the train is moving.” If they acted proactively, though, instead of jumping onto a moving vehicle, they’d be in the driver’s seat.

Talk to me: Donor communication is essential

Harper’s third strategy is communicating with funders. “Securing reliable, long-term funding requires building and maintaining strong relationships with funders, through good times and bad alike,” he said. Many charities avoid telling their funders about problems they’re encountering or downplay them. But that approach can be dangerous. A tainted relationship is often the consequence, as he explained: “No one likes surprises, especially old surprises.”

Try to understand your funder’s goals, challenges, culture, and operating style and keep the communication ongoing. Through the maintenance of a strong relationship, the organization and its funders can build a level of trust over time. Other advantages include opening doors to further dialogue about program-related changes and receiving advice that may prove invaluable.

Banking on it: Create a relationship with your bank

Finally, establishing a healthy relationship with your bank is important for many of the same reasons as building relationships with your funders. Organizations need to keep in mind that banks want them to succeed, Harper said. Similarly, understanding the bank’s challenges and needs is important. “For example,” he offered, “understanding that certain actions are particularly costly to the bank will allow the organization to be a better customer, one that the bank is more eager to keep for the long haul.”

Case in point: How one charity overcame uncertain funding

So what did Windfall do in the face of uncertain funding? Well, for one thing, they hired a fundraiser. Up until a year and a half ago, executive director, Helen Harakas took care of the job but after a recent fundraising audit, she decided to delegate that important task. “We were depending too much on one individual – me – to do all the fundraising,” explains Harakas. “We literally have to raise half a million dollars from scratch every year,” she continues. “An organization like that should never depend on one person; it can put it in a very vulnerable position.”

To be sure, hiring a fundraiser helped alleviate Harakas’ burden and avoid unnecessary vulnerability, but it also allowed Windfall to diversify its funding sources. For, not only did the fundraiser bring her contacts from the corporate world with her – significant contacts Windfall was lacking, she also helped initiate new programs. Without her help, for example, Harakas says Windfall would never have initiated a new social purpose enterprise soon representing a steady source of income. She also started a unique monthly individual giving program, expected to bring an additional $100,000 after four years.

Windfall also underwent a round of restructuring after the recession had just begun. Not knowing how long it would last, the organization acted preventatively. They restructured some positions and saved the organization the cost of two salaries.

Finally, the organization took full advantage of Ontario Works’ placement program, whereby charities can receive four staff to work free for a full year. The help has been incredibly satisfying. “It takes the nitty gritty work off the plate so we can focus on relationship building,” Harakas explains. “That has really helped; we really lucked out.”

They’ve also lucked out with their board chair, it seems. Harper sets a good example by giving personally to the organization and urging other board members to do the same. “He walks the talk,” says Harakas. He also provides an invaluable mix of accounting and nonprofit experience which certainly comes in hand. But his biggest contribution is the unwavering faith he has in Harakas and her staff. And when it comes to uncertain funding, she adds, “it’s always nice to have someone who believes in you; it keeps you positive.”

Elisa Birnbaum is a freelance journalist, producer and communications consultant living in Toronto. She is also president of Elle Communications and can be reached at: info@ellecommunications.ca.

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