The trust is also a firm believer in the need for healthy diversification of funding sources. “Whenever we see that a nonprofit has support from a wide range of sources, we can immediately tell that this is an organization that has a wide number of investors,” says Ngoan Le, the Trust’s vice president of programs. “We see that as a sign of strength, that this nonprofit has a low probability of going out of business.” Le says that when the Trust considers funding a nonprofit, it looks at the applicant’s program and administrative budgets to see if they are funded from a mix of sources. “We never want to be the only source of revenue for a budget,” she says.
Jamie Philippe, vice president of development and donor services at The Chicago Community Trust, explains that funding diversity can be broken down into three interrelated categories:
- Diversity of sources, which includes earned and unearned income as well as competitive government grants;
- Diversity of methods for securing sources, which includes direct mail appeals, face-to-face fundraising, special events, grant proposals, etc.; and
- Diversity of purpose, which encompasses restricted funds such as facilities, programs, and endowment, and unrestricted funds.
The key, says Philippe, is to find the right balance of these three elements for a particular organization. For example, a membership drive is typically a fairly modest source of revenue, but its method is labor is intensive. However, membership funds are typically unrestricted. Special events are also labor intensive too, but the revenue is potentially greater, even though the funds raised may be restricted to a particular program.
The Trust encourages nonprofits to explore alternative revenue sources due to the economy, such as social enterprises and counseling services, but notes that these ventures can require fundamentally different approaches, a shift in the organizational culture, new staff, and possibly even changes to the mission. It even encourages nonprofits with similar missions or constituencies to consider mergers. “If merging helps you do your mission better and get a better base of support, then you are doing your mission well,” says Le. However, mergers should not be sought when in a position of weakness. “A merger can still work then, but it’s not a strategy for growth,” she says.
The Chicago Community Trust’s belief in diversified funding isn’t simply philosophical.
“Diversification is very relevant to us,” Philippe explains. “Community trusts are one of the few types of foundations that have to proactively raise money.” The Trust is currently in the middle of an endowment campaign, and is seeking a broad range of funds to continue serving an equally diverse spectrum of community nonprofits. “If it’s done well, we don’t think there’s such a thing as too much diversification,” she adds.
This post was adapted from “The Right Mix: How to Strengthen Your Organization’s Sustainability through a Well-Thought-Out Plan That Sees Money as a Strategic Asset,” by Paul Lagasse, Advancing Philanthropy, Summer 2013 (reprinted with permission). You can read the whole article here.
