Nonprofits build resilience with diverse funding

Among nonprofit leaders, defining their organization’s purpose and mission is the starting point. Then comes the complex challenge of ensuring that the organization has the resources it needs to pursue that mission with consistency over many years. Achieving long-term stability requires a diverse funding portfolio.

This is particularly true as nonprofits navigate challenges with some of their traditional funding sources, such as government grants. A study of large nonprofits by the Urban Institute, a nonpartisan research organization, found that a majority of organizations receiving government funding would operate at a deficit if those funds disappeared. In fact, without their government grants, 60 to 80 percent of nonprofits in every state would be at risk of operating at a loss. Government funding remains a critical resource, providing more than triple what groups typically receive from foundations, the study noted. Any organization that relies heavily on single-source funding or a narrow category of agency contracts may be facing a new level of vulnerability.

At the same time, some philanthropic foundations are shifting their priorities, and major funders may be pulling back in certain areas. These uncertainties are forcing organizations to take a hard look at the strengths and weaknesses of their funding models. Fortunately, nonprofits have an array of options for diversifying funding away from the contracts, grants or donations that may have been mainstays in the past.

Strategic partnerships, for instance, may enable nonprofit organizations to develop new types of financial support, tap into in-kind donations and take advantage of skills-based volunteer time. These strategic partnerships  may help nonprofits identify new pools of individual donors, strengthen brand or reputation, making funders more willing to invest, or it might help create a new level of visibility. 

Earned income strategies present another path. A nonprofit’s ability to access these opportunities depends on what it does: an arts organization might rely more on ticket sales, a membership organization might lean more on member dues or service fees and so on. Many types of groups might find a way to expand their resources by developing new business sponsorships or encouraging their donors to make recurring gifts. Monthly givers tend to be more loyal and engaged, according to a report published by the Association of Fundraising Professionals, and recurring donors on average give 42% more than one-time donors. 

Addressing these changes requires adaptive leadership. Maintaining a stable funding model in an uncertain environment demands creative, flexible and proactive decision makers who can guide an organization toward long-term financial stability. With adaptive leadership, creative partnerships and new thinking, an organization may develop new initiatives or service models to expand their impact—while broadening the funding base at the same time. 

At Capital One, our dedicated experts for nonprofit banking appreciate the challenges that organizations face. The nonprofit banking team understands that achieving predictable cash flow is one of the most critical financial challenges for nonprofit leaders. We provide specialized resources and solutions to support adaptive leaders as they strengthen their funding models and navigate uncertain financial environments.

We recognize that many of the steps nonprofits might take to expand their funding will potentially place new demands on the treasury function or make their work more complex. Boosting income from ticket or merchandise sales may create new categories of payments and receivables, for instance. New sponsorship income could change how funds flow through an organization’s accounts. Many new funding opportunities are likely to increase the importance of partnering with a bank whose nonprofit and Treasury management experts work closely with clients to integrate their banking system and their ERP to strengthen reconciliation and improve cash forecasting.  

Greater efficiency in treasury management will be increasingly valuable. Organizations need improved cash visibility and will benefit greatly from added automation. To best support the organization, a nonprofit’s treasury team should be spending less time focused on repetitive day-to-day tasks and more time on the higher-level planning for financial resilience.  

A range of tools are available to support these objectives, and Capital One’s nonprofit experts can work with an organization to find the right set of banking solutions for its specific needs. Treasury management is undergoing a technology transformation and nonprofits should take full advantage of new automation tools and the possibility of greater connectivity among systems. Tailored products and services can be an important part of the answer as nonprofits examine funding opportunities and strive to foster long-term stability.