Nonprofits cease operations all the time, from large hospitals to small community social service agencies, for a wide range of reasons. Sometimes the need disappears, think of diseases like tuberculosis and polio that are no longer a major threat. Shifting demographics and dropping enrollment led to the closure of three Vermont colleges in 2019. Sometimes a nonprofit’s operational model becomes unsustainable, which is why a number of volunteer-driven services were unable to survive COVID when volunteers were no longer permitted to perform the duties they had in the past or they couldn’t find volunteers once they were able to resume normal operations.
But many times, nonprofits go out of business simply due to lack of funding. Funding typically doesn’t evaporate overnight, and in many cases, disaster could have been avoided had the warning signs been heeded.
Recently I read about the Minnesota Environmental Fund that shuttered in March after 30 years of providing direct operational support for over 20 environmental organizations. This organization went from raising $745,000 in 2017 to $511,000 in 2019 to $422,000 in 2020 and made the decision to close its doors in 2021 due to declining contributions. I can’t tell you exactly what happened in that instance because I wasn’t there, but the fall off took place over a period of years.
I can offer some ideas on how organizations can avoid finding themselves in a similar predicament. The first habit in Steven Covey’s book, Seven Habits of Highly Successful People, is to be proactive. Here are several ways to be proactive.
Ultimately every nonprofit board is responsible for the organization’s financial wellbeing. The board has a fiduciary duty to maintain the financial integrity of the institution. This doesn’t just mean keeping an eye on expenditures, it also means ensuring that the organization has adequate resources to achieve its mission, including being actively involved in fundraising.
Day to day fundraising operations may fall to an executive director or development director, but board members need to be involved at a higher level. They need to provide strategic planning for the next 3 – 5 years so the ED or DD can formulate a development plan to meet those needs. Donors need to know what an organization’s plan is to decide whether it is the right place for them to make their contributions.
In addition, board members must lead by example and support the organization financially every year. If an organization’s own board isn’t willing to contribute, why should anyone else be? Board members must actively help the organization in the fundraising process by identifying potential donors, cultivating those prospects, making an ask when appropriate, stewarding donors once a gift has been made. Not every board member needs to do all those things, but every board member should do some of those things.
These activities should be made clear during prospective board interviews because prospective board members need to know what is expected of them if they join the board. Board members should be held accountable for what they agree to do each year in their annual board commitment agreement.
The leadership team and the board need to do more than count pennies as they come in and out the door. They need to critically assess the organization’s fundraising capacity from time to time, and take an honest look at where donated income is coming from, and what factors could impact that income. A regular SWOT analysis will help determine what an organization can build upon and what it needs to look out for. Organizations that understand their strengths, weaknesses, opportunities, and threats are much less likely to get caught off guard, and in a better position to deal with it if they are.
We all know the old adage, “Don’t put all of your eggs in one basket.” Organizations need to have multiple streams of donated revenue. Organizations that were heavily dependent on money raised from events prior to the pandemic found themselves in dire straits in the spring of 2020 when those events started getting cancelled. By the same token, some ill-timed bad press can stifle a direct mail campaign. Unexpected things happen. All organizations should fortify themselves by exploring a variety of funding sources, including large individual donors, grant writing opportunities, direct response from mail, email and social media, as well as events.
“But we’ve always done it this way.” The epitome of delusion is repeating the same actions and expecting different results. If tried-and-true methods of raising money are no longer producing sufficient revenue then it is time to shake things up, explore new avenues of raising money. This is one of the most challenging concepts to get board members, leadership, staff, and volunteers to accept. No one likes change. It is uncomfortable and sometimes even painful. But it is also necessary. The sooner an organization adapts itself to a new way of doing things, the faster it will get the outcome it wants.
It is hard to accurately predict economic trends, public opinion, tax law changes, pandemics, and any number of other things that impact fundraising. An organization that embraces these proactive concepts should be able to continue raising the money needed to fund its mission and prosper, come what may.
As always, I greatly value your thoughts and observations on my posts. Do you have some more ideas on proactive steps that organizations can take to avoid fundraising shortfalls? Please add a comment below.