Best Practice Trends for Nonprofits: Diversify Your Funding
Date: January 27, 2015
Intacct’s View from the Cloud
Whatever your current planning process is, you will probably be planning for expanded services. Most nonprofit organizations are continuing to see an increase in the demand for services while facing increased competition for funding. In this environment, you need the support, credibility, and visibility with the community, funders, and constituents. Strong nonprofit / fund accounting and financial management is key and includes performance and outcome reporting.. But you need more to bring stability and sustainability – while allowing you to scale for growth. By diversifying your funding streams, you strengthen sustainability while expanding your influence and impact by partnering with new and diverse resources that you may not have considered previously. I’m going to share some basic info – along with great resources – to help you get started and navigate the world of social finance. As with most things, balance is key to successfully diversifying your funding.
Social Finance is an approach to mobilizing private capital that delivers a social dividend and an economic return to achieve social and environmental goals. It creates opportunities for investors to finance projects that benefit society and for community organizations to access new sources of funds. Social finance is fairly broad in its definition, but let me give you a thumbnail of a few of the most interesting ‘instruments’ included in the social finance realm. For additional information and resources related to Social Finance, check out this 501c3, which is dedicated to mobilizing investment capital to drive social progress: Social Finance.
Impact Investments are investments made into companies, organizations, and funds – with the intention to generate measurable social and environmental impact alongside a financial return. Impact investments are made with an expected return of capital as well as a return on capital, and most importantly, a commitment to measure and report the social and environmental performance and progress of the underlying investments. Global Impact Investing Network says it well: “Impact investing has the potential to unlock significant sums of private investment capital to complement public resources and philanthropy in addressing pressing global challenges.”
Program Related Investments. GrantSpace identifies these as investments made by foundations to support charitable activities that involve the potential return of capital within an established time frame. PRIs include financing methods commonly associated with banks or other private investors, such as loans, loan guarantees, linked deposits, and even equity investments in charitable organizations, or in commercial ventures for charitable purposes. For the recipient, the primary benefit of PRIs is access to capital at lower rates than may otherwise be available. For the funder, the principal benefit is that the repayment or return of equity can be recycled for another charitable purpose. PRIs are valued as a means of leveraging philanthropic dollars. The Foundation Directory Online maintains a database that includes funders that make PRIs.
Social Enterprise. The standard definition of social enterprise is applying commercial strategies to maximize improvements in human and environmental well-being, rather than maximizing profits for external shareholders. Nonprofits are starting to leverage this strategy as they seek to create earned income to increase their sustainability and funding strength. NESC has published a great report on Social Enterprise’s Expanding Position in the Nonprofit Landscape. Social Enterprise activities offer nonprofit organizations the opportunity to generate earned income which in turn will provide consistent cash flow to further the mission of the organization. Social Enterprise activities can enhance the brand/reputation of the organization. A direct benefit of Social Enterprise activities for nonprofit organizations, can be the enhancement of management. One simple example of social enterprise is an earned income venture. By selling goods or services (i.e. Girl Scout Cookies), a traditional 501(c) (3) nonprofit organization can diversify its funding base while providing positive impact in the community.
The social finance and funding world is expanding rapidly. There are many new funding resources to help you ensure mission success for your organization. As you start planning your funding and growth strategy for next year, make sure you challenge your team to find the best fit in the myriad of new funding opportunities, and incorporate it into your fiscal plan and performance goals. And don’t forget to track and report on your funding diversity; your donors and constituents need to know!
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