Diversify Funding Sources to Weather Uncertainty
Longtime readers know I normally wax philosophical at the beginning of a new year. An article about new year resolutions inspired our entire series of ebooks. But as we plunge into this new year, I am less reflective than usual and more focused on looking ahead.
As we step into this new year, I am urging nonprofits across the nation to brace for the challenge of maintaining sustainability amid economic uncertainty. The federal funding landscape has never been more unpredictable, and it has never been more crucial for organizations to diversify their revenue streams. A diverse grant portfolio is not just a safety net; it’s a strategic approach that can help nonprofits thrive and adapt in a volatile social and political environment.
Understanding the Importance of Diversification
Diversification in grant funding is akin to a well-balanced investment portfolio. Just as investors spread their assets across various sectors to mitigate risk, nonprofits should seek funding from multiple sources to reduce dependency on any single grant or donor. This strategy offers a buffer against economic downturns, unexpected funding cuts, or shifts in donor priorities. By cultivating a range of funding opportunities, organizations can stabilize their revenue and enhance their capacity to deliver on their mission.
In business school, they teach the 20% rule. That rule says to ensure that no more than 20% of revenue comes from any one source. The same rule applies to nonprofit organizations. Now is a good time to review your revenue sources and check your ratios. In the current climate, it isn’t enough to have five different federal grants. We need to make sure that no more than 20% of our total revenue comes from federal sources (including state pass-through dollars).
Other revenue sources include annual fundraising, fee-for-service or retail operations, nongovernmental grants, investments, and major gifts. If your organization isn’t hitting 20% revenue generation across each of five different sources, it is definitely time to put the revenue side of your budget under the microscope.
Strategies for Building a Diverse Grant Portfolio
While we certainly have a few thoughts on other types of revenue besides grants, grants are our specialty. So we’re going to share some tips for diversifying the grant revenue portion of the equation.
Assess Your Current Funding Landscape: Begin by analyzing your current funding sources. Identify where your income is coming from, the types of grants you currently hold, and any potential risks associated with them. This assessment will provide a foundation for your diversification efforts.
Research Multiple Funding Opportunities: Explore various grant opportunities, including state, local, and private foundations. Don’t overlook unique funding sources such as corporate giving, crowdfunding, and community grants. Each source may have different eligibility requirements and application processes, so it’s essential to do thorough research.
Engage a Grant Writer: Hiring a professional grant writer can enhance your chances of securing funding. An experienced consultant can help you craft compelling proposals tailored to specific funders, increasing your organization's visibility and appeal.
Leverage Data and Impact Stories: Funders are increasingly interested in evidence-based approaches. Use data to demonstrate your organization’s impact and effectiveness. Share compelling stories about the individuals and communities you serve to create an emotional connection with potential funders.
Develop Collaborative Projects: Partnering with other organizations can open doors to new funding opportunities. Collaborative projects often attract funders interested in investing in comprehensive solutions that address complex issues.
Stay Informed and Flexible: Economic conditions and funding landscapes are constantly evolving. Stay informed about trends in grant funding and be willing to adapt your strategies as necessary. Flexibility can position your organization to seize new opportunities as they arise.
Building a Sustainable Future
Incorporating a diverse grant portfolio into your financial strategy is vital for long-term sustainability. As the economy fluctuates, having various funding sources can provide the stability needed to continue delivering essential services. Beyond financial security, a diverse grant portfolio fosters innovation, strengthens relationships, and enhances your organization’s reputation.
The Role of Capacity Building
To effectively implement a diverse grant strategy, organizations may also need to invest in capacity building. This could involve training staff in grant writing, enhancing financial management practices, or utilizing technology for better donor management. Building internal capacity not only increases your organization’s ability to secure funding but also lays the groundwork for sustainable growth.
As we embark on a new year, nonprofits must prioritize the diversification of their grant portfolios to navigate uncertain economic waters. By employing strategic approaches to funding, organizations can enhance their sustainability, innovate their programs, and ultimately Do More, Better. Embracing a diverse grant portfolio is not merely a financial strategy; it’s a commitment to resilience and adaptability in the face of challenges.
By taking proactive steps now, your organization can thrive in the coming year and beyond, ensuring that you remain a vital resource for those you serve.