This is the third article in our NFP collaboration series.
Large donors lessen their giving. Grants are reduced or denied. Federal funding expires. These are real challenges facing not-for-profit organizations. These revenue challenges, combined with increased service demand, inflation-induced costs and dwindling reserves, can result in difficulty when creating and managing a budget that fulfills your organization’s mission and impact.
Financial challenges unique to not-for-profit organizations
- Grant funding – foundations or significant family offices may change funding priorities and/or limit repeat grant requests. As the funders shift course, dependent organizations are impacted by recurring grants and funding challenges that arise when new sources are sought after
- Federal funding – the phase out of COVID-19 funding in 2023 along with the vulnerability of qualifying and/or receiving Employee Retention Credit (ERC) funds has created a hole in some organizations’ budgets where they haven’t fully recovered to pre-2020 levels of giving and grants
- Depleting cash reserves – with inflation and increased demand for services, it costs more for organizations to deliver their services. Organizations have been offsetting rising costs by using surplus cash or operating reserves in the short-term in anticipation of replenishing revenue goals
- Reduced demand for special events – during the pandemic, many organizations were forced to halt traditional, annual special events. Since then, many events have failed to recover back to pre-pandemic numbers and many attendees remain hesitant to attend large events with continual concerns on public health
- Generational shifts – many mature, large not-for-profit organizations have been the beneficiaries of several generations of donors. Consistent methods of fundraising, including direct mail, annual year-end gifts and office wide campaigns are not always as attractive to newer generations. It presents a challenge for development teams to lessen dependence on these consistent methods and learn the preferences of newer generations
Innovative partnership benefits for NFPs
Exploring reinforcements to increase grants, contributions and revenues is a good case for collaboration with another organization. Whether it is through a merger or acquisition (M&A) or a joint venture to seek grant funding, the following are some benefits of partnering with other organizations:
- Grant writing collaboration – present a stronger grant proposal when you work with another organization to meet various community needs and/or demonstrate greater impact to an underserved project with combined resources and infrastructure
- Broadens and deepens donor base – as mentioned above, the newer generation of givers are drawn to impact and want to see how their donations are making a difference. Connecting with another organization can create a more impactful story, influencing and/or increasing donor contributions
- Increases grant potential – foundations and grant organizations are looking for maximum impact when distributing their funds. If two organizations combine to meet a greater need in the community, then their innovation can create an edge on qualifying for funds. This collaboration creates momentum and a synergy for opportunities to connect services to an underserved need
- Improving cash reserves – by sharing services or combining with another organization, there is potential to decrease overhead costs and streamline practices to reduce expenses and build reserves
Key considerations when deciding on a collaboration
NFP organizations interested in a collaboration, partnership, or even a possible merger with another organization should consider the following elements of the potential partner’s organization and revenue:
- Concentration of a few large donors
- Volume of multiple small donors
- Average age and average dollar amount of givers (look for data trends over last five to seven years)
- Is there reliance on annual fundraising campaigns?
- Are there legacy giving programs and education for donors on leaving assets in their will and estates?
- Composition of donor giving practices and their restricted giving collections
Cash flow trends
- Are there steady inflows throughout the year or a large percentage of giving in the last quarter?
- Are there multiple streams of revenue (investment, activity-based, rental income, etc.) or largely contributions?
- What cash reserves are available and what is their policy to transfer the use of the funds?
Restrictions on donations and/or grants
- Review donor and grant agreements to see what types of restrictions there may be on dollars coming into the organization
- Review multi-year agreements for renewal requirements
Review giving of the board
- Boards play a large role in fundraising through their own giving and their ability to network and tell the organization’s story to raise funds. What is their role in fundraising campaigns?
- If an organization is merging with another, then understanding how much financial contribution is made by the board is essential
Baker Tilly can help
There are alternative revenue resources available for not-for-profit organizations, but it could be beneficial to consider how collaborating with another organization could help drive your mission’s impact and create a sustainable future. Baker Tilly is here for you. We have a dedicated practice group committed to working with thousands of not-for-profit organizations, some of whom are asking these same questions. Connect with a Baker Tilly Value Architect™ to explore ways we can assist on your collaboration journey.