Don’t you just hate it when a donor gives you $50,000 to implement a project, and then has to control exactly how that money is spent?
Some times it is clear that the donor wants you to spend that money on activities that do not even form part of your core mission.
What I am personally peeved by, is not being able to help a person or community in need simply becuase the money available is restricted, or there’s no money at all. Over the last 13 years, working with small business, NGOs, and running my own charity initiatives, I have learned ways by which any emerging leader can avoid the being a slave to restricted funding, and actually start doing the work that makes their heart sing.
In this article, as part of series on organizational sustainability, I show exactly how you can run a nonprofit that thrives even without grant money. It all comes down to Financial Sustainability.
Why is it important to be a financially sustainable NGO?
This issue is important becuase when an NGO is not financially sustainable – that is they only operate from grant funding, it impacts the quality and quantity of the services you provide to your beneficiaries who often desperately require assistance.
When you experience any disruption due to lack of funding, it impact the continuity of programs and often results in your needing to shift your priorities from programming to fundraising, or pursuing funding based on donor priorities that may not harmonize with their intended objectives.
When your NGO is faced with shortage of available funds, you will naturally start trying to do more with less; this includes increasing the responsibilities of your existing staff; seeking additional money through new programs or other means; and operating at a deficit.
This should not be the case.
NGOs are nonprofit organizations indeed; but they should strive to generate a surplus of funds whenever possible. In business profits are reinvested or distributed to owners of the company; for NGOs retained funds can be spent on activities devoted to the mission or enhancing the organization. Ideally, NGOs can create a reserve fund for the challenging times that will inevitably occur.
Can NGOs have profits?
Are nonprofit organizations allowed to retain more money than they can spend? The answer is usually yes; however please make sure to check the laws of the country in which you operate. Generally, my experience is that nonprofits can have surpluses at the end of their fiscal year. What they may not do however, is spend money for purposes unrelated to their mission, or distribute profits for personal gain. It is actually recommended that NGOs generate a surplus for future planning, as well as meeting unforeseen challenges.
So how can NGOs generate surplus?
By engaging in Enterprise activities. To put it another way, NGOs who are conscious of financial sustainability MUST start income generating activities.
We will look at some different income generating models for NGOs in this article. For some of them I will even share examples of other NGOs and CSOs that are using similar models with success. But before then, let’s look at some key components of Financial Sustainability.
Four Key Components of Financial Sustainability
In my last post, I showed you some free tools that you can use to conduct an organizational capacity assessment for your NGO. After conducting the organizational capacity assessment, you will definitely have a greater understanding of areas in your organization where you need to pay more attention, and through that you can subsequently begin pursuing strategies to enhance financial and organizational sustainability.
Nature Conservancy, a Canada based NGO identifies four key components to Financial Sustainability, and they include:
- Strategic and financial planning
- Income diversification
- Sound administration and finance
- Own income generation
Here’s a document that goes into details on each of the four components. Of the four, I’m sure the one to be of most interest to you will be ways by which your NGO can start generating its own income.
How to generate your own income and never worry about funding again.
When you are generating you own income you have the flexibility of spend unrestricted amounts of money on anything you wish – within the scope of what the law allows, rather than what is prescribed by donors. Here are 5 things any NGO can start doing to generate her own funds no matter how small or big the NGO is:
- Selling goods and services
- Offering Fee Based Services
- Real Estate Investing
- Starting an Online Business
Let’s now start looking at each of these models individually:
Selling goods and services is probably the most common, and fastest way for any NGo to start to increase their income. You could literally start doing this as early as tomorrow. Some services you could start offering include training and capacity building for beneficiaries or organizations. What skills could you start teaching?You could start a ‘Saturday eat out joint” where you sell home cooked meals -this is if you are truly a good cook, and have access to one.Products might include those made by beneficiaries, such as handicrafts and artwork, clothing, food, beverages, or agriculture crops. You can determine a fair and reasonable percentage to charge beneficiaries in supporting marketing efforts or purchase and resell the goods yourself.
Fundraising – this is where you will be asking for donations from individuals, companies, government agencies, or others entities to support your mission by improving programs or strengthening organizational capacity. The money you generate through fundraising activities can be directed for a specific purpose, such as purchasing a building or vehicle, supporting a program, or it may be unrestricted, allowing you to determine the best use. Not surprisingly, very few donors provide donations, usually small amounts of money are collected from individuals or businesses that support a specific cause, often in a specific location. You can use the money generated from fundraising as start up capital for any of your other initiatives so long as you didn’t raise the funds for a specific purpose which you announced.
Fee based services such as membership in an association or organization, holding events where people pay admission, raffles, telethons, or other public campaigns are also common. You might also consider charging beneficiaries a nominal fee to participate in programs, assuming that the cost is accepted in the case of a donor funded program.
Invest in Real Estate – some NGOs pay as much as $5000 a year just to rent the space in which they run have their main office. Depending on the country in which you find yourself, you may choose to build to office suites instead, and you take one , an rent it out. With time , the NGO could have a few units being rented out daily or monthly.
Start an Online Business – As the internet continues to grow, more and more people are turning their lives on there. From grocery shopping to attending church service, more people are doing it online. So if more, and more people are living their lives online, where better place to be starting a business as well? You guessed it.. ONLINE.I am not the expert on starting and growing an online business; but I know some folks who are. Using the platform, more people and organizations have made more money online than any other platform. The platform is called Clickbank. Here’ a free video from the folks at clickbank University that show how you can start an online business very quickly, and with ease.
When organizations lack their own internal resources, they become dependent on the good will of donors whenever they want to conduct an activity that falls outside the scope of approved programs. If the donor disagrees with the organization’s needs or priorities, or if it simply lacks the capacity due to time or financial constraints, then the organization will be unable to support its beneficiaries. To put it in a quite simple manner,
When you NGO does not have a plan for generating it’s own income, it remains a slave to grant donors.
If you want your organization to remain at the mercy of grant donors, close this page and do nothing else.
If, however, you want to be able to tackle the things that are important to you whether there’s grant money or not, then I suggest you take the lessons I’ve shared here very seriously.
I look forward to reading your comments in the session below.