Resources

Funders Who Reward Capacity Development

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Creative and sustainable nonprofits are drawing more and more funding from "investors" while the pool of feel-good "donors" is shrinking.

You can trace much of how nonprofits operate back to the source of their funding.

The majority of nonprofits have a Development Director whose key role is not development of the organization, but development of funds for the organization. They are in charge of writing grants, reporting on grants, courting foundation contacts and major donors, managing fundraising campaigns, and basically asking for money.

In my experience, very few nonprofits see "development" beyond the role of asking for money, over and over and over again.

If we trace this back, it's easy to see the reason for this reliance on repetitive fundraising.

Historically, many foundations and donors demanded that the greatest possible percentage of their funds be invested in direct program services. In other words, donors have demanded that nonprofits spend donated funds right away, with no investment in the future.

This idea was set in stone by organizations like the Better Business Bureau Wise Giving Alliance, Guidestar and Charity Navigator; sites whose profit model was based on giving donors solid information about the nonprofits they were considering donating to, but whose lack of concern or awareness of genuine indicators of mission efficacy resulted in a long era of comparing nonprofits based on one major indicator: their "overhead".

In fact, many states (including Utah) still publish the percentage of donations invested in direct program services on charitable solicitations permits - requiring these permits to be displayed on location and making such information available online, as if it were a genuine indicator of impact that was comparable across mission focuses.

This hyper-focus on a particularly meaningless percentage has resulted in enormous pressure to pay as little as possible for everything, from space to supplies to talent. Nonprofits are expected to get everything donated and to attract bleeding hearts who will work hard in crumbling offices on the bad side of town for less money and terrible health insurance.

I was talking with several talented employees of a local nonprofit that I admire a great deal for their forward-thinking revenue models last week. I was amazed to learn that because of their location, they are approached daily by drug dealers and have to watch their young clients deal with the same interactions as they come and go from classes.

A for-profit arts school would absolutely never subject their clients to this type of environment; it's bad for business. This organization is catering to the same clientele with unique and important STEM education, yet they have not made it a priority to move to a better location. Why? Almost certainly because it would increase their overhead.

While many nonprofits are responding to opportunities for sustainability and internal revenue creation, they continue to sacrifice in ways that ultimately lead to poor performance of those initiatives, or outright failure.

However, the nonprofit culture is shifting, albeit slowly.

Family foundations are now being run by a younger generation, a generation characterized by entrepreneurship and impact. More and more corporations are investing in nonprofit grants and awards that reward sustainability and innovation. And thanks to technology, we are witnessing nonprofit and for-profit startups that are making a splashy impact, while giving 100+ year old nonprofit in the same niche a run for their money.

With this shift, those big three online nonprofit rating services finally backed away from this percentage as an indicator of mission performance with an open letter in 2013 and a follow-up letter to nonprofits in 2014.

The days of doling out $10,000 checks for feel-good programs are petering out and it's a good thing.

While I've witnessed many nonprofits deny this shift and struggle to incorporate better business models into their long-term mission strategy, the process is leading to stronger, more accountable, and increasingly sustainable cause organizations who may very well multiply their impact on homelessness, domestic violence, animal cruelty, addiction, and every other mission focus.

And much of this credit comes back to funders and donors who are willing to invest in the long game, who are looking beyond the percentage of donations invested in one-time services and reinforcing the importance of internal capacity.

Eide Bailly's Resourcefullness Award is just one example of a funder that sees the bigger picture, investing a total of $15,000 in nonprofits with creative and sustainable revenue generation initiatives in Utah, Arizona, Colorado and Minnesota (applications are due August 12th).

Here in Utah, our Community Foundation just held it's third Social Investors Forum, curating a community-wide dialogue around the importance of funding unique, innovative, and sustainable nonprofit initiatives while bringing new funders to the table who are more comfortable with "investing" rather than "donating".

Our state Arts & Museums Division invests up to $2,500 in arts organizations each year specifically to aid them in developing their capacity.

These focus changes are critical to creating long-term impact. In effect, these are genuine investments that multiply the impact of the funders. They trigger and support internal capacity development and revenue generation programs that allow the nonprofit to further its reach and its mission, year after year.

That's a donation check I want to write.

So, whether your making a personal donation, a grant award, or a creating a corporate giving program, consider reaching out to nonprofits within your mission focus area and finding out which ones are making this leap.

Invest in the long game, not low overhead, which is too often an indicator of low growth, unsatisfied employees, high turnover, and ultimately, low impact.

And for you nonprofits, invest in talented, creative minds that can challenge your status quo, and brag about how you are positioning to make a difference for now, and for the future.

The Nonprofit Management Audit

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The goal of a management audit is to identify your internal blind spots - the risks the organization is incurring due to gaps in day-to-day operations. It's more commonly practiced within the corporate world, but non-profits are especially at risk for unknown weaknesses. Passionate, well-meaning people found beautifully optimistic nonprofits everyday. There is a notion that a running a "charity" will be nothing like running a business; nowhere near as difficult.

While most fail quickly, many nonprofits make it past infancy to the point of acquiring space, allocating a stable salary for the founder-turned-Executive Director, and hiring a few staff members.

This is the next major fail point.

The compliance requirements, reporting, paperwork, payroll taxes, liability insurance, property tax exemption declarations, sales tax reimbursement requests, charitable solicitation permits, business licenses, accounting systems, spreadsheets, meetings, and much more aren't what the founder envisioned.

Without experience, it's nearly impossible to recognize which puzzle pieces are missing and which will cause you the greatest grief. This is where the management audit comes in.

A professional management audit should be conducted by a consulting firm so as to provide objectivity and hopefully some resource-saving expertise. But organizations of all sizes should engage in regular, internal management reviews to continuously build an infrastructure that is sustainable and protect your 501c3 status.

To help you get started, here are the major areas I might review during an audit, depending on the goals of the organization:

Foundation

Charitable Purpose By-Laws Mission Vision Strategic Focus Annual Plan Long-term Strategic Plan Impact (Outcomes)

Regulatory & Compliance

501(c)(3) Status Charitable Solicitations Permit Business License(s) Independent Financial Audits (Voluntary or Required) Annual IRS 990 Submission Workers Comp Unemployment Insurance General Liability Insurance Directors & Officers Liability Insurance Policy & Procedure Document Retention Policy & Management Industry-Specific Regulatory Requirements

Executive Leadership Team

CEO / Executive Director CFO / Financial Director Additional Leadership Roles Team Structure & Decision Making Process Development & Coaching Board Chair Involvement Succession Plans

Financial

Zero-Based Annual Operating Budget with Board Approval Frequency of Financial Reporting to the Board Financial Controls in Writing and in Action Bookkeeping Responsibilities Accounting Software / Firm In-Kind Donation Tracking Restricted Funds Management Diversification of Revenue Earned Income Activities & Unrelated Business Income Compliance Annual Financial Review/Audit 990 & Financial Review/Audit Board Review & Approval Overhead Percentage & Sustainability Cash Reserves Physical Assets Security

Board of Directors

Recruitment & Member Induction Process Director Agreement / Code of Conduct Director Terms Director Compensation Conflicts of Interest Policy & Annual Disclosures Meeting Minutes Number of Quorum Meetings Annually Committees Level of Attendance & Contribution Director Onboarding / Ongoing Training Board Chair Succession Plan

Human Resources

Employees - Open Position Postings - Equal Employment Opportunity (if covered entity) - Employment Applications - IRS W-4 - I-9 - E-Verify (15+ Employees) - Regular Supervision - Documented, Regular Performance Reviews - Timesheets - Any Required Training Documentation - Labor Law Compliance Posters

Independent Contractors - Categorized Correctly - Current Contracts - Business License - Professional License(s) - Invoices

Volunteer Applications Volunteer Hours Reporting Background Checks (Voluntary or Required) Confidentiality Agreements Onboarding Process Ongoing Internal Training Opportunities (Voluntary or Required) Disciplinary Action Policy & Documentation Hard & Electronic HR Files Security

Outreach & Development

Strategic Development Plan Development Calendar Website Social Media Grant Proposals & Follow-Up Special Events Major Donors Individual Donors & Stewardship Promotional Materials Outreach Activities Community Engagement Industry Network PR

IT

IT Equipment Phone System Software & Technology Email System Shared Calendar System Accessibility & Security Internet Access Policy

Space, Equipment & Supplies

Space Ownership / Lease Office & Staff Supplies Staff Break Areas

*Disclaimer: I primarily work with nonprofits located in my own state. Some of the identified requirements or permits are exclusive to Utah.

New Tools for the DIY Founder

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I specialize in building the backbone of young organizations, allowing them to scale their impact. Over the years of working within this segment, several consistent pain points have emerged:

  • Preparing a professional annual budget that actually helps guide decisions
  • Setting up compliance activities (business licenses, charitable solicitations permit, labor law compliance, etc)
  • Establishing paperwork and procedures for new hires and independent contractors
  • Implementing financial controls
  • Developing overall policy and procedure documents

Often times, figuring out exactly what is causing the ceiling on your efforts is part of the mystery.

However, I often encounter passionate executives who are know they are missing these pieces, but they just don't have that expertise. This is especially true in the nonprofit sector where founders become CEOs without much formal training on the dark side of organizational leadership: spreadsheets, paperwork, and compliance.

This is why I'm launching affordable toolkits for the Do-It-Yourself founders out there.

Reinventing the wheel is time expensive and often results in subpar outcomes, but hiring the expertise is often cost-prohibitive, even under a temporary consulting agreement.

Instead of paying $300-500 for someone like me to commute, meet you face-to-face, and develop an annual budget, simply throw your figures into a spreadsheet and exchange it for a professional workbook containing your annual budget and variance reports, automatically calculated based on your actual results during the year. All for a flat, affordable fee and in just a couple days.

Already have a decent grip on your budget, but need to convert it to a format that will help you track revenue and expenses easily and present professional reports to your Board? Simply download the DIY Budget template.

Hiring your first employees or bringing on an independent contractor? HR is synonymous with paperwork and payroll demands you do it right. Download the HR quickstart toolkit and get a handy checklist for your new hires plus all the paperwork you need, easily customized for your company:

  • Employment application template
  • Timesheet template
  • Contract template
  • Invoice template
  • IRS Forms

Virtual Budget Prep, the DIY Budget Template, and the DIY HR Toolkit are all available now. More products are on the way, including starter policy and procedure, an earned income for nonprofits workbook, and a financial controls toolkit. Be sure you're on the mailing list to get the latest product updates.

Growing your organization shouldn't mean late nights pouring over IRS publications or scouring an Excel spreadsheet for the broken formula. You have better things to do to advance your mission.

10 Steps to Nail the 10 Minute Pitch

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Last Friday, the Community Foundation of Utah held their first annual Social Investors Forum, Shark Tank-style. They solicited both for-profits and nonprofits through a call for investments, narrowed the 150 applicants down to six, and then invited them to pitch in front of the judges, investors, and an audience...on Valentine's Day. Startup founders are well-versed in the pitch and many begin honing and refining their public speaking skills and story long before they are served up to the sharks. But, nonprofits haven't frequently been put through a publicized pitch event. Most fundraising goes on behind closed doors with grant applications or donation request letters.

Pitch-style events probably aren't going away. More and more large donors are starting to see themselves as investors and some are even looking for actual returns by investing in debt opportunities or for-profit social ventures. The opportunity to have a dialogue with the organizations you're considering is invaluable.

While it might be terrifying for introverted mission warriors to share their message from a stage, the platform has its benefits and, if harnessed, can stir up new donors, patrons, and supporters. It's time to embrace the pitch.

10 Easy Steps to Nail the 10 Minute Pitch:

1. Know your audience. Find out exactly who you will be pitching to. If they're traditional foundation directors, then stories about community impact will probably be critical. If the judges are potential investors or from the business community (as with most boards), they will want hard numbers and evidence that you know how to run your organization like a well-oiled machine.

2. Tell a story. It's critical that your audience connects with the application of what you do. We all too often rely on statistics, which are not only boring, they depersonalize the very real experience of the people who make up those stats. A story can be delivered in about a minute and can start your presentation off with a clear understanding of the why and the what, before you launch into the details.

Example:

One of the groups on Friday was looking for seed funding for a youth game development program, expanding on existing media training they do with kids. The program would only initially benefit 10 teens, a sticking point that the judges hit on. Had they started out with the vivid story of "David" who comes from a low-income family and got involved in a video production team in elementary school, advanced to additional media training in junior high, and then received a full-ride scholarship to the award-winning game design program at the University of Utah...and he also happens to volunteer as a mentor for the students in the program now...well that might have answered some of the skepticism around the impact the funding would have.

3. Start with why. We often get stuck in the what too often. Start off in the why. Why does your organization exist and why are you uniquely qualified to deliver the solution you are presenting. The why can often be delivered succinctly in your story, just make sure you make a clear and compelling case for why your organization or project is needed.

4. Demonstrate optimistic confidence. Ever get irked when your kids whine about having nothing to do rather than coming up with an idea? The same reaction holds true for nonprofits, yet many of us still go to funders with a big whiny, statement about how hard things are. Would you invest in someone who comes to you for all the answers, or would you invest in their competitor who is coming up with the solutions?

If you're particularly resilient - brag about it. "Yes, we had a $20K funding cut from our government contract, but we immediately came up with several alternative funding solutions and then launched a social enterprise to bring in sustainable, ongoing funding while training our clients in marketable skills!"

5. Answer their biggest questions. By knowing your audience, you should be able to anticipate what questions they will be asking and what doubts they will have about you, your organization, and your project. If you can fill in the blanks before the Q&A, you'll invoke more confidence. Try out your pitch on someone who knows nothing about your project and have them grill you afterward to help you refine your content.

6. Demonstrate competence. While this shouldn't be a show about how great you are, you should quickly shore up any doubts about your ability to perform by documenting your team's credentials and a few examples of prior successes. Funders recognize that they are investing in people, not just a good idea.

7. Plan for sustainability. If you don't have some form of earned income or a sustainability plan, you are limiting your funding opportunities and losing ground. Highlight how you will leverage funding to create long-term impact, as well as how you plan to maintain funding for the project. A bicycle collective that pitched on Friday rightly bragged about the fact that 90% of their revenue is self-generated through tune-ups, repairs, and sales.

8. Storyboard it. When  you have identified the main components, draw out your presentation from start to finish, ensuring that you have a powerful opening and an equally compelling closing, with a logical sequence in between. Remember that even presentations need white space - if your script has you rushing to keep it to 10-minutes - make some strategic edits to deliver the information more succinctly. Tip: Your slides can help deliver content that you can't fit into the script.

9. Be creative and engaging. You aren't the only team pitching and if folks wanted to simply read your slides, they would have had you send them in rather than having you pitch. Make eye contact, use your hands, stand up straight, and don't read your slides. Take the time to get creative about how you deliver your most important message so that it leaves a distinct impression.

Example: 

One of the presenters was pitching for funding for a fruitshare program. Instead of delivering statistics about how much fruit is wasted and how many people are going hungry, he started his pitch by handing out an apple to each judge. He then shared a powerful statement about how those delicious-looking apples traveled more than 1500 miles and had likely lost half of their nutritional value. It was a simple, but smart attention-grabber that not only left an impression, it literally left an apple in front of the judges for the rest of the pitches.

10. Rehearse. Rehearse. Rehearse. Don't fly by the seat of your pants. You may know your organization inside and out, but a well-crafted and well-timed presentation will give a clear, aligned message from start to finish and demonstrate how motivated you are to secure funding for your cause.

On a side note, if you're an introvert (like me), the more prepared you are, the more likely no one else will recognize that you are WAY out of your comfort zone. During the mingling on Friday, I heard too many presenters complain about how terrible they were or highlight the problems in their presentation.

Nobody likes a self-deprecating complainer and it doesn't make any logical sense to draw attention to our mistakes, but for some reason we seek comfort in gouging ourselves before others can. Be cognizant of this and instead smile, accept the compliments graciously, and roll with the punches - even if you seriously fall on your face or your technology backfires.

Good luck!