The Value of Unrestricted Funds
July 01, 2014
Imagine this, a man walks into a bakery and says to the baker, “I need a gluten free cake, but I can only pay you 20% of the cost, and you can only spend my money on eggs, but not butter and not on electricity for the oven; you have to find someone else to pay for the oven’s electricity!” Nonprofit funding: Ordering a Cake and Restricting it Too asks the question what it would be like if a bakery operated with the same funding restrictions as not for profit organizations.
Multiple Revenue Sources
Arts organizations, like most not for profits, require multiple revenue sources: government operating and project grants, public and private foundation grants, corporate donations and sponsorships, individual donations, gifts, legacies as well as box office revenues. Applying for a grant can be a time-consuming and a rigorous process. Grants are typically annual, and deadlines and grant applications will vary depending on the funder. Fundraising donations, which in addition to grants are the lifeline of an organization’s financial wellbeing, may come with stipulations where the donor attaches terms to their gift.
Capital and endowment fund income is a welcome addition to an organization’s revenue sources. Endowment income is unrestricted - the management and board of the organization make the decision where best to apply this resource. Endowment income is stable, reliable and not subject to an application process, filing deadlines or donor restrictions.
Ontario Arts Foundation Endowed Funds
The Ontario Arts Foundation manages endowment funds established under both the provincial Arts Endowment Fund and the federal Canada Cultural Investment Fund – Endowment Incentives Component. Arts organizations benefit from matching grants where privately raised funds can be doubled or even tripled, greatly increasing the value of the fund. Organizations can breathe easy knowing they will receive an annual payout of unrestricted income, that they need not apply for or is restricted by donor’s wishes.
One of the OAF’s fund holders recently told us, “Our struggle is to find sufficient, sustainable operating revenue, while keeping our fees affordable to the communities we serve. The endowment fund income is critical and helps us make up the shortfall in our operating costs, particularly at a time of year when cash flow is stretched.”
General operating funds, admin expenses, and why we nonprofits are our own worst enemies speaks to the value of unrestricted funding. The blog post offers the following suggestions to not for profit organizations on the value of unrestricted donations/funding:
- At a fundraising event, don’t say that 100% of your donation goes to programming, rather say that your donation will be used to support the organization and its work
- Publicly recognize funders who support general operating funds – “Without unrestricted funds, our organization cannot run all of our programs – thanks to this funder, we are able to deliver our mission”
- Rather than use words like ‘overhead’ or ‘administrative’, which seem unattractive to some funders, use words like ‘core support’ or ‘critical infrastructure’
- Create a line item for reserve funds in your organizations’ operating budget. The presence of some form of reserve protects your organization during times when revenue sources may not be stable
Organizations recognize the importance of revenue from multiple sources, and know that donors may have a particular area of interest. However, don’t overlook the value of a stream of unrestricted revenue, which can be critical to an organization’s ability to adapt and deploy resources wisely for long-term sustainability.