Nonprofit sector leaders have fooled themselves into thinking that breaking even at the end of the year means success, or that an endowment is needed in the struggle to pay the bills. It’s time to step back and challenge these long-too-held assumptions, challenge how flawed planning, communications and funding norms perpetuate our broken business models.
The session was headlined “Is Your Business Model Broken? The Truth About Fundraising and Capitalization,” part of the “Rebels, Renegades & Pioneers” track at the AFP International Fundraising Conference with Janet Brown, president and CEO of Grantmakers in the Arts in Seattle, and Brian Bonde, ACFRE, chair of the AFP Foundation for Philanthropy and president of Advanced Certified Fundraising in Sioux Falls, S.D.
They explained that proper capitalization not only allows you to operate day-to-day but also gives you a chance to take a risk and seize opportunities. “It allows you to weather change and recover from the storm. Capital supports acquisitions or upgrades and helps you meet future facility and equipment needs,” they say.
Brown and Bonde advised that it is time to unabashedly build capital reserves and healthy balance sheets into your operating and fundraising assumptions. “Planning for financial surpluses and rewarding strong operating reserves is what proper capitalization is all about,” they pointed out. “You can fundamentally change how you do business while recognizing that successful nonprofit organizations do have overhead, administration and operating costs.”
Furthermore, it is important that knowledge of capitalization for nonprofits now be elevated. “This will require that you build a shared vocabulary to transform your fundraising and financial practices and provide insights into the impact of proper capitalization,” Brown added.
For example, for the past six years, Grantmakers in the Arts has researched how undercapitalization is causing the chronic weakness undermining the vitality of the nonprofit sector. They have convened organizations in 14 cities around the country to test their model and emphasize that capitalization is the means to success.