As you strategize and think through what 2023 will look like for your nonprofit organization, I encourage you to avoid making these four common mistakes. You can think of them are New Years Resolutions or just good advice from a fundraising consultant who’s been helping nonprofits succeed for nearly 30 years. 

1. DON’T Over-solicit

We recently shared that 65% of donors who made first fit to an organization do not make a second gift. Why is that? Donors reportedly stop giving for the following reasons: 69% are over-solicited, 64% say communications are focused on asking for more money; 63% cite a lack of measurable results; 62% are no longer inspired by the mission; and 58% believe that the overhead costs are too high. In short, they are tired of feeling like an ATM without a connection to the organization.

DO Show Genuine Gratitude

Donors are tired of being treated as transactions. Instead, organizations should be giving back to their donors – giving genuine gratitude, valuable information, and stories of their impact. We always recommend organizations take a donor-centered fundraising approach where donors are cultivated in on-going relationships, valued for their unique contributions, and thanked for their specific gift. Donors want to be thanked promptly. They don’t want the thank you letter to be a listing of the latest accolades or accomplishments of the organization, and strictly forbidden is an overt or veiled request for more funding. They just want to be thanked. 

2. DON’T Put Any Warm Body on the Board of Directors

We have a saying at our firm: “No organization can rise above the level of its board.” The makeup and commitment of a nonprofit board is its lifeblood. A great board can propel an organization to unimagined heights, and, conversely, a poor board will mire it in quicksand until it finally sinks.

All too often, nonprofits, particularly newer organizations, are more concerned with filling all their board seats than with making sure the people they are recruiting are going to be good, dedicated, supportive, hard-working board members who can really lead the organization to success.

DO Go for Quality Over Quantity

It’s much better to have a small board of all the right people than a large board full of the wrong people. Nonprofits need to look for people who have a shared passion for the cause they are addressing, along with another needed characteristic. Perhaps you need a lawyer or a real estate expert or someone with a background in social services on your board — these candidates also need to really care about the issue. And it does not hurt if they have the ability and desire to make a significant financial contribution. We can help you establish and management an effective board. Learn about all of the services available to you on our website.

3. DON’T Ignore Cryptocurrency

There is a lot of misunderstanding about cryptocurrency — what it is, how to use it, and where it comes from. I think many people think of it as a “black web” currency that you need to have when someone hacks your data and wants to sell it back to you. But, the fact of the matter is that cryptocurrency has become a legitimate form of payment for legitimate goods and services, including charitable contributions.

DO Plan Well for Crypto

We all have different comfort levels with technology and how “cutting-edge” we are willing to live. Regardless, cryptocurrency is a growing form of charitable contribution. Nonprofit leaders need to proactively determine how their organization plans to handle cryptocurrency gifts to avoid making arbitrary or “emergency” decisions when dealing with donors. By taking these steps your organization will be proactively ready for the wave of future gifts.

4. DON’T Pursue Perfection

Finally, and probably most importantly, don’t get caught pursuing perfection. Many of us think of perfection as the goal. After all, each of us wants to be the best, right? Yet, the pursuit of perfection can be your worst enemy when it comes to fundraising. Perfection consumes your time, feeds procrastination, makes you forget the fundamentals, encourages philanthropy atrophy, and creates donor drift. Read my Forbes article on the topic for a full explanation.

• Perfection Consumes Time: I repeatedly see clients spending hours and hours going through a myriad of edits to their case statement. While editing and proofreading are important, at some point you must put down the red editing pen, stop talking about it and start moving forward with your campaign.
• Perfection Feeds Procrastination: This often manifests itself as the development officer who never gets around to the solicitation of donors because they are always waiting for the perfect set of circumstances. Instead, they end up stuck working on a perpetual cycle of cultivation steps.
• Perfection Forgets Fundamentals: A development officer who’s stuck in a cycle of seeking perfection isn’t soliciting the donors … so the donor probably won’t give a gift. This is a fundamental principle that development officers often lose sight of. 
• Perfection Encourages Donor Drift: When you aren’t asking for their contributions, donors assume their help is either not needed or not wanted, and they may engage with other organizations that are actively seeking and wanting their help. With so many organizations vying for attention, it’s easy for donors to be redirected and drift away.

DO Pursue Excellence

I encourage development officers to keep in mind that the more complicated something is, the less likely it is to ever be perfect. Working with donors is a complicated dance. While you should strive for excellence, perfection should not be the goal.

The good news is, it’s not the eloquence of the words on paper, the clever phrase or the perfectly timed ask that are ultimately going to sway donors to support your project. What motivates donors to give is the vision of the organization, the urgency of the needs, the validity of the proposed solution and, most of all, their relationship with your organization and leadership. Be clear, be authentic and be responsive to your donors.

Instead of pursuing perfection, set your sights on recognizing when good enough is good enough, and start making real progress on your fundraising campaign.

DO Realize You’re Not Alone

This may seem like a tall order – all these do’s and don’ts – but our expert consultants at Alexander Haas are here to help your organization succeed. Contact us today with your questions or for a consultation to learn how we can help your organization thrive in 2023.

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Giving to charity continued to grow in 2018, but not as robustly as in the past. Overall giving increased by less than 1%, but the growth between 2016 and 2018 was a meaningful 7.1%. As has always been the case,  individuals and families contributed the lion’s share of giving at 68%, but their total giving declined 1.1% from 2017. The most significant increase in the percent given came from foundations, including gifts from family foundations and distributions through donor advised funds. Foundation giving increased to 18% of overall giving, a 7.3% increase over the previous year. Giving to the arts essentially held steady from 2017 and continued to represent some 5% of total overall giving.

Giving USA 2019 offers several important insights into the trends uniquely affecting museums and performing arts organizations. Here are a few takeaways to consider in planning for the upcoming year:

Larger gifts from high net-worth individuals should continue to be a focus.

According to the 2018 U.S. Trust Study of High Net Worth Philanthropy, 90% of high-net worth households gave to charity, with a quarter of them giving to the arts. The Quarterly Report, also referenced in Giving USA, found that the overall increase in giving in 2018 was driven by a 2.6% increase in gifts of $1,000 or more; gifts under that size declined by around 4%. While maintaining efforts to increase gifts at all levels, arts organizations should prioritize their focus on larger gifts from individuals, through upper-level membership programs, project-related major gifts, and campaigns.

Campaigns are an important tool for attracting major gifts.

Cultural organizations continue to benefit from campaigns, which crystallize institutional priorities into fundable opportunities for donors and encourage larger gifts. Theatre Communications Group recently reported that 40% of theaters were currently in a capital campaign, and another 38% completed a campaign between 2012 and 2017, leading to a 23% increase in overall giving and a 55% increase in trustee giving during this period. This year’s Giving USA also reports that organizations in every region of the country received multi-million-dollar gifts in 2018, supporting capital, endowment, and programmatic initiatives, listing a sample of 18 representative gifts of $10,000,000 or more. As fewer individuals are giving and a greater percentage of philanthropic revenue is coming through larger gifts, now is the time institutions should consider organizing and launching a campaign.

Don’t discount online giving.

Blackbaud Institute’s 2018 Charitable Giving Report showed that online gifts represented 9.5% of overall giving to arts organizations in 2018, and the 5.8% growth in online giving to the arts outpaced other non-profits by four times. While this noteworthy growth rate in overall online giving to the arts may be a function of the membership culture unique to museums, these trends illustrate the significance of making online giving a convenient option for donors and members, especially considering the decrease in smaller gifts.

Despite the complex issues that affect charitable giving in our country – from policy and tax law changes to social, economic and other factors – the voluntary, philanthropic support of arts and cultural organizations has never been stronger, with donors giving $19.5 billion to the arts in 2018. Reflecting on the numbers and trends outlined in this year’s Giving USA report, this is a time for optimism and opportunity, as we engage those donors whose generosity lights the fire of creativity, casts light on the human condition, and brings beauty and enjoyment through our nation’s arts and cultural organizations.

Takeaways From Giving USA To Help You Plan Better:

Giving to the Arts: The Numbers

Giving USA 2019: The Annual Report on Philanthropy for the Year 2018, was released in June, and amid a complex climate for charitable giving, individuals, bequests, foundations and corporations gave an estimated $427.71 billion to charities in 2018.

Giving to arts, culture and humanities organizations stayed relatively flat, increasing 0.3% to $19.49 billion.

• In current dollars, giving to arts, culture, and humanities increased 13.4% between 2016 and 2017, and increased 0.3% between 2017 and 2018. Cumulatively, current-dollar giving to arts, culture, and humanities increased 13.8% between 2016 and 2018.
• Adjusted for inflation, giving to arts, culture, and humanities increased 11.1% between 2016 and 2017, and declined 2.1% between 2017 and 2018. Cumulatively, giving to arts, culture, and humanities increased 8.7% in inflation-adjusted dollars between 2016 and 2018.
• Contributions to the arts, culture, and humanities subsector comprised 5% of all charitable donations in 2018.
• Donations to the arts, culture, and humanities subsector reached the highest inflation-adjusted amount record to date in 2017, and remains the highest to date.
• Donations to the arts, culture, and humanities subsector have amounted to between 3% and 5% of total giving over the past 40 years.

More information from the Giving USA 2019 report can be found here.

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According to the findings of Giving USA, 2018 was an uneven year for philanthropy, with some subsectors experiencing significant increases, while others saw significant decreases.

It was also a year that saw three unprecedented things: 1) a record year for giving at $427 billion, 2) for the first time since Giving USA began in 1954 individual giving was less than 70% of all giving, and 3) giving to Religion reached its lowest point in more than 40 years, falling to 29%.

Total giving increased in 2018 in current dollars, but just barely, at a rate of 0.7%. Adjusted for inflation giving actually decreased by 1.7%.

Five subsectors saw giving decline, while four saw increases. The biggest increase came in giving to International Affairs, while the largest decrease was in giving to Foundations.

As in previous years, giving by Individuals is the number one source of gifts at 69%, but declined by 1.1% from its 2017 level. Giving from Foundations, many of which are family foundations, increased 7.3%.

While Religion continues to be the number one recipient of gifts, giving to Religion continues to lose market share, reaching an all-time low of just 29% of the pie and actually decreased by more than 1.5% in current dollars. While the trend of a declining percentage of giving to Religion has been ongoing for years, the actual decline in current-dollar giving to Religion is a unique phenomenon; one that has never happened in a non-recession year.

Below, is a quick look at the numbers. We will share more in-depth information in our upcoming sector newsletters.
Sincerely,

David H. King
President & CEO

Quick Look At The Results

The Numbers for 2018 Charitable Giving by Source:

• Giving by individuals totaled an estimated $292.09 billion, decreasing 1.1% in 2018 in current dollars. The only source that decreased between 2017 and 2018.
• Giving by foundations increased 7.3% between 2017 and 2018, to an estimated $75.86 billion in 2018. Between 2016 and 2017 giving increased 12.0%. The cumulative change in current-dollar giving by foundations between 2016 and 2018 is 20.2%. This is the greatest percent increase of any source in this period.
• Giving by bequest remained virtually unchanged in current dollars between 2017 and 2018-to $39.71 billion. Adjusted for inflation, giving by bequest decreased 2.3% in 2018.
• Giving by corporations increased by an estimated 5.4% in current dollars from 2017 to 2018, totaling $20.05 billion. In current dollars, giving by corporations decreased by 2.0% between 2016 and 2017, and increased 5.4% between 2017 and 2018. The cumulative change in current-dollar giving by corporations between 2016 and 2018 is 3.4%.

The Numbers for 2018 Charitable Giving to Recipients

• Giving to religion decreased 1.5% in current dollars from 2017, totaling $124.52 billion in 2018. Adjusted for inflation, contributions to religion decreased 3.9% in 2018. Accounting for 29% of total giving, this is the first time that giving to religion has fallen below 30% of overall giving.
• Giving to education decreased 1.3% in current dollars from 2017-to $58.72 billion in 2018. Adjusted for inflation, contributions decreased 3.7% in 2018. In 2017, giving to this subsector reached the highest inflation-adjusted value recorded to date..
• Giving to human services decreased 0.3% from 2017, totaling $51.54 billion in 2018 in current dollars. Adjusted for inflation, contributions decreased 2.7% between 2017 and 2018. In 2017, donations to this subsector totaled the highest inflation-adjusted amount recorded to date.
• Giving to [grant-making] foundations decreased 6.9% in current dollars from 2017-to $50.29 billion in 2018. Adjusted for inflation, contributions to foundations decreased 9.1% in 2018.
• Giving to health organizations grew 0.1% from 2017, totaling $40.78 billion in 2018 in current dollars. Adjusted for inflation, contributions to health decreased 2.3% between 2017 and 2018.
• Giving to public-society benefit declined 3.7% in current dollars from 2017, for a total of $31.21 billion in 2018. The cumulative change in giving to public-society benefit between 2016 and 2018 is 2.1% in current dollars. Contributions to this subsector reached the highest inflation-adjusted value recorded to date in 2017.
• Giving to arts, culture, and humanities increased 0.3% from 2017, totaling $19.49 billion in 2018 in current dollars. Cumulatively, current-dollar giving to this subsector increased 13.8% between 2016 and 2018.
• Giving to international affairs increased 9.6% in current dollars from 2017-to $22.88 billion in 2018. The cumulative change in giving to this subsector between 2016 and 2018 is 5.2% in current dollars. Giving to the international affairs recorded the highest inflation-adjusted value in 2015, at $25.09 billion.
• Giving to environment and animal organizations increased 3.6% in current dollars from 2017, totaling $12.70 billion in 2018. Donations to the environment/animals reached the highest inflation-adjusted amount recorded to date in 2018.
• Unallocated giving represents 2% of total giving at $6.53 billion in current dollars in 2018.

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One institution in the Southeast, North Carolina State University announced such a transformative gift for its College of Textiles this past fall. A $28 million gift, from alumnus Frederick “Fred” Eugene Wilson Jr. and the Wilson family will fund an endowment for the College. The College is now known as the Wilson College of Textiles.

As is often the case, this gift did not arise by accident, but through active communication with the donor and a genuine willingness to connect the donor with the opportunities and needs of the institution.  Mr. Wilson’s grandson, Rede Wilson, 2016 alumnus, responded to a direct mail appeal six months after graduation with a $1000 gift.  When asked why, he said it was because the dean asked him.  The dean had been one of Rede’s professors.  The development office was quick to connect Rede with his grandfather, who had given $10 million to High Point University.  Michael Ward, Senior Director of Development, asked Rede to serve on a young alumni committee and asked his assistance in reconnecting the family.  Members of the family became more actively involved in the College and across the campus.  Opportunities for engagement included attendance at basketball games and serving as design judges for the senior design contest.  As in best practices, a host of NC State and the College of Textile administration, faculty and staff played significant roles.  More than a dozen individuals participated in reconnecting the family, writing proposals, researching opportunities and meeting with family members.  The Chancellor and Dean were notably front and center in explaining the need, and transformative impact a naming gift could impart. 

Michael Ward suggested that there were several key points that outlined the success of this journey:

1. Soliciting new grads:  The initial solicitation resulted in an unusual gift for a six-month alumnus.
2. Recognition by the research team:  Realization that this new grad was a part of a generous multi-generational family.
3. Reconnecting the family:  Assistance was sought from the graduate to engage the family and many members of the family were involved in every step of the process.
4. Progressive emphasis on relationship building: Permission was requested every step of the way before invitations were issued to meetings and events.
5. An apology for not having stayed in touch:  The College acknowledged that it could have done a better job of staying involved with its more successful alumni.
6. Involvement of many people across the campus:  But most importantly, efforted was planned and coordinated by a seasoned development officer. 
7. Asking for permission to solicit: Nothing happened by surprise; the donor’s input and desires were instrumental in developing the opportunity and ultimately the solicitation.

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Nonprofits could not achieve their goals without the collective manpower and connections of their board members. Yet, with the average board consisting of 16 individuals – each having other obligations and priorities in their lives – managing them effectively can be a challenge. Rather than struggling to reign in a troublesome board, here are four ways nonprofit leadership can set their board and organization up for success.

1. Define and Communicate Clear Expectations from Day One

When an organization comes to us with a perception that their board isn’t functioning well, we can usually trace it back to a miscommunication when they initially asked a board member to volunteer. The expectations of the staff are often vastly different than what the volunteer assumes their role to be. It’s imperative that nonprofits clearly define and communicate realistic expectations when asking someone to volunteer on their board.

2. Value Board Members as Individuals, Not a Group

Nonprofits need to look at the skill sets of individual board members, their availability and time constraints, and make sure they are using each person where they can be most effective. For example, there may be one very busy board member who has the right connections but a limited amount of time to give. Instead of inviting that person to 20 meetings, free them up to make five high-value phone calls to potential donors. Likewise, if a board member excels at process and structure, and has available time, they should be invited to contribute in various meetings and not expected to bring in high-value donors. Acknowledging your board members’ unique strengths will help build trust and maximize the value each one brings to the table.

3. Cultivate Potential Board Members Year-Round

Organizations typically get fixated on filling a board spot, rather than determining strategically what the board needs. Think about putting together your board as a year-round, very thoughtful process. We like to see people put together a nominating committee for their board to really consider, vet, and cultivate relationships with individuals to put together a quality board – a board that can solve problems, not just identify them. This approach eliminates a situation in which a nonprofit just quickly fills spots without regard to strategy just because they are going to be empty next month. This vetting process also reduces the risk that a nonprofit will have to ask a board member to step down because it’s not a good fit.

4. Don’t Let Your Board Pass a Deficit Budget

This has more to do with an organization’s success than establishing a healthy board but is worth mentioning. One of the biggest mistakes we see board members make is passing a deficit budget. The likelihood that the intelligent business people sitting on a nonprofit board would pass a deficit budget in their for-profit business is extremely low. Yet, when these same people sit on a nonprofit board they tend to treat it very differently than they would a for-profit company. The reality is a 501(c)(3) is a corporation, it’s just structured differently than an S-Corp or a C-Corp. Being a 501(c)(3) doesn’t mean the organization shouldn’t have greater income than expenses, it means the extra income is being distributed back to the common good instead of to stockholders. With this in mind, a nonprofit should make it clear to its board members that they should apply the same level of fiduciary prowess to the organization as they would to their for-profit employer.

While some of these conversations may be difficult to have with a potential or existing board member, doing so could save relationships and set the organization up for maximum success.

This article originally appeared in npEngage.com.

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When soliciting gifts or when cultivating donors, you may think your communication is clear, but often that’s not the case.

You can be so intent on telling YOUR story, talking about YOUR organization’s mission, and sharing YOUR organizational needs that you miss the point of clear communication and that is this: It’s a two-way street.

Recently, I listened to a radio program during which Dr. Danielle Orfi discussed her new book, What Patients Say, What Doctors Hear.  In it she highlights findings from a study conducted in the United States exploring how patients and doctors communicate with one another.

The study found when patients go in for a checkup and begin talking, the doctor usually interrupts the conversation within 8-10 seconds so they can get right to business. Time constrains can prevent the doctor from listening. The patient, on the other hand, wants to share background information in an effort to reduce anxiety and to make sure the doctor has all the information.

Dr. Orfi emphasizes the importance of recognizing that the patient and the doctor come to the room with different agendas and different perspectives.

This is similar to what occurs during the donor solicitation process. The solicitor comes wanting to secure a gift while the prospective donor comes ready to receive information, share advice, or hold on to money!

It takes practice to determine how to acknowledge the different agendas and how to improve face-to-face communications skills. The way you communicate with one person may not be the way you communicate with another.

Here are some basic steps that will help you improve your communication with prospective donors:

• Before your meeting with the prospect, be clear about what the desired outcome is and what strategies you will employ to get to that outcome.
• Listen well and seek to understand the prospect’s agenda. Let the prospect do most of the talking (at least, initially). Ask open-ended questions (those beginning with who, what, how, when, and why). Make sure you understand exactly what the person is saying by asking questions and by reflecting back to the prospect what you have heard.
• Answer the prospect’s questions clearly. If the prospect requires additional materials or information you don’t have with you, find a way to provide these promptly.
• Show your gratitude for the person’s time, advice, and comments. Be sure to say “thank you” no matter what the outcome of the conversation.

While these steps can be expanded, they are ones that will help ensure that your communication is clear, concise, and real!

Do you believe you are a good communicator? I recently came across this short quiz (thank you, MindTools!) and encourage you to score yourself:

https://www.mindtools.com/pages/article/newCS_99.htm

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A fellow professor’s tweet, is cited by Warner as being at the heart of the issue: “One day someone is going to have to explain to me, slowly, how and why employees of a university are supposed to donate to said university.”

Our response is simple: Employees of a charitable organization are NOT expected to donate to it, but this doesn’t mean they should not be invited to do so. Certainly, there should be no pressure to give and no shame in not giving.

While Warner’s blog (which you can read at http://www.insidehighered.com/blogs/just-visiting/little-big-ask) offers one perspective, ours is very different. We do not see employees as distinct from any of the organization’s other constituents.

Many may well have been attracted to the organization because of its mission and choose to support it with a gift.  Others, for their own reasons including modest compensation, may choose not to give—a choice they should be free to make with no consequences.

Not every organization will choose to conduct an employee giving campaign, but for us the central question is, “Why not?”

We think everyone close to the organization should be given the opportunity to support it. Our experience includes many examples of joyful giving from employees regardless of their compensation.

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After the interviews are completed, the consultant will tell you if you should launch your new widget and how many widgets you are likely to sell. That would be really valuable information to have before you start making the new widget, right?

But here is the catch — they will not tell you what any of your best customers said they like or don’t like about your company or products. The consultant also will not share with you which of your best customers indicated they would actually purchase the new widget or how many widgets particular customers would be interested in purchasing. And they will not share any specifics about what you could do that would influence a particular customer to purchase a larger quantity of your new widget.

All of the sudden, this process does not seem quite as valuable, does it? I don’t know about you, but I want to know what my best customers like and don’t like about my business, and I certainly don’t want to waste our sales force’s time trying to sell the widget to people who said they aren’t interested.

Would you spend thousands of dollars for a consultant to give you such limited information? I wouldn’t.

Yet, for more than 50 years, nonprofit organizations have purchased this exact service under the label of a campaign feasibility study. Much like the above scenario, a campaign feasibility study provides an organization with valuable information about its campaign fundraising potential. The problem is that clients have had to live with vague feedback simply because the consultant told them that conversations with their top donors must remain confidential in order to collect the necessary information.

This is simply not the case.

The Confidentiality Problem Of Nonprofit Insights

A little over 10 years ago, we decided to test this long-held confidentiality theory. So, we asked clients’ donors, whom we had interviewed for a study, “How would you have felt if we told you the interview was not going to be confidential but, instead, that we would share information with the organization to help them make informed decisions, and that if there was anything you did not want shared, we would put in it the vault?”

Across the board, we heard responses similar to, “That would be great! I always assumed that the consultant was going to run back and share what I said anyway, so I was always a little guarded,” and “I would appreciate that very much. If I’m going to take an hour of my time to give my thoughts, I want the organization to hear them.”

It turns out that even when consultants position the interviews as confidential, the people being interviewed don’t believe that to be the case — essentially assuming fundraising consultants are liars. As someone who has spent nearly 30 years as a fundraising consultant, that was a very difficult thing to digest.

Breaking The Mold Of The Confidential Campaign Feasibility Study

This new understanding caused us to change how we go about conducting campaign feasibility studies. From day one, we make sure the donors we are interviewing understand that we take confidentiality seriously and that they can go “off the record” at any time and know that we will honor their request. This has allowed us to have some frank conversations with donors — conversations they would have likely never had with us when they were suspected of our commitment to their confidentiality.

It has also given us the latitude to debrief with our clients after the interviews so that the organizations we work with can understand what each donor likes and does not like, if they will contribute to the capital campaign, the likely level of contribution and any factors that might encourage them to contribute more. By having these conversations, we allow our clients to make well-informed decisions and be our partner in crafting campaign strategies.

My advice to you: If you are hiring a consultant to conduct a study, be sure to ask if the interviews are confidential and, if so, how they will relay important information to you. If you, too, find that confidential interviews have shortcomings, you can ask your consultant if they would consider doing the interviews without confidentiality, even if that is not their normal practice.

The most important thing is to make sure that whoever you hire clearly communicates the nature of the interview with the interviewees. If it is not confidential, that needs to be made clear when the interview is requested and again by the consultant when the interview begins. If it is confidential, then you need to make sure that you and the consultant honor that commitment to the donor.

From my perspective, the confidential feasibility study model is a barrier to the process, not a catalyst, and a disservice to clients. Not only do I encourage my colleagues in the fundraising field to do away with the tradition of confidential studies, but I also encourage nonprofit clients to request a transparent interview process for their own benefit.

This article originally appeared on Forbes.com.

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Nearly two-thirds of charities have annual budgets of less than $1 million, which makes them similar to small businesses in terms of spending and revenue. Nonprofits face many of the same challenges as their commercial counterparts. They are under-capitalized, lack reserves to withstand a crisis or act on a special opportunity, and struggle to stay afloat from one pay period to the next.

So, how can small charities overcome these obstacles and improve their financial health?

1. Be proactive and diligent about building an operating reserve.

Even if it’s just $500 a week, get in the habit of setting money aside. Too often, nonprofits try to accumulate a large lump sum before transferring it to reserves. It’s never the right time to let go of a big sum, so move money into a reserve account in small, regular increments. This method will help you create a meaningful reserve without hampering cash flow.

2. Don’t focus on raising endowment funds.

That may seem counterintuitive, even heretical, but here’s my logic: If a nonprofit has a $1 million budget and raises $1 million for an endowment, at a 5 percent annual spend rate it would receive just $50,000 each year. That’s a lot of money being held captive rather than providing meaningful support. If the organization should need cash to stay afloat, in most cases it would be prohibited from accessing the endowment corpus, the original assets.

In contrast, if that same nonprofit raises $1 million in operating reserves or establishes a quasi-endowment — a board-designated investment fund with fewer restrictions than a true endowment — it can still draw down on earnings and access the capital to weather financial troubles or launch a new program.

3. Invest in areas that generate revenue.

Nonprofits want as much money as possible to benefit programs, and that makes sense. However, failing to invest in fundraising creates a self-fulfilling prophecy of scarce resources.

Most charities have four sources of potential income: grants from foundations or government agencies, service fees, endowments, and donations. Government funding is highly unstable and becoming harder to find. Fee-based income is limited, because many nonprofits provide services people cannot afford. We already covered endowments. So, donations are the one form of revenue that nonprofits can control directly.

Yet too often, chief executives and trustees hesitate to invest in experienced fundraisers. Instead, they hire on the cheap, and the results reflect that. In the for-profit world, that would be the same as hiring poorer-quality salespeople and wondering why sales are weak.

4. Stop categorizing mission-critical things as overhead.

A talented chief executive officer is not an overhead expense. Can you think of any successful for-profit business that thinks of its top leader as overhead?

Nor is a talented chief financial officer or bookkeeper overhead. An organization cannot administer a tight $1 million budget without a competent person managing its finances. The same goes for talented development professionals; without revenue, organizations go bankrupt and programs die. A mission-critical function or activity should not be classified as overhead.

5. Choose the right bank.

Find an institution with a representative dedicated to working with nonprofits. This person will understand your structure, your financial statements, your balance sheet, and the scarcity of resources nonprofits face. She or he will be able to help you get a line of credit before you need it. Often, smaller banks are better than large ones at understanding nonprofits and other small enterprises.

This article originally appeared in The Chronicle of Philanthropy. 

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As I head for Phoenix for AAM 2018, the annual meeting of the American Alliance of Museums (May 6-9), I have been exploring what people will be talking about at this year’s conference.

Museum Fundraising Strategies

One topic that caught my eye and captured my imagination was the subject of community engagement curators (CECs). An increasing number of museums and cultural centers are adding CECs to their staffs to build two-way conversations about how to make our work more relevant to our neighbors and to give them a voice in what we do within and outside the museum walls.

Community Engagement for Museums

With tight budgets and a long and ever-growing list of good ideas, it is tempting to think that we can cover community engagement in episodic ways—by having days for specific audiences, encouraging the use of social media (Instagram anyone?), and promoting partnerships with schools and leadership organizations.

The challenge is to sustain and broaden this engagement and help it thrive. While, yes, this is everyone’s job, putting someone on point means that you are serious about the need to innovate community-based programs, involve people beyond your “inner circle” in program development, and measure the impact in terms of what your community thinks and how it responds.

As Elizabeth Merritt aptly writes in her blog for the Center for the Future of Museums:
“At their core, museums are storytellers, but whose stories are we telling? How are we telling them? Are we reaching out to and co-creating with our communities in a culturally competent manner?”

The Role of the Community Engagement Curator is on the AAM program for Monday, May 7, at 1:45 pm and will feature community curators in children’s, art, anthropology, and history museums. For more on this topic, visit the AAM blog.

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