The Covid Crunch: Finding Funding in a Crisis

Source: Social Solutions

Nonprofits are a vital source of jobs and services, ranging from liberal arts theater programs, to soup kitchens and hospitals,  for millions of Americans. Currently, the nonprofit sector is the nation’s third largest employer, with over 1.3 million nonprofits employing over 12.5 million people, representing roughly 10% of the private sector workers. Unlike in the for-profit world, nonprofits heavily depend on funds, whether from the government or through donors. Unfortunately, the ongoing global pandemic has exacerbated funding sources, leaving many nonprofits desperate for money and the communities they service lacking in much-needed resources. 

Many starting nonprofits are unsustainable because they lack clear financial growth models and inefficiently allocate funds. While most organizations have clear philanthropic missions to support their communities, many nonprofit organizers lack financial experience, and their missions do not always properly align with donor goals, leading to inefficient management and a scramble for funds. One particular survey of nonprofit executives showed that more than half of their time is spent looking for funds. While small nonprofits may use diversification of their donation portfolio as a funding model, having too many donors creates a problem in which too many grantmaker needs must be satisfied, thereby diverting funds away from a nonprofit’s central mission.

Moreover, in the for-profit world, because the final product/service created is a source of revenue, there is much more concision and clarity on financial terms, especially regarding the funding strategies through which a business will operate, and this allows for more efficient and effective allocation of capital from investors to businesses through appropriate intermediaries, like mutual funds or private equity firms. In contrast, nonprofits tend to have less developed funding models for acquiring or properly allocating investor funds because nonprofit financial reports provide almost no information on the effectiveness or efficiency in creating a value that can be economically measured. In general, despite being an important source of community needs and private sector work, because most nonprofits lack such long-term funding strategies and long-term growth models, many often struggle to survive and must ultimately cease operations. 

Unfortunately, the ongoing global pandemic has increased demand for nonprofit services, while also exacerbating the issue of finding funding sources. In one study of mid/large nonprofits conducted by the Independent Sector, of the 110  organizations that responded, 83% reported a decline in revenues and 47% reported a reduction in employees. Of organizations with the biggest revenue decrease, the largest decreases came from individual giving/philanthropic grant reduction. Moreover, of the organizations that remained operational despite the pandemic, 23% reported an increase in demand for services, like as food pantries and free clinics. While donations have spiked for some charities, for others, many donors will no longer provide funds until the economy improves. 

Despite a history of inefficient revenue management and a lack of clear long-term strategies, the challenges posed by Covid-19 may provide solutions to enable the longevity of many nonprofit organizations, which could serve as guidelines for future nonprofits. Nonprofits will need to examine their revenue sources and funding allocation to develop a financial model that will better reflect their social value. For instance, outsourcing expensive operations or merging with similarly oriented organizations can reduce overhead costs, saving funds and increasing efficiency. Considering demand for healthcare/food services has increased, merging provides a short-term solution by consolidating funds to  focus on these needs, but also long-term sustainability for nonprofits that are currently in less demand. In general, rather than trying to appease the short-term goal of acquiring money from anywhere possible, which will only lead to a future of instability, nonprofits must be disciplined and look for funding that reliably matches their mission and will not send them into a funding scramble if that source backs out, whether that be through a reliable foundation, local giving, or government grants. 

While, entirely reducing donor attrition may be impossible, engaging with current donors to continue their philanthropic contributions is especially important. Specifically, creating long-term strategies for revenue development, like the ones mentioned, will show these donors that a nonprofit can be sustainable until operations resume post-pandemic. Nonprofits should tabulate the revenues and jobs that have been lost as well as the current demand for their goods and services. Then, communicating how they will appropriately allocate funds for current operational plans (or re-opening plans) as well as ensure a return on investment in both best and worst case scenarios, will give current donors and grantmakers better information about the societal value of a service and why it should be supported. 

Lastly, adaptation to the new norms of the pandemic is a must. By utilizing improved funding models, rather than abandoning ship on typically in-person fundraising methods, nonprofits may take inspiration from creative nonprofits, like Pittsburgh’s Riverlife’s Party at the Pier, a nonprofit dedicated to redeveloping Pittsburgh’s riverfront, which, rather than cancelling its fundraising gala, turned it into an online photo submission contest to increase its outreach. While it may be difficult to convince donors that such organizations are important to support at the moment, having the tools to stress the societal value of such a particular mission for the longevity of a community, post-pandemic, will promote long-term sustainability. 

While not all nonprofits will be able to survive the pandemic, those who weather the storm may gain from the lessons learned and put future funding to good use, guiding future nonprofits to develop better funding models and enjoy long-term success and growth.