Getting Off the Grant Treadmill: The Dangers of Single-Source Dependency
Every Executive Director should understand the role grants play in their funding strategy. Grants should be "a part" of your funding strategy, not the entire strategy. They should make up 30% of your budget. Over reliance puts your org in jeopardy. Learn the danger and compliance issues with single- source dependency.
Episode 152 | Getting Off the Grant Treadmill: The Dangers of Single-Source Dependency
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First Fifteen Pt. 4
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Speaker 1 (00:00):
So Grants helped you to build out your nonprofit, but guess what? They were never supposed to be the only plan. In this episode, I'm going to talk to you about the dangers of single source dependency and how to build a resilient revenue strategy that keeps your impact alive, even if the grants dry up.
(00:22):
Welcome to On Air With Amber Wynn, where nonprofit leaders learn to fuse passion and commitment with proven business strategies to create long-term funding impact and sustainability. And now here's your host and resident, Philanthrepreneur, Amber Wynn.
(00:45):
Hey, fam. It's your girl. You're On Air with Amber Wynn, and today I'm talking about getting off the grant treadmill, the dangers of single source dependency. Listen, it is a common myth that people believe nonprofits can survive solely on grants, and I am here to tell you that that is the biggest lie ever. No nonprofit can survive solely off of grants. You know why? Because grants require entirely too much work and because there are low payout rates for grants of the top eight funding sources for nonprofits, grants rank number seven. Seven you guys. So what does that say? That says that even though most nonprofit leaders put all of this time and energy into writing grants, that is not the best return on your investment, especially in this environment. When grants are under attack, grants are being rescinded, and funders are being even more particular about which nonprofit organizations they're funding because their organizations are put at risk.
(02:02):
As a result, it is important that every nonprofit has at least 10 streams of revenue. Why? Because having that diversity in your funding stream allows you to stay agile. We learned that during the pandemic, right? I had so many nonprofits close their doors because they were solely dependent on grants and a gala, and guess what? We couldn't even show up in person, so they couldn't have the gala, and because monies were being diverted to the pandemic and try to keep our society going, those grants dried up. So it's just important for you to understand grants are a part of your funding strategy, but it's not the whole thing. When we come back, I'm going to talk to you a little bit about the danger signs. If you lost your biggest grant, what it is that you can do when we come back.
(02:58):
If you are thinking about hosting a golf tournament or any other kind of event, make sure at the end of the event you generate a profit and not come out with a loss. There's a formula for guaranteeing that your event will generate a profit. You'll find it in my How to Price Event Tickets for Profit Toolkit. Learn the insider secrets for how to ensure your event will always make a profit every time. Order your copy today. Welcome back. You're On Air With Amber Wynn, and today we're talking about getting off the grant treadmill, the dangers of single source dependency. I want you to think about your nonprofit the same way you would about your household, the same way you would about investing if you had a for-profit business. What's the saying? Don't put all of your eggs in one basket. It is the same for a nonprofit.
(03:46):
A nonprofit is not designed to be supported by one single source, right? I have people say to me, I don't get grants. I only function off of unrestricted funds, or we have this one gala and it supports us for the whole year. That is dangerous if that sole source goes away, so goes your nonprofit. We want your nonprofit to be sustainable. Sustainable means that it's going to be around long after you are gone, ashes to ashes, dust to dust, but your nonprofit is still in existence. The way that that happens is by you creating opportunities for your organization to be funded, multiple strengths. It's called diversifying your funding strengths. My question for you is what would happen if you lost your biggest grant today? This is happening, right? With the attacks on nonprofits and grants being rescinded for people focusing on areas that they focus since they started their organization, funders aren't funding them.
(04:51):
What's happening? Nonprofits are closing their doors and it's because they have relied solely on this single source of revenue. I want you to diversify your funding stream and what does that look like? It's understanding that your organization needs to have multiple strings, and here's the thing I want you to understand. Let's just say you have a building and you have a multipurpose room. You're a nonprofit. You decide to use this multipurpose room as a source of revenue. Other nonprofits want to have board meetings or they want to train their staff. You can rent out that multipurpose room to generate revenue. Is that revenue going to cover the cost of your whole organization? Nope, but it may cover one budget line item. It may cover the cost of food. It may be enough to cover someone's salary. The beauty of having multiple streams of revenue is that you can cover different budget line items, and that's what you want to do.
(05:56):
When I am doing the fund development plan with my board members, I have them list all of their budget line items and then attach a funding stream to each one of those budget line items. You know why? Because if that funding stream will cover that budget line item and you have funding strategies for each budget line item, then you can cover your total budget. If you just get these grants and you throw them into this slush fund and you're like, oh, we're going to fund the organization, then you don't have a strategy. You have hope that you can get enough money in that slush fund to cover your whole budget. That's not how we want you to function. Beloved, we want you to make sure that at the end of the year, each and every one of those budget line items are covered. So when we come back, I'm going to talk to you a little bit about planning for resilience when we come back.
(06:51):
Welcome back. You're On Air With Amber Wynn, Philanthrepreneur, and today we're talking about how you can get off that grant treadmill. A lot of nonprofits believe that they can survive off of grants. Oh, we'll just put out a lot of grants and we hope that it'll be enough to cover the organization. That's not a good strategy. Number one, it takes anywhere between 20 to a hundred hours to write a competitive proposal, and I'm going to emphasize proposal because I have founders out there writing some grants that will never get funded. So if you want to get funded, if you want to be competitive, it's becoming even more competitive with this environment. But the reality is, even if you wrote a grant a week, that is not enough to sustain your organization because funders are not giving out grants at a high rate. Government grants, they pay out about 20%.
(07:54):
Foundation grants are even lower, right? They're between seven and 15%. In this country, we have about 1.4 million nonprofits, but we only have 1400 private foundations, and then there's the government and other funding sources. But if you looked at just that math, honey, the math ain't math in, there's not enough money to go around for all of the nonprofits. So if grants is your way of sustaining your organization, I need you to shift the way that you think about it. I need you not to rely solely on grants to support your nonprofit. What I'd like for you to do is plan for resilience. What does that look like? When I think of resilience, I think of a tree. When the wind blows, it doesn't break. It just bends with the times. That's what I need you to do. If you ran out of grant money, your organization's going to close.
(08:51):
If you had multiple streams of revenue, you may not be able to deliver services at the same high caliber, but you wouldn't have to close your doors. We want you to be resilient. So the formula for funding success looks like this. 60% of your revenue should come from restricted dollars. 40% should come from unrestricted dollars. Restricted dollars are grants or contracts, or it could even be sponsorships or gifts. Restricted means the donor tells you what you can spend the money on. When you submit a proposal, you say, I'm going to spend it on salaries. I'm going to spend it on materials. I'm going to spend it on equipment. Whatever you put in that proposal, when your funder approves it, that's all you can spend it on. You may have two grants. One grant is going to cover salaries, and this other grant is going to do equipment and program supplies.
(09:49):
This funder who's a government, is going to say, oh, we're going to give it to you in 90 days. 90 days comes and goes, 120 days. You know it's coming, but you don't quite know when it's coming, so you're like, I've got all this money over here from this grant. I'm just going to borrow it until this. You can't do that. Restricted dollars say you can only spend the money on what we've approved. When your funder asks you for specific financial statements, they can tell what you spent the money on and when you spend it, if you take this money to cover that gap from that other grant, you can get your tax exempt status revoked. It's called mismanagement of funds, so you need to have some unrestricted dollars in there to fill in the gaps when the unforeseen happens, right? So that funding formula is 60% restricted, 40% unrestricted.
(10:45):
That's why it's important for your board to pay their dues. That's why it's important for you to have corporate sponsorship dollars. That's marketing dollars. It's typically unrestricted. That's why it's important for you to have earned income. Things like fee for services. When people come into your business, don't give everything away for free charge. Even if you charge $25, $25 times 300, man, you have a stream of revenue coming in, that money is going to fill in the gaps and that's going to help you to sustain your organization. I have people say, I don't want any grant money. I only want unrestricted money. Nope, that's not a successful formula. The reason why it's 60-40 is just like at your household when you get paid, what do you make sure you make sure that rent is paid? You make sure those utilities are paid. That's the restricted funds.
(11:37):
You want to make sure that your programs are covered. That other 40% is going to allow you to be agile and to fill in those other business expenses. You've got business expenses. You've got payroll, you've got mandatory taxes, workers' comp, social security, all of the things that you need to run your nonprofit business, you need unrestricted dollars for. You cannot survive solely off of grants because if they're all restricted, who's going to cover those payroll taxes? Who's going to cover those mandatory social security workers' comp? Those don't come out of grants. That's why you have to have unrestricted dollars. When we come back, I'm going to talk to you about shifting your mind from scrambling to structuring because it's in that structuring that you're going to get to sustainability when we come back. Not sure how to price your programs or how to cover salaries. Are you scared to increase your program fees? If you're struggling to fully cover the cost of running your program, then you need “How to Price Your Programs for Profit”. This workbook provides step-by-step instructions for how to develop programs funders love to fund, determine the cost to charge for your programs and present salary costs in a way that funders will approve. Learn the secret formula I use as an executive director for how to fully cover program costs. Order your copy today.
(13:08):
Welcome back. You're On Air With Amber Wynn, and today we're talking about getting off the grant treadmill. So many of my nonprofits think that, oh, I'm going to start this nonprofit. I'm going to get that grant money, and if they get the grant money, they learn quickly, it's not enough. It's piecemealing here, and they end up with 10, 15 grants. Listen, beloved, if you want to get your organization to a place of sustainability, you have got to diversify your funding streams. You've got to have different ways of bringing in money. You can do speaking engagements. You can sell merch on your website. You can get advertisers, you can get corporate sponsors. It's so easy to get to that 10 strings of revenue that every nonprofit should have, and when I say easy, I don't mean like it's easy to do. I'm saying that there's so many ways that you can bring in different strings of revenue.
(14:03):
That's what I mean by that. Don't think that grants are what you're supposed to hang your hat on. You're not. You are a leader and in order to keep your organization afloat, then survive, then thrive, is by diversifying your funding streams. When you have grants, you're in scramble mode. You know why? Because a grant generally and especially in this environment, is only going to be funded for a year. Those multi-year high dollar grants, they still exist, but they exist For those people who are good with relationship building. The majority of my nonprofit leaders are going to get one year grants. They're going to be 10,025. That keeps you in scramble mode because now you're trying to fill in those holes and you're running out of fingers and you're running out of toes, right? So you want to be sure that you can s sure up your organization, and so how you move from scrambling to structuring is going to be important.
(15:09):
Structuring is creating a strategy whereby you constantly have revenue coming in, and the way you do that is by creating what's called a fund development plan. In that fund development plan, you allocate a revenue strategy for each one of your budget line items, and your board is responsible for managing that. So as the executive director, it's not sitting on your shoulders, it's on your board's shoulders to generate consistent revenue, and when the board is meeting once a month or once a quarter, they have financial statements and it says, whoa, we've only got 50% of revenue left in the bank. That's not going to cover salaries, the rent equipment, all of the things. That is the purpose of your board. It's to make sure that you have enough revenue in your organization so that you're not scrambling. It's so that you can look to the future and say, okay, we're good for the next six months, so for the next three months, we're going to function or focus on fundraising to cover the next six months of the organization.
(16:24):
Grants will not get you there. They are so unsteady. They are so uncertain. They're not guaranteed, right? That's why when you pay your grant writer, they tell you, well, I can't guarantee that you're going to get it because you can't, right? But when you have other funding streams in place, when you're doing events, when you have fee for service, when you're selling merch, when you're doing speaking engagements, when you have board dues, those things you can depend on. That's why it's important that your grants only make up 30% of your budget because it's so spotty. If you have it, it's great. If you don't, it's not going to put you in a position where you have to close your organization. So we want you to shift from scrambling to structuring, and the way that you do it is by creating a fund development plan. And if you don't know what a fund development plan, guess what?
(17:25):
In the Nonprofit Mastery Academy, I not only teach you the principles of diversifying your funding streams. I not only give you multiple streams of revenue that you can pursue, I give you the templates. I was an executive director, beloved, and ain't nobody got time to try and reinvent the will, so I give you what you need in order to move your organization forward. I tell you the what, the why and the how, and you get a template too. So if you have been focusing on this single source grants in particular, I want you to branch out because I want your organization to be here longer than you. When we come back, I'm going to talk to you about how to present your diversified funding model to not only your board, but to potential future funders when we return. If you're just starting out and have limited resources, you may be tempted to use a volunteer-based model for your nonprofit funders prefer paid staff because there's more accountability and consistency.
(18:29):
But if you want your proposal to be competitive, then having more than just volunteers who come and go is essential. Check out my “Building an Effective Nonprofit Volunteer Program Toolkit”. It provides all the essential elements of an effective nonprofit volunteer program, things that demonstrate standardization, consistency and continuity. Learn how to develop a nonprofit volunteer program funders feel comfortable with funding. Order your copy today. Welcome back. You're On Air With Amber Wynn, Philanthrepreneur, and we are having the conversation that every nonprofit needs to have. Why? You should not be dependent on a single source of revenue. If you've been in business, it's not any different than a for-profit. For profits do not typically rely on a single source. You should not be relying on a single source, especially grants in this day and age. Why? Because it keeps you in what I call the nonprofit poverty cycle. I have organizations who consistently hire people than let them go.
(19:39):
When the grant goes, hire people, let them go. What that does is it says to your staff, I don't have your back. I don't have your back because I can't keep your organization consistently funded. You're going to lose good people that way. The other thing is with grants, they typically only cover program costs. So if you can't cover things like high paying salaries, if you can't cover benefits, you're not going to get people who are going to be committed and loyal to you. They have families they need to take care of. What happens if they get sick? You're hiring people as 1099 employees. They don't get benefits. You hire 'em like that because it reduces your output in terms of revenue, but it doesn't breed loyalty, and it creates this nonprofit poverty cycle, and it keeps your people poor. It keeps your people living from paycheck to paycheck, and that paycheck isn't even enough.
(20:44):
So it's important that you have to generate as much money as you can, and that's not going to happen from having a single source of funding. It comes from having multiple strings. When you have multiple strings of revenue, then you can say, all right, well, we generally, we generally raise about 300,000 from our fee from services, right? We have 300 youth that come in the summer. We charge them $75. We know that that money's going to come in, so we're going to allocate that 300 hundred thousand dollars to cover x, y, and z salaries. You can plan when you know that money is coming in, you can allocate it to certain budget line items, and that's what you want to do. You want to be in control of your future. You want to be able to say, we can do this with this money that comes in.
(21:38):
We can do this with this money that comes in. If you're doing a golf tournament, if you're doing a gala, I'm not a big fan, but you can do them. That is a stream of revenue that you can count on, and the board can say, okay, we know this amount is going to come in. We need to fundraise for the rest of this amount. So yes, grants should be a part of your strategy, but they should not be your only strategy that's going to keep you in the poverty mode. You can look at things like corporate sponsorships. You definitely should be looking into employee matching programs as passive income. You register your organization, people get money taken out of their check every month, and it may not be a lot of money. Maybe you only get $1,400 a month from that program. That $1,400 can cover the electricity, or that $1,400 can cover that part-time coordinator.
(22:34):
I want you to look at it as a strategy and not a solution to all the issues, but a solution to the big picture issues. The big picture issue is making sure that you have enough revenue coming in from different places to make up that budget, right? When people come in thinking that grants are going to take care of everything, you're setting yourself up for failure, and we don't want you to fail. Alright? I said I was going to talk to you a little bit about how to present a diversified funding model to not only your board, but to future funders. The way that you look at it, so people think that a budget is what you have in the bank or what you fundraise for. It is not a budget, is how much it costs to run your organization. So a funding model says to your board, this is how much it costs to run the organization.
(23:30):
So how many streams of revenue can we bring into the organization that's going to help us achieve that goal? It's the same thing you say to a funder, listen, in order for us to operate at an optimal level, we need to bring in 500,000. We have covered 200,000, so we're going to ask you for 150,000. We're going to ask this funder for 150,000. What does that say to your funder? It says that you have strategy, you have foresight, but most importantly, you're not asking us for all the money. Funders like to fund organizations that have other streams of revenue. If you say to them, listen, I've got 30% of my revenue that's coming in from grants. I've got another 15% that's coming in from corporate sponsors. I've got another 10% that's coming in from my board dues. What that says to your funder is you are strategic.
(24:28):
You're not reliant on one stream of revenue. What it says to them, if something happens, you can still keep your organization afloat. That's the type of ROI that a funder wants to invest in. When a funder asks you for your financial statements, they're looking to see how stable your organization is. If you only have grants, you are a risk to them because they know once those grants are gone, you have nothing. When you have a diversified portfolio, your funders feel more confident about you as a business because they know that you're going to stay afloat. No one wants to invest in an organization that can go down with one hit. So that's why it's important for you to present your diversified funding model, not only to your board because they're going to be fundraising for it, but also to your future funders, because now they see, oh, this organization number one has multiple streams of revenue, so they're not solely dependent on us.
(25:28):
Number two, they know that you are functioning like a bonafide business because you have strategy, and then number three, they know that they are a potential contributor and not the sole provider, that strategy. All right. Now it's time for you to ask Amber. It's the time of the episode when you get to ask me your pressing questions. Listen, y'all know I can talk for forever. I've been in this game for over 30 years, so I have a lot of things to talk about, but I really want to provide you with answers to your pressing questions, so you can hit me up on any of my socials and ask me your question, and I'll be happy to answer it on air. Today's question comes from Donna. Donna, what would you like to know?
Speaker 3 (26:13):
Hey there, Amber, this is Donna calling in from Canada. My question for you is, how do I keep my nonprofit compliant with limited admin staff?
Speaker 1 (26:22):
Donna, I'd like to say that your question is not something that most nonprofits face, but when you have limited staff, it's very challenging to make sure that your nonprofit is compliant. But I'm glad that you're asking this question because it doesn't matter that you have limited staff. You as the executive director are responsible for making sure that your organization is compliant because a nonprofit is a business and you have different authorized agencies that you have to report to. You've got the federal level, you've got the state level, and you've got the local level. You have to be responsive to that. So your question of how do you keep your nonprofit compliant with limited administrative staff is by creating a resource. As a matter of fact, I'm going to drop in today's episode in the bio, I have a checklist for nonprofits on the things that you are responsible to be compliant with.
(27:28):
Now, this is only in terms of the federal, the state, and the local level. So if you need to file forms like the statement of information, if you need to file your nine nineties, if you need to register for the Attorney Generals or the Secretary of States, it depends on the state charitable trust. So when you're fundraising, I will give you those things that you need to look for every year, but you have to realize also that you have to be compliant with your funder. My recommendation is as soon as you get the determination letter saying, Hey, we're going to fund you, that you go through that letter and you put on the same document as the compliance that you have to submit with these agencies, what those requirements are. You don't have to have a big staff. You just need to have notifications in your calendar saying, oh, the statement of information is due in 30 days.
(28:23):
You need to have on your calendar notifications, oh, it's important that we turn in this 30, well six month progress report. So it's less about having limited staff and more about having systems in place. I say this all the time, you need to invest in systems because systems are going to help you with generating your revenue. Systems will also help you with compliance. If you have notifications in your system that says, X, Y, and Z is due, then you won't have to worry about being late for compliance and potentially getting your 501(c)3 tax exempt status taken away from you. So leverage systems so that you can have notifications 30, 60, 90 days out to let you know that a document is due. Okay. Alright. Now it's time for my favorite time of the episode when I get to feature my nonprofits the most amazing individuals on the planet. We are wrapping up our conversation with Jamila Webb of FirstFifteen. This is part four, so let's go ahead and wrap it up. My conversation with Jamila Webb,
Speaker 3 (29:47):
Focusing on the writers. I know new actors have definitely come and attended to see like, oh, wow, they're, they're acting, they're doing it. And it's also a way, if you are new, to get your feet wet and to submit as an actor so you can read in a future reading,
Speaker 1 (30:06):
What's that process? So there's a link to upload your script, but there's also a link for the actors.
Speaker 3 (30:13):
For actors. Yes. And so for actors, it is really important one, to attend a reading and to make your presence felt. Yes, we are on Zoom, but make sure you're in the comments or just reach out to me after. It's like, Hey, I attended this reading and would love to be considered for another reading, or it's just good to make that connection since we're not in person right now. And then you can go on the website and you can submit as an actor and you just upload your headshot. But really the reel is really key. Any footage of you since if I don't know you, then I wouldn't be familiar with your work. And while a headshot and a resume will give me an idea to have a visual, a documentation of what you've done would be really great. So have a reel. And it could be from clips, from TV shows, films, it could be student films if you're just out of high school or college. It may be just some footage from a school play and then just keep coming, right? The point is, this is community, so it's not a one and done.
Speaker 1 (31:31):
Welcome back. That was the last episode of my conversation, my interview with Jamila Webb from FirstFifteen. If you are interested in having your script read and getting feedback from an industry professional, I want you to go on over to FirstFifteen, submit your work. The purpose of the organization, as she mentioned in the first episode, is to help BIPOC people get access to industry professionals that we might not otherwise have access to. I mean, she brings in showrunners and to create this network because it is just hard to get into the industry. And so she wanted to be that catalyst to help script writers, potential actors, casting agents, really get into the industry. So go on over visit FirstFifteen, take a look at what they're offering funders out there. If you're interested in how we can help keep the entertainment industry here in Los Angeles, that would be a perfect organization for you to support.
(32:49):
And if you want to watch the whole episode, go check it out on YouTube. All right, that's it for today's episode. I really, really, really, really, really can't emphasize enough that having a single source of dependency is going to be detrimental to your organization. So if you're not sure about how to diversify your funding streams, go check out the Nonprofit Mastery Academy. I have everything laid out for your board. I was going to say to you, but it is your board's responsibility to make sure that the organization is fully funded. If you're not sure how to do that, I map it all out for you. Alright, thank you for joining me this week. If you heard anything that you think would be helpful to someone in the network, be sure to like, subscribe and share this episode so that we can get the information out there because our community needs us, especially now. And as always, make sure that you take care of yourself, like you take care of your community. We'll see you next week.
Speaker 2 (33:54):
Thanks for listening. If you enjoyed this episode, subscribe and leave a review on iTunes. Head over to www.amberwynn.net/podcast for the links and resources mentioned in today's podcast. See you next time.
