Saturday, November 29, 2014

What Would You Do With a $$ Windfall?

RECEIVING A SUM OF MONEY UNEXPECTEDLY (or half-expectedly) isn't as unusual as it may seem in the nonprofit world. It often comes in the form of a bequest, but it might just as often come as a year-end gift from a loyal member.  Sometimes, it's a grant few thought the organization would ever be competitive enough to get.  Or a local corporation or government acknowledges the efforts of a nonprofit that is making the community a better place.

The question that gets some organizations tied up in knots is how to make the best and most efficient use of these funds.  We all dream about how we'd put a few thousand bucks to use if it were to arrive on our doorsteps, but when actually faced with a check in one's hands, the dreams may be...well... too dreamy.  Where should it go, if the donor hasn't stipulated a place for it to land?

The director of a small cultural nonprofit asked me this question.  After several years of increased attendance and program income, should a new source of funding be used to expand promotion to keep those numbers rising or should it be used toward dedicated staffing that ensures organizational stability and related programmatic quality?  

My first response was to ask what the nonprofit's strategic plan said. up-to-date strategic plan.  OK, that explains why the organization doesn't readily know where to put its windfall.  Then how about the mission -- what does the organization say it does?  Where does the mission focus the work?  Once those questions can be answered, then an obvious next question to answer is how can that work be best accomplished?  Answering that could lead to a landing spot for the cash.

And what about that phrase "be best accomplished" -- what do I mean by that?  I'm talking about the greatest return for the investment of that money, because, frankly, what to spend the money on is as varied as those staking a claim on it, but clearly some items have greater mission ROIs than others.

There's also this old notion that I particularly like:  windfalls should be invested rather than frittered away precisely because it's money you never planned on and might certainly never see again.  If you use your windfall to pay the electric bill, you've bought yourself a month's ROI.  If you use it to install energy saving systems, your ROI is a whole lot longer.

In the case of the nonprofit that's trying to weigh staffing against a bigger promotion budget, I see the investment in staffing as having greater potential long term impact on developing and expanding the reasons why people would attend.  Will more advertising about the same old programming really keep attendance growing?  To a point it will, but promotion dollars follow great programming (not the other way around) and what really keeps audiences coming back for more is the talent behind the mission.  To me, that's where I'd put the windfall.


Cedar said...

Depends on the size of the windfall, of course, but our most pressing need is a nice cash reserve cushion.

Bill Hosley said...

Real total surprises - especially big ones - are rare. But my sense is that any non-profit that is not in the 70/30 zone - they should make it their business to get there. By 30/70 zone - I generally assume (at least from my work work in the museum industry) that any org that doesn't get at least 30% of their operating revenue from income off of endowment - will struggle against almost insurmountable odds. Ironically (because yes - one can have too much money) orgs that that more than 70% of their revenue from income off endowment - it immunizes them from public responsiveness and accountability and indulges staff and board in potentially self-serving adventurism; or simply lulls them into complacency. If my museum had an $700k operating budget $300k of which was income from a $6 mill endowment and suddenly got a new $1 mill bequest - I'd probably put 90% of it into further endowment building and maybe pick off one strategic project or need for $100k

Melissa Prycer said...

We're in a similar position after selling some property. About 75% will go to our endowment, and the board is determining this week what other projects to pursue. The options include tackling a difficult to fund maintenance project, hiring a development consultant and a staffing boost. A mix of saving and spending on impactful projects seems like the best approach.