Loss of a Major Funding Source

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No matter how much effort a nonprofit makes to diversify revenue sources, a single funding source is often disproportionately important. If that revenue source is lost, the impact on the organization could be catastrophic. This chapter presents possible responses to this type of crisis.

Weather the loss of a funding source.

The steps to prevent being unprepared when a major funding source vanishes are similar to those of surviving an economic downturn. Organizations should diversify revenue sources and establish a cash reserve to cushion the blow. Leaders should also make every effort to stay informed about the stability of their primary funding source and proactively take measures to retain the source.

Specific elements of the crisis management plan for weathering the loss of a funding source include:

  • Have an emergency budget:  The budget should set out the minimum amount of money that would need to be earned each month in order to maintain a basic level of services. This will need to be regularly updated.
  • Train the crisis management team: The crisis management plan for the loss of a key revenue stream should begin with designating a recovery team. The team should be trained in fundraising skills. This is generally a relatively easy process, though the act of fundraising itself is obviously quite hard work. A training session can often be completed within a single day, or even an afternoon.

The crisis recovery team should dedicate time to identifying potential revenue sources.

If the unpleasant reality of losing a primary funding source occurs, the organization should activate this recovery team to significantly increase the level of effort going toward fundraising and revenue development. Members of the team should be prepared to spend seven to ten hours per month strategizing and fundraising in addition to their usual responsibilities.

The team should begin by assembling a list of potential revenue sources. The list should be made as diverse as possible, and it should combine larger sources that may take a longer amount of time to pay off with smaller sources that can be realized more immediately. A few ideas for potential sources are:

  • Hold a membership drive.
  • Charge for subscriptions to a newsletter.
  • Canvass.
  • Run a gifts campaign.
  • Charge fees for services, using a sliding scale.
  • Sell products such as T-shirts and stationery.
  • Speak at professional organizations and service clubs.
  • Apply for grants from local corporations, service clubs, churches, or unions.
  • Apply for a line of credit from the bank.
  • Hold special events such as concerts or parties.
  • Sell booklets or manuals with useful information.
  • Approach corporations for sponsorship.

After identifying potential revenue sources conduct a cost benefit analysis.

Once the recovery team has assembled a list of potential revenue sources, it should evaluate each using the following criteria:

  • Estimated potential revenue
  • Appropriateness of the activity in relation to your mission
  • Research required
  • Time needed to implement (is this a short or long term approach?)
  • Number of staff and volunteers required
  • Cost
  • Risks
  • Liklihood of success
  • Appropriateness of revenue source

With this information, identify activities that will yield the most revenue with the amount of time and resources the organization can afford to deveote.

When making cuts, leaders of nonprofits can think creatively and take care of people as much as possible.

First and foremost organizations are made of people, and in the case of nonprofits, these people are typically very dedicated and usually not very highly compensated.   When cost-cutting is necessary, it is important to reassure staff of their security where possible, and to maintain transparency when this is not possible.  Some strategies include:

  • Hold regular meetings to update the team on additional revenue generating activities and the status of these activities.
  • Reward and recognize staff members and volunteers putting in additional hours to support revenue development on top of their normal activities.
  • Be straight with people about difficult measures that may need to be taken with as much notice as possible. Maintain an open-door policy for employees who may be very concerned about their own livelihoods.
  • If the organization is renting its office space, it may be possible to negotiate with the landlord for a free month or discounted rent, which he or she may agree to when faced with the alternative of a vacant property.
  • It may also be possible to share space with another nonprofit, e.g., with one group using the offices during regular daytime hours and the other using them in the evenings.
  • To avoid layoffs, consider temporarily reducing staff hours and pay.  This is a hard pill to swallow for employees, but clear communication about the reasons and the alternatives (letting people go) help make this less painful. 
  • For any of these ideas, consider hiring a consultant with experience in making these changes. The fee for consultants ranges from $300 to $1,500 per day, though some may choose to donate time if asked. Be sure to thoroughly check the references of a potential consultant before they are hired, and interview them to make sure that they are not only skilled, but enthusiastic and capable of responding to your nonprofit's particular situation.
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Prepare your organization for the loss of a major donor by testing your knowledge.

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