Should Grants Be Your Only Source of Income?

Very interesting numbers Jenai Morehead, of The Foundation Consultants, provides on how nonprofit income is generated. Diversification is the key, in my opinion. Putting all your eggs in one basket is risky business. It's amazing that program services revenues lead the way. Look at your income and ask which income streams can be increased. Given that program service revenue is such a substantial part of nonprofit income, ask what your nonprofit is doing in that area. Thanks Jenai for the excellent breakdown! Bunnie

Should Grants Be the Only Source of Your Income?

by Jenai Morehead, The Foundation Consultants

Grants are wonderful. They assist in providing money that nonprofits need to serve their clients.

My first grant, many years ago was $1,000. We used it to buy bus tickets for our homeless clients. After the bus tickets were purchased the clients were happy and the grant was gone in no time. The program was run very well. We started making a good name for ourselves and exceeded our own expectations. Immediately, I saw that running a program meant that we were going to need more funds to sustain ourselves. Now what are we going to do?

This is a challenge that many nonprofits face every year they are in business. While grants are an excellent source of income they cannot be your only source of funding. Even in a good economy grants are finicky and cannot be guaranteed. You should plan to have other sources of income that line up with your purpose.

The Urban Institute (http://www.urban.org/) puts out a variety of annual reports that give us information about where public non-profits get their money:

• In 2007, public charities reported over $1.4 trillion in total revenues and nearly $1.3 trillion in total expenses. (Source: The Urban Institute, National Center for Charitable Statistics, Core Files 2007)

• Of the nearly $1.4 trillion in total revenues, 22 percent came from contributions, gifts and grants and 67 percent came from program service revenues, which include government fees and contracts. The remaining 11 percent came from "other" sources including dues, rental income, special event income, and gains or losses from goods sold. (Source: The Urban Institute, National Center for Charitable Statistics, Core Files 2007).

Contributions and gifts are usually comprised of the money or items from private donors who are the people that support you with cash, clothing, cars, furniture or art. Grants are primarily cash given by foundations, government or corporate entities to support your nonprofit activities.

Program Service Revenues are services which your clients must pay for. An example may be lower rates for counseling services.

Income from Government fees and Contracts cover areas in which your non-profit earns income while performing a service for a city, state or federal government entity. Many nonprofit educational institutions raise funds through work in the areas of research or training.

An example of raising funds through Dues is your local YMCA. The YMCA provides a service to the community and raises income from its child care services, fitness club and health classes.

Rental Income is a source for nonprofits who specialize in low-income housing in which the tenant pays rent according to federal income guidelines.

Special Event income is raised at occasions like Christmas galas, banquets, marathons and walks such as “Breast Cancer Walks.”

Gains and Losses from goods sold is income generated from nonprofits who sell used/donated items such as Goodwill or Salvation Army. The gains from these sales are then used to support their mission and goals.

In contemplating fundraising, make a list of all of your resources and use them wisely. For example: You may have a lot of volunteers; sometimes utility companies or local governments need to get the word out on programs and changes in laws that affect their regions. This might be the perfect opportunity to get creative with your resources. Find niches that are not served. Leave no rock unturned.

Be relentless in your search for opportunities that will be win-win matches for your nonprofit.

Be careful to work within your non-profit mission and purpose. The last thing you want to do is to cause the income you raise to be taxable by doing activities that have nothing to do with your nonprofit mission. If you have questions about income generated from your charitable activity contact the IRS charitable division and find out their guidelines.

Above all, have fun doing your fundraising activities and always keep focused on the people you are helping with the funds you are raising.