Focus on the Core Business

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  • When you make a grant, know that you are really funding an underlying business, which supports but is separate from program. Identify the business, and design grants that honor its dynamics. Don’t fool yourself that you can invest funds directly in program or discretely for program.
  • Understand the capital needs this nonprofit business will have over time, and make sure the leaders of the nonprofit understand them too. Make this understanding explicit–for you and your grantee–with income statement and balance sheet projections.
  • Design financial investments–grants, loans or capacity building help–to support that business over time.

  • When nonprofits grow they almost always require increasing fixed overhead costs in proportion to total budget, beyond what is typical in regular operations. Like when you buy a too-big dress for a quickly growing child because you know you won’t be able to afford another for a while, growth happens on a steady curve, while organizational capacity is often built in leaps.
  • Organizations in periods of growth (as well as start-up and turnaround) are made particularly vulnerable by grants that are not supportive of the core business. Again, capital needs can be extraordinary in relationship to overall budget during these periods.

  • The stronger the restrictions on a grant, or the greater the fixity of assets acquired with that grant or loan, the higher the risk to the organization.
  • Be aware that any restricted grant creates expense for your grantee. This increases the burden to raise unrestricted cash to cover this expense in direct proportion to the size, complexity and degree of restrictions on the granted funds.

An organization is a system: endowment, cash, facilities, technology, human capital, capacity–all are interdependent. Changing one changes all the others. Funding only one creates a draw on all the others, and building capacity in one requires that capacity be built in all others.