Editors’ note: This article, first published in print during February-1999, has been republished for Nonprofit Quarterly with minor updates.
Last October, a shelter for battered women in Oakland, called A Safe Place, celebrated its twentieth anniversary. I was one of the four women who had founded that shelter, and we were honored at a gala event. The event brought up many memories of early fundraising adventures with this group, one of which is how we got our ﬁrst building.
In the 1970s, rents in Oakland were skyrocketing. A lot of organizations were having a hard time ﬁnding affordable, decent space and, since we needed an apartment building or a house with six or seven bedrooms and three or four bathrooms on a busy street near public transportation, we were having a harder time than most. Ideally, there would also be some kind of fenced yard for the children, and a space that could be made into an ofﬁce. Moreover, we needed a landlord who either was not going to ask too many questions about all the comings and goings, or was going to be supportive of us.
From a property owner’s viewpoint, renting to a domestic violence program isn’t your smartest financial move. With so many people in and out of the place, the walls and ﬂoors tend to be hard used. Occasionally, when an abandoned male partner ﬁnds the shelter, there can be a shooting, and even without violence the neighbors may complain about all the activity.
We searched for a long time and found nothing that would work. Finally, by chance, I met a woman I’ll call Carolyn who had just come into a small inheritance. She said she wanted to help our program ﬁnancially, but didn’t want to give away any of the principal of her money. She thought she might invest the money and donate the interest to the shelter. I thought of something even better: She could buy a building and rent it to us for no more than the payments on the mortgage. This would stabilize our building costs, give us a supportive landlord, and give her an investment that would appreciate in value. Both Carolyn and the Safe Place collective (as we were then organized) were delighted with the plan.
Though happy to help in this way, Carolyn was also anxious about our ability to pay the mortgage and asked me about it three or four times a week. I assured her I believed we could meet the payments. It was true we didn’t have any money in the bank, but we were raising money as fast as we could. I knew we lived on the edge and sometimes had to postpone paying our tiny staff, but yes, I believed we could pay the rent.
The week before the ﬁrst payment was due, we moved in. It was a great setup for us and we were thrilled. Carolyn called me several times to remind me of the due date for the ﬁrst payment. The night before we were to have a check to Carolyn by 9 a.m., I went to a meeting at the new ofﬁce. “I thought I would just take the check to her house tonight,“ I said, “so that she can stop worrying.”
“The problem is that we don’t have all the money right now,” said the treasurer. “I thought you had some plan for getting the money.”
“Me? I have been busy arranging this building and talking to Carolyn what seems like every ﬁve minutes. When would I have time to get this money? I thought you had a plan for getting this money.”
We would have gone on playing “search for the guilty party” for a lot longer, but a sensible member of our collective said, “Whatever anyone thought doesn’t matter because we don’t have the money and we have about 16 hours to get it, during 8 of which people will be sleeping. Let’s think of something right now.”
With that, we made and implemented an immediate plan. There were ﬁve of us in the room and we needed $900 (a fortune at that time). We would call all our friends and hope that enough of them were home and feeling generous so that we could raise the money that night. One person refused to call, so she was put on pick-up duty. Her job was to drive around and pick up the checks. She called in from pay phones every half hour and we told her where to go next. In the next three hours, we raised the $900, mostly in gifts of $25 and $35, but one generous soul gave $100, and three people gave $50.
When I look back on that experience, I am amazed that both I and the group were so casual about the money we had promised. I wouldn’t advise groups to operate like that — in fact now I would think it was irresponsible.
Yet that capacity to take big risks, live at the edge and have the conﬁdence that we would pull this out of the water was very important. I have lost that conﬁdence to some extent and I feel sad about it. And I feel sorry for my colleagues who have lost it altogether, and who now measure every ﬁnancial move against the litmus test of security.
Don’t get me wrong. Security is a good thing, but the desire for it becomes a problem when it overshadows an organization’s commitment to its mission.
There are many ways that the search for security plays out in organizations; most of these ways fall into three categories, which we will explore brieﬂy here:
- The organization insists on a level of ﬁnancial security that few individuals could ever aspire to, and amasses more and more money into various kinds of savings: restricted funds, reserve funds, endowments. This type of organization confuses fund raising with fund amassing.
- The opposite of #1, but coming from the same motive: The organization keeps their costs very low and sacriﬁces quality of work and staff morale to save money. This type of group confuses fund raising with fund squeezing.
- The organization drifts into financial security because of success in raising money. Over time, they change the course of their work because they discover they can attract funding for projects they did not originally set out to do. They confuse fund raising with fund getting. (See the sidebar on page 5 for a case study of this type of group.)
It is easy to see why people in organizations have made security such a high priority. First of all, all through the nineties we have read various doomsday scenarios about the future of the Social Security program, the imminent collapse of the health care system, and the overload of all social service agencies under the multiple burdens of more people to serve and less money with which to serve them. These articles and news reports often appear side-by-side with stories of our booming economy and lower unemployment statistics. All this conﬂicting information makes us insecure, and makes us want to try to exert some control over our ﬁnancial futures, both individually and organizationally.
Further, it is much more expensive to run an organization now than it was ten or ﬁfteen years ago. Even tiny organizations have a hard time functioning without computers, fax machines, e-mail and other time and labor-saving devices (which, ironically, have saved neither time nor labor). In addition, some groups have brought their wages up and added health and other beneﬁts, creating a laudable, though expensive, rise in their payment packages.
To deal with this increase in costs and the general ﬁnancial insecurity that seems to pervade our nonproﬁt culture, grassroots groups now spend hours creating investment policies or deciding whether to buy board liability insurance. Some groups don’t think they are ﬁscally sound unless they have a full years’ worth of funding lined up and six months’ worth of operating costs in the bank. And more and more groups are creating endowments.
There is also the common trap of “raising money” by “saving” it—the opposite of increasing costs through infrastructure, wage and beneﬁt raises. Under pressure from their board to present a balanced budget and show a healthy reserve, executive directors will postpone projects, hirings, wage increases, printing jobs, or anything else that will make the money go out more slowly. In the name of ﬁscal prudence, every expenditure is scrutinized and staff and board are constantly asked to try to “ﬁnd someone to donate it.” Organizations endure aged computers that cannot accommodate new software, ofﬁce space that is dismal and depressing, and wages that are simply too low. In a recent study of beneﬁts paid by nonproﬁts, only 71% had health insurance for their employees — a disgracefully low percentage.
Saving money does not equal ﬁscal prudence. In fact, in examining organizations with this mentality, we usually ﬁnd two kinds of staff — those who have been at the organization for many years, and those who come and go within 12 to 18 months. Those who have stayed seem noble and self-sacriﬁcing until we look closer and discover, as a friend of mine says, that they have a “ﬁnancial fall-back position.” These long-term staff either have a small inheritance, are married to someone who earns a decent (not necessarily high) salary, belong to a religious community that will provide for them in their retirement, or in some other way do not entirely depend on their income from their job in the nonproﬁt sector for their ﬁnancial well being. In organizations of this type, the pool of potential workers is narrowed to those who are starting out or those who have other sources of income.
There is an implicit assumption that with enough money, you will feel secure, yet few groups ever feel secure no matter how much money they have. The quest for ﬁnancial security, whether it takes the form of raising more and more money to be held in reserve, or spending less and less money till every dollar is squeezed to death, is an illusion that dampens creativity, enthusiasm and good work.
With all of this focus on ﬁnances, a discussion of a new project revolves less around whether it needs to done because it is the mission of the group and will be successful than whether it will accrue funding to the group. These are obviously serious over-reactions to ﬁnancial insecurity.
I hasten to point out that I am not against setting aside money in reserve nor am I against creating endowments. I am not against saving money and getting maximum mileage from each dollar. And I am not against success or changing what you do to meet new needs or trying new approaches to old needs.
What I am against is making decisions based on ﬁnances alone. Organizations should be mission driven — every decision framed in terms of the mission and goals of the group. What the decision costs and where the money will come from then become logistical problems.
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Five people start a tenants rights group in a poor, rundown neighborhood in a large city. The group operates out of the basement of a church. The ﬁve founders are two students, two tenants from one particularly awful apartment building and one long-time housing activist. They target the apartment building of the two tenants and, after unsuccessful efforts to negotiate improvements with the absentee landlord’s representative, organize a rent strike. This move brings a lot of publicity and, after only two months, the landlord agrees to the group’s demands. Heartened, they go on to the next apartment building.
As an all-volunteer group, they raise money by passing the hat at tenant organizing meetings. Occasionally their publicity garners them some unsolicited donations. They are ﬁscally sponsored by the church they meet in, and their needs for money are small.
One day, the secretary of the church calls one of the students to tell her that the group has received a gift from a foundation for $10,000. The group is ecstatic and overwhelmed by these unsolicited funds. At their next meeting, they discuss how to spend the money. They decide to hire an organizer and to see if they can get more grants.
They hire a person to work half-time, but he has no experience organizing. He does, however, have a decent amount of experience writing proposals, so that is what he does. His proposal writing generates another $45,000 in grant funding. His staff position becomes full-time and the group rents a small storefront ofﬁce in their neighborhood. The founders continue their organizing work in two apartment buildings. In both cases, the landlords do not want bad publicity and so make many of the improvements the tenants demand.
Now having a full-time staff person and a storefront ofﬁce, with all the costs involved in both, the group must pay much more attention to money than it did when theirs was an all-volunteer effort. Many meetings go by at which the main topic is money. The groups needs a ﬁnancial plan, the staff person needs an assistant, the group needs a new computer and fundraising software.
With three organizing successes under the group’s belt, the staff person thinks they can get money to write a manual on how to do tenant organizing. Selling the manual will create an income stream. Everyone agrees this is a good idea, and so he seeks funding for that project.
The foundation most likely to fund such an enterprise says that the manual would be more useful if there were a research component to it. The research would examine what percentage of people live in substandard housing in the area the group serves, and include statistics on the average age, income, family size, family make-up and race of the tenants along with proﬁles of the landlords, and so on. The staff person doesn’t see the point of this research, some of which has already been done, and the results of which would probably not be that surprising. But he asks how much money the foundation would be willing to put forward for this research along with the manual, and the program ofﬁcer says she thinks about $75,000 a year for two years.
Everyone agrees that, although the research is not going to be that helpful, there is no point in turning down money, and it will get the manual written. They hire a research ﬁrm, which tells them that the research is not going to objective if the group doing the research is also the group doing the organizing. The ﬁrm suggests spinning off the tenants’ groups in each apartment building and not doing any organizing for a few months until the research is completed.
The core group of organizers has now dwindled to two: the students have graduated and moved on, and the housing activist now has a very demanding job and no time to spare. The tenants who are left turn to the staff person for direction. At this point, he comes up with a new vision for the organization as an independent entity. He suggests that the group get its own tax-exempt status and become independent of the church, developing its own board of directors. They agree.
Meanwhile, a foundation that he had applied to for a community organizing project several months before the research grant was awarded contacts him to say that they are interested in his proposal, but do not like to fund community organizing. They wonder if the group would be willing to change the project to some kind of leadership development training. They apply for and receive a large grant to do leadership development.
We leave this group at the point they decide to hire two more staff and move to a bigger ofﬁce in a nicer neighborhood. They move out of their original neighborhood where they had done tenants’ rights organizing and continue to this day doing research, writing, publishing and training on issues related to community organizing, tenants rights and issues in urban low-income neighborhoods.
This group is now ﬁnancially stable and their publications and training programs are useful. There are no longer any tenants involved in this organization, which along the way changed its name to Fair Housing for All (FHA).
How does an organization, then, balance ﬁscal responsibility and long-term ﬁnancial planning with a willingness to take risks? Most groups do not want to be like the abused women’s shelter years ago, raising its rent money the night before it was due. And most groups do not want to be like the tenants rights group in the sidebar, which started as one kind of group but, through successful foundation fundraising, became an entirely different one. Though these two groups seem very different, the fact is they are not that far apart. Often, a group that starts out with a huge capacity for risk becomes more ﬁscally conservative over time.
The only way to avoid falling into the security trap is to make sure that all discussions of new programs and projects, salaries and beneﬁts, and anything that has ﬁnancial implications, are approached ﬁrst with the caveat, “Let’s pretend we have or can ﬁnd the money.” In a discussion under this assumption, no one is allowed to criticize or modify an idea because it will cost too much, leaving room for good ideas to be fully developed.
Once the ideal scenario has been fleshed out and planned in some detail, then ﬁnancial considerations can come in. These considerations will not nix the idea — they will simply provide a framework for it. “It will take two years to raise the money” is a very different way of thinking about an idea than, “how can we afford that right now?” Similarly, “We will have to ﬁnd some new donors” has a different ring than, “Forget it. Our biggest donors will not go along with it.”
It is also imperative for organizations to discuss what ﬁnancial security and ﬁscal responsibility mean in light of their mission. There is a balance between not having the money to pay a debt until the night before it is due and having enough money in the bank to cover a year’s worth of expenses. Each group will need to decide on that balance, and their decision may change as their programs change.
For example, a group about to launch a capital campaign may want to have more money than usual saved in case their annual fundraising declines while the capital campaign is in progress. A group with uncertain government funding will probably want more of a reserve than a group with a stable and growing individual donor base.
Organizations need to think of other measurements of security than just money in the bank or in the pipeline. For example, if you have a solid, loyal base of donors, this is a group you can turn to if you suddenly need money. Donors are really like an endowment — if your organization lets your donors know about the good work you are doing, if you thank them for their gifts and treat them appropriately, they will give a predictable amount of money every year and are likely to respond to a one-time need with further generosity. Donors yield money with more certainty and predictability than almost any investment.
Many groups have opted to open lines of credit at their banks instead of having large savings accounts. They create a policy that speciﬁes both that the line of credit is only to be used in extreme circumstances and how it will be paid back. This strategy allows a group not to have to accumulate so much money in a reserve fund, while providing a cash-ﬂow infusion if desperately needed.
When you look at your mission, you have to think about how you want to be remembered. “The group that had a reserve fund” is not catchy.
For example, a free clinic with a year’s funding in reserve hired a new director. She suggested using some of the reserve to open a satellite ofﬁce in another neighborhood in need of a clinic. Several board members strongly resisted this idea. Finally, one board member, who was also a clinic patient, confessed that she felt uncomfortable with the fact that, while the clinic had a full year of funding in reserve, its clients often didn’t know where their money was coming from next week. She felt that a distance had grown up between the clinic and its clients. She proposed the board consider liquidating some of the reserve to start the satellite clinic and reﬂect on whether it really seemed ﬁnancially irresponsible to only have six months’ worth of operating expenses set aside.
The board was persuaded, and the new satellite ofﬁce not only opened, but has generated a great deal of funding because of the services it provides. As a result, the board has subsequently voted to maintain only between three and six months’ worth of operating expenses in the bank. This has freed up a lot of money.
Boldness has a life and power of its own. It is attractive and it attracts money. Ironically, the greatest ﬁnancial security will be found in discarding ﬁnancial security as a way to test an idea, and measuring each proposal instead against the mission and goals of the organization. Donors pay you to do your work, not to exist in perpetuity. If you do something that some donors don’t like, others will like you better for it and step in to take their place.
Stop asking, “Can we afford it?” and start every meeting instead with Ché Guevara’s words, “Be realistic. Do the impossible.”