Key Ingredients for Financial Sustainability: More Than Money Management

Discover how to achieve financial sustainability for your nonprofit with Humentum's brand-new expert-led newsletter series! Our first installment focuses on practical tips and real-life case studies from our recent financial sustainability webinar series.

A Summary from a Recent Expert Panel on Financial Sustainability

Financial sustainability — you hear it and read about it everywhere as fundamental to the success of non-governmental organizations, both international (INGOs) and national (NNGOs). For something so vital, though, it’s not simple to understand or achieve.

Humentum recently hosted a webinar on the topic to share perspectives and real-life experiences from across the sector. Humentum has a depth and breadth of experience, from?skill-building courses?to?consulting?to?peer-to-peer learning shared through their membership. We recently formalized our?Theory of Change?that permeates all our offerings: that equitable and locally-led development will only happen when organizations are able to exercise autonomy over their institutional architecture, people, funding, and risk.

CEO Christine Sow, who moderated the webinar, began by asking how the panelists view financial sustainability. Moulaye Camara, Technical Director, Funding & Financial Systems, Humentum, explained it this way:

Financial sustainability means:

• Creating a viable and sustainable organization to run programs and meet commitments to the communities they support
• Reducing dependency to minimize financial risk and strengthen independence and autonomy
• Financial capacity to develop and deliver on the mission in a challenging, complex, and changing environment
• Ability to engage a diverse group of funders/income sources
• Building support in the local community

Financial Sustainability Challenges

Taryn Rae, CEO at?The Tomorrow Trust, South Africa, shared that her organization has grown more than 20% in just the last two years. This raises the question of: can we sustain this? How do we translate growth into stability?

One of an organization’s key areas of focus for financial sustainability is nurturing relationships with funders and with partners. Another area that might not leap to mind right away is outcomes. You need the funding to produce those, but you also need to show that you can meet the requirements. If it were in the for-profit world, you would say, supply has to meet demand.

One of the main areas of difficulty is restricted grants. “When funders give money to specific activities that are all meant to be spent, and then indirect cost coverage [ends up] being very low” that puts a strain on basic “cost of doing business” like rent and salaries, said Hana ElSafoury,?EDGE Funders.

That challenge is compounded if you’re moving from being a grassroots organization to an institution. It’s very rare to get funding to build up your structure as an organization.

From the Funder’s Perspective

Katie Skartvedt, Program Director at?Wellspring Philanthropic Fund, shared the funder’s perspective. “As a funder, and recognizing the diversity of funders out there, overall across the sector what we see is a very limited and narrow view of financial health and therefore a very limited and narrow approach to financial sustainability. What we see is a focus on scrutinizing and tracking project dollars and cents to just ensure that they’re deployed as planned, which is very different from helping build the systems and assets that will make for a strong and impactful organization.”

From a Global Perspective

Shadrack Musyoka, National Society Development Coordinator, Southern Africa Cluster Delegation,?International Federation of Red Cross and Red Crescent Societies (IFRC), shared the perspective of an INGO. Funders want an institution that can jump into any situation in a moment’s notice, yet they want the funding to only go toward the work itself.

Just like a business, you can’t maintain the infrastructure to deliver services on demand, without ever getting the funding to build the systems and pay the people to run them. It would be like expecting a global delivery service to ship supplies overnight while only paying for the actual shipping, instead of all the related personnel and infrastructure costs. Those costs are usually baked into the cost the business or consumer sees, and it’s understood. Stores have to pay for cleaning services, delivery companies pay for gas, and of course all businesses pay salaries.

The IFRC asks their national members to identify and understand?“core costs” or administrative costs. When they submit proposals for funding, they include those core costs. “This work is not free. This institution is stable because you found it stable, because it’s been made sustainable, and because we have our own policies in place. We require 5% or 10% or 15% of funding resources to be retained within the organization in order for it to be self-sustaining.”

They also look beyond pure funding to look at factors like leadership. Is it progressive? Is it aware of the dynamics of the globe, for example, from wars to recessions to pandemics?

Another factor that goes beyond financial management is the power of the community itself — “domestic resource mobilization: what are the tools in place that we can develop, how do we bring in the resources from within, instead of looking from the global West.”

The asymmetry of funders and grantees

Given one of the challenges is a difference in perspective between the funders and the grantees, how can the sector align?

Skartvedt shared her take on it. “What I’ve seen across the sector is there continues to be a lack of true partnership. I think that hinders the quality of the funding that’s received and the work that’s able to be done. As a result of that, there’s just a huge power dynamic, a huge trust deficit, and that really prevents engaging in a true partnership that allows for financial sustainability.”

She pointed to a due diligence process that can feel punitive, that seems to start from a place of suspicion.

In some cases, as Rae pointed out, if you have a new organization, they may not have the track record to show repeatable results. That makes funders less likely to fund them, which means the status quo remains.

Should NNGOs Generate Income?

Another kind of shift is changing the mentality of nonprofits to what Musyoka referred to as “income-generating activity.” This is something the IFRC has been encouraging via membership in their local branches. That’s hard because “we don’t think that we should make profits,” said Musyoka. “I think that’s the wrong aspect of it. We need to make money for us to be in business.” Different branches approach it differently, primarily through a membership model, but driven by that local branch.

Another shift is more of a mental one: seeing your NNGO as a power broker, a facilitator. You, as the NNGO, can deliver what the funders need. They have a goal, and you have the means to deliver that goal. That’s a powerful, meaningful role that could help NNGOs see themselves more as equal partners.

Key Ingredients: Core Costs, Transparency, Diversity, Partnership & Think Like a Business

As the webinar wrapped up, each panelist shared one take-away.

• Moulaye Camara:?Understand your NGO finances. Where are you now? Where do you want to go? What policies/processes will help you get there? You need to know your core costs, and that means analysis. And if you want to grow, how can you build that into your current finances?
• Taryn Rae:?Transparency is one key, having that open conversation between funders and grantees. Diversity of funding, so that you’re not dependent on any one funder, as well as looking at income potential, and knowing your spend. We count every penny and make sure we understand where it comes from, where it’s going, and where you as an organization want to go.
• Shadrack Musyoka:?It’s about partnerships. Do your funders understand your capabilities, and do you have all the right relationships with funders? And it’s also about mindset shifts. We as NNGOs know what needs to be done. Our mindset should be: how can we develop and grow business?
• Katie Skartvedt:?There’s a huge amount of diversity in terms of what’s possible. Each organization needs to think very carefully about what the right model is for them in terms of financial system sustainability. There’s not a one-size-fit-all, and funders shouldn’t try to impose that.
• Hana ElSafoury:?I would hammer a bit more on the point we’ve all been making, which is that the current system is not okay, the hoops, and obstacles are not okay. Flexibility intersects everything we’ve talked about, in terms of trust, partnership, commitment to one another. Funders need to be able to say, ‘we trust you and what you do; here are the resources you need to do it’ – even if you as a funder don’t fully understand the “how” or the “what”.

Despite the challenges, the sector as a whole wants to find ways to work together to build strong organizations that carry out their individual organizational missions, and the broader missions – education, poverty, health, housing – effectively.

Is your NGO struggling to stay afloat due to financial constraints? Humentum can provide the support and expertise you need to overcome these challenges.

Learn how we can help you overcome financial obstacles and thrive.

Author: Tara Sullivan