Choosing Your Funding Sources Carefully

due-diligenceProfessionals engaged in resource development should also be cautious of the funders’ expectations once their gift has been secured.

By Stephen G. Donshik

Often nonprofits are so concerned about identifying funders, cultivating them, and securing their gifts that they forget that they should consider a number of issues when soliciting philanthropic gifts or accepting public support for programs and projects. It is better to consider these concerns before accepting a grant or closing the gift than having to deal with the challenges after the funding has already been received. Before seeking or accepting any gift or grant, nonprofits have to exercise due diligence.

Receiving public funding for the provision of services to the community is very enticing. Such support is perceived as the government’s endorsement of the organization and the quality of services that it provides to its clients. When the name of the city or national authorities is attached to the grant, it signals governmental recognition of both the stature of the agency and the importance of the service it is providing.

However, before the organization’s leadership sign the contract and accept the funds, there should be an appropriate amount of scrutiny of the government’s requirements and restrictions that apply both to the provision of the services and to the use of the agency’s name and the government’s name in publications and public relations. The organization needs to protect its autonomy or independence and must be very careful about how it subjects itself to the authority of the government office funding the agency. If there are onerous restrictions on administration of the services, then the nonprofit may not want to accept the grant.

Similarly, it is imperative to scrutinize the contractual agreement in terms of branding of the program. There is a very different meaning if the government is funding an agency program versus the agency implementing a government program. Certainly, there is an added value in the nonprofit being able to publicize the government’s support of a creative and innovative service that it offers to the community. Often, the receipt of such grants can attract other funders. However, if the agency is contracting with the government to provide services to a specific population in the community, this does not have the same appeal to prospective donors. Such purchase-of-service agreements are perceived as contractual relationships: they do not necessarily attract additional sources of support because in these cases the nonprofit is not receiving funding for “its program,” but is just providing a service to the community on behalf of the government.

Professionals engaged in resource development should also be cautious of the funders’ expectations once their gift has been secured. Some funders want not only to support programs but also to be very much involved in the agency’s implementation and oversight of the program. Providing money to fund a program does not entitle donors to have direct hands-on involvement in the program. There must be trust that the agency will be using the funds in an effective and efficient way.

When the development professional is cultivating and negotiating a gift with a foundation, family, or individual donor, it is essential to discuss their expectations for their involvement once the funds are received and the program is implemented. The issues can range from what will be the form of the acknowledgment of the gift to the frequency of reporting to how will the program be publicized in the community. In addition, some donors may seek to influence the organization’s priorities as reflected in the client population, geographical area where its services are provided, or other issues directly related to the provision of services. It can even be more difficult when donors want to impose their political perspective on the organization and attempt to have a say in determining who will be served by the funded programs.

It is important to clarify that the donors’ priorities and the agencies’ priorities are aligned with each other. If the funders’ expectations and priorities are not congruent with the organization’s policies and practices, then it might be the better part of discretion for the organization to say thank you but no thanks for the offer of support.

Of course, it is difficult to turn down a prospective funder. However, if there are divergent views, policies, or expectations, it is better to identify and discuss them before accepting the funding, rather than entering into a conflictual relationship after the funding has been received and the program implemented. If these issues are not discussed, explored, and clarified before program implementation of programs and the funders suddenly raise questions like, “We did not know, you did not tell us, this was not clear to us, or how could the agency not know,” then it becomes an uncomfortable situation for both the nonprofit and the supporters.

It is both good and wise professional practice to not leave anything up to chance and to make sure that all issues are raised and clarified when engaging, cultivating, negotiating, and receiving support from public sources, foundations, and individual donors. A little of bit of forethought and engagement is worth all the pain of dealing with potential misunderstandings that involve government and philanthropic funding.

Stephen G. Donshik, D.S.W., is a lecturer at Hebrew University’s International Nonprofit Management and Leadership Program. Stephen was Director of the Israel office of the Council of Jewish Federations (CJF), 1986-94, and Director of the Israel office of UJA Federation of New York, 1994-2008.