Funders and the Myth of 'financial Sustainability'

Recently several small organisations I’m involved in have been quizzed about their “financial sustainability” by foundation donors. This term has always made me bristle, as it’s often used as a cudgel to beat small organisations, by those who have no understanding of what it’s like to struggle financially. Practically and philosophically, gauging the value of an organisation by its income seems unhelpful.

Firstly, do we really want all the organisations we support to be financially sustainable? Don’t we want them to change the world, so they no longer need to exist? Do we want climate justice organisations to exist in perpetuity, or to address the climate crisis? What should they be striving for?

Secondly, and perhaps more realistically, I find the mindset underlying this worrying. The assumption is that the most successful organisations make the most money (perhaps because foundations have a lot of money). This is why gigantic organisations like Harvard University attract gigantic funding.

Whenever I’m asked about an organisation’s financial sustainability, I’m tempted to ask “Where did your foundation’s financial sustainability come from?’” Almost always, I imagine the answer would be, “From an individual with an unusual amount of excess wealth, who invested it, and now the interest on that wealth provides us with an endless supply of unearned income.”

I would absolutely love it if foundations offered small organisations the same revenue stream that they benefit from, by simply handing over an enormous asset (a building, perhaps) to generate future revenue for the organisation. But I can’t see many funders doing that.

There are three main ways that nonprofits become ‘financially sustainable’, all of which favour larger organisations:

The first is through generating income: revenue from fees, goods and services. This is problematic because a.) few organisations are able to invest the money needed to establish this income stream; b.) there are few income-generating activities that are truly mission-aligned; and c.) most small organisations would prefer to do the work they were set up to do, rather than setting up charity shops or selling merchandise.

The second is through individual donations: crowdfunding, direct debits, fundraising events. In my experience, regular small donations from many people is the dream of most organisations. However this unbelievably labour-intensive, and even the most successful crowd-funding campaigns rarely raise enough to cover a whole project. Furthermore, for organisations that undertake ‘unpopular’ work (not dogs or donkeys) or whose audience is mainly those on the financial margins, it’s incredibly tough.

The third common source of income is grant-funding. Having outlined how demanding (and unrealistic), sustaining themselves via the first two income streams is for most small organisations, it’s unsurprising that they turn to foundations, and end up jumping through whatever hoops are asked of them. Small organisations submit, because the alternatives are even harder. Yet then many of these foundations question their financial independence, subjecting them to interrogations under the guise of ‘capacity assessments’. These assessments are the equivalent of someone with inherited wealth telling a penniless entrepreneur that they need to work harder.

There are several ways that people working in philanthropy can truly support an organisation’s financial sustainability:

1. Donate as individuals. Put your money where your mouth is. If 100 people gave The Edge Fund just £14 a month, it would cover half their staff costs. Stop telling Edge how fascinating you find their model and set up a direct debit.
2. Fund core costs. Make sure staff’s wages are paid, to free up their time for more important things (including fundraising). This will also save the energy expended doing the patchwork accountancy necessary because every donor only funds a fraction of essential overheads.
3. Donate over the long term. The time wasted by staff and volunteers fundraising from the same donors is mind-blowing. Stop asking them to come up with new projects, and follow Mama Cash’s lead, with 10 year (10 YEAR!) core grants.

If you really care about sustainability, genuinely invest in the people and the infrastructure that allows organisations to plan and thrive. And unless your organisation has to constantly graft to raise your annual budget (like many re-granting foundations do), have some humility in your dealings. Because, unfortunately, not all of us can live off the interest generated by multi-million pound endowments.

This op-ed was first published at AllianceMagazine.org

The views expressed in this post are those of the author and do not necessarily reflect the position of the Atlantic Fellows for Social and Economic Equity programme, the International Inequalities Institute, or the London School of Economics and Political Science.