nonprofit use

Which is better—Donations or Grants?

They each have their advantages and disadvantages.

Most donations have no restrictions.* People give to support the mission in general. Most grants have some type of restriction. Foundations tend to fund specific projects. Nonprofits should use donations to fund expense areas that foundations do not fund, such as salaries, and use grant funding to support projects.

Although grants have some restrictions, they can sometimes be less restrictive. As long as the money is used for the program, it can be used for any part of that program including salaries. If a nonprofit does this, they need to make it clear in the application.

The disadvantage of donations is most come in November and December and the amounts are unpredictable. To get donations at other times, nonprofits run a fund-raising campaign, which is usually for a specific project, or hold an event, like a concert, dance, or game night (there are many other examples).

The advantage from foundations is they publish a timeline for approval and issuing funds, along with a range of amounts, if they approve the grant. Also, some foundations provide money at the same time for the same project each year. A nonprofit can make plans and have reasonable assurance of a steady income.

As I noted in a recent blog post, Balancing Act, this is another reason for nonprofits to use equal effort and pursue funding from both donations and grants. I have worked with nonprofits receiving donations and grants and they have more stable funding.

* Note: However, some people donate for a specific program or operations.

Balancing Act

A nonprofit should balance their funding sources between donations and grants. They need to use equal effort in achieving funds from both.

I have worked with many nonprofits and almost all of them rely on either donations or grants for the majority of their funding. Yes, they get involved in the other funding source, but most of their focus is on the one. This can be dangerous if funding stops for that one. There is no fallback position.

Nonprofit managers focus on donations or grants mostly because it is easier for them and they have been doing it for years. The managers have a system worked out, contacts made, relationships built, and a history to use from.

Also, the other way looks difficult and needs to be learned.

Mostly, I see personalities driving the decision of which source to use. Those who are more social and extroverted will look at donations because it means speaking engagements, picture taking, and attending events. Those less interested in asking people for money will rely on grants.

Both types of people could be successful for years using one source of funding, until something stops the one funding source.

Changes in the economy or society can stop donations and not affect grants or vice versa. To prevent a loss of funds, nonprofits should make the effort to learn and use the other. Having a diverse line of funding is always good. They also provide more opportunities for funding.

The nonprofit I’m working with relies more on grants than donations. I’m working on changing them. But it is difficult because they have rarely held fundraising events or asked the public for funding. They ask, why change when grants are being approved? Because one day the grants may stop coming.

(I’m their grant person.)

Important Jobs in a Nonprofit

This blog post continues a recent blog post about nonprofit positions.

Nonprofit employees are categorized as operations (general overhead) or programs (specific to accomplishing the mission). I’m writing about the operations side since program people are unique to each nonprofit.

The most important employee is the executive director. However, many nonprofits have no other operations employee, which is wrong. One person cannot do everything. A nonprofit should have, at a minimum, three other employees.

  1. An office manager who oversees the day-to-day running of the office like a second in command. There are too many daily issues occurring for an executive director to manage alone.
  2. A volunteer coordinator who manages all the volunteers. There must be a person to make sure the volunteers are happy, which can be a daunting task.
  3. A grant writer who helps bring in the money. Many nonprofits fold this duty into the executive director’s job. But nonprofits who fill this job usually are better funded.

[I didn’t include a finance manager because these duties can be handled by the office manager or grant writer. With a single mission, there are software programs to help. With multiple missions, hiring a company to run the finances is easier.]

These three listed positions can be part time, but they must be paid positions. People are more invested in the nonprofit if it is their job.

Many times, these three positions are left vacant to keep operation expenses low. As a result, people from the programs side become drawn into doing operations work, worsening the problem on both sides. Even board members become involved with operations.

A nonprofit should look at itself like a business and hire those who would make it a success. Don’t pretend things are working out. They usually aren’t.

Professional versus Volunteer Grant Writer

There are two types of grant writers—someone paid by the nonprofit and one who is not (a volunteer).

I’m a volunteer grant writer which means I provide my services without compensation. But I know professional grant writers who each formed a company and are paid for their services.

Professional grant writers are paid either hourly or by a set fee. Whether the nonprofit gets the grant or not, the grant writer gets paid. The other way is for the grant writer to get about ten percent of the awarded amount. If the grant is not awarded, the grant writer does not get paid.

There is a long list of pros and cons for these two methods of pay. The grant writers I know are paid an hourly rate. I was involved in one situation where the grant writer was paid a percentage of the award.

Personally, I would rather pay the grant writer up front for their services. I feel the nonprofit has the best control of the grant writers’ work such as selecting the foundation. In the other situation, the nonprofit had almost no input into the application and the grant writer only submitted grants to places they were fairly certain of success (and getting paid).

Yes, it seems easier with a greater chance for success to pay a grant writer a percentage of the award amount. But reality can be much different after the grant is awarded. Having control might be easier and not all grants are good for the nonprofit.

Of course, whether a nonprofit pays for a grant writer or not depends on whether they have the money to do so. Many times, the nonprofit’s staff and management write the grants. In another blog post, I’ll explain why bringing on a grant writer, paid or volunteer, is as necessary as paying a volunteer coordinator (and doable).