Top Tips: Sustainable Funding

Olof Williamson is Sustainable Funding Officer at the National Council for Voluntary Organisations (NCVO). Here he outlines his top tips for funding your organisation sustainably.

Achieving your organisation’s work does not just involve raising income, there are also many other issues to consider. The problems of short-term funding, complex relationships with funders and a challenging and fluid operating environment can all hamper sustainability. As can skills gaps in managing different income streams. These and other pressures seem even more acute during a time when the economy is in flux and there is rising need in our communities – leading to more intense competition for income.

The idea of sustainable funding generates a lot of excitement in the third sector. When I mention it to people their ears prick up and their eyes light up. They are keen to discuss where it might come from, how income can be sustained, and the different resources they need to undertake their work.

When I’m talking to people about sustainable funding I encourage them to consider the problem in a different way, regarding it as an approach rather than one ever-lasting source of income. By using the right tools and resources, organisations can take steps towards building that sustainability, and finding the inspiration to make it work for them.

At NCVO’s sustainable funding project, we believe that sustainable income needs to be Stable, Suitable and Sufficient.

1. Stable

The best way to ensure that your income is going to be stable long-term is to plan for it to come from a wide range of sources. This means having a diversity of income streams from across what we call the income spectrum. This sets out a range of different areas in which organisations can gain their income: the gift economy, grants, structured markets (including contracts) and the open market.

By knowing how to ask for and earn income across this spectrum, you can increase both stability and flexibility for your organisation. You can also gain a mix of restricted and unrestricted funding. Build in further sustainability to your plan by accessing different sources of funding within any category, for example by broadening your donor base or accessing grants from several organisations.

Through this approach you will be less reliant on one source of income, and will have a range of income streams that will not all come to an end at once. This way, you can get your organisation off the merry-go-round of short funding cycles and stop-start projects.

To increase stability, it is also vital to consider the relationships you will have with different providers of income. The relationship your organisation has with a customer in the open market is very different to the one you have with a regular donor. You have to be sure you can effectively meet their expectations.

One area that can be confusing for many voluntary organisations is the different requirements of contract funding compared to grants. You should seek as much clarification on this as you need, as the resulting relationships can be very different.

2. Suitable

Diversifying income by branching into a new area of work can seem like a quick fix when your organisation is short of funds. But it is essential to take time and consider if a new income source is suitable for your organisation.

Does the proposed income stream fit with your mission and organisational values? Neither your funders nor your community will thank you for taking on projects that are off-mission and outside your area of expertise. Check that the type of income and activity is permitted within your founding documents, and consider if your organisation has the right legal form, management structure and skills to effectively manage the income stream.

If the project is suitable for your organisation, check the income will be provided in the right form. Will it be a steady stream like regular giving, or will it come in a block like some grant payments? If it is restricted funding, the income may be paid in arrears on completion of your work. Cashflow problems will be a real headache if there is not enough flexibility in your arrangements to short term cover costs.

Loan finance can be an enabler to allow your organisation to start projects quickly or make essential investments, provided you have a sound business plan. Community investment can also be a way to raising the funds for a project while also engaging the wider community.

Given the range of options available, it should always be possible to find a form of income that is suitable for what your organisation wants to do.

3. Sufficient

It is no good securing a new income stream if you don’t know whether it will be sufficient for what you want to do. By embarking on projects without this understanding, you can put the project and possibly your whole organisation at risk. But if you know what your full costs are you can make an informed decision about whether an income stream is sufficient for what you want to do.

Make sure you plan long-term, to ensure that your activities generate profit and enable your organisation to grow. By knowing your costs you can build in a surplus that can be reinvested into other projects and ensure the freedom and independence of your organisation. If income streams are not enough to cover your work you will always be on the back foot, chasing new funding instead of serving your beneficiaries.

Sufficiency also means that you can ensure quality in your service, meeting expectations of funders, purchasers, and service users. This is essential if you want to build a positive and lasting reputation for your organisation. Ultimately, if the income stream is not sufficient to make your project work, you need to know how to say “no”.

Find out more

By following the three “S”s you can take practical and concrete steps towards achieving financial sustainability. Many voluntary and community organisations have found our tools and resources invaluable in developing a sustainable income strategy. They are all available on NCVO’s Sustainable Funding Project website.

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