Nonprofit Organisations Feel the Pinch as Funding Criteria Tighten

ngos sustainability financial management
Monday, 30 May, 2011 - 09:27

Nonprofit organisations should start introducing income-generation projects in order to generate enough cash to supplement donor funding and become financially sustainable

A recent series of workshops highlighted a growing trend in the NGO and community-based organisation sectors – more than ever, nonprofits need to make profits too.

With corporate social investment (CSI) budgets tightening and the NGO sector oversubscribed and under-funded, nonprofit organisations that successfully integrate their social and income generating activities and operate along business lines are increasingly showing the way forward. More and more, such hybrid organisations are providing potential funders with a far more attractive option than traditional not-for-profit models.

Changing Funding Landscape

It is no secret that one of the first budgets to be slashed when things are tight is CSI spend and other ‘non-essential’ areas not directly linked to the bottom line. The outcome of this has been a reduction in funding spend, cancellation of funding support to organisations that have not performed as well as expected and a far more circumspect approach when considering new funding applications – like most areas of business, funding has become about cost versus return.

In practical terms this means that nonprofit organisations that show eagerness and desire to generate their own income, and have developed plans to make this a reality, are being viewed as more attractive ‘investments’ for corporate and other funders. Dr Pandalani Mathoma, acting head of the Old Mutual Foundation, echoes this approach. “Our agenda with enterprise development is to equip people with the skills to determine their own futures, not to create more dependency. We support sustainable programmes because we recognise that what is good for our country is good for our business – economically empowered communities are the future for South Africa and the future for Old Mutual.”

Vision and Strategy Workshops

The need for nonprofit organisations to become more business-like emerged strongly at a recent series of vision and strategy workshops rolled out as part of the Old Mutual Legends business development programme. The two-day workshops were attended by almost 100 organisations in Cape Town, Durban and Johannesburg respectively during March and April, including small businesses, NGOs, community-based projects and emerging entrepreneurs from every province in South Africa.

The intention of the workshops was to assist both nonprofit and for profit businesses to streamline their vision, goals and strategic objectives, and also to allow the Legends team to finalise their selection of businesses for the 2011 programme. Legends has been running since 2007 and provides an interactive support platform for businesses in the craft, tourism, services and small-scale manufacturing sectors.

The Business of Business

“What we are seeing more and more, is that many nonprofit organisations can no longer sustain themselves on funding alone, especially those that are focused on job creation, skills training and education. They have to learn how to supplement their funding with income-generating activities in order to deliver on their mandates effectively. This means operating along the lines of more mainstream businesses, developing an entrepreneurial mindset with a focus on productivity and cost versus return ratios,” says Catherine Wijnberg, MD of enterprise development agency Fetola.

In practical terms, this presents a significant challenge for many nonprofit organisations. A social or developmental mindset is quite often at odds with a more mainstream, profit-driven approach, and many leaders of NGOs and nonprofits are themselves not business people but rather social activists or community leaders. So how does one balance the need for profit-thinking with a mandate that may include employing people with disabilities, training school leavers with no income, or providing job opportunities to HIV-positive mothers who need to work from home to look after their families?

“We are of the opinion that success starts with what we call ‘the Business of Business’”, explains Wijnberg. “We believe that there are certain fundamentals that need to be in place irrespective of your particular business model or legal structure. This includes things like a strong vision, an effective strategic plan, systems that allow for growth and access to necessary resources. A nonprofit needs these elements just as much, if not more than a for-profit business, and yet it is alarming how many of them do not prioritise these business fundamentals until it is too late.”

Themba Mkhize, managing director of the KwaZulu-Natal Society for the Blind, attended the Legends workshop and found himself looking at his nonprofit in whole new way. “This workshop really challenged my thinking and how we will operate our society going forward,” he says. For Themba, the realisation that not only is his organisation selling the products made by the blind weavers and craftsmen who work under its umbrella, but that its funding model is also a product that needs to be ‘sold’ to potential investors and funders, was liberating.

It is increasingly apparent that for nonprofit organisations to survive and thrive in the current economic climate, they need to see themselves as a business, albeit one with a higher purpose than just the pursuit of profits, and communicate their value-add to potential funders and investors.

The days of funders throwing money at a cause have passed, especially here in South Africa where it seems like every second organisation is trying to ‘save the world’. Like most successful businesses out there, nonprofits need to ask three key questions of themselves – Who are my clients? What are their core needs? How can I satisfy those needs?

The rest, frankly, is increasingly being viewed as bells and whistles.

For more information on this topic, refer to www.tccgrp.com/pdfs/SustainabilityFormula.pdf, foundationcenter.org/pnd/tsn/tsn_arch.jhtml.

Anton Ressel is a Senior Consultant at Fetola and has over 15 years experience as an entrepreneur, trainer, business developer and mentor in the emerging business sector. He is a director of the Fetola Foundation and was a co-founder of Streetwires, one of SA’s largest and most successful social enterprises.

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