- There are many risks that confront nonprofit organisations today and some arise where an organisation has a phase of rapid growth in resources. We have noted this, particularly in relation to new ‘social movements’, with activism at their core, which have been achieving significant success in raising public awareness and in raising funds.
Charles Tilly defines social movements as ‘a series of contentious performances, displays and campaigns by which ordinary people make collective claims on others.’
A number of such movements have received substantial initial funding leading to rapid growth, others are still growing or are poised to grow.
With growth comes both increased numbers of paid staff (employees), who are often deployed over a wide geographical area, and increased levels of activities. Together, these areas of growth result in an increased need for effective financial management systems and controls and for an organisational infrastructure that few can afford, or are prepared to pay for.
As budgets get bigger (due to increased monthly financial commitments), the need for good financial management increases but the associated costs become more difficult to finance, especially if the initial funders later withdraw or reduce their support. We are now seeing large, previously well-funded and effective organisations using up their hard-earned reserves (built up over many years) in order to meet their on-going obligations to pay staff and other running costs. What is happening?
With some exceptions, we are seeing funding shift away from established organisations, some of the funding is then switched to emerging social movements and related organisations which are seen to offer a new dynamism, mobility, profile and exposure at a lower cost than the more established organisations with a longer track record. Whatever your views are on whether this is a wise move on the part of funders / donors and on whether such funding will be for the longer-term, our experience tells us that, if you do not invest in the very necessary costs of systems, controls and infrastructure or the lack of them will come back to bite you!
Lack of effective financial management systems, controls and infrastructure may result in one or more of the following:
- Inability to account for, and report back to funders and supporters on, funds received;
- Disgruntled staff, funders and other stakeholders;
- Waste and/or misappropriation of resources (including, but not limited to, cash);
- Damaged reputation;
- An inability to carry out necessary financial planning and strategic financial thinking;
- Cash flow crises.
Financial management expertise
Failure to set up appropriate financial management systems from the beginning is a big mistake and a patch-up job later, when the gaps and negative consequences are already obvious, may prove to be more expensive than the implementation of good systems from the start would have been. At a later stage, it will also become even more difficult to secure funding to implement / upgrade systems. Every organisation (regardless of size and track record) needs access to financial management expertise. Good finance administrators, bookkeepers, accountants and financial managers are in short supply and are expensive to employ, but all organisations need the skills they offer. This is not an expense to hold back on and it is wise to:
- Employ or contract experienced and well trained finance staff or service providers from the outset; and
- Ensure the finance staff are given adequate support and training in line with their responsibilities.
- This article first appeared on the CDMS Website.
The African Development Bank (AfDB) says the International Monetary Fund's (IMF) supervised economic reform is indicative of the significant improvement in Zimbabwe's cooperation on economic policies and its commitment to address its arrear problems.
The bank points out that the, "Implementation of the Staff Monitored Programme (SMP) should help establish a track record of sound policies and is an important stepping-stone towards arrears clearance and an IMF-supported debt relief programme."
It further states that debt relief should help free resources from debt service to support the underfunded public sector investment programme.
To read the article titled, “AFDB commends Zim's debt clearance plan,” click here.Source:All Africa
- More and more we are starting to read in the news of nonprofit organisations going into liquidation and closing down. CMDS is often called on to assist organisations that are already in financial crisis for reasons such as:
- Inability to get a tax clearance certificate needed to secure funding;
- A dispute of one kind or another;
- Suspicion of fraud or theft;
- An unexpected but significant financial obligation to report or pay; and
- Threat of closure due to lack of funds.
So what are some of the first signs of financial trouble for an NPO?
You might think that cash flow difficulties, particularly an inability to pay costs such as salaries, rent, and other running costs, would the first sign of trouble. However, it is our experience that cash flow difficulties today are the result of trouble that started much earlier and should have been picked up and addressed.
Trouble may be brewing at your organisation that you may not be aware if:
- Financial recordkeeping is not up to date - it is not uncommon for us to find that either no transaction capturing is being done at all or that capturing is months behind. The records of your organisation should be captured into an accounting package (such as Pastel or Quickbooks) and reconciled to bank statements to the end of the previous month by the middle of the next month. You do not even need to wait for the auditors to finalise the previous year’s records and reports to start capturing and checking the next financial years’ records;
- Financial reports are not presented to, or not considered regularly by, the management (monthly) or the board (quarterly);
- Financial reports are inaccurate or incomplete or do not agree to the underlying accounting records. Often, such reports are presented on Microsoft Excel spreadsheets with no reconciliation to actual balances in the bank accounts, in such cases, the information cannot be relied upon for good decision-making.
- The situation revealed by the financial reports is not fully understood or is simply ignored, appropriate questions are not asked and actions are not taken even when complete and accurate financial reports are presented and considered;
- Monthly cash flow forecasts are not prepared and scrutinised, starting with the balance in the bank today and realistically forecasting the expected cash inflows and outflows month by month showing the resulting closing balance of funds per month for the year ahead; and
- There is a lack of independent regular checking of the work of the finance person, who is often trusted to carry out all the necessary financial and legal obligations of the organisation unsupervised, including meeting the South African Revenue Services (SARS) requirements. This leaves the organisation vulnerable to the effects of normal human frailties, such as forgetfulness, omissions, errors or even fraud. Financial records and systems need to be regularly independently checked – not just by the auditor once a year so that the finance person can be held accountable.
- Ongoing deficits - expenditure is consistently higher than income (or put another way the regular income is not enough to pay for regular expenditure) in general or for particular projects;
- Liquidity problems – cash in the bank today is not enough to pay the outstanding debt already owed today – so putting off paying what is due today until some money comes into the bank.
- Delaying payment of salaries to staff or payments to SARS for employees tax and UIF.
- Letters of demand for payment from suppliers, contractors etc.;
- Using earmarked grants and donations when received into the bank account to immediately pay outstanding debts;
- Taking loans – either personally or from others;
- Depleting reserves or savings – needing to draw down on savings and to cash in or sell investments or other assets to meet ongoing expenditure commitments;
- Borrowing from Peter to pay Paul – using money received for one purpose to pay for expenditure for another purpose often with the intention to repay when ‘other money’ is received. However, the “other money” gets less and less and finally dries up completely leaving you unable to replace the borrowed money and unable to report honestly on the spending; and
- Falsifying reports to funders to cover up the mess and get funds released.
What to do? Make sure that the organisation’s financial systems are sufficient and are operating effectively and that you are constantly aware of your organisation’s actual and accurate financial situation – be wise and take action earlier rather than later.
- CMDS is available to assist, advise and support your organisation. For more about the CMDS, refer to www.cmds.org.za.
The Minister of Trade and Industry, Rob Davies, says Cabinet has approved the Lotteries Act Amendment Bill, which is aimed at reforming the lottery system.
Davies pointed out that the Bill is aimed at dealing with challenges such as the strict requirements for non-governmental organisations, poor relationship between the National Lotteries Board and the beneficiaries, and the delay in the distribution of funds, among other things.
He noted that the Bill proposes the appointment of full-time staff at the distribution agencies, since the current staff is working on part-time basis. He further said that staff at distributing agencies will only be appointed based on their skills and competencies and that those appointed will be forced to relinquish their interests in organisations that apply for Lotto funding.
The Bill will also ensure that the requirements for financial statements are in line with the Companies Act, which calls for stronger reporting on how the grants are utilised. In addition, Davies reiterated that 80 percent of the budget should reach the beneficiaries.
For more about the National Lotteries Board, refer to www.nlb.org.za/general-public.html.Source:SANGONeT
Many charities do not realise or understand the benefits of being registered as a public benefit organisation (PBO), Hoosen Agjee explains.
In our many years working with the nonprofit sector (NPO) sector, we have identified that a significant number of organisations are still unaware of the specific tax benefits available to them,’ says Hoosen Agjee, managing director of Turning Point Consultants (TPC) and author ofTax Benefits for the Nonprofit Sectorand A Guide to the New Companies Act and Nonprofit Organisations.
In fact, he adds, “There’s a common misconception that an exemption from Income Tax and certain rates are perhaps the only benefits available to the sector’. Agjee says that, “All is not lost for NPOs who haven’t been tax efficient in the past.” TPC has designed a system tailored specifically for such organisations, measuring the quantitative impact of such inefficiencies, and more importantly focusing on practical solutions to remedy this. With many organisations experiencing significant reductions in donor funding, these savings and recoveries have also opened up an additional recurring income stream for NPOs.
When Agjee published his first book,Tax Benefits for the Non Profit Sector, in August 2002, the general comments received from NPOs included:
- What has tax got to do with NPOs?
- As an NPO we are exempt from taxes – we don’t pay taxes;
- We have an NPO number therefore we can access all the tax-benefits; and
- As we are a Section 21 company, we can issue our donors tax deductible certificates.
What is a Nonprofit Organisation (NPO)?
An NPO is any entity (whether formally registered or not) which carries out activities in a nonprofit manner.This means that any surplus or gains that the NPO makes will not be distributed to any individual, member or trustee of the organisation but shall be for the benefit of such organisation. NPO activities could relate to social, religious, educational, welfare and the list goes on. The fundamental requirement is that the NPO should not promote the economic interest of any individual or employee. Therefore, most or all organisations may be regarded as NPOs if they meet these criteria.
What are the benefits of an NPO number?
The NPO Act regulates NPOs in South Africa. Once an NPO meets the requirements of the NPO Act, it may apply to the Department of Social Development and on qualification, the organisation will be issued with an NPO number which results in the following benefits:
- Public recognition;
- Promotes good standing;
- Transparency and accountability in activities; and
- Promotes access to government and corporate funding.
Unlocking tax benefits
Our government, recognising that NPOs play a significant role in society, has designed specific tax benefits and exemptions to assist NPOs in meeting their objectives. Their principal aim is to ensure monies that are required to provide goods and services, which are generally for the benefit of the poor and needy, are not trapped as a tax cost.
Obtaining a tax exemption
The Income Tax Act defines the types of activities that an NPO can undertake before it is granted a tax-exempt status. Inaddition, the NPOs’ founding documents must comply with the requirements of the Act. NPOs that meet these requirements can take advantage of the tax benefits to reduce their tax burden and obtain other benefits. Obtaining a Tax exemption is not automatic. An application must be made to the South African Revenue Service (SARS) who, on review, will grant the NPO a tax exemption status. Once tax exemption is approved by SARS, the NPO obtains a Public Benefit Organisation (PBO) status.
Who can access tax benefits?
To access the tax and other benefits, the NPO has to be classified as a PBO and must undertake PublicBenefit Activities (PBAs).
What is a PBO?
A PBO is any welfare, religious or cultural body, private school, bursary fund, charitable body, charitable trust or sporting body approved by SARS. The PBO can be structured either as a nonprofit company (commonly known as a section 21 company), a trust or an association of persons.
What are Public Benefit Activities (PBAs)?
SARS has defined different fields of activities that a PBO can undertake for it to qualify for tax exemption. These activities are known as PBAs and are classified under:
- Welfare and humanitarian;
- Religion, belief or philosophy;
- Health care;
- Education and development;
- Land and housing;
- Conservation, environment and animal welfare;
- Research and consumer rights;
- Sport; and
- Provision of funds to other PBOs
Donors also benefit when donating to a PBO compared to any other organisation.By donating to a tax-exempt PBO, the donor may achieve, among others, the following tax benefits:
- 20 percent donations tax;
- 20 percent estate duty; and
- 10-14 percent capital gains tax.
Claiming tax deductions from SARS
Where donors have made donations to those PBO’s limited to conducting PBA’s under the following categories:
- Welfare and humanitarian;
- Education and development;
- Land and housing;
- Conservation; and
- Environment and animal welfare.
Who can claim and how much canbe claimed?
All donors - including salaried employee, a company or close corporation - can claim this deduction from SARS. The claim is however limited to 10 percent of the donor’s taxable income. The donation can be in the form of cash or in-kind (e.g. a supermarket may donate groceries and still qualify for this tax benefit).
Donors prefer tax–exempt charities
There are thousands of NPOs all competing to get their share of donor funding. A tax-exempt PBO stands a better chance of getting donor funding than one that doesn’t have this status. Tax exemption is a win-win situation for both donor and recipient because:
- The donor gets the satisfaction that, where an organisation is tax-exempt, every cent of the donation reaches the targeted beneficiary instead of it being earmarked for taxes and duties;
- The organisation’s expenditure is reduced by the tax saved and it can use the savings for its activities; and
- The donor achieves income tax benefits on donations made to section 18A PBOs.
Turning Point Consultants (TPC) began as a consultancy practice established more than 25 years ago. As a multi-disciplinary firm, TPC offers a comprehensive and seamless tax recovery and related consultancy service tailored specifically to meet clients’ needs while delivering value added benefits for the NPO sector.
- Hoosen Agjee is director at Turning Point Consultants. This article first appeared in the Downes Murray International’s Fundraising Forum electronic newsletter. He can be contacted on 083 282 8786 or 031 208 2458 or e-mailed to firstname.lastname@example.org.
This is Part 2 of a two-part series of articles to assist NGOs in the transition towards greater autonomy. We explore some actions that can assist with transition to a more businesslike approach, and also take a closer look at income generation and its viability in the non-profit context.
Think Like a Business
Let’s start by looking at four important ‘re-thinking’ strategies that help an NGO make the transformation to greater success:
1. What is the trade? Understanding the ‘fair value exchange’
A key ‘aha moment’ in the transformation of an NGO is the recognition of the value that NGOs offer to funders.
In a traditional business environment, the value exchange is easy to spot as goods and services are exchanged for money. Key to this successful relationship is a win-win for both parties in the form of a balanced or fair value exchange. In a nonprofit context, it can be more difficult to recognise what is being exchanged and to know when this is equal or fair.
The starting point therefore is to recognise what we are exchanging. What exactly is the trade?
Generally NGOs provide a service making a difference and uplifting communities in areas of need. Funders want the same end results, but can’t achieve this without NGOs and effectively pay them to deliver the results they wish to see. The NGO becomes the service-provider of social change.
As an example, an NGO providing HIV counselling in impoverished areas is delivering on their mandate to develop healthy communities. For a corporate social investment (CSI) manager whose mandate is to make a difference in communities in this way, you are a Godsend! You are the implementing agent of their vision, and your service delivers the outcomes that they seek. In this case the fair value exchange is community empowerment in exchange for money (funding) – and remember that the more visible, tangible and measurable this outcome is, the more readily it can be valued by the funder.
2. Who is the client? Using client-centred thinking
Most NGOs view their beneficiaries as their client and are totally focussed on providing added-value goods and services (usually for free) to the people, community or cause that they serve. The business-like approach sees things differently.
In business terms, a client is someone who pays for goods and services. As radical as it may seem to some, this means that the NGOs’ client is actually the funder, not the beneficiary, and it is this paying client that enables the services of the NGO to be delivered. Of course a sincere commitment to the servicing of this beneficiary community is at the authentic core of any reputable NGO, so we are not suggesting a diluting of this commitment, but rather recognition of the role of the primary funder client, without whom the NGO will simply cease to exist.
Recognise who your real clients are, and look after them like gold!
3. Costing and pricing – who pays the overheads?
A common challenge in the nonprofit sector is that many funders shy away from covering running costs and overheads, and are especially prickly about salaries. This is understandable from the funder perspective, as they are reluctant to fund a lavish, lax or unproductive organisation and because it is nearly impossible to quantify impact from supporting the running costs and salaries of a service-provider organisation, nonprofit or otherwise.
Now we are in no way suggesting that all NGOs are lavish, lax or unproductive, but it is the responsibility of the NGO to prove this and to motivate these costs as part of an effective, productive unit.
The reality is that any organisation must recoup its running costs to survive. In costing terminology this is known as overhead contribution or overhead recovery, and it is generally added to the price as a percentage of direct costs (raw materials and direct labour). Typical overhead contributions can range from 15 – 40 percent, depending on the size of the organisation and the overhead structure. What this means is that to be sustainable, your organisation should be building into the budget a contribution towards overheads; it can be in the form of project managers’ fees, administrative costs etc, all perfectly legitimate and justified as long as they are project-specific and not inflated or unreasonable.
Know that overheads exist and are a legitimate part of the operational costs of all organisations, and find ways to make them palatable to your funding client!
4. Return on investment – understanding the terminology
We spoke in the first instalment about Return on Investment. In business terms, this simply means getting something back for what you put in, usually in the form of profits or other strategic advantage. In the CSI and development context, this includes the beneficial outcomes that result from investment in a project, community or social initiative. Sometimes called ‘Return on Social Investment’ this return can be measured in social terminology such as people supported, CO2 reduced, children educated, rather than in pure monetary measures.
Secondary returns can also be very important, and benefits such as positive media and public relations opportunities, the chance to form strategic partnerships with government and other stakeholders and the generation of goodwill and brand loyalty can be a very valuable return on investment for funding clients.
The nonprofit that understands the concept of return on investment and its importance to corporate clients especially, will have a better chance of developing long-term funder relationships.
If You Do It, Do it Properly
While many nonprofit and related organisations run income-generating initiatives, success stories are few and often use outside expertise (advisory Board, mentors, consultants etc) to guide growth. The reasons for this are varied but a common denominator is a lack of singular purpose – many non-profits start income generation programmes as an add-on to their core activities (whether HIV support, social services, advocacy, feeding schemes etc) and thus find it difficult to commit the full and necessary resources that the initiative needs to be self-sustainable. This is in contrast to a typical business, where sharp focus is needed if one is to succeed.
We recently received an e-mail from an NGO colleague asking for assistance with the product development of handbags made from recycled newspaper. The intention was to capacitate a group of unemployed women to make the handbags to generate income for themselves, and some commission for the NGO itself. Their plan was to build up some stock and then look for potential markets.
This is sadly a very typical scenario in NGOs across South Africa – whereby an income generation project is started with excellent intentions but little planning. Our response to her was as follows:
- The starting point for any income generation initiative (like any business) is finding a viable market. Who, where, when, how and at what price would be typical questions to ask. (the market-led strategy);
- Once the market is better defined the next step is finding or developing a suitable product for that market, bearing in mind the competition, variances in taste, quality, design and trends (market-led product development);
- This should be followed by developing the appropriate business infrastructure, and the necessary basic systems and methods to run the business operation, including HR, sales, marketing, admin, financial etc;
- Only after these steps are complete should we venture into training producers to produce, refining the product to ensure that it is manufactured and supplied at a sustainable margin, and making up some samples or stock.
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- Catherine Wijnberg is director and Anton Ressel development practitioner at Fetola & Associates.
It is clear from several articles of recent weeks that the prospect of having to generate income in-house to fund the provision of critical, socially beneficial services is causing deep concern for many NGOs. Similarly, the expectation that nonprofits be run along business lines is being greeted with protest and accusations of unrealistic expectations. Yet, the reality is that in a changing competitive world, those who adjust to the needs and expectations of the customer (in this case the funder) are those who survive and thrive. The first challenge for the sector is to better understand these changing expectations and their impact on individual NGOs, and secondly to find ways to move towards this new reality while maintaining organisational integrity.
This transition to ‘sustainability’ is largely being viewed by NGOs as the creation of additional self-generated income to supplement funding and grants. In truth, with few exceptions income-generation is not something that nonprofits do very well, which is understandable given their non-commercial origins in social support. NGO systems are seldom set up for profit-making applications, some struggle with the concept of charging for services that they would prefer to offer for free, and when it comes to products the end result is often under-cooked and geared to available skill levels, rather than to market needs or wants. In most cases, income generation projects are primarily established to provide beneficiaries (such as mothers with HIV/AIDS or child-headed households) with the means to earn a bit of income to help them survive, rather than as a means of income for the NGO itself.
However, sustainability runs deeper than income generation alone and we would argue that there is merit in a more business-like approach in the nonprofit sector, for all stakeholders. The truth is that the NGO space is competitive, with ever-increasing numbers of nonprofit organisations competing for a slice of the diminishing pie. More and more of donors and funders are choosing to support projects and organisations that can offer them a return on their investment, not necessarily in financial terms but certainly in terms of measured and visible impact, positive public relations and the opportunity for project growth, replication and sustainability.
Development and corporate social investment (CSI) fund managers are almost without exception over-worked and under-resourced, and face daily with dozens if not hundreds of applications that they need to fit to a finite budget. Their challenge is to decide who to support for the best possible outcomes, and the task is often heart-breaking as they are forced to decline appeal after appeal. Thus a major responsibility for the nonprofit fundraiser is to make their application stand out from the crowd!
Clearly, the organisation that has a powerful, concise proposal that says what they do, how they do it and what benefit the funding will generate, coupled with meticulous financial records, a professional and appropriate corporate identity and excellent communication tools (website, e-mail, landline, mobile etc) will appear most attractive. Compare this with the established but disorganised NPO that has a decades-old website, poor communications, a long-winded and vague proposal and very little to offer apart from the needs of their beneficiaries or community.
Just as commercial businesses sell products or services, in a competitive world so too must NGOs increasingly be equipped to ‘sell’ their offering to prospective donors and stakeholders. Simply having a worthy cause and doing good and necessary work is no longer sufficient to secure donor support. NGOs need to market themselves as the best organisation to deliver long-term value from the social investment that funders are making.
In the above context, increased self-sustainability and a business-like approach does not mean that a nonprofit must generate its own income by selling products or services to fund the good work it is doing. It is primarily about adopting a more professional, measured and holistic operating philosophy, one that recognises that increased competition for funding requires one to stand out from the crowd in order to flourish. For many these changes will involve introspection, and possibly even require the support of specialist consultants who can assist with the transition to a more professional structure, together with better reporting tools and business systems and a more attractive overall proposition for potential funders.
There are some programmes that support NGOs in transition, such as the Old Mutual-funded, Legends Business Development Programme. This programme welcomes NGOs and nonprofits who fulfil programme selection criteria and have a desire to grow, strengthen and improve their overall offering. The most successful NGOs attract ongoing donor support in the millions, and without exception these organisations have good systems, excellent reporting, a brand that they nurture and promote, a concise and clear mandate, vision and mission, and a recognition that the needs of their target beneficiaries are no longer enough to get funders excited and interested in their work – they have to look at the needs of the funder as well.
Programmes such as Legends assist NGOs that want to transition to becoming effective and efficient long-term players in the social and economic transformation of South Africa.
The call to NGOs for transition to social entrepreneurship and self-sustainability is really a call for greater shared responsibility – an approach that tips the balance of power in favour of the NGO that understands they are the master of their destiny rather than a victim of circumstance. This requires leaders to look beyond simply the delivering of services to beneficiaries, but to understanding and embracing the 360 degree needs of clients and funders too. With a little help and focus, all organisations can develop beyond ‘the way things are done around here’ to this new dimension of possibility, and a sustainable future.
- Catherine Wijnber is director and Anton Ressel development practitioner at Fetola & Associates. This is part one of a two-part series of articles to assist NGOs in the transition towards greater autonomy. In Part 2, we will explore some actions that can assist with transition to a more businesslike approach, and also take a closer look at income generation and its viability in the non-profit context.
- 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.
Recruiting the right person for a top post as a fundraising manager or development director is challenging. Only a handful of fundraisers with the right level of abilities and experience to raise multiple millions exist in South Africa. There’s a perception that this is a local problem but in fact it is a global crisis!
The fundraising profession has a high turnover (around 30 percent per year) often linked to burnout and lack of job satisfaction. This is also exacerbated by ‘poaching’ from other non-profits. In addition, South Africa might be under threat from overseas talent scouts looking for the best in the business.
“The world is suffering from a scarcity of good fundraisers and international non-government organisations are flooding into South Africa on recruitment drives”, says Jenni McLeod, of Downes Murray International (DMI), a leading fundraising consultancy. McLeod further states, “Our clients often struggle to find competent people, many applicants will respond to an advertisement or are recommended by placement agencies, but few are able to really walk the talk.”
A well-known and respected children’s organisation advertised for a Fund Development Manager, received 52 applicants, compiled a shortlist of five good candidates, but not one person met their expectations. They tried head-hunting but without success. In desperation, a person with a marketing background was appointed, believing that transferable skills should work. Wrong, after eight months he resigned. Finally, they placed a competent and capable person ending a tortuous two year search.
Industry experts believe that some of the reasons for this shortage are:
- There has been an explosion in the number of new non-profits and they all need fundraisers, so the demand out-numbers the supply.
- This demand is also driven by an increased need for more Rands to cover higher costs of doing the work and a need to raise the quality of service.
- Leadership, board members and management, should be focusing on professional development of all staff but even more so when it comes to individuals charged with securing sufficient income to sustain the organisation.
- There is no serious interest in formal training for development officers/directors although SAQA qualifications and unit standards exist and are transferable international best practice, yet few practitioners attempt to gain this advantage.
- Few fundraisers have worked with a broad-spectrum of fundraising methods and even less have the know-how for adaptation of digital tools and new technology.
- NPO leaders won’t make the effort to understand fundraising and what it really entails with regards to resources and investment in setting up a fundraising team.
- Low salaries are offered to competent people and professionals are asked to work on a commission-basis, which is universally frowned upon as unethical and historically a model for failure.
- Lack of planning, budgets, strategies and systems are to blame – if you fail to plan, you plan to fail.
This is a complex set of issues that requires the NPO sector to make efforts by increasing the talent pool and strengthening individual career-paths through professional development.
- Encourage individuals to improve their qualifications and knowledge by attending accredited or endorsed training courses.
- Keep up to date and attend informal workshops, seminars and conferences.
- Network with peers in small groups or via Internet social networking.
- Read books and search the Internet for fundraising ideas and insights.
- Build support systems and seek out experienced people to be a coach or a mentor.
- Make space for paid interns or learnerships to gain experience and skills.
- Encourage staff to become members of a professional association such as the Southern Africa Institute of Fundraising (SAIF).
- Change the mindset of top leaders to learn about fundraising and create a culture that it’s everyone’s job to get involved.
- SANGONeT’s “Fundraising in the Digital World” Conference, 1-2 September 2010 in Johannesburg, 3 September 2010 in Durban and 6 September 2010 in Cape Town
- 30th International Fundraising Conference in Amsterdam, Holland 19-22 October 2010
- Association of Fundraising Professionals, Chicago, USA 20-23 March 2011, contact e-mail email@example.com
- SAIF 10th Biennial Convention “A New Dawn In Fundraising” 4-6 May 2011, Muldersdrift, Gauteng
- Ann Bown works for Charisma Communications. Bown is a fundraising and brandraising consultant to non-profit organisations. She is former president of the Southern Africa Institute of Fundraising.
Remember to register for the 2010 SANGONeT Conference which will focus on "Fundraising in the Digital World". The conference will be held in three parts - the main event will be held from 1-2 September 2010 in Johannesburg, followed by one-day seminars in Durban on 3 September 2010 and Cape Town on 6 September 2010.
The ways in which funding is channelled to communities can be an effective way to address poverty and inequality and empower communities to take forward their own development. This is one of the key findings of a recent study conducted by Khanya-aicdd and its partners Concern Malawi and Practical Action Zimbabwe. The results of the review have been captured in a policy briefing published by Khanya-aicdd.
The study reviewed different approaches to funding communities, and found that there were significant improvements in the communities’ capacity to plan, manage and account for themselves when they were involved in disbursing funds. Communities were also better equipped to accumulate assets. Similarly, the knowledge and skills acquired through these processes, based on local experience and rooted in local contexts, often allowed communities to continue to take forward local development more effectively - without the direct support of a funding scheme.
For example, the Mangaung Community-based Planning Project based in the Free State, South Africa used community-based planning (CBP) as an approach to determine how funding should be spent. CBP involves individual wards drawing up developmental plans by allowing the ward committees and local constituents to identify their own developmental priorities. Funding is then allocated for each ward to spend on their identified projects. In this case-study, the amount that was allocated to support the process was not substantive (approximately US$ 6 250). However it allowed the communities to come together and take action for the future of their respective wards.
What is a funding mechanism?
The research defined a ‘funding mechanism’ as a process by which funds are transferred from funding institutions to recipient communities, the mechanisms they use to spend those funds and to account for them. The review of 14 case studies of funding mechanisms, shed light on a number of different approaches to funding, namely Community Investment Funds (CIF), Community Foundations, Community Trusts, Community-based Natural Resource Management (CBNRM), Community Banks and Social Transfers. It is important to note the with the exception of social transfers which were primarily directed towards individuals within the community, the majority of projects reviewed in this study used local structures in the implementation, planning and decision-making processes.
In what ways do these approaches benefit communities?
The research findings suggest that the different approaches were able to impart benefits to communities by enabling them to accumulate assets, whether physical (personal and public infrastructure), natural (eg access to land, water), financial, and social and/or human (eg skills and health) capital. For instance Concern Worldwide’s Livelihood Security Programme in Malawi involved approximately 10 000 participants spread across 300 villages, engaged them in training on group dynamics, planning and conflict resolution and was seen to have improved community infrastructure. In Zimbabwe, the Campfire Movement, based on Community-based Natural Resource Management, led to an increased awareness of entitlements and rights, and increasing demand for these at local level. The Wildlife Committees within this movement learned basic organisational and record-keeping skills and were able to maintain their own bank accounts, and hold regular minuted meetings. Women also participated actively in decision-making. Further evidence of benefits to the community is seen where village banks made banking facilities available to more communities which could lead to increased savings in the community.
What is the risk of corruption and misappropriation of funds?
Other indications from the research suggest that where some of these mechanisms have been applied at very large scale, there has not been any systematic evidence to show that there is a greater fiduciary risk than funding disbursed through central or local governments, particularly in terms of corruption or misappropriation of funds. For example in Zambia, the World Bank funded the Zambia Social Investment Fund (ZamSIF) for US$ 40 million over five years on 555 community projects, and in Benin, the National Community-Driven Development Project supports local development through both local government and village associations, and has reached 700 sub-projects. It is worth noting that for these initiatives, the financial management and procurement related aspects were closely supervised through annual independent external audits and procurement reviews. In the Benin example, a 2006 evaluation found that the community level performed as well or better than other levels of government in respect of eligible expenditures and supporting documentation.
Critical factors in selecting funding mechanisms
If these funding mechanisms are to be more responsive, then their selection should be as closely as possible related to the needs of the local community, as well as its environmental potential. In most of the case studies the needs of the community were clearly understood before a specific funding approach was adopted. Relating to this, a number of factors emerged as being critical to influencing the impact of a selected funding mechanism.
For instance, the need for local capital was vital for developing physical infrastructure or developing a household’s ability to produce. In this regard, it was found that while Community Investment Funds, Foundations and Trusts were effective at providing public goods eg roads, hospitals, schools; social cash transfers were more effective at providing capital to individual households.
In order for the funding process to be fully transparent for both the funder and the participating community, it was important to achieve upward, downward and horizontal accountability. Ultimately, projects became sustainable when there were multiple and transparent accountabilities, which made it difficult to hijack and for corruption to occur.
It is important that individuals and community structures are held accountable in order to ensure that the money is spent in accordance with community priorities. The study generally found that effective accountability was experienced in larger scale funding mechanisms such as Community Investment Funds, Social Cash Transfers and Foundations possibly due to the more established controls that had been institutionalised within these programmes.
Leadership also plays an important role and the drive and passion of individuals may make the difference between success and failure. For example, despite community foundations appearing to have the potential to be a relatively sustainable form of funding communities, only two of the original 10 foundations established in South Africa remain. The Greater Rustenberg Community Foundation’s continued success can be attributed largely to the commitment and capacity of their staff members.
In conclusion, the study found that the key critical success factor is the relationship between communities, civil society, government and donors which must be collaborative and managed appropriately. For such approaches to be implemented at scale remains a significant challenge, despite evidence of success in several countries in Africa, Latin America and Asia. In many countries in the region, governments are wary of the capacity of communities, and want to control the way resources are allocated. It is important that we move beyond the distrust of communities, we move beyond a paternalistic approach, and one that creates dependency on the state, towards a process of liberating the energy of our people, and put in the catalyst which releases local energy to change people’s lives. The models highlighted covered show some mechanisms that can be applied widely across Africa. The challenge is now to see how these can be applied and institutionalized.
HIGHLIGHT: Submitting a clause to South Africa’s Local Government Amendment Bill
As a result of this research, Khanya-aicdd made a presentation to South Africa’s Parliamentary Portfolio Committee on Provincial and Local Government which resulted in an amendment to a clause in the Local Government Amendment Bill which would require municipalities to spend 2% of their budget on funds provided to wards, ie promoting direct funding of communities. The submission read as follows:
“In order to promote active involvement of communities in development, municipalities should make allocations of at least 2% of the municipal budget to ward committees or any project committee appointed by the ward committee as discretionary ward funds for community economic and social development, subject to a ward plan being developed which has broad public ownership, and which is linked to the IDP. These funds should be implemented by the ward or any of its project sub-committees and are the responsibility of the ward committee. The ward committee will be accountable for implementation and funds spent to the population of the ward and the municipality, and the municipal manager would be accountable to ward committees.”
there have been very large scale projects like this in many countries of the world, both richer and poorer than South Africa, eg Brazil, Mexico, Indonesia, Zambia, Malawi, Burkina Faso. This could have a major impact on empowerment and development of communities. Click here for further details on this submission.
About this article:
This article draws from emerging findings of a study about Funding Communities undertaken by Khanya-aicdd together with its partners Practical Action Zimbabwe and Concern Malawi, and funded by the Southern African Trust . The full report entitled ‘An investigation into the funding of communities: lessons and best practice’. Click here to read the full report.
A policy briefing entitled ‘Experiences of approaches to funding communities’ that highlights emerging policy issues is also available. Click here to read it on.
For more information about this research please contact Rahel Otieno at Khanya-aicdd on email: firstname.lastname@example.org.