Win-Win: How One Alliance Can Unfetter Your Non Profit

Win-Win: How One Alliance Can Unfetter Your Non Profit

OCTOBER 10, 2017 BY IAN ALLSOP, FORMER EDITOR-IN-CHIEF OF CHARITY FINANCE

Summary

It is not particularly original to point out that non-profit finance and fundraising departments do not always co-operate as efficiently and effectively as they could. While they are working toward the same goals of assisting beneficiaries and helping their organisation achieve its objectives, there often seems to exist a silo mentality. This appears both in operations, including how data is used, and in the culture of the departments, how they prioritise things. Put simply, fundraising exists to generate funds while finance works out how to spend them. It is hard to put a tangible figure on how much this splintered approach can cost in terms of lost income and impact. But as competition for donor money intensifies, it is increasingly clear that departments within non-profits need to cooperate closely if they want to maximize their value and get the most out of limited resources.  Greater collaboration, and understanding of how each department operates, will enable an organization to achieve more. Technology and information systems play a crucial role in promoting a more collaborative approach.

If the finance team and fundraisers are able to work together, the benefits will be demonstrable. Organizations will heighten donor retention rates, more effectively convert pledges to cash, reduce the cost of fundraising administration, and achieve greater success with grant funding applications. Innovative, meaningful, and regulation-savvy investment will give non-profits and their fundraisers a significant competitive edge.

Man bringing in donations while a woman catalogs them

The Problem

A lack of collaboration can afflict many areas of a non-profit. For example, fundraisers may not be clear about what donations are being spent on. Donors, and indeed fundraisers themselves, can resent the perception that their hard work and generosity are being wasted on salaries for supporting staff instead of on frontline services and the “cause.” Being able to understand and justify administration costs will smooth communication. 

Money may be wasted on campaigns that either cost more to run than they raise or are cancelled because, even if there are long-term benefits, decision-makers see them as ineffective in the short term. All of these harms can be avoided if there is greater understanding between the finance and fundraising departments.

Research released in early 2016 revealed that more than half of fundraisers (55%), and close to half of finance staff (45%) thought that the relationship between these two groups is not collaborative, indicating that there is plenty of room to improve and strengthen the dynamic .  

Additionally, there is plenty of anecdotal and apocryphal evidence. Talk to many fundraising, and indeed finance directors and you will hear the same story: “Finance directors do not understand fundraising and instead focus too much on ratios and percentages.”

At the same time, many fundraising departments have limited expertise in financial procedures. Andy Taylor, consultant and long-time fundraiser at Desired Effect, challenges his colleagues: “How many fundraisers, hands on hearts, know much about finance and accounting? How many of us can read a balance sheet and tell what it implies for their non-profit and their fundraising? How many know how to calculate a payback period that accounts for the marginal costs of each donation and why we need to use an equivalent-risk discount factor when we work out our return on investment?”2

While the balance sheet might not help fundraisers in their day-to-day work, having an increased understanding of the overall financial health of the non-profit will provide them with greater context about the organization when speaking to donors. Surplus funds are usually a sign of a healthy non-profit. However, an enormous surplus can raise questions, for example, about whether the non-profit’s service provision can keep up with the successful fundraising team. A prospective funder may point to a seemingly healthy reserves position and ask why you specifically need their support.

Familiarity with accounting will also aid fundraisers’ understanding of how much money there is available to support new approaches. And knowledge of marginal costs and discount factors will mean that fundraisers can be realistic about how much it costs to raise money, what is possible in terms of new fundraising techniques, and whether such techniques are worth investing in, both in the short and the long term.

Additionally, the non-profit may wish to justify any significant fundraising-related costs in their annual report and accounts, so having a common understanding of the basis on which decisions have been made will help explain expenditures, whether in financial statements or directly to donors and funders. Rightly or wrongly, people assessing the effectiveness of a non-profit often focus on fundraising cost ratios. But comparisons between organisations can be misleading, since some causes are easier to raise money for than others. Powerful fundraisers have the knowledge and expertise to justify what may seem to be high costs.

Having greater awareness of accounting concepts at even at a basic level will help fundraisers make decisions in the context of the non-profit’s overall financial situation, rather than raising money as an end in itself.

Increased understanding of what the other department does will also help reduce the “them and us” mentality that can exist. There are a number of identifiable things that each department wishes the other knew about the way they work. They have different priorities, metrics, and terminology. Finance teams can be frustrated that they either don’t get the information they need to accurately set budgets or get it too late. They wish fundraisers had at least a basic understanding of accounting procedures. Meanwhile fundraisers want finance to recognise that fundraising is not always an exact science, and that the challenges and processes are different. While finance is rightly focused on minimising costs there needs to be an acknowledgement that sometimes you have to spend money to make money.  Greater awareness from each side would make any investment in fundraising more justifiable and effective.

That there is sometimes a silo mentality is understandable. Finance and fundraising are two distinct disciplines, requiring unique skills and with plenty of their own challenges to concentrate on. But in the end, people have little right to complain that others don’t know what they do when the reverse is also true. A mutual mistrust and lack of understanding will affect the amount of money an organisation can raise and the efficiency with which it is spent.

A lack of collaboration between fundraising and finance cripples both departments’ ability to manage upwards and to convince the board and the chief executive. One of the biggest mistakes the two functions can make is to disagree publicly over certain matters, which undermines any likelihood that the board or chief executive will back their ideas. As Mark Astarita, fundraising director at the British Red Cross, puts it, “Combined team effort makes all the difference, I think put us both in a room and we are formidable. It would be difficult to argue with if you are harmonising. If your fundraising and finance people are talking the same language, looking to achieve the same outcome, you really can convince your boards and chief executive to do anything.” 

At a senior level, credibility is vital. Therefore, for example, a fundraising director who can write a sound business plan will stand a far greater chance of getting internal support for extra fundraising investment than one who struggles with a basic spreadsheet. And a finance director who can empathise with the nuances of fundraising will help break down the perceived barriers between the departments.

More well-rounded fundraising and finance teams will help not only their respective departments but the entire non-profit. There is a significant opportunity for both to influence the policy, systems, culture, and ultimately the success of an organisation.

Clothes being packed into box for donation

Evolving Challenges

Understandably, finance directors are nervous about how any gaps in funding will be filled. They will need to work with fundraising teams to plan ahead and meet the challenge together. A number of leading non-profits have had to defend their fundraising ethics in the wake of negative media coverage. Finance teams need input from fundraisers when composing organizational narratives in their annual report and accounts.

The relationship between non-profit fundraisers and the public is crucial. But a particular difficulty for many fundraising departments can be negative internal as well as external perceptions. Alan Clayton suggests that the fundraising department’s internal status impacts an organization’s success. He quotes Professor Adrian Sargeant’s statement that, “In the great fundraising organizations, the whole organisation was proud of its fundraising and its fundraisers.”In order to have much more money to spend on the mission, everybody from the chair of the board and the finance department to service delivery staff needs to be proud of fundraising and the donors who support the mission. In 2014 the Institute of Fundraising launched a Proud to be a Fundraiser campaign to tackle the defensiveness among fundraisers about what they do and change the ‘necessary evil’ view many organizations have of their fundraising departments. Organisations that can do this will be in a much better position to navigate the changing landscape.

Solutions

A key part of increasing collaboration and working with other people is spending time together so that you can learn to communicate as well as to define and reinforce shared goals. This makes it easier to reach a consensus. To break down department silos, management could schedule regular joint meetings or invite finance and fundraising staff to sit in on each other’s meetings. 

Finance directors need to spend more time with fundraisers to understand what they do. They could, for instance, attend fundraising conferences in order to learn. On the other hand, finance personnel could provide fundraisers with internal training on finance issues. If they have greater understanding on basic accounting concepts they could write better grant applications and fully utilize the information funders require to determine that an organisation is working well and in robust financial health. 

Organisations should also consider their governance structures. Often boards will seek to have at least one finance expert, and a fundraising one. But rather than the other trustees deferring to the knowledge of these individuals on their relevant subject matters, it is important that all board members have an understanding of finance and fundraising to enable decisions taken at a board level to be more inclusive.

But the biggest area where a greater common understanding can be achieved is in how information is shared, and there is a clear role for technology in enabling this.

Business people working on their mobile devices

Maximising Information

As well as in the physical operation of departments, silos can exist virtually, in the data stored and used across an organisation. Some non-profits have a donor management system, a website content management system, and a finance and accounting system. They may also operate an email management system, a volunteer management system, and sometimes even a separate event management system. While they all do different jobs, and having one fully integrated system might be impractical, there is certainly space for an effective finance system that would help other departments, fundraising included, operate better. Both finance and fundraising experience similar challenges when it comes to data and information. When they are able to look at the same data, they can work together to inform trustees, donors and beneficiaries, instead of reporting on different budgets and objectives.

Organizations can use technology to increase productivity, for example by choosing cloud-based solutions that allow users to access data from any device. Automation will reduce paper chasing. Having the systems by which suppliers can be paid on time will help non-profits negotiate better prices. New technology might even encourage them to sponsor events or provide corporate support in other ways. Up-to-date Information enables more flexibility and nimbler responses. For example, the right system could help a non-profit decide to stop a project before it is too late, providing the project manager data they need to take early action.

Therefore, the following questions are equally applicable to both finance and fundraising.

  • Is the financial information you provide up-to-date and accessible?
  • Do you have the correct information?
  • Can you demonstrate effectiveness and sound financial management?

One vital tool that can help both departments communicate, collaborate, and plan together – and answer yes to the above questions – is an effective accounting software system. This will facilitate data sharing among teams, and enable timely updates. Furthermore, cloud-based solutions enhance communications. For example, the right solution makes it easier for fundraisers who travel to visit donors to update their accounts, in turn providing data to help the finance department plan ahead. 

If you give people the tools to make better financial decisions they will raise more money. As well as facilitating internal efficiency and communications, funders increasingly require proof of financial robustness and impact. It is vital that organizations have an accounting system capable of demonstrating this. Funding applications based on sound financial information will have more chance of succeeding.

A good accounting and information-sharing system can help both teams move closer, break down silos, and improve decision-making. While the right accounting software will not necessarily resolve all internal wrangling, it is a necessary step in the right direction.

Systems Integration

The final step non-profits might consider is to fully integrate their fundraising and accounting software. The 2016 research found that a significant majority of both fundraising (84%) and finance (79%) professionals feel it is somewhat important or very important to integrate their fundraising and accounting software. 

The benefits of integrating internal fundraising and financial systems include an improvement in accountability, transparency, efficiency, control, auditing processes, and internal communication, including a commonality of language in reporting. 

The integrated system will also allow other senior management and the board greater oversight of the overall picture.

A starting point could be to identify where there is opportunity to improve efficiency and reduce duplicate data entries. As well as saving time, this lowers the chance of errors and promotes more consistent reporting.

Having improved control and timely access to data keeps everyone up-to-date with the most recent information and helps active and effective communication.

Conclusion

Even if they do not find a full integration of all systems desirable, non-profits should always bear in mind that an effective financial solution, or at least full utilization of their current system, is critical in forging strong ties between finance and fundraising. It will not only assist the staff of each department in doing their own jobs more effectively; it will also help realise great benefits for the organisation as a whole. If both functions are sharing and using the same information, they will have a more integrated approach to meeting the goals of the non-profit.

1Abila Nonprofit Finance and Fundraising Collaboration Study – Opportunities for a More Collaborative Nonprofit. http://www.abila.com/resource-library/research-report/nonprofit-finance-and-fundraising-collaboration-study/

2Andy Taylor, consultant, www.civilsociety.co.uk/voices/fundraisers-who-understand-the-finance-side-will-have-a-greater-impact.html

3Mark Astarita, fundraising director, British Red Cross, www.civilsociety.co.uk/news/fundraising-and-finance-departments-must-work-together-and–manage-upwards-.html

4Alan Clayton, creative director, Revolutionise Clayton Burnett, http://www.institute-of-fundraising.org.uk/blog/why-proud-to-be-a-fundraiser-is-so-very-very-important/

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