Foundation endowments took a beating during the recession, falling an average of about 25 percent in 2008, and after adjusting for inflation, they still haven’t climbed all the way back.
As a result, foundations are thinking carefully, and strategically, about where to invest their dollars to have the greatest impact.
To have the best shot at foundation funding in this new and more austere environment, nonprofits must be honest and open about their needs, open to change, and skilled at telling their stories, experts say.
Right now, what most nonprofits need is operating dollars, and they shouldn’t be afraid to ask for that, says Kathleen Enright, president and CEO of Grantmakers for Effective Organizations.
Be honest, direct
“Be completely honest,” says Enright. “Tell the real story and ask for what you really need, not what you think they’ll give you.”
If what a nonprofit really needs is a reserve fund, but hasn’t been able to build one, for example, it should ask for unrestricted dollars, not only for current operations, but for the future.
That can be difficult for nonprofits, Enright concedes, given the position of power that foundations have as the keepers of the checkbook.
But more than ever, a foundation’s effectiveness is closely linked to that of its grantees, a fact the recession simply has highlighted.
“Our success is built from the success of those we fund, so it’s in our best interest to do everything we can do to make grantees stronger,” says Enright.
While there may always be foundations that refuse to award unrestricted grants for operations, there are “pioneering grantmakers who get it.”
Grantmakers for Effective Organizations, itself a nonprofit, has been requesting operating funds from a handful of foundations for years, says Enright, and therefore has navigated the recession with a “very stable financial base and reserve.”
Nonprofits should continue to ask for the operating funds they need, not only to bolster their financial underpinnings, but to spark change in philanthropy.
“Change never happens until there’s a bit of a ground swell,” she says.
As foundations struggle to stretch their scarce grantmaking budgets as far as possible, it is critical that nonprofits stay in close contact with their funding partners, says Katie Merrow, vice president of programs for the New Hampshire Charitable Foundation, a community foundation based in Concord, N.H., that has $479 million in assets and awarded $28 million in grants in 2010.
That said, Merrow notes nonprofits should nurture relationships with all funders, including individuals, whose collective giving power eclipses that of the foundation sector.
That means reaching out to funders to communicate clearly the impact a nonprofit’s efforts are having on the communities they serve and laying out their strategies for financial sustainability.
“If you have fewer dollars to give out and a grantee says ‘here’s what we know about our impact and here’s our strategy to get through the next few years,’ that’s going to be a stronger and more sustainable relationship,” says Merrow.
And in this highly volatile fiscal environment, the New Hampshire Charitable Foundation has increased its attention to grantseekers’ financial stability.
Nonprofits, particularly their boards and chief executives, need to understand their “financial story,” and be able to tell it, says Merrow.
That story should include not only the current standing, but the organization’s financial model and its plan to sustain its solid foundation.
“We take very seriously the stewardship of our donors’ dollars,” says Merrow. “So we need to know the financial health of the organizations we grant to and we need to make sure they’ll be there next year.”
Be open to change
While the ground is still shifting from the aftershocks of the recession, it is becoming clear that the operational environment has been altered irrevocably.
“We don’t expect things to go back to the way they were,” says Merrow. “We expect to be in a constrained fiscal state for a long time.”
That means nonprofits need to be innovative and open to reengineering, she says.
Those that are able to do the hard work that adaptation and evolution require are the ones that will be sustainable over the long-term, says Merrow.
And sustainability, coupled with creativity, are compelling to foundations, she says.
“I say that respectfully, because the sector has always been creative,” says Merrow. “But we all need to be more so now.”