Is all funding good funding?

Staff capacity is usually stretched to the limit at most nonprofits. The sport for development organisation I previously worked for was no different. With a team of five people and almost as many programmes as staff, we kept the show going like a street performer spinning plates. Some days felt like if we had one more plate to spin, they would all come smashing to the ground.

We had one of those days during November. We were being pressed to complete our end of year activities and fulfil our annual reporting requirements for donors. While speaking with my boss, she mentioned another grant application that she was working on. Hearing about this application brought on the nightmarish possibility of adding even more deliverables to our workload. I pleaded with her to pursue funding opportunities that did not have strict requirements which would stretch our staff capacity any further.

I came to a couple realisations during this discussion. Firstly, there are not only restricted and unrestricted types of funds, but also complementary and disruptive types of funds. And Secondly, not all funding is good funding.

In the nonprofit world, funding can be restricted or unrestricted. Restricted funds have specific parameters on how it can be spent. For example, some donors want their money to go towards programme implementation which means it can not be spent on overhead costs. Unrestricted funds can go towards covering any expense of the nonprofit. These types of funding dictate how the money can be spent. However, complementary and disruptive funding types evaluate the deliverables or terms of the funding.

With any financial transaction, money is transferred for something in return. In a nonprofit context, donations can be exchanged for goodwill, impact data, brand exposure, and other various deliverables. Depending on the nonprofits ability to produce the deliverables outlined in the terms of funding, funds are complementary or disruptive. Complementary funds include deliverables that are within the staff capacity and skill set. Whereas, disruptive funds require deliverables that will bring stress and struggles for an organisation to fulfil.

These four types of funds build out the following funding matrix.

The optimal funding source sits in the top right section of the matrix which is unrestricted and complementary. These types of funds should always be accepted as it can be used to address any need with little to no strain on the organisation. An example of this type of funding would be individual donors that are giving for the purpose of goodwill.

For the most part, restricted and complementary funds should also be accepted. This type of funding occurs when a donor supports a cause, but the money must go towards a specific initiative. A rare circumstance when an organisation may not accept this type of funding is if there are budget limits for specific expenses in their financial policies or if they have already exceeded the target appeal amount.

At the bottom right section of the matrix is unrestricted and disruptive funding. For example, a corporate sponsor giving money that can be spent on anything but would like social media content in return. This can require expertise that is not within the staff. In this situation, an organisation will have to consider its financial position and evaluate if the need of funds outweighs the level of disruption.

The most problematic type of funding is restricted and disruptive. It is not ideal because there is a lack of freedom in spending and the efforts to carry out the transaction bring on more issues than it solves. For example, a Foundation’s grant gives an organisation £10,000 towards organising events, but in return needs specific impact data to be collected. If the impact data collection spills over capacity and results in staff leaving due to burnout, along with printing costs and technology expenses, the funding is not worth it. This type of funding should be avoided whenever possible.

There are various options for funding, yet many nonprofit organisations struggle because they do not take a strategic approach. Too often, in a state of desperation, nonprofits accept anything they can get and fail to evaluate the implications of different types of funds. With a fundraising strategy, an organisation can target specific donation types to ensure that funds keep the plates spinning for a special performance rather than having them wobble and derail the act.