Getting Capital Right: Six myths and Realities for Grantmakers Part 1 and Part 2
Two recent blog posts from Associated Grant Makers, written from the perspective of a grantor/funder have insights relevant for Board members and arts leaders.
The articles resonated as recently the Department of Canadian Heritage announced the 2015 matching grants under the Endowment Incentives Component. This year, organizations who contributed to their endowments will receive matching grants of $ 0.97 for every dollar raised and contributed. This is extremely positive for those participating, but a high match also indicates that many organizations are choosing not to raise capital or endowment money. Given we all recognize the power of matching, it is a puzzle that more arts organizations in Ontario and Canada are not taking advantage of the opportunity.
Stable source of cash
While capital held in an endowment is ‘committed’, it does create stability in the production of cash income every year – a stable, reliable source not tied to a grant application process. The articles observe that most nonprofit organizations exist on one to two months of working capital. A healthy and well capitalized organization will have both investments (endowment) as well as access to cash – to pay the bills, innovate/experiment, weather economic cycles and invest/innovate in new programs.
The articles encourage organizations to think about capital by asking – will the funding align with your organizations’ strategy and financial plan? A business plan that supports operational stability and a capital plan that sets out goals for longer term saving and investment are two key criteria. Liquidity is of course important, but don’t overlook the opportunity to build your endowment – particularly in an environment where an active government matching program, such as Cdn. Heritage is in place.
Income with no strings attached
Every organization can, and should save, and try to manage costs in line with revenue realities. Any surplus provides you with breathing room to manage programs and take risks. One of the comments of the article, which resonated, was the reference to funders making gifts ‘with no strings attached at all’. This is one of the benefits of endowment income – it arrives each year and the organization makes the choices on how it will best be deployed.
Capital and capitalization of your organization are long term issues – your needs will evolve and change over time. Access to capital ( or the income on it ), be it from an operating reserve, or donor gifts – which are matched is critical to your long term success.