How Do Nonprofit Organizations Fund Themselves?

Money doesn’t grow on trees, and that’s a fact that all nonprofit organizations (NPOs) have been aware of for so long. Because nonprofits are not meant to generate income for their founders and members, alternative sources of funding are necessary for the organization to stay afloat. NPOs need to establish a stable funding model that combines multiple sources of revenue.

According to the National Center for Charitable Statistics (NCCS), the common drivers of nonprofit revenue include government grants, investment income, and private contributions or donations. A large portion of nonprofit revenue comes from private sources that provide cash in exchange for services and goods, an example of which is merchandise like rubber bracelets that NPOs can sell to support their cause.

If you have a nonprofit or are thinking of starting one, here’s a brief overview of these common sources of funding that would help your organization stay up and running for years to come.

Government Grants

Usually, grants from government sources are the biggest contributors to nonprofit funding. Applying for a government grant can be tedious and time-consuming, but it’s necessary to establish a financial bedrock for your organization’s projects.

To successfully acquire a grant, you must prove your NPO’s capacity to sustain a variety of projects. That said, your nonprofit must be transparent about the flow of funding to build the grant-giving body’s confidence and trust.

Fundraising Activities

There are many ways to go about a fundraising campaign, and thanks to the digital age, nonprofits can now take their fundraising online. Traditional fundraising activities include setting up booths in places like malls and schools. NPOs can also conduct peer-to-peer fundraising, which entails requesting cash donations or in-kind contributions from friends and family. In-kind donations can include anything that would be beneficial to an organization, including furniture, food, and transportation.

In recent years, websites have been created to streamline the process of raising funds. Your nonprofit can take advantage of these websites to widen your reach and communicate your cause to people across the globe.

Fundraising activities can also take the form of events such as fun runs, workshops, galas, and auctions. Additionally, nonprofits can sell merchandise such as pastries, shirts, and lanyards during these events for extra income. However, selling items that are not directly related to your cause could have implications on your tax break benefits. It’s best to consult with experts or your legal team on conducting commercial activities.

Corporate Sponsorships

Private companies that believe in a nonprofit’s cause can agree to become a sponsor of that organization. Sponsorships may come in the form of a partnership or collaborations on a campaign. As a tradeoff, sponsors usually request to promote their brands during nonprofit events such as charity walks.

Having a board of trustees will help your organization identify potential corporate sponsors. Board members can act as representatives and introduce your NPO to their networks and colleagues. Your sponsor doesn’t necessarily have to be a prominent one, especially if you’re just starting out. Consider securing sponsorships with small businesses that align with the NPO’s mission and vision.

Corporate matching is something that big enterprises also do to support nonprofits. Corporate matching is when a company’s employee donates to your organization and, in turn, the company donates a corresponding amount. To encourage donations, you need to remind employees to participate and follow the correct steps for informing their companies about their donations.

Income From Investments

Having multiple income streams is a must for nonprofits to thrive. Investments are becoming a popular form of passive income nowadays, and you can participate in stock and cryptocurrency trading to gain potentially high returns. However, do keep in mind that the market is highly volatile. Returns on investment are not gained overnight and would usually come on a long-term basis.

Another common form of passive income is real estate. Nonprofits can choose to lease spaces that they own to prospective tenants or even other nonprofits. Despite the ongoing debate on ethical implications, opting to become a landlord is a good option to keep in mind if you want a constant income stream. However, as in the case of selling merchandise, it’s best to consult a legal expert on what this could mean for your tax benefits.

Membership Fees

Securing private partnerships and grants requires a lot of effort and convincing, and one way to ensure stable funding is by regularly soliciting fees from your NPO’s members. Encouraging your members to periodically allocate a certain amount not only helps sustain operations, but also promotes a sense of community and altruism. 

Additionally, your nonprofit can benefit from having large corporations as members. Besides having an undeniable capacity to funnel cash for membership fees, corporate members often serve as sponsors for campaigns and events. As an added benefit, having a well-known company as a member will help your organization become more widely known to the public.

Putting Eggs in Multiple Baskets

Running a nonprofit is a tough job. Nonprofits are not supposed to treat revenue sources as customers but rather as partners or supporters. To consistently ensure your organization’s upkeep, you have to avoid the mistake of putting your eggs in one basket and relying on one source of funding. To run a successful NPO, you have to be extra creative when it comes to planning your revenue model, convincing major donors, and establishing connections that will prove beneficial in the long run.