Grant Funding Vs Earned Income

Should you rely on grant funding to start your business?

Any new, start-up business must generate some revenue to stay in business. The number one cause for a business to fail is lack of sufficient funding. To further complicate this people who often start non-profit organizations have big hearts and little knowledge on how to generate revenue. Some even want to provide all of their business services for free because the people they serve may not be able to afford it. To be successful all businesses, including non-profit businesses, must achieve a level of financial self-sustainability.

Some these struggling businesses turn to grant money to try to pay all of their bills. They have a mistaken belief that “self-sustainability” is when you get other sources (like grants) to pay your bills.

Grant funds are generally not designed to start a business, to pay for annual salaries, or to pay off debt. Most grants are designed to help pay some of the cost of new or expanding programs / projects.

When a grant applicant has no earned income and no other source of revenue, they are a financial risk. Grant funders do not like to give their hard earned money to a business with high financial risk. Therefore before a non-profit applies for any grant funding they should first develop a couple of other sources of revenue to strengthen their financial statement.

Perhaps the most common activities for non-profit organizations are hosting fundraising events. Fundraising events can range from car washes to bake sales to selling naming rights. The most successful fund raising event is the walk-a-thon.

Another option is UBI. UBI (Unrelated Business Income) is revenue generated by an activity which is completely outside the mission of the non-profit. One example might be having a place that serves food to the public in a hospital. Serving food like a restaurant is outside of the mission and scope of work of the general hospital. When a fund raising activity becomes very successful it could develop into its own separate for-profit business.

Earned income. On the financial statement earned income is far stronger than donations or gifts. Depending on the nature of the non-profit business there are any number of methods to generate earned income. Nearly all non-profits can sell a product(s) and service. Additionally sources of earned income include membership dues and earned interest.

A non-profit is a corporation and should be managed like one.

Nonprofit Funding Pie – How Big is Your Grant Slice?

In this article, we’ll begin with a brief discussion of why grants are important. Then, we will conclude with how much of your funding budget should be in grants.

Not long ago, I assumed that everyone in the nonprofit sector or who works with public organizations, churches, charities or any tax-exempt agency knows the value and importance of grants and grant research. My assumption might just be wrong.

Recently, I interviewed grant expert Linda Butler from Butler Consulting in the Miami Valley of Ohio. Linda has a unique take on why grants are important – not because of her background in grant writing, but because of her experience with other forms of funding.

Here is an excerpt of our conversation:

Phil: “Since our focus today is on Grant Seeking, or Grant Search, why is it important to know how to search for grants in today’s world for non-profits?

Linda: Well, I think more than ever, it’s important for any kind of an organization. We (Butler Consulting) work with not only non-profit organizations but we also (with the economy and the stimulus money) are starting to work with for-profit organizations and, of course, with public institutions also. I think it’s really important to be able to diversify your funding sources and know that the whole pie of money that supports an organization especially nonprofits and public organizations. That funding pie includes grants, which should really be as a rule about 10-15% of your overall budget.

Another reason why I think it’s important to be able to do Grant Seeking is that it’s important to screen out some of those scams out there that say there’s free grant money for individuals. Some of the folks really are not grant professionals and perhaps not even legit companies.

There is very little money out there for individuals. There certainly are scholarships that sort of thing but as far as the grants that we’re talking about today, we’re talking primarily about grants that support nonprofits and public institutions.

I think it’s important to distinguish the difference.

Phil: When you say that grants should make up 10-15% of the overall budget, could you give us an idea about how you see the rest of it like. If 10-15% is grants, what would be the rest of the 85%?

Linda: It’s not just myself, Phil, but you’ll find I’m a member of the Association of Fundraising Professionals and read a lot of information like “The Chronicle of Philanthropy.” I think that most fundraisers would agree with me that the secret 70-80% is individuals.

A lot of nonprofit and public organizations aren’t tapping into individuals as far as supporting their organization. Individuals of course include:

1) Individual gifts,

2) Major gifts,

3) Campaigns,

4) Special events, and

5) Lots of different ways to raise money from individuals.

10-15% is with Grants.

The other piece of the pie has to do with…

1) Planned giving which of course can be from individuals, and

2) Corporations.

The whole piece of the pie is primarily individuals (about 70-80%) along with grants, bequests, planned giving, and corporations (about 20-30%).