Money Magnet

Takeaways

Money always flows from those who don’t manage it to those who do. These time-tested principles of money management will help attract funds to your mission.

When COVID hit, most non-profits went on lockdown with the rest of the world. At the time, I was at Atlas Free, an anti-human trafficking agency, and we saw an opportunity. Bars, brothels, and other hubs for trafficking closed down, and in many cases, those being exploited through these “businesses” were forced onto the street, looking for shelter, food, and the opportunity to start a new life. Our partner network was on a first-name basis with over 9,000 of these individuals around the world who had just been freed overnight. Ironically, this nightmare pandemic created a dream scenario of freeing thousands we were working to liberate.

But we had to act fast to take advantage of what we thought at the time might be only a two-week window where we could house, feed, and start vocational training for these individuals before they would be pulled back by a trafficker. We had to reduce their vulnerability, or it could be used against them. We had been carefully saving funds for just such a scenario for years. It was an easy decision, and within a day, we had created a process to work with local partners to launch emergency programming that would stabilize and secure the freedom of this group of thousands. 

While most were sending out e-mails that said “Our programming has stopped, but we hope that you will keep sending us money”, we were able to send e-mails that said “We are working around the clock to do more good in the world than we ever have. If you don’t need that stimulus check you just got in the mail, we could sure use it.” We had one of our best years ever.

Money flows from those who don’t manage it to those who do. When an organization uses the funds that it has (no matter how much) really well, people take notice and give more to that organization and less to those who do not manage money as well. Well-managed organizations are like magnets for more money.

I will never forget a conversation with a donor who had discontinued giving to an organization that I served on the board. It was a trend we were seeing as board members that donors were giving less money, giving less frequently, and giving was staying constant only because we had a constant inflow of new donors. But their giving would slowly fade once they had been a donor for a few years. I sat down with a fading donor whom I knew and asked them to shoot straight with me, “Why are you no longer giving?” 

He told me a story of how he had been asked each year to provide funding for a summer camp program, and he started to notice that he was often funding the purchase of the same equipment each year. And it was expensive equipment. When he asked our staff about it, he was told that instead of securing a place to store this new equipment at the end of the camping season, they would just give the equipment away or dispose of it and lean on the donor to give again next year. 

He was furious. For good reason. I was red-faced with embarrassment. Shocked that our staff had been so careless and wasteful with this donor’s funds. I left wondering how widely this story had spread throughout our community and influenced so many other donors’ decisions to no longer give. They were all giving somewhere, just not to our organization. Because money flows from those who don’t manage it to those who do.

I saw this principle in motion again recently as a large foundation engaged Flannel Solutions to conduct an assessment of 100 international anti-trafficking organizations. We carved out a scorecard around the issues that were important to the foundation and went to work doing a deep dive on programs, impact, and, of course, finances.

The organizations that managed these five issues well attracted money to themselves, and those that mismanaged these were passed over.

Transparency

Funders assume that you are hiding something if your financial reports are hard to access. If your finances are well managed, and they are not something that a donor can easily view on your website, it is like hiding a fantastic report card where no one can see it. My rule is that if I can’t source current financial information within 10 minutes, the organization gets the lowest transparency rating.

I often get asked, “Isn’t it good enough that we would send information to those who ask?” No. No, it’s not. First, most will not bother asking, so you are getting passed over for funding and don’t even know it. Second, putting a barrier in front of access to something as important as financial data is a form of opaque operations instead of true transparency.

Connect Impact to Money

Your most sophisticated funders, who have the potential to invest “mission supercharging money,” want to understand what it costs for you to do what you do on a per-unit basis. What is the cost per thing that you do? I am always shocked at how few organizations know the answer to that basic question. If you work with housing insecurity, what is the average cost to help one individual go from housing instability to stable housing? What are the steps in between, and what is the cost of each step on an individual basis?

Charity: water knows that it costs $60 million to provide water for 1 million people. They have provided clean water for 15 million people and have 117 million more who need it. Knowing exactly how much it costs has empowered them to confidently make this enormous ask, and they are getting several high-capacity donors to say “yes”.

This is powerful for funders because they can visualize their impact. Sure, they can divide your expenses by your impact metrics for a rough estimate, but why would you make anyone do that for you? That would be like a restaurant handing everyone a menu that doesn’t have any meals listed – just raw ingredients. No one wants to figure out what meal they want to buy using only a list of ingredients. Organizations that connect impact to money are offering a menu with meals instead of ingredients.

Dry Powder

Do you keep something in reserve to keep you afloat when the economy faces headwinds and giving slows down? Those who have saved up something create an advantage for themselves because while everyone who didn’t create a reserve is sending out panicky, “help us make payroll this week” fundraising messages, those who do have a reserve can step into the service gaps that challenging times always create. 

 Keep some dry powder. Some reserve amount that gives you the power to lean in, while those that are operating without margin have to pull back. Smart funders are looking for this because they want to invest in smart leaders who are prepared for the storms we all know will come.

 Functional Allocation of Expense

Let’s talk about the elephant in the room. The IRS did no one any favors by creating this incomplete and deceptive way of analyzing non-profit financial statements. However, we have to report this way both on our audits and 990’s, so make the most of it.

The functional allocation is like an Instagram post. It is a manufactured representation of real life that is presented as real life. To stand out, be honest about your allocations, have a bias towards program costs, and make sure to tell the story around why the numbers are the way they are.

Optimism Wins

It is hard to get excited about giving to an organization that does not seem excited and hopeful about its own work. The non-profit leaders who are leading through this turbulent season with optimism and thoughtful hope will attract funding, while those who are gloomy and angry will see money flow away from them to those who are busily creating a brighter future.

Money always flows from those who don’t manage it to those who do. Those who use this simple concept consistently outperform those who do not. They are like money magnets.