Income diversification is key to many civil society organisations’ sustainability. But where do you begin? asks Steph Taylor, senior advisory manager at CAF.
“The board wants us to diversify our income”. This is how conversations with charity leaders often start. Of course it makes sense for any charitable organisation to think about sustainability, attract the right income mix and spread its risk – but where do you begin?
There are as many right ways to do it as there are different models, causes and sizes of charity; and let’s be honest – no long-term sector data exists showing how charities have changed their income over time and the impact this has had on their mission, reach and impact.
However, across our work providing strategic advice to donors on their giving and to charitable organisations of all kinds, we’ve learnt that there are some key things to consider if you want to make progress towards a more diverse income mix.
1. Know what you already know.
It’s crucial to make sure your board understands your current income mix fully and go on this journey with you. There are two levels to this; firstly “type” of funder (for example: trusts and foundations, companies, individuals, major donors, contracts, earned income, social investment) and secondly the diversity within these types ( do you have one major donor, or ten?) Many boards we work with do not have a handle on this and are often unaware of how diverse their current make-up already is, as well as its longevity and where the risks are. You need to be scenario planning and looking at likely external changes as part of this.
It is also important to consider to what extent core operations are covered by pro bono support that would otherwise have a cost attached. Do you operate full cost recovery and if not how comfortable are you with this? Many charities receive a huge amount of support already from companies for example, or operate with skilled volunteers without whom their impact would be greatly reduced, but because these does not show as donations on the balance sheet it is disregarded by the board.
2. Look at what others are doing and how successful it has been.
Of course, this needs analysis to relate it to your context. All charitable organisations are different and for good reason, but you will gain insight into how likely it is you can make new sources of income work for you and what level of investment might be required. You will also gain insight in to those it might not be worth pursuing. Cause, operating model and size can all make a difference to how you can attract and use new sources of income.
3. Think about your networks.
As ACEVO members, you’re already some of the way towards exploring this – it’s about thinking through your relationship with other charities with a view to building partnerships to secure funding, or even of course to merge functions / organisations over time. It’s also really important to map your networks as they relate to income: who do you all know and who can you attract to build relationships with?
4. Have honest discussions with the board about your ideal income mix, investment appetite and risk appetite.
These relate to achieving your charitable aims and upcoming strategy. Diversifying income doesn’t happen in isolation; it can require changes to operating models, strategic focus and governance; and to expectations on impact and reach. You might not be replacing like for like.
- Be realistic about the time it will take.
All the organisations we have worked with needed time to work out what mix is right for them, make any internal changes and create the time and space needed for a strategic focus on diversifying income. It doesn’t mean the same thing for all charities and it is very often about making sure everyone is pulling in the same direction with the same sense of what is realistic in your context, with governance being lined up to be best ready to create and capitalise on more diverse income streams.
All of this takes time, both as a board and a staff team, and without specific funding identified to cover the day job we know it can be very challenging. So we’re also working with donors who give through CAF to make them aware of what we’re learning – so far more investment goes into supporting charities to make these strategic changes.
CAF’s consultancy service can help you with strategic planning, diversifying your income and board development. Find out more at cafonline.org.