Episode 56: Unrestricted Funding: The B part of the A + B = C Formula for Funding Success
There is a Formula for Funding Success. It’s 60% Restricted Funds + 40% Unrestricted Funds. This distribution ensures program coverage, demonstrates to funders organization stability and viability, and allows the organization to be agile and responsive to the unforeseen.
LINKS:
Project World Impact
YouTube Nonprofit Program
NONPROFIT SPOTLIGHT: AFS USA
Podcast Transcript
Speaker 1 (00:04):
Welcome to On Air with Amber Wynn, where nonprofit leaders learn to fuse passion and commitment with proven business strategies to create long-term funding, impact, and sustainability. And now here's your host and resident Philanthrepreneur, Amber Wynn.
Speaker 2 (00:29):
Good morning fam. It's your girl, Amber Wynn, Philanthrepreneur in the house. And we are continuing our conversation about your Funding Formula for Success, A plus B equals C. Last episode we talked about A, which was restricted funds. Restricted funds is when you have to use the money for the purpose in which it was granted. This week we are going to talk about unrestricted funds, the B part of that formula A plus B, equal C. Y'all know I suck at numbers, right? I suck at numbers, I suck at technology, but I got the basics down. Yo, A plus your B equals your C, and today we're going to cover the B part. Unrestricted funds. Unrestricted funds, exactly what it means. It's not restricted to anything in particular. So when you do things like fish fries, I hope y'all not still doing fish fries. When you do things like fish fries or you do your fireworks booth or you do your golf tournament, marketing funds are typically what we would consider unrestricted funds. And today we're going to talk to you about why it's so important to have that part of the equation. But we are going to pause for a minute and then when we come back, we're going to jump into unrestricted funds.
Speaker 3 (01:51):
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Speaker 2 (03:03):
Welcome back. You're On Air with Amber Wynn, Philanthrepreneur, where I fuse the passion and dedication with proven business practices for long-term impact and sustainability. And today we're talking about long term impact and sustainability. How are you going to get there? You get there by implementing your funding formula for success. Now that's a mouth twister for you. Funding formula for success. What does that look like? It looks like 60% of your revenue that you generate is going to be restricted, meaning it is allocated to something specific in your organization and 40% of your revenue that you generate is going to be unrestricted. I've had people say, we need more unrestricted funds. We need unrestricted funds. You need to have a balance of both and slightly more restricted funding than you do unrestricted funding, but you have to have unrestricted funding. Let me just go ahead and say, a nonprofit cannot function solely on restricted funds.
Speaker 2 (04:15):
A nonprofit cannot function solely on grant money, people. I know you want to, and I know you think you can, but you cannot. There's too many variables in restricted funds. Grants take anywhere between six weeks to six months to get funded. They're not guaranteed, and only 10 to 25% of that revenue can go towards the most expensive part of your organization, which is overhead, your salaries, your administration. So you can't survive with that type of environment where things are not guaranteed, where you can only take a small portion to go towards the biggest part of your expenses. Even if you have a grant writer on staff, even if you have an amazing grant writer, I was an amazing grant writer, and when I tell you the struggle was real, being an executive director, 80% of our portfolio were grants, and it's just, it's impossible. It's impossible.
Speaker 2 (05:14):
So you have to have a healthy mix. Any economist, any accounting financial person will tell you, you need to diversify your funding streams. Diversification isn't just having a variety of funding streams. It's the type of funding streams you have. An organization cannot function solely on unrestricted funds. It's just impossible, primarily because unrestricted funds tend to be smaller than the restricted funds. You get this big chunk of restricted revenue, your programs are solid. Then you put in a funding strategy so that you can bring in unrestricted funds to help fill those gaps. That should be how you visualize and think about unrestricted funds. It's not there to carry your organization. It's there to fill the gaps. So that's why it's important that you have things like events, passive income, and when I say passive income, I'm talking about registering for employee programs where they take $25 out of their paycheck and they donate it to an organization that's passive.
Speaker 2 (06:23):
All you do is register and you sit there and you let the money come in every month. You want to have corporate sponsorship programs. That's all marketing money. They don't care about deliverables, which restricted funds have, right? If they give you a grant, you have deliverables with unrestricted funds, it's usually just a check because it's for marketing. It's because you've put them in front of their target audience or it's because you allowed their community affairs department to say, we are partnering with this public charity because we care about our community. So, unrestricted funds are extremely important because from a funder's perspective, what it says is that you're agile. It says that you have some cushion to respond. If all of your money is restricted, then that means if anything outside of the norm happens, you're screwed because you cannot use restricted monies for anything except for what it's given. Let me give you an example. You've got $350,000 restricted funds, and it's for your youth program, and there's a line item for every penny of that money.
Speaker 2 (07:37):
But guess what? You weren't able to raise enough money during your gala, so you're short for your salaries. You can't go into that restricted pot and take money and use it for your salaries. That's called mismanagement of funds. And so as a funder, when I look at your budget, and if I see that you only have restricted funds, I'm not going to look at you favorably because the reality is you're going to do what you need to do, right? I'm not stupid. I'm a human being. If you need to pay your staff, you're going to tap into that restricted funds and you'll be like, oh, I'll put it back. But what if you can't, what if you can’t generate enough unrestricted funds to put it back? Then you then taking money from the program that I funded. So we're looking at all of that. We're looking to see if there's this balance.
Speaker 2 (08:29):
Are your programs solid? Yes. Yes. People. The whole purpose of getting funding is to help shore up your organization, but you've got to realize that as a funder, our goal is to protect our investment. So when we ask you for your financials, that's one of the things we're looking for. What's their source of revenue? Is it all restricted? Because if it's all restricted, I'm not feeling comfortable with that, because the likelihood, if something goes on and there's a lot of things that are unforeseen that may happen, then they're going to tap into my money, and that's not what we want to see. We don't want to see, oh, I'm so sorry. We had an unforeseen circumstance, and so we borrowed money from that. We thought we were going to get that, and it didn't. No, I don't want to hear that because then I have to go back and explain that to my board.
Speaker 2 (09:16):
I have to go back and explain that to the IRS. So there are a lot of factors that go into a funder's decision making. One of them is the type of revenue you have. If you only have unrestricted funds, no bueno. If you only have restricted funds, no bueno. If you have a nice mix of both restricted and unrestricted, that makes me feel comfortable as an investor, as a potential funder. So you want to make sure that when you're doing your strategizing for fundraising - fund development, that you have that mix. Remember the formula, 60% restricted, 40% unrestricted. That's going to be your funding formula for success. All right? We are going to pause for a minute, but when we come back, guess what time it is y'all? It's time for your question, Ask Amber. That's when you get to ask me your pressing question, and I give you my answer. So when we return, Ask Amber.
Speaker 4 (10:25):
Are you a nonprofit organization with 501(c)(3) status? Are you using video to promote your cause and attract donors? If you answered yes to both of these questions, then the YouTube Nonprofit Program was created, especially for you. The YouTube Nonprofit Program allows you to activate your cause, broadcast a compelling story, and launch an effective campaign via YouTube. The program gives nonprofits access to YouTube tools that most users don't get, an embedded donate button, call to action overlays, annotations, live streaming, and access to a community forum. So take advantage of this program for your nonprofit and you can really see the results in your video and overall communications.
Speaker 2 (11:07):
Welcome back to On Air with Amber Wynn, Philanthrepreneur. This episode is covering unrestricted funds, and right now we're going to jump into your time. This is the time I carve out for you, for you to ask your pressing questions. You can ask me on any of my socials. I am on Instagram, Facebook, Twitter, I'm on Anchor, Spotify. If you have a question, you can DM me. I want to know what it is that's keeping you up at night. I want to know how I can help to solve your problem, because here's the thing, if you have the question, trust and belief, people in your community have a similar question. I'm just talking about things that I think are important. I'm sharing knowledge that I think would be of value, but what's of value is what you want to hear. And I got this question on Instagram from Lizette.
Speaker 2 (12:04):
Lizette says, Hi, Amber. I'm Lizette from San Antonio, Texas. Woo woo. I've tried so hard to keep my nonprofit going, but after 10 years and not being able to pay myself, let alone hire staff, I'm ready to throw in the towel. It's just too hard to keep finding volunteers. And even then they're inconsistent, but I can't do anything when they are because I don't pay them, facts. So, I end up doing everything myself, and I'm just burnt out. I told my accountant that I'm done, but she says, I can't just walk away even if I decide never to do programs again. Is that true? Lisa, Lisa, Lisa, community, community, community. Yes, it is true. Your accountant is absolutely right. When you form your 501(c)(3) tax exempt status, there is a document called the bylaws that are created, and there's an article that talks about dissolution, dissolution like a dissolution in a marriage, a divorce, dissolution is a legal term for closing something out.
Speaker 2 (13:20):
You are mandated by the IRS to dissolve your organization, but you have to do it in a specific way. A lot of times people just stop doing the work and then the organization becomes inactive. You don't want that to happen because you're still responsible for this organization. You being inactive doesn't say that the organization is shut down or closed down. It means you are inactive, which in essence means that you could incur fines. If you don't tell the IRS, the state tax franchise board and all the other authorities that you are beholden to, what they think is, you have just been negligent in filing your 990s. After three consecutive years, they revoke your tax exempt status, and then after that, you get fined because they have no way of determining whether or not you're active if you're doing the work. So the legal way to close down your organization, Lisa, is to dissolve it, and it requires informing the IRS, informing the tax franchise board that you will no longer be functioning.
Speaker 2 (14:32):
And that requires that when you dissolve the organization, any assets that belong to the organization, because remember, nothing in this organization belongs to any person or any group of people. You cannot own a nonprofit. It is a public charity. And in your bylaws, and if you don't believe me, people, any of you out here listening to me, pull out your bylaws, it says, in the event that you dissolve your organization, that your assets must be given to another 501(c)(3). People don't read their bylaws, but that's the reason why, because it can't go to you. Even if you put $25,000 in the bank account of your money, if you dissolve that organization, unless you have something written that says, Hey, this is a loan to the nonprofit. When we get up and on our feet, we're going to reimburse the founder. If you don't have anything documenting that, it is illegal for you to take those assets and then give them back to yourself.
Speaker 2 (15:33):
Because if it's not documented, then it appears as if when you dissolve the organization that money is going to you, and that is the antithesis of a public charity. So I say all that, Lisette, I say all that community to say, it's important that you understand the purpose, the function, and the rules surrounding a public charity. If you are done with your nonprofit and Lizette, let me just pause for a second, sweetness, if you still have your passion, but you just haven't been able to figure out how to make that transition from a volunteer to a paid nonprofit leader, holler at your girl. I have the formula, I have the roadmap. I can get you to that place. But if you know in your heart that this is not something that you have the passion for anymore, then yes, you need to take the proper steps to dissolve your organization the right way because we don't want 10 years from now IRS saying, guess what?
Speaker 2 (16:35):
This organization has been fined, and you have to pay these fines. You want to have a clean slate. You want to walk away knowing that your obligation has been fulfilled. There is a process for dissolving your organization, so make sure you do the research and find out how to do it the right way. All right, so there you have it, Ask Amber. Again if you have any questions for me. That was a really good question. I have so many people who say, oh no, I don't think my organization is, you know, don't think that means that you didn't dissolve your organization the proper way. So great question, and this is why I love for you guys to ask me your questions because you know how you do something over and over and over and it just becomes common and you don't think about it. These are the things that your community really needs to hear because you're not the only one Lizette who didn't know that you have to go through a process to dissolve your organization, right?
Speaker 2 (17:31):
So thank you for your questions. Keep them coming. Next, we are going to move on to what is probably my favorite time of the episode. It's when I get to focus on you. It's when I get to toot the horn that you don't toot often enough and put a spotlight on an amazing nonprofit. Listen, visibility is a major part of your fund development strategy. If it's not, it should be. And so it's important that you are not somebody's little secret. It's important that everyone knows what it is that you do. This is how you increase your recruitment efforts. This is how you become visible to donors. I've had quite a few of my nonprofits now tell me that a donor reached out to them and said, Hey, we'd like to talk to you about funding. The only way that that happens is if they know that you exist.
Speaker 2 (18:30):
So, I know you're doing a lot, but I want you to carve out some time to do some marketing, and I'm going to support you in that space by spotlighting you. If you would like to be on my show, email me at amber@amberwynn.net with a video. It has to have dialogue, not it can't just be music because I'm on both YouTube and Anchor. So make sure that there's some narration. Make sure that the last slide has your contact information. Make sure there is no copyright music on there because YouTube will shut that down. But if you're interested in submitting your video so I can feature you on my show, I'd be more than happy to do it. All right, so let's jump into our nonprofit spotlight. We are spotlighting AFSUSA, and what they do is they partner in the global AFS network to offer international exchange and education opportunities in over 4,500 countries and hosts exchange students from 80 countries. I think this is an amazing program. Let's hear more.
Speaker 5 (19:42):
AFSUSA is the leader in student exchange programs, creating global citizens for over 75 years. Hosting an exchange student provides you with an incredible opportunity to make lifelong connections and embrace new cultures. We thoughtfully select students from a wide range of countries to participate in our programs. These young people are ambitious, curious, passionate and eager to share their culture with their host communities. We'll work with you to find just the right student who fits into your life and vice versa. Then AFS will help you every step of the way with local 24/7 support whenever you need it. Choose the hosting option that works best for you; 12 weeks, a semester, or a full academic year. All types of families and hosts are encouraged to apply. There is no typical AFS host family or host parent. Learn more about how you can host an exchange student on our website.
Speaker 2 (20:42):
Hey, if you're interested in hosting, being a host family, or participating in the organization, or if you would like to donate, check out AFSUSA. The URL is www.afsusa.org. That sounds like fun actually. So as we wind down, it's time for Amber to step on her soapbox for one minute. It's called Mindset Minute, and it's when I share with you a thought that I'm having, amusing. It's usually directed because I had an engagement with a client or potential client or someone, and that is the case today. Listen, I know that I am different. I've always been different, my mama says. So it hasn't changed in my evolution and trajectory in terms of my career. The way I approach the nonprofit sector is I use all of my different experiences to help catapult my clients, and sometimes they don't fit the mold.
Speaker 2 (21:50):
In this one instance, I just wanted to share with you a situation that's been brought to my attention, and it happens quite frequently. My Mindset Minute is this, do you want to be right or do you want to be funded? Because at the end of the day, you can push back all you want, but as a funder, they are my rules. As a funder, it is my money. And so I often, especially during my conferences when I'm advising nonprofits on how to increase their competitive advantage, when I'm advising my nonprofits on how to create long-term consistent funding, I get pushback. I get pushback, and I understand it. Having been an executive director, you are tired, and what I'm telling you to do is more work generally, because I'm advising you to undo those habits that keep you in that no pile, and I want you to be in that yes pile.
Speaker 2 (22:53):
And so the things that I advise you may make you feel like, damn, I got one more thing to do, or I got to undo all of that and do that. And so the natural inclination is to push back. I get it, but here's what I'm going to ask you. Do you want to be right or do you want to be funded? Why do I say, do you want to be right? Because nine times out of 10, the things that you say aren't wrong. For example, there is a, there's a disconnect between funders and grantees, right? Funders want to fund programs because they are of the belief that you are functioning your organization the way the IRS wanted you to set it up whereby you understand that your organization is a business first and then a public charity second. They are under the impression that you have put in your infrastructure and you are generating unrestricted funds and restricted funds.
Speaker 2 (23:49):
They are under the impression that you understand and that you function in a way that they are only supposed to help fund your programs and not your operational expenses. There is a disconnect because the reality is who is delivering those programs? People, so you've got to pay the people, so it makes sense that the majority of your budget is going to be in salaries, which they don't want to pay. I get it. I've been an executive director, I've been an employee. I understand it. There is a disconnect between the funding world and the grant world. My question still remains, do you want to be right or do you want to be funded? Because this is how I approach it, and maybe I approach it this way because I'm an African American woman in the United States. We don't get to just say, oh, it's unfair, and things just change.
Speaker 2 (24:44):
We got to make things happen. Maybe that's my lens. I don't know. What I'm going to share with you though in the nonprofit sector is it's quite similar. You are not in a position of power. You are asking somebody for money so you can do it their way and get the money, or you can be angry and upset that it's not fair and not get funded. That's really what it comes down to. When I say to you, you should have 60% of your revenue generated being restricted, that's to cover your programs. But I'm also saying to you, in order for you to have long-term sustainability and to make an impact, you need 40% of unrestricted. I have people saying, well, the funders are supposed to maybe, but here's the reality, they're not. And so my formula, my strategy is if you get them additional money, fine, but if you don't, you can still rock and roll and take care of your community.
Speaker 2 (25:38):
That's how I approach it. There are organizations out there who are advocating on behalf of nonprofits. They're talking to the funders and they're saying, listen, we need to be more competitive. We have burnout. It's really high in our community, which it is because we're underpaying people who are doing the work because we're not having enough money to pay the people who are qualified to do it. All of that is happening, and it should happen because there is a disparity and because there is injustice. I'm not saying that it’s not. I’m just saying, until that happens, you got to handle your business. And so I'm going to give you the formula. I'm going to give you the roadmap so that you can continue to prosper. I don't want you to be in a state of struggle, but if you continue to sit there and say, well, they should give us more money, guess what's going to happen until they do?
Speaker 2 (26:36):
So, do you want to be right or do you want to be funded? If you want to be funded, I'm going to encourage you to shift mindset, and I'm going to encourage you to put in place those things that are going to allow you to, number one, get paid. Number two, hire staff. Number three, get money from outside. And then number four, get it from outside consistently. It's going to take work. It is, and I know you've been working, beloved. I know you have. Just a slight shift, just a slight shift, and we can create an infrastructure where you get to where you need to be. And then when those funders really come to the realization that a successful program is only as successful as the key personnel running it, you'll get more money. But if they don't, or if it takes a while, you still need to provide services to your organization and you still need to generate a check, and you still need to hire staff.
Speaker 2 (27:33):
So until that happens, we're going to take a nontraditional approach to funding your organization. All right. I feel like that was a little bit more than a minute, but I also feel like I needed to say that. Okay, you know I got you. I got you. If you found anything in this segment helpful, do your girl a favor and share it with your community. Don't keep me to yourself. Don't make me your little secret. Share me with the world; like, subscribe, and share. That's what you can do to contribute to our community because I'm here for you, but I'm also here for other people, and so do your part and share. All right, and until then, until next week, until next episode, I want you to take care of yourself, like you take care of your community.
Speaker 1 (28:28):
Thanks for listening. If you enjoyed this episode, subscribe and leave a review on iTunes. Head over to www.amberwynn.net/podcast for the links and resources mentioned in today's podcast. See you next time.
