As the economy slowly reopens, nonprofits are starting to look ahead to the future. Many nonprofits are not looking to go back to the way things once were before COVID-19. They are looking to create a better tomorrow.
This may mean expanding services or upgrading facilities to serve more people and provide a better client experience. It could mean starting a new program or service to widen the demographics of people served, or it could simply mean buying new equipment to carry out your mission more effectively.
If your nonprofit is ready to move to the next level of operation to serve more people and expand its footprint in the community, your organization could benefit from a capital campaign. Capital campaigns are effective methods of raising significant amount of dollars in a specific time period. The money raised from the campaign generally goes towards funding a large project such as the construction of a new facility and is kept separate from the day-to-day operating expenses of the organization.
How to start on the right foot
While some of my nonprofit customers have forged ahead with their capital projects, many are cautious about starting a capital campaign during a time of economic uncertainty. This is understandable but the pandemic should not stop you from imagining or creating a better future.
Feasibility study. This may sound counter-intuitive, but periods of uncertainty can be a good time to put your goals in motion. If you are thinking of launching a capital campaign sometime in the future, there is no better time than the present to do a feasibility study. A feasibility study will help assess the potential success of your capital campaign and gauge the support you will need for this project. Instead of waiting around for the “right time”, use this period to do create awareness and build community support for the project. From consultants to construction company, legal team, fundraising experts, and bankers, start getting your partners lined up and putting your team together. If you start planning ahead, your organization will be in a good position to launch your capital campaign when the “time is right”.
Partner with a financial expert from the start. Capital campaigns are ambitious, complicated and require extra resources from the organization. Having worked with many nonprofits, I recommend getting financial experts involved in the early stages of the campaign. This is one of the best ways to maximize returns from your capital campaign. The capital campaigns that my team and I have the most success with are those where we partner with the nonprofit from the very beginning. Even before the start of the campaign, we help the nonprofit plan and strategize to increase the financial returns from their fundraising efforts by growing their balance. Typically, this return is more than what they would have gotten otherwise if they had not partnered with us from the start.
A good example is when a nonprofit organization plans to run a capital campaign for three years. If the campaign is for a construction or renovation project, the nonprofit is not going to break ground or start the renovation until the end of the campaign. This also applies to campaigns for new equipment or to start a new program. Typically, work will not begin until the appropriate amount of funds has been raised. Because of that, it is not uncommon for nonprofits to store the money raised during the campaign in a checking account, which generally has low interest rates.
Do not let the funds sit in a checking account. I recommend setting up different low risk investment vehicles. This allows the nonprofits to maximize their fundraising dollars by earning greater returns than what the nonprofit can expect to gain from leaving the money in a checking account. And when it comes time to access the funds at the end of the campaign, the nonprofits would already have met or even exceeded their fundraising goals. This strategy has put many of our nonprofit customers on the path to growth and sustainability.
How to grow your funds during the campaign
Even with an ongoing capital campaign, services and programs at the nonprofit do not cease. Nonprofits still need to manage their annual operating budget and funds. One of the ways your nonprofit can ensure good financial health is to be proactive in identifying opportunities for financial growth, which is an approach my team and I take when reviewing our nonprofit customers’ annual financial report.
Cash balances. We look at the nonprofit’s current cash position and discuss upcoming needs from a deposit standpoint. There might be changes in the nonprofit’s cash balances with new funds coming in from the capital campaign or additional fundraising that occurred that year. With new changes to their finances, the nonprofit may now qualify for a different type of account. With that information, we can provide recommendations on how to structure things for them financially and to ensure that they are in the right type of checking and saving account.
Investment vehicles. If the nonprofit has additional reserves, putting the excess funds into different investment vehicles such as a bank money market or short-term certificates of deposits (CDs) can earn the nonprofit a much higher rate of return compared to the interest rates the nonprofits are earning from their checking accounts. My team and I also make sure that our nonprofit customers are in the right types of investment vehicle based on their short and long-term goals.
We have checking accounts, money markets, credit card options and other solutions designed specifically for nonprofits, so making sure that nonprofits are in the right kinds of accounts is important to growing their existing funds.
Best practices to build cash reserves after the campaign
While the capital campaign funds the project itself (and may even include the higher anticipated operational costs), the nonprofit still needs to budget for any additional long-term operating costs that may arise from the expansion.
Even if the project does not come with a significant increase in operational cost, there are some best practices that nonprofits can use to budget and raise funds for their operating reserves. For instance, the nonprofit can include a budget line item specifically for contribution to the reserve. Your nonprofit can also designate financial contributions from board members, major gifts and grants as well as include planned fundraising campaigns and multi-year capital budgets. Another good way to build cash reserves is to assign a percentage of unrestricted gifts to the reserve.
While these practices are direct way to build your nonprofit’s cash reserves, there are also indirect ways that should not be overlooked.
- Do you have staffing issues, either because you are understaffed or have staff that lack financial expertise/interest and are not reaching their full potential because of system inefficiencies?
- Does your nonprofit have issues attracting top talent to take your organization to the next level?
- Beyond basic insurance protection, is your nonprofit protected from cyberattacks, ransomware, fraud or liabilities from the actions of your board
Answering these questions can help your nonprofit identify areas in your operation and systems that can be improved or provide additional financial protection, potentially saving the nonprofit a significant amount of money. Some solutions could include:
- Adding fraud management and a cyberprotection policy.
- Set up automated financial processes to free up time for your staff to work on more important concerns centered on your mission.
- Adopt integrated solutions to reduce payment processing costs to vendors or inefficiencies in systems.
- Retain and attract top talent with improved retirement benefit plans
There are many ways to maximize returns on your capital campaigns and build your cash reserves, but the best approach is one that is tailored to the needs, goals and vision of your nonprofit. It should be a comprehensive plan that involves your banker who can help your nonprofit make the necessary adjustments along the way. Whether you are currently running a capital campaign or plan on having one soon, be sure to include your banker as soon as possible to earn greater returns from your campaign.