Some personal relationships last a lifetime. Many of them end, however, and people move on. The same is true in funding relationships. Donors and nonprofits must anticipate and prepare for the eventual end of most grants.
Major gifts are the lifeblood of nonprofits – enabling them to pay overhead, hire workers and implement the programs designed to achieve their missions. Over the long term, major funders can create dependency. Some grantees may even develop a sense of entitlement.
When individual, family, foundation or corporate donors decide to exit the funding relationship and move on, a nonprofit can be left reeling from the loss of funding. Valid reasons for a donor’s exit might include:
- A change of focus area as donors become increasingly strategic in their grant making.
- A decision to discontinue the business of grant-making by “spending down” a foundation’s endowment or a donor-advised fund’s corpus.
- Dissatisfaction with a nonprofit’s impact on an issue of importance.
- A breakdown in personal relationships or a redirection of philanthropic priorities because of a change in leadership on either side.
- Running out of money because of an economic downturn or other circumstances.
- In the corporate context, a merger or acquisition that results in a geographic relocation or a change in grant-making strategy.
- Different strategic priorities in the next generation of family funders.
Deciding to stop funding
A donor’s decision to stop funding can be very challenging for a nonprofit depending on the amount of the donation, the lead-time given by the donor and the way in which the decision is communicated.
The biggest challenges can include finding other sources of funding, reducing staff, cutting programs, facing the stigma of the loss, dealing with the board’s response and acting quickly to assure the nonprofit’s long-term sustainability.
The decision to end funding can be difficult for the donor, too. Taking certain steps can smooth the way of a break-up. These steps include:
- Clear, honest, consistent and repeated communication (written and oral) with grantees about the reasons for, and the timing of, the decision to end the funding relationship.
- Providing as much lead time as possible to enable the nonprofit to adjust to cuts or generate alternative funding sources.
- Internal organizational training along with consistency in preparation and messaging so that a nonprofit is unable to make an “end run” in an attempt to reverse a funder’s decision – especially when the funder is a corporation or foundation.
- Genuine offers of support to the nonprofit to assist it with building capacity, finding other funding sources, managing technology and public relations, and convening grantees to facilitate collaboration.
- Acknowledgment and celebration of the successes achieved and the impacts that resulted from the funding relationship.
- A recognition of the unique power dynamics between funders and grantees and a sensitivity to the difficulties faced by grantees because of the disparity.
- An understanding that the end of a funding relationship is a natural and normal part of the process and, ultimately, healthy for the nonprofit sector.
A good way to lessen the impact of the end of a funding relationship is to set realistic expectations from the start about relationship parameters, including the duration of anticipated support. The best time to plan an exit strategy is at the beginning of a funding relationship.
Finally, deep friendships can form over the years as grantor and grantee work closely to achieve an organization’s mission. When the above steps are followed, such valued relationships can survive.
For more information, see “The Effective Exit,” published by GrantCraft.
Creating a dynamic plan
A good philanthropic plan must be dynamic – ready to adapt to changing conditions and needs. For modern donors, supporting an organization out of simple habit is neither strategic nor effective. Nonprofits, on the other hand, must avoid feelings of entitlement and dependency on a single source.
For both donors and nonprofits, ongoing communication and transparency in the partnership is essential. A funder is not forever.
This post originally appeared in the Denver Post, May 10, 2015. Reposted here by the author with permission.