There’s a lot of pressure on the third sector to become less dependent on grants and look at other ways of fundraising and generating income. In this section we look at ways to make your funding sources as diverse as possible.
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Income generation, contracts and loans
There are many ways the third sector can generate its own income by the sale of products, services and expertise, eg:
- renting out building space
- providing a service under contract, eg for a local authority
- charging users of a service for providing that service
- selling items made by beneficiaries of the organisation
- providing consultancy and training
- selling gifts to members and supporters, eg Christmas cards, badges, t-shirts
- running conferences and events
- selling publications and undertaking research
- running a charity shop to turn donated gifts into cash
- getting the commission from selling products such as insurance.
Income generation can bring a number of advantages. It can:
- give you the freedom to spend the proceeds in a way that suits you, so you can fund less popular aspects of your work that funders may not prioritise.
- create a more robust and sustainable organisation, and improve the quality of your services
- take the pressure off fundraising, or improve your prospects with funders who you can impress with the variety of your income streams
- create new opportunities to borrow funds.
Some organisations are better placed than others to explore income generation. You may have products that arise from your mission, or you may already be service based and have partnerships with local authorities to which you can sell your services. But if this is a new area for you, make sure you do a feasibility study and full risk assessment. Find out about the competition and get advice from other similar organisations. Any activity that involves trading may have legal and tax implications, and you need to check your governing document allows you to carry out these activities.
Some trading activities may mean a separate trading company should be set up. This is tax-effective, as the profits of the trading company can be gift-aided to the parent charity. Also keeping this income generation work separate can help prevent your organisation getting diverted from its main mission and losing sight of its priorities. Seek professional advice on how best to structure your trading.
Running a successful social enterprise requires different skills and attitudes than most third sector organisations are used to. Sales and contracts have to be won and costs have to be recovered from income. Marketing and selling replace fundraising as key functions, so you’ll probably need additional trustees and staff with expertise in new areas. Success will depend on entrepreneurial ability as well as good management skills.
If you contract out your services, beware of penalty clauses for non-performance, and make sure you get enough money to cover all your costs. This is known as full cost recovery, where the pricing of contracts and the fees charged reflect the full cost of delivering the service, including a reasonable allocation of overhead costs.
You’ll need financial support for your new enterprise. It may be possible to use some of your reserves to invest in income generation. If it’s a commercial, rather than a charitable activity, then make sure you get an independent assessment of risk and return on the money. You could also think of borrowing the money if your constitution allows it. There are a growing number of sources (including some grant giving trusts and ethical banks) that now specialise in lending to the third sector and have experience in supporting social enterprise.
Loans can allow your organisation to do today what might otherwise take years. More flexible than some other types of funding, loans take less time to arrange and require less onerous reporting and monitoring. The lender will want to see a business plan and marketing strategy, and they will examine the organisational capacity to take on any new activity. As a legal agreement is being entered into, you’ll need the full agreement of your board.
Here are some organisations that can help:
Individual and community giving can provide a significant income source that organisations can use to support core and running costs. Though often overlooked as an income source by small organisations because people have difficulty in directly asking for support, there are a number of ways people can give.
First rule is – make sure they’re tax-effective.
Gift Aid adds additional ‘free’ money from the government at no extra cost to the donor
Payroll Giving allows employees to have charitable donations deducted from their salary before tax, so the charity gets more, and it costs the donor less
Individuals can also gift shares, securities, property and other assets. See HMRC for more details on any tax implications.
These can provide unrestricted and ongoing income, help develop wider support, and create opportunities for further fundraising. You need to check your constitution allows for this, and it won’t always be tax effective as there are restrictions on the level of benefit that can be received by the member. But whilst they may not generate a lot of income these schemes can enhance your credibility and campaigning ability.
Popular and traditional techniques that can also inform potential supporters about your organisation. Make sure you follow the Institute of Fundraising guidance
This method of fundraising and collections can be particularly effective. Make sure you have the right permissions and follow regulations and legislation.
The largest source of voluntary income to the sector, but clearly a sensitive issue. See the Institute of Fundraising advice on how to ensure best practice standards are met.
- Churches, other faith groups and local clubs
Some religions have set up charitable arms to give to projects that serve their membership and others give directly through the congregation. Also there are many clubs in every community ranging from the Rotary to the local Women’s Institute. These social and business groups often raise money for local charities and can also provide local influence and support. The best approach here is through personal contacts, look to your board, supporters and volunteers to make contact with these groups.
Many schools will choose a charity to raise funds for, and some make connections through the curriculum. Providing information packs about the issues your organisation works with, and contacting the Head teacher and staff is a way in. If you’re working with children it’s essential to think about legal, ethical and safeguarding issues.
- Other charities
Many fundraising charities are also grant givers, eg Age Scotland It’s useful to develop networks with other charities doing similar work to your own. Find out who may fund what you are doing, and explore the option of joint funding projects.
They can be time consuming with small return for a lot of effort, and the need to spend money upfront to prepare. But events can provide unrestricted income, help raise your profile, attract new supporters, and give you a chance to promote your work to a wider audience. Here are some of the things you need to ensure your event works well and makes a profit:
- reliable and committed volunteers
- local business and community support
- a creative and fun theme, and enough time for proper planning
- a record of who attends – so you can contact them later and build up a base of longer-term support, not just one-off contributors.
Check your legal position and whether you need appropriate licenses, eg for food safety and trading, raffles and lotteries, and serving alcohol. Check out local authority, police and fire notifications, venue occupancy levels, insurance provision, VAT liability, and make sure you’ve got adequate staff, bad weather contingency plans, and have considered traffic and parking. The Institute of Fundraising has a lot of useful information on event fundraising
An increasingly important source of fundraising as well as a great way to connect with and engage audiences and potential supporters. New funding opportunities are springing up all of the time. Here are some to think about:
- Your website – you should have a clear donation button and option to download membership and donation forms for those who would rather not donate online.
- Email and social media
- Text donations via mobile phone
- Crowd Funding, where a large number of people back an idea by putting in relatively small amounts of money
- Facebook Page – where you can generate interest in your work, events, draw in new potential members, and raise your profile with a new audience
- Instagram – enables you to share photos and videos that highlight your work
- LinkedIn – enables you to engage supporters, share news and advertise jobs
- Twitter – enables you to share information and news about your organisation, engage supporters and build relationships
- YouTube – enables you to share videos that highlight your work
- Company websites – where visitors are encouraged to click through to trigger a donation from the company.
- Google Ad Grants Which gives nonprofit organisations an advertising allowance to promote their work on Google search pages
- Traditional fundraising methods like auctions, raffles and paid advertising can be adapted to your website. Ebay has a dedicated part of its operations for charities
Fundraising through individuals can be time intensive. You need to cultivate, recognise and reward your supporters. The Institute of Fundraising has information on individual giving. Here are our top tips:
- Do your research so you’ve got as much information as possible and can target your message
- Make sure you have the right people doing the asking
- Establish a budget, and a goal for donations
- Thank each donor personally and take care of them
- Keep records, so you can claim Gift Aid and also go back to them
- Evaluate the campaign
Giving by companies can be difficult and time-consuming, and you need to decide your ethical policy before making any approach. Check that a company’s business values or practices don’t conflict with what your organisation stands for.
Look at the business news and your local and regional press for information on local businesses. Your local Chamber of Commerce can help you find out which companies operate in your area Research is key in finding out how a company decides who to support. Check if there are any published guidelines on the company’s website, or try to make a good match of your project to a company’s products and services, or their customers’ interests.
Companies can provide support in a variety of different ways:
- through grant making trusts which channel the company’s donations
- cash donations through local branches and national headquarters
- Payroll Giving allows employees to have charitable donations deducted from their salary before tax, so the charity gets more, and it costs the donor less
- matching money raised/donated by employees for your organisation
- sponsorship of an event, award scheme, project or publication
- Cause Related Marketing (CRM) where a company’s services and products can gain kudos by being associated with your cause. This is usually arranged through PR and advertising agencies, but could be tried on a smaller scale with a local company
- through buying advertising space in programmes and publications
- donations of products, eg computers, stationery, food products, raffle prizes, discount vouchers. InKind Direct facilitates the donation of unused/surplus goods from businesses to charities and voluntary organisations
- Provision of facilities and services, eg printing, catering, transport, meeting rooms, venues for events
- Personnel expertise to help with legal, financial, marketing, HR, managerial or planning, either through secondments or volunteers from their workforce
- Running internal events to raise funds on your behalf eg company challenges, marathons, bake sales
The key issue for smaller charities is to be realistic about how company support can benefit you, and how much time and energy you may have to expend for a small return. Start with smaller, local businesses. Personal contact is always the most effective so use your networks to find out who the most relevant person is to contact in the company.
If you get support make sure your obligations are clear, on reporting requirements and whether you have to show the company’s logo, etc. Don’t forget to thank the company, and report back on the difference the donation has made. Send them your annual report and continue to nurture the relationship!