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Generating income

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How to generate income in a sustainable way for your non profit organisation.

Generating income is more than fundraising. It is about making your organisation sustainable by establishing a range of funding (diversifying your sources of income), so that you are not dependent on one source.

Your income generation plan must ensure that:

  • you are raising sufficient levels of income to enable you to deliver your organisation's purpose; it must cover all costs incurred
  • you have taken into account any restrictions imposed by funders on how your organisation can apply the funds received
  • you have a sufficiently diverse source of income to avoid the high level of risk associated with depending on one source.

Restricted and unrestricted funds

Funds received from funders for a specific purpose are known as restricted funds: you are legally obliged to use them only for the purpose for which the funder gave them to you.

In contrast, unrestricted funds can be used for any purpose that helps you to achieve your charitable objects. The more unrestricted funds you have, the more freedom of action you have. You can, for example, choose to cover costs that funders are reluctant to fund, like core costs.

The discipline is the same whether generating restricted or unrestricted income and funders will require the same financial information of you.

What funders are looking for

These are some of the basics funders look for when assessing applications for funding:

  • clarity that the organisation is seeking funding to meet a specific beneficiary need
  • financial details of your organisation
  • how the funds will be used, for example what percentage will go towards core costs and salaries
  • your organisation's ability to manage finance
  • a clear and realistic reserves policy.

Sustainability and diversification

A good plan for generating income will aim to achieve sustainability by stabilising your funding base, in some cases increasing your funding and diversifying your funding sources.

Sustainability ideally means managing your income streams in such a way that if or when one stream comes to an end, the work can be repositioned, making it suitable for funding by another stream. Opportunities available to diversify income streams range from donations and grants to service level agreements or contracts to deliver services, to trading in goods and services.

Remember fundraising activity has costs associated with it, for example fundraiser's time. It is important therefore that these are reflected in funding applications.

Diversification also has costs associated with it, such as increased management effort. You must therefore recognise at what point the benefits of diversification are outweighed by costs.

Source: Published with permission from Cass Centre for Charity Effectiveness. This material is taken from "Tools for Success: doing the right things and doing them right", published in October 2008. Download or buy your copy from Cass Centre for Charity Effectiveness.

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