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Funding and income: an overview

An overview of funding and income in the voluntary sector.

Finding funding to carry out your activities can be an exhausting and endless task. This section gives you an overview of the different types of funding available to voluntary organisations, as well as tools and information to help you plan ahead and develop a diverse income mix.

Where do we start?

If you’ve been tasked with fundraising for your organisation, start by thinking about what you need funding for. Usually you need funding to carry out activities that will help you meet your charitable objectives. You might be looking for funding for a salary or a building but, ultimately, the funding is to enable you to carry out specific activities and to create an impact. Once you are clear on what want to fund, it will be a lot easier to find the right type of funding.

Where does funding for the voluntary sector come from?

Voluntary organisations get their income from lots of different sources, and in many different ways. The income spectrum is a useful tool to help you think about these different sources.

Most funding for the voluntary sector comes through donations, grants, public sector contracts or trading income. Each income source involves a relationship with a different type of funder: a donor, a grant funder, a commissioner of services, or a paying customer.

These relationships can be very different – the interactions you have with a grant-making trust, for example, would be very different from those you have with an individual customer who is buying products or services from you.

Subscribers to Funding Central can use a funder needs analysis tool to help understand these relationships.

The other important point about the income spectrum is that different types of income come with different restrictions. Gifts and donations, and traded income, tend to be unrestricted, whereas grants and contracts will come with conditions about what you need to spend the money on.

This section includes more information on each of these types of income, including:

  • where to find it
  • why you might use it
  • and who you need to involve.

Gifts and donations

Unrestricted income from individual donors and fundraising activities can include gifts in kind, such as time, expertise or premises.

Grants

Usually, restricted income for a specific project or purchase, awarded after application to a grant-making body, trust or foundation, including Lottery funding.

Contracts

A payment made by a commissioning body (often the public sector) for specific products or services, agreed within a contract, and (usually) awarded after a competitive tendering process.

Trading

Unrestricted income generated by selling goods and services to paying customers on the open market.

What is sustainable funding and how do we get it?

A sustainable funding approach is about finding a diverse mix of income sources that suit your organisation and your stage of development. It’s also about finding the right type of funding for your organisation.

Sustainable funding is based on the idea that organisations put themselves at risk if too much of their funding is concentrated in one source – this could be from one income stream or funder.

A mixed income not only spreads risk, but makes sure that organisations are best placed to take advantage of emerging trends and opportunities, and are able to safeguard their financial future without sacrificing their independence or mission.

To understand sustainability you need:

  • an understanding of diverse and durable funding streams available
  • a sound understanding of financial management
  • strategic planning.

Think about what your organisation does, who you work with and what you need funding for. Then look again at the income spectrum. It’s likely that one or two sources of income may be more appropriate for you than others.

Consider the following things.

  • Think about your strengths – which funding relationships do you want to cultivate?
  • Are you good at getting your voice heard by lots of individual donors, or is your work more suited to public sector commissioning?
  • Do you have products or services you could sell to generate trading income? Or is your work more project based and likely to attract grant funding?
  • Do you need to find more unrestricted income to allow you pursue new approaches?

Sustainable funding is also about planning ahead for new funding opportunities, and working out where your income might come from in three, five or even ten years. This is about business planning and horizon scanning – understanding what external factors might affect your income streams in the future, or where changes in policy or needs might bring up new opportunities.

Some funding sources may never be right for your organisation. What’s important is that you explore the full spectrum and decide what’s right for you, your beneficiaries and your long-term objectives.

Financial strategy

If you’re ready to start planning ahead for a more diverse income (and move away from ‘chasing funding’), our financial strategy section can help you get started in setting out a vision for your organisation’s finances. It also offers guidance on how to work with your board to be more strategic about funding and income generation.

Our sustainable sun tool can help you to work out where you need to strengthen your organisation to become more financially sustainable. It can be used as part of a board or staff session to generate discussion and identify actions.

If you’re looking to finance organisational growth, or need investment to get a major new project off the ground, have a look at our social investment pages to get an idea of the types of investment available to voluntary organisations.

Convincing your board of the need for a new approach

Voluntary sector trustees can be very risk averse, and those who are used to a more traditional approach to funding and fundraising may be wary of a new one. Aside from presenting a full business plan for a more diverse income, there are various methods and tools that you could use to help your board understand why you need to diversify:

A sustainable funding approach is not just about reducing risks, it’s also about opening up opportunities by becoming more financially flexible and in control of your finances. These exercises should help you to get your organisation ready to capitalise on new opportunities, rather than waiting to find the right funding.

Funding and the law

If you’re looking at new forms of income, make sure you’re up to date with the law on fundraising, trading and managing grants and contracts. You’ll also need to make sure that your organisation’s constitution allows you to carry out your funding plan.

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Page last edited Sep 11, 2017

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