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July 19, 2004

The gift that keeps on taking

Clara Miller of the Nonprofit Finance Fund writes some of the most clear and useful discussions of finance issues you're likely to find. Her current article in The Nonprofit Quarterly is a great example. The topic here is major gifts, and particularly their tendency to warp, distort, and sometimes destroy the mission and capacity of a nonprofit.

According to Miller:

For all nonprofits, sustainability means keeping the balance between mission, capacity, and capital....If any one side of the triangle changes, the other two must change. This takes place whether it is planned or not, whether the giver intends it or predicts it or not and, above all, whether anyone wants it to happen or not!

Major gifts flow into the 'capital' point in the triangle, and if not considered clearly and cautiously, they can throw mission and capacity completely out of whack. A larger capital base requires more administrative support (capacity) than most nonprofits expect, as does the larger operating budget that often follows. And the interests/purpose of the donor can often skew the original intent of the organization (mission). Just as plants grow toward the light, nonprofits often grow toward the money, taking on programs and initiatives they wouldn't have done at all without the hope of funding.

Miller offers some useful tools to check and balance the prospect of a major gift against the impact it might have on capacity and mission. She also outlines some of the 'gift physics' that can clarify the absolute value of a contribution, based on its restrictions and its liquidity:

• The more restricted a gift, the lower the net positive financial impact, and therefore the higher the draw, most immediately on capacity and eventually on capital and mission.
• The more illiquid a gift (the farther from 'folding green,' e.g., cash....), the greater the draw on the rest of the organization¹s resources.
• The more liquid the gift of an asset (cash is the most liquid; land is one of the least liquid), the more power management has to balance the three points of the triangle while fulfilling overall program goals and meeting the giver¹s overall wishes.
• If a gift is both liquid and unrestricted (e.g., general operating support), it provides the greatest flexibility and presents the lowest risk and cost, and hence the most predictable boost to mission.

Plenty of real-world examples make this one well worth the read.

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