Securing funding has never been more challenging. In the aftermath of the pandemic, donor funds have dwindled, expenses continue to rise, and demands on your organization are relentless. It’s more important than ever to diversify your funding streams and maximize your potential revenue sources.
The question is how?
Rethink your restricted funding strategy. It’s more beneficial for funding diversification than you think. Contrary to the idea that it hinders innovation and adaptability, restricted funding can provide essential support that helps nonprofits launch new initiatives, address targeted needs, and invest in impactful programs. These efforts, in turn, contribute to the overall health and stability of the organization.
Demystifying Restricted Funding
First, let’s define what restricted funding is. It refers to funds, usually awarded through a grant, designated for a specific project (e.g., an after-school program), purpose (e.g., teacher salaries), or time (e.g., within a calendar year). This type of funding comes with conditions and reporting requirements, ensuring an organization uses the money for its intended purpose.
You aren’t alone if you’ve ever viewed restricted funding as inflexible and administratively burdensome. Many organizations believe it hinders their ability to respond to emerging needs and challenges effectively. We won’t deny that this can happen. However, when utilized strategically, restricted funding allows organizations to diversify their revenue streams, ensuring long-term sustainability.
In contrast, its cousin, unrestricted funding, allows organizations to allocate funds at their discretion to meet various needs. And while there is still some reporting involved, the flexibility of unrestricted funding makes it an enviable funding route. Unrestricted funding is more difficult to obtain, so restricted funding shouldn’t be overlooked when strategizing how to diversify your organization’s funding strategy.
Find Restricted Funding Support by Aligning Your Nonprofit’s Values, Outcomes, and Goals With the Funders’ Passions
Pursuing restricted funding is not just about finding any available opportunity. To successfully secure restricted funding, aligning your program’s goals and values with those of the donor or funding organization is imperative.
By concentrating on alignment, you establish a robust partnership that ensures the funding directly complements your program’s specific needs. But you also know where to focus your donor cultivation efforts. It’s a positive sign if you can match your program’s outcomes, target populations, and mission with the funder’s objectives.
When you apply for funding on specific programs with funders you know are deeply passionate about the mission your project supports, your alignment creates a symbiotic partnership, ultimately ensuring that the funding complements your program’s specific needs.
The Best Time for Your Nonprofit to Pursue Restricted Funding
Restricted funding allows your organization to effectively address the unique needs of your diverse programs while maintaining financial sustainability — but it’s not for nonprofits at every stage of their journey. Restricted funding is most effective in two instances.
1. Your Organization has a Well-Defined Project or Program
If your organization has a clearly established program or project, restricted funding is a smart way to diversify your revenue stream. If you have a solid foundation (like the YWCA) focus on finding funders whose goals and priorities align with your program (such as programs for people who are Latinx or after-school programs).
By understanding the unique needs of each program and seeking funding sources that closely align with those needs, your nonprofit can maximize its resources and make a meaningful difference in the communities they serve.
Budding nonprofit programs: Pursuing restricted funding early in your organization’s life can be particularly challenging as you try to get certain programs organized and defined. But don’t worry. Take the time to define your programs and how they complement your overall mission. Restricted funding will be there for you when your organization is ready.
2. Your Program Aligns With a Specific Donor or Funder’s Goals
Pursuing restricted funding is not just about finding any available opportunity. To successfully secure restricted funding, aligning your program’s goals and values with those of the donor or funding organization is imperative.
By concentrating on alignment, you establish a robust partnership that ensures the funding directly complements your program’s specific needs. But you also know where to focus your donor cultivation efforts. It’s a positive sign if you can match your program’s outcomes, target populations, and mission with the funder’s objectives.
When you apply for funding on specific programs with funders you know are deeply passionate about the mission your project supports, your alignment creates a symbiotic partnership, ultimately ensuring that the funding complements your program’s specific needs.
How to Utilize Restricted Funding to Diversify Your Revenue Stream
You’re likely no stranger to doing the work in pursuing restricted funding. But just because you’ve done it before doesn’t mean you can’t find ways to make it more effective. Here are some ways to improve your fundraising efforts to increase your organization’s restricted funding reserves.
1. Don’t Alter Your Program for the Sake of Funding
Don’t go chasing the money. Remain steadfast in your core mission and values and focus on finding funding sources that align with them. Changing your program’s focus to fit a funder’s priorities might inadvertently shift resources away from your organization’s actual needs, negatively affecting your long-term sustainability and effectiveness. By staying consistent in your mission and programs, you maintain credibility, integrity, and cohesion within your organization while ensuring that your hard-earned funding bolsters your true objectives and goals.
2. Concentrate on Outcomes, Target Populations, and Program Delivery
It’s no secret that restricted funding comes with a lot of reporting and accountability. This work may feel redundant or cumbersome, especially to overtaxed staff already working overtime. But providing proof of impact, information about those you are serving, and how your organization delivers programs is essential for instilling confidence in potential funders that their contributions directly affect the issue they wish to support. When you are transparent about and highlight the outcomes of your organization’s work, you’re forming a trusted, collaborative relationship.
3. Consider Government Funding When Appropriate
If your organization and programs fit the criteria, consider going after government funding. Government grants are an excellent way to finance new programs and address specific needs. On top of that, government funding often includes “indirect” dollars – usually 15-20% of the grant – which can be allocated for unrestricted purposes such as salaries, rent, and utilities (although still subject to reporting requirements).
Of course, with government funding comes compliance, so ensure robust accounting procedures are in place. Stringent reporting and verification of expenses are the name of the game when it comes to receiving restricted funding, especially from the government.
Your Nonprofit’s Strategic Approach to Embracing Restricted Funding
The nonprofit world is constantly evolving, and it can be tough to keep up. But by sticking to your mission, ensuring your organization has strong financial management practices, and establishing and maintaining transparent reporting mechanisms, restricted funding can take your programming far. And while it might require some extra legwork, the rewards are worth it.
In your pursuit of change, what’s restricted opens up a world of possibilities for your organization.