Understanding your funding needs and options

What kind of funding do we need?

It can be easy to focus on funding needs that are the most pressing rather than looking into the longer term needs of your project. But finding time to explore new income streams or funding options is key to developing a sustainable income strategy.

You'll need to explore different types of funding to suit different circumstances then explore these options with your Board.

Does your funding have the ‘S Factor’?

All organisations are different and only you can know what balance and type of funding mix you need to be able to deliver your mission effectively. But whatever you do and however you do it, there are three main 'S factors' you should consider when assessing your funding position:  

Stable

With changing funding priorities and sources it’s important to have a mixed economy with income from more than one source. So if one dries up, it doesn’t threaten your overall viability.

Suitable

There are a wide range of funding opportunities – you need to pick the right ones, and at the right times for your organisation. That means finding out what different types of funding streams offer and understanding the implications of using them. Key to keeping on track is having a clear vision and using strategic planning, this will help you avoid mission drift – where your activity is led by the funding opportunities rather than your aims and objectives.

Sufficient

Understanding how much money and resources you need for a project means you can make informed decisions about what you ask for and decide to do.

Establishing your needs

The first step is to identify what your organisation really needs to become more financially sustainable through strategic and business planning.

Understanding the full costs of your activity is important too to find out more about how you can ensure you take full account of what projects cost your organisation.

There are two main types of funding need:

  • Support for growth and development
  • Support for ongoing activity.

Funding growth and development

There's a range of funding options for supporting new activity, expansion and improvement including grants and social investment. This kind of funding is sometimes referred to as 'development capital' and aims to help your organisation grow and develop.

Loans can be useful if you want to increase your capacity to generate unrestricted income in future. For example, you may be able to find a loan to cover the additional costs of increasing staffing to allow you to take on larger contracts with the public sector, if you can demonstrate you will be able to repay the loan with interest once the contracts are secured.

Read more about social investment and providers.

Grants are widely available for pilot projects, one-off projects and new activities. Some funders also support capacity building: developing the skills and resources within your organisation.

Using your own resources or reserves to support new activity is another option - particularly valuable if you need to act quickly or can’t find other funders or finance providers to support you. If you are a charity, you need to match your reserves policy.

Funding for ongoing and core activities and costs

Options for supporting existing and ongoing activity, which could include core costs such as salaries and overheads or ongoing services and activities, are more limited.

Core grant funding from public sector sources (such as local government) may be available in some cases, although this is highly competitive and limited to priority areas. Very rarely does grant funding cover all the costs of an organisation and most supplement grant income with earned income and fundraising from individuals, companies and other grant funders.

If you receive project funding, or deliver services under contract, it is important to recover your full costs which include a fair share of your core costs. For further information read our support and advice about full cost recovery.

Unrestricted earned income from trading is the other key source of funding for core costs. For ideas about how you can generate more earned income see KnowHow NonProfit's section on trading.

You may also need to think 'working capital' the funds you use on a daily basis to provide cash-flow for your organisation. You may be able to build up reserves that you use for this purpose, or you may need to use social investment or loan finance (e.g. an overdraft) to manage any peaks and troughs in income and expenditure across the year.

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