The wider your range of funding sources, the more stable your charity’s future will be. But how to diversify your income streams? This five-point guide from the FSI has all the tools you need to get started

Whenever the FSI is about to work with a charity, we always read their accounts. The alarm bells start to ring when we see that organisations are overly reliant on one form of fundraising, or on one or two key funders. If these disappear, that organisation might not be sustainable.

The FSI’s Small Charity Index (our quarterly Pulse of the Sector report) has shown over the last three years that income to small charities is static, yet there is a large increase in the demand for their services. An increasing number of small charities are having to dip into their reserves to continue to meet the needs of their beneficiaries. This is a problem when only three quarters of the small charity sector report to holding reserves.

The charities we work with know how important income diversification is - indeed, the need to diversify income is one of the most common answers our delegates give when asked why they’ve come on our training courses. But how do you actually go about it? Below are some sources of information and things to consider when looking to diversify your income and produce a strategy to do this.

1. Review the environment internally

Ask yourself the following:

a) What are your resources? You may have to spend money to raise money, but is this possible?

b) How many staff do you have and where does their expertise lie? This is a really important consideration, especially when the staff team is small.

c) What were your most notable previous successes? All good fundraising strategies should build on these.

d) What are your challenges or limitations?

All of these can be thought of as the ‘S’ and ‘W’ sections of a SWOT analysis (i.e. Strengths and Weaknesses).

2. Review the environment externally

Next, consider what are the opportunities, and the threats, that face your organisation (the ‘O’ and ‘T’ sections of the SWOT analysis). Or, be more specific and try a PESTLE analysis, which is an excellent way to consider all the different factors which might have an effect on your organisation such as political, economic and technological changes.

Then think about who competes with you for funds? It is really important at this stage to complete a competitor analysis which is something we do whenever we undertake fundraising consultancy.

This could be large charities who work in the same causal area as you, or small organisations based in the same location. Spend some time to look through their annual accounts, website and social media. Consider the following things:

• How much income do they bring in and how this is broken down between voluntary, statutory and earned income?
• How is the voluntary income broken down between various sources such as individuals, trusts and corporates?
• Are any funders named?
• Are there any interesting notes on fundraising in their review of the year?
• Are they running any interesting events or campaigns?

3. Consider all the possible sources

There are three major sources of income – voluntary, statutory and earned. The Small Charity Index has shown that the trend over the past three years sees statutory income dropping by 8%, voluntary income increasing by 2% and earned income increasing by 9%.

This doesn’t mean abandoning statutory income, but making sure that you have a diversified income portfolio to cover any decreases in statutory grants.

Earned income is a big growth area – are there certain things you could charge for? This doesn’t mean charging your beneficiaries for your services but potentially charging others or using your expertise to earn funds. For example, this could be running training, a mission-led enterprise or consultancy services.

When looking at all the possible voluntary sources you need to consider a number of things, (and striking a balance is key):

• Timescales for funds to come in
• Potential return on investment
• Risk of raising nothing
• The amount of potential income

These have all been well summarised in NFP Synergy’s report, Gimme, Gimme, Gimme (a really good report, though I do disagree that corporate fundraising doesn’t work for small charities).

Also, think about the type of cause you are. Some forms of fundraising work better for more emotive causes, while so-called ‘unpopular causes’ may need to consider which areas will work best for them. For example, less emotive causes may struggle with small regular donations and Charity of the Year partnerships. For more insight into how to overcome the problems of raising money for unpopular causes, I would recommend Body and Breeze’s excellent report, Rising to the Challenge.

Finally, look at the balance between restricted versus unrestricted funding to ensure that you have a balance, and don’t end up in a situation where you are unable to cover overheads. Using full cost recovery budgets in bids for restricted funding can also help with this.

Think of this area as spinning plates; there are a lot of things to balance and this balance may be unique for you charity.

4. Consider who you know

Once you have considered all the possible sources, think about who you know or who you have connections to – it is always easier to fundraise from those who are warm to you. Then, complete a network mapping exercise with a range of people.

This can be run as an interactive session to consider the people, companies and trusts you know, what they can offer you and why they might be interested in your cause. You need to:

• Identify different people and groups you come into contact with on a regular basis
• Think about what they can offer your organisation such as expertise, contacts, influence or donations
• Think about why they would be interested in your organisation and what motivates them
• Then identify the connections between them and you

5. Set your SMART objectives and think tactics

Now, produce your plan for the year. What do you want to achieve? Put together SMART objectives, which are:

• Specific
• Measurable
• Accountable (i.e. who is responsible for this)
• Realistic
• Time-bound

These can be used to produce tactics to achieve your income aims. For example, if your objective is to maintain trusts and foundations income at £100k, then you might have four or five tactics to achieve this, such as:

• Maintaining relationships with current funders through effective stewardship and reporting
• Reviewing your organisation to identify unfunded projects or services
• Preparing case expressions for all unfunded areas of work
• Developing a database of potential funders and target four applications per month

While it is a challenging time for fundraising, considering these steps and working towards a diversified income will support your charity to become more sustainable and ultimately ensure you can continue to deliver services for your beneficiaries. Good luck.

Alex Hayes is learning and business development manager at the Foundation for Social Improvement.  They offer training and advice to small charities, as well as more in-depth support through their consultancy service . For more info get in touch at alex@thefsi.org