Lynn Eakin

For at least a decade voluntary sector organizations have been pushed to adopt more “business” practices. In some sectors this has lead to the opening up of what were traditionally voluntary sector fields to for-profit organizations. In other areas funders have tried to implement “business” practices in their funding agreements.

Unfortunately, the introduction of business practices into voluntary sector funding was undertaken at a time when government funders were seeking to reduce and contain their spending. As a result, cost containment, cost reduction and efficiency strategies were given priority focus to the neglect of other business practices that might benefit and build the contractor organization. The process has been a “cherry picking” of business and charitable practices.

The resulting hybrid business/charity model is compared to the conditions under which businesses operate. The playing field is not level and the hybrid model is not working well for many voluntary organizations and their clients. A new voluntary sector funding model is required that will provide for organizational excellence and sustainability over the long term.

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The Sarnia-Lambton Rebound Program was hailed by Jason Clemens of the Fraser Institute as a model of  “business practices” in a Globe and Mail article, October 2000, in which he exhorted other social service organizations to follow suit. The article implies that was business methods that tipped the balance and made this little agency so successful.

A closer look reveals there is little business-like about the centre. Instead it is a good example of the resiliency, creativity and tenacious commitment to mission that so characterizes the voluntary sector.

The centre had a budget of $300,000,over 100 active volunteers and 6.5 staff positions providing a variety of programs to youth at risk. Nine of ten youth in the counseling program showed improved grades, improved behaviour at home and greater ability to resist peer pressure. They are proven effective, yet this agency, of seventeen years has only $45,000 of its budget that it can count on from year to year. The rest is in “soft dollars” (the voluntary sector term for funding that is non-reoccurring and short term). The Program remains precarious despite its success. Indeed its very success is a handicap in seeking funds, as many donors want to make their mark by funding “new” programs not existing ones, however successful. The program’s cost effectiveness is based, in large measure, on dedicated individuals who volunteer their time or work for low wages out of a commitment to the program and the youth. Chronically unstable funding and loyal individuals who stick with the program despite the difficulties are hardly business like traits.

There is emerging, both in anecdotal evidence and in the research literature, a growing recognition that a significant number of voluntary sector organizations in Canada are experiencing problems funding their operations and programs. A previous paper by this author, “An Overview of the Funding of Canada’s Voluntary Sector”, Voluntary Sector Initiative, September 20011 reviews the history and circumstances contributing to the current trend in voluntary sector financing. The paper identifies the cumulative effect of shifts in funding patterns and identifies some of the implications for voluntary organizations. The following stressors were identified as contributing to the current malaise in the voluntary sector:

• Service contracts typically do not cover the actual costs of program delivery.
• Voluntary sector organizations report increasing difficulty meeting legal and legislative obligations to staff, such as pay equity obligations and obligations to employees on contract over successive years.
• Voluntary sector organizations are having increasing difficulty covering growing shortfalls in government funding with other stable sources of funds.
• Voluntary sector organizations have increased difficulty providing the infrastructure needed for effective program delivery.
• Securing funding to mount innovative and creative programs is becoming increasingly difficult.

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This review was undertaken to bring together the “in the field” experience of voluntary sector organizations with the literature on non-profit funding in the hope that this combined perspective could provide an overview of today’s situation and help determine the most productive and urgent priorities for future action.

The strength of this review is that it has sought to integrate the practical knowledge and realities of the field with the findings and conclusions of the research. Much of the research focuses on isolated components of the financing picture while the organizations struggle with the cumulative effects. Using the perspective of the voluntary sector, this paper “collects” the research findings to compile the overview that is needed to determine priorities for action.

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This is the first of a series of articles about the need to assess the impact of the new funder-provider relationship. During the 1990’s a quiet revolution has been taking place between funders and the not-for-profit agencies who deliver community-based services. Each funder has made changes independently and there has not been an evaluation of the overall impact on agencies, particularly those with multiple funders. It is the cumulative effect of this shift in how funders pay for services that is causing a crisis in the delivery of community-based health and social services.

It is the cumulative effect of the loss of flexibility for agencies to use funds, the restriction on movement of resources across programs and the contribution expectations of funders that have precipitated a sustainability crisis in not-for-profit agencies.

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One of the biggest problems with the winding down of the organizations whose funding is cut has been a lack of clarity of the roles and responsibilities between the funder and the agency board of directors. Serious difficulties have occurred and the short time frame makes sorting out any misunderstandings between the Directors and Funders very difficult. For this reason we suggest agencies negotiate a written agreement with the Funder specifying the amount and nature of the funding reduction and outlining the terms and expectations of the notice period. This report outlines how to negotiate this process.

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When Funding is Withdrawn, Negotiating with Funders

Deep government funding cutbacks to not- for- profit agencies continue to take place. The additional complication, which has taken organizations by surprise, is the short notice period being given. In some instances notice is as little as sixty days. This short time period places tremendous pressure on Boards of Directors and they need to be on top of the situation if they are to manage their conflicting responsibilities to clients, staff, creditors and other funders.

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Advisory To Boards of Directors of Not-for-Profit Corporations.

1. Forming a partnership is a strategic decision

The agency needs to be clear on its planning, understand who it is, and where it wants to go.

What are the reasons for the partnership?
-Because bigger is better,
-To better serve the target group,
-To bid on a contract,
-Because the Funder requires it
-Because the Funder would like it
-To be able to do things differently
Be clear about objectives to be achieved so you do not get caught in the process.

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Partnerships, What you need to know.

What can an Agency do to Prepare?

Know your core vision and values -

The board and staff must understand themselves in context of other services and be very clear about the organizations bottom lines. Only then will they be prepared to negotiate and plan with other organizations.

Put your organization in order-

The cost of services and quality control will be increasingly important. Agencies will need to ensure they are efficient in service delivery, have quality control processes, and be able to demonstrate results for their services.

Develop the flexibility to adapt to changing service funding-

Agencies will likely have to bid on contracts, funding may be received only upon completion of service, etc. Agencies should ensure they have the development money to make transitions to new methods of service delivery.

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Preparing for Competition from the Private Sector

The Feasibility Assessment is the next step after a Board decides to explore a merger with an other organization. Boards of Directors will want to assure themselves that a merger has every likelihood of success before they begin negotiations. The merger feasibility study is just that, an exploratory phase so the organizations involved and the funders can be assured the merger is worth the effort.

Before proceeding to merge two or more agencies it is critical to evaluate whether there will be any benefit gained from the merger and whether the complex process will yield the desired results. Some mergers will be worth the effort and yield significant benefits in reduced costs, more service, better service design etc. while other mergers will be counter indicated and may make things worse -cost more, reduce services etc.

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The Feasibility Assessment