Magazine article Stanford Social Innovation Review

Put at Least One Egg in Another Basket

Magazine article Stanford Social Innovation Review

Put at Least One Egg in Another Basket

Article excerpt

FUNDRAISING

Diversify. In the business sector it's gospel that a more diverse portfolio is more financially stable. But "there hasn't been a lot of work done specifically on nonprofits to look at how this [revenue] concept applies to them," says Keely Jones Stater, a sociologist affiliated with the University of Connecticut.

Stater and coauthor Deborah Carroll, an associate professor of public administration and policy at the University of Georgia, looked at all the nonprofit organizations registered with the Internal Revenue Service - almost 300,000 of them - over the course of 13 years (1991-2003). "As nonprofits become more diversified, depend more equally on a variety of funding sources, they reduce their financial volatility," says Stater. "When they experience a loss in endowment, or donors are no longer able to donate, they are able to turn to another source of income to bridge the gap."

A good example of an organization with a diversified revenue portfolio is a university, says Stater. They have endowments (investment income), charge student tuition (earned income), and receive contributions (donated income), and that has helped them weather recent storms. Nonprofits that rely primarily on donations experience more financial volatility over time. The researchers recommend adding grants and investment or earned income.

Does this mean that nonprofits should try to pursue three equally sized income sources? Not necessarily. The study shows that institutional size matters more than diversification. …

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