Lesson 3: Ten Things We'd Like to Tell Every New Philanthropist
Lesson #3 - "I need to be careful to not let the non-profit get too dependent on my contributions"
Logically, how does discontinuing funding to a non-profit make them more "independent" or "less dependent"? There is a reality for most non-profits - they depend on funders (corporate, individual, public) for some or much of their revenue. To the degree that they have fee-for-service, or earned income revenue streams, they can become less dependent on philanthropic sources of funding. But discontinuing their funding is not an action that prevents or reduces their dependency per se. If a funder wants to improve a non-profit's independence and long-term sustainability, they can focus on capacity building, longer-term and bigger grants, investing in outcomes systems, etc.
On a related topic - sometimes funders / philanthropists will be less likely to give to a non-profit with a strong net asset position, because "they are already financially strong enough and some other org needs my money more." Yes, there is such a thing as too cash rich (e.g. more than 1-2 year's annual budget amount held in Net Assets), but a non-profit's net assets are its working capital, its investment capital, its buffer against the ups and downs of running any organization. It's not money "just sitting around, doing nothing."
by Paul Shoemaker
Find more from Paul Shoemaker and SVP/Seattle here.