July 29, 2011
The other day at work I was presented with one of the most common problems that community development funders face. Our staff has just completed reviewing a series of applications for threshold criteria and had to terminate an application from one of our favorite new groups. The applicant had failed to submit financial audits and we were all shocked to here that they didn’t have them.
Now this is a young organization that has only three years under their belt, but has been very active and successful with the few projects they have completed so far. They also fit into one of our least used target funding goals so there was a double sting to the termination. Being so young, they hadn’t generated enough financial activity to require a full audit.
You see, young nonprofits generally don’t come out of the gate with $500,000 in activity. It takes time to start-up, fund raise and set your goals. Generally, during this start-up period smaller organizations will have an accountant file taxes annually, and the better ones will get a Compilation Report or even an Auditors Review of their financials in order to have some type of report to pass on to funders and financial partners.
What’s important for this story is that the applicant had submitted a compilation report, but our guidelines required the full audit. Now I generally will agree that an audit is the best thing you can get from an applicant in order to determine their financial health and well being. However, our reviewers were in a bind because one of the better new groups was ineligible due of our criteria and we wanted to support younger groups just like this one.
So here’s my point. Just like they tell you in college writing and speech courses, it is critical to know who your audience is. In this case, we had failed to consider the types of organizations that we wanted to fund. We had thought about the types of projects, the funding per unit and even how to give scoring advantages to key internal goals. But, we forgot to think about the types of organizations that would apply for our funding and determine who we wanted to let in to the competition, or who to keep out.
I think the need to carefully consider your target applicant, the one you desire the most, is really the second most important aspect of grant or funding programs, after the type of projects you want to fund. Knowing how your applicants work, what their financial capabilities and experience levels is critical information that we need to be successful.
This sort of careful consideration of target applicants is very common. Other recent examples of failures I’ve seen are state programs requiring applicants to set up lines of credit to fund activities prior to reimbursements. This is possible for private companies and nonprofits (sometimes), but the biggest target applicant was cities and counties that are prohibited by law from borrowing money in this manner.
Another great example I remember from many years ago was a capacity building program targeted to new nonprofit home builders. Unfortunately, the threshold criteria required them to have built 20 or more than homes in the past year and have more than 5 years of experience. There are very few small nonprofit start-ups that can build 20 homes in a year, and after 5-years most organizations generally don’t consider themselves start-ups. Needless to say the program was a bit of a failure.
So, i hope my point is clear by now. As funders and financiers of community development, we need to carefully consider “who” will be completing the goals we set out to fund. We need to consider what types of applicants we want to fund and then spend the extra time to research how they operate.
As always, I hope some of you will comment on this post and let me know what you think.