By nature, your nonprofit’s finances are unpredictable. From varying donation types, frequencies, and amounts to fluctuating program needs and expenses, your organization must be able to pivot quickly and adapt to financial changes. That’s why flexible funding is key to fueling your nonprofit’s strategic plan.

Flexible funding drives both financial sustainability and advances, allowing your nonprofit to seize new opportunities without being constrained by funding restrictions. As a result, your organization can achieve its goals and maximize its impact.

In this guide, we’ll unpack four strategies your nonprofit can use to keep its funding flexible while furthering its mission.

1. Diversify Your Revenue Streams

Imagine this: Your newly founded 501(c)(3) nonprofit needs to raise awareness and support for its mission. You complete the charitable solicitations registration process in your state, spread the word among your existing network, and set a fundraising goal.

What are your expectations for this fundraiser? You might envision thousands of small contributions from individuals in the community or a few large grants, but in reality, the best strategy is to strive for both.

Establishing multiple sources of revenue can significantly enhance your nonprofit’s financial stability by providing various, reliable financial resources. As a result, your nonprofit will have a resilient funding model. Revenue sources could include:

• Individual donations
• Grants
• Corporate partnerships
• Earned income from services or products

Overdependence on a single revenue stream can make it difficult for your nonprofit to allocate its resources effectively, navigate financial challenges, and achieve its goals. Instead, diverse revenue streams allow nonprofits to operate with their missions in mind, making budgetary decisions based on the needs of their beneficiaries.

For example, if a funding source comes with restrictions on how the funds can be used, your team can use revenue from a different source to respond to emerging needs. Or, fluctuations in the number of individual gifts donors contribute could prompt you to supplement these donations with funding from other sources, allowing your nonprofit to still meet its budgetary needs.

2. Build an Emergency Fund

An emergency fund, or operating reserve, is a financial cushion established to sustain your organization through economic uncertainty. Whether your nonprofit experiences an unexpected increase in operational costs, a natural disaster, or any other disruption to its planned budget, having an operating reserve ensures your organization can continue operating smoothly without financial strain.

To build its operating reserve, your nonprofit can set aside funds by:

• Adding a budget line item. Incorporate your operating reserve into your budget to prioritize allocating a portion of your income to this area each year. In other words, your nonprofit will treat its emergency fund like a necessary expense to ensure it receives consistent funding.
• Launching a targeted campaign. Host a fundraising campaign in which your nonprofit educates supporters about the need for an emergency fund and requests donations specifically for this purpose.
• Allocating a percentage of unrestricted funds. Automatically set aside a percentage of all unrestricted donations your nonprofit receives to establish an emergency fund. For example, you could designate 10-15% of all unrestricted donations to the reserve fund and leave the remainder for programs and operations.

Your team can choose one of these strategies or combine them to build its operating reserve, depending on your unique financial situation. If you primarily receive restricted donations, for example, it may be more productive to launch a campaign specifically targeted toward raising funds for your operating reserve. Just remember to delineate this fund in your bookkeeping records to ensure it’s truly preserved for emergencies and not accidentally spent on anything else.

3. Cultivate Recurring Donors

Among your nonprofit’s various revenue sources are individual donors with different giving behaviors. Their gifts vary in amount (from small to mid-level to major donations, type (such as cash or non-cash gifts), and most importantly: frequency.

Donors who give consistently (as opposed to one-time donors) serve as a predictable stream of revenue, which is why your nonprofit should focus on cultivating these relationships. Recurring donations provide financial stability for your organization by guaranteeing a dependable inflow of funds.

To encourage their consistent support, your nonprofit must learn about its donors and cultivate meaningful relationships with them. Your donor management system should provide robust capabilities for collecting and tracking essential donor data. Backed by accurate and relevant information, your nonprofit can:

• Send personalized communications. Tailor your messaging to each recipient by segmenting your donors according to their demographics, interests, hobbies, and other unique indicators. Reference their specific involvement in your organization to show you appreciate them as individuals.
• Show the importance of donors’ gifts. Donors’ charitable contributions make your mission and purpose-driven operations possible. Demonstrate the impact of donors’ recurring support by sharing impact stories and beneficiary testimonials.
• Establish a monthly giving program. Monthly giving programs automate the recurring giving process using checking withdrawals or automatic payments. This makes it easy and convenient for supporters to donate while also increasing the chances of your nonprofit receiving consistent gifts.

Finding a donor management system that can track donors’ preferences, contributions, and other information is vital to crafting data-driven communications that appeal to your target audience. Over time, you’ll develop increasingly strong relationships with donors, building their sense of loyalty to your nonprofit.

This can lead to not only more frequent giving, but also increased gift sizes and varying types of contributions, such as matching gifts, volunteerism and volunteer grants, or in-kind donations.

Before implementing the above strategies, evaluate your current approach to identify areas for improvement. Do you have a successful donor retention strategy? Invest in a donor management system to track donor data and strengthen relationships with your supporters. Are you properly recording and tracking your nonprofit’s various sources of revenue? Consult a nonprofit bookkeeper to organize and streamline your financial records.

With the right resources at its disposal, your organization can maintain flexible funding for the long term and face financial challenges head-on.