1. Unit 7 Operational Sustainability
Community Foundation Boot Camp
Unit 7 Operational Sustainability
Indiana Philanthropy Alliance ©

2. Objectives for Unit 7
National Standards 5, 14
In this unit, participants will gain an understanding of –
The business model of a community foundation

3. Community Foundation Models
Each community foundation is a blend of strategies. The blend dramatically affects the business model.
Endowment building – emphasis on unrestricted
Donor-focused – donor advised funds are primary product
Community leadership – focus on community change
Affiliate structure – operating efficiency; frequently used in rural areas

4. Sustainability Is… It’s not an accident – It’s a decision
The ability of a community foundation to fund its operations over time with predictable and reliable sources of income.
Sustainability requires:
An understanding of the “business model” of a community foundation
An institutional decision making process that considers sustainability as a factor
It’s not an accident – It’s a decision

5. Let’s Talk About Revenue
Administrative Fees
Community foundation’s main source of income
Normally, a percentage of the value of endowment funds
Normally, calculated on a quarterly basis
Non permanent fees are calculated in various ways

6. Best Revenue Good Revenue Not So Good Revenue
Administrative fees on endowed funds
Payout from operating endowment
Good Revenue
Administrative fees from pass-through funds
Annual fundraising for operating funds
Not So Good Revenue
Grant from unrestricted fund
Draw on operating reserve

7. NOT determined by asset size Fund Mix = Number, Type and Size of Funds
The Big Myth About Community Foundation Sustainability
Sustainability is
NOT determined by asset size
It’s all about FUND MIX
Fund Mix = Number, Type and Size of Funds

8. Asset – Expense Mismatch
Total Assets
Revenue
Fund Mix
Workload
Expenses

9. So, workload varies dramatically by fund type; fees generally are 1-2%
Funds are “Philanthropic Products”
Which “Products” Have the Largest Workload?
Scholarship Funds
Donor Advised Funds
Law governing scholarship is very specific; you need to accept applications, manage a selection process; involves working with schools, individual applicants
Some donors require a lot of attention; some make lots of small grants
Charitable Organization Funds
Generally involves cutting one check annually; can require meeting with agency leadership periodically; can be extremely challenging if agency runs into serious financial trouble
Unrestricted Funds
Managing a competitive grant process requires reviewing proposals, site visits, committee process and reporting
Community Project Funds
Designated Funds
Generally lots of transactions because of small gifts; can involve more reporting if CF takes expenditure responsibility
Generally involves cutting one check annually
Field-of-Interest Funds
Variable workload depending on purpose, process
So, workload varies dramatically by fund type; fees generally are 1-2%

10. Community Leadership as a “Product”
No standard source of revenue for this activity
If no external funding needs to be supported by fees from funds
Can provide visibility and attract donors for future
Important part of the role of a community foundation
Generally very time-consuming

11. Sample Fund Analysis Chart
Assumptions: each fully loaded staff hour = $50; each fund has a 1% fee
Fund
Assets
Fee
Cost
Situation
Donor Advised
$20,000
$200
Donor calls all the time asking for information on agencies
Donor advised
$50,000
$500
Wants to fund charitable activities of non 501c3 organizations
$25,000
$250
Donor gives most of payout to her church
Scholarship
$5,000
$50
Committee process to award scholarship
$40,000
$400
Unrestricted
$300,000
$3,000
2 grant rounds per year
Field of Interest
$12,000
$120
Lots of small gifts requiring gift entry and acknowledgment letters; requires staff time to determine best use of fund
Char. Org. endowment
$30,000
$300
Agency having financial problems and wants $$ back; lots of meetings to address this issue
$10,000
$100
One check per year
Designated
$15,000
$150
Donor requests change of beneficiary

12. Expense Analysis by Fund Type
# Funds
Total Assets
Fees
Staff Hours
Expense*
Fees Less Expenses
Unrestricted
Donor-advised
Field of Interest
Scholarship
Designated
Charitable Organization
Community Project
TOTAL
*Staff hours x fully-loaded average staff hour expense
(Here’s how to calculate your fully-loaded average staff hour expense. Divide your total annual budget by number of staff hours employed.)

13. Let’s Talk About Fees Its advantages are Its drawbacks are
The 1% asset-based fee is a holdover from bank trust departments
Its advantages are
Donors are accustomed to paying
It generates recurring revenue
Its drawbacks are
It is not related to the workload of managing a fund; fees are generally 1-2%
It is subject to market fluctuations
Revenue compared to asset base is low
Some community foundation activities are not tied to assets, e.g., community leadership

14. How Did We Get Here?
1980s-1990s – emphasis on creating different fund types – donor advised, field-of-interest, scholarships
1990s – increasing emphasis on community leadership
The instinct in the early years of growing a foundation is to say “yes” to everything
1990s – community foundations began to experience significant challenges with operating expenses
2003 – major study by FSG demonstrated the flaw in the revenue model by revealing the disconnect between assets and workload
EVERY FUND HAS A STORY

15. Sustainability Number
Sustainability Formula
Sustainable Revenue
Operating Expense
Sustainability Number

16. Indiana CF Sustainability
2011
2016
Percent of expense covered by sustainable revenue
Number of Indiana CFs
100%+ 13 17
90-99% 6 22
80-89% 16
70-79% 14 11
60-69% 5
50-59% 2
Under 49% 15 1
Total 73 74
Indiana aggregate of total expense covered by sustainable revenue:
2011 – 69%
2016 – 90%

17. Create a Sustainability Plan
So What Do We Do?
Community foundations need to periodically examine practices in light of changing environment, new information, etc.
A board needs to:
Educate itself about the drivers of the foundation’s revenue and expenses
Make a commitment to sustainability and policy decisions that support it
Create a Sustainability Plan

18. A Sustainability Plan Focuses On…
Efficiency
Find ways to manage more assets (that generate more revenue from fees) without increasing your operating cost (staff size).
Revenue Generation
Use the staff and volunteer time saved through increased efficiency and reallocate it to the staff working with the board on an intense focus on developing good assets.

19. Staff Time and Sustainability
Increase efficiency
Recapture staff time
Redeploy staff time to activities that support asset building
Laser-like focus on asset development

20. Ideas Understand your products Do an analysis of costs by fund type
Develop a clear understanding about each “product” and how it adds value to the community
Learn how to say “no”; explain why you have to say “no”
Develop “products” that work; put time limits on non- productive funds
Prioritize some products for growth, de-emphasize others.
Leadership efforts are important, but the business model needs to be considered

21. Consider a major overhaul of scholarships
This could include more designated funds, online application process, transaction-based fees
Raise fund minimums or establish minimum fees or services for products
Increase minimums to establish a fund. Can be different minimums for different types of funds depending of complexity of administration
Establish a minimum fee, regardless of fund size. Can be different for each fund type.
Establish a minimum grant size – transactions cost money
Manage memorial funds

22. Understand the economics of your pass-through and endowed funds
Pass-through funds are frequently assessed a higher fee because:
We value endowed funds
They are assumed to have more activity
Spend time cultivating large funds
Large funds make a dramatic difference to a product’s economics and to the Foundation
Cultivating small funds in the hopes of a larger gift or bequest must be done judiciously

23. Provide alternative ways to involve small donors
Promote field of interest funds or leadership funds which are open to very small donors or experiment with a membership model.
Community project funds should have an entirely different fee structure
Fees should be consistent with actual costs of management or consciously choose to subsidize the project.
Donor education
A community foundation needs to educate donors about the costs of fund management. Expenses in excess of fees must come from somewhere – the unrestricted fund, annual campaign, operating reserve.

24. Implementing new policies is delicate
Revenue Sources
Emerging foundations generally need to have higher fees than larger, more established CFs
Consider a slightly higher fee on the unrestricted funds to support community leadership
Consider a policy of allocating a portion of every unrestricted gift to the operating endowment
Identify unrestricted or advised funds donors who might "invest" in the foundation operations while it is seeking sustainability
Implementing new policies is delicate
Grandfather in funds but change policies for new funds
Create grace period for small funds to spend out.

25. Operational Changes Structural Changes
Review your processes; can you eliminate steps or reduce paperwork?
Standardization is important; every exception takes time
Review your event activities to evaluate whether the net income is worth the time and expenses
Evaluate your services and communications with current donors
Structural Changes
Consider entering into an affiliation or alliance
Shared space with other nonprofits
Combined back office
It all adds up – a small change implemented rigorously
over time can make a big difference

26. The Balancing Act
Meeting individual donor expectations - the fund STORY
Providing something for everyone
Being a leader in the community
All things to all people
Providing responsible stewardship
Long-term commitment to community
Adding real value to community
Building charitable assets for the future
Creating the structure of a permanent institution

27. Discussion Topics
Has your board ever discussed the different workload involved in managing different types of funds? What information would be helpful to you?
After calculating your sustainability are you pleased? Concerned?
What steps do you need to take to become more sustainable or maintain sustainability?

28. Resources – Sustainability
Simple Sustainability Calculation Worksheet
Book Recommendation: The Sustainability Mindset, Jeanne Bell et al
Sustainability Costing Tool: interactive worksheets available on the CMF website:
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