Using a Funding Plan to Support Capital Projects
November 10th, 2011
by Kris Kindelsperger
Several of our clients are in the midst of raising funds for large capital projects. In all cases the ideal fundraising outcome is to raise 100% of necessary funds in cash. Seems pretty straightforward.
In reality, the needs and preferences of donors must be factored into the equation.
- Most donors lack the liquidity to write a check up front for the full amount of their gift.
- Many donors make multiyear commitments stretching out five or more years.
- Some gifts may be premised on the sale of a business, property, or other investment, the timing of which may be fluid.
- Other donors may need to incorporate some form of gift planning that will cause the funds to come to the organization sometime in the future.
It gets complicated.
One way to address these fundraising realities is to develop, in advance, a Funding Plan, or a road map that takes into account a series of assumptions and contingencies that fit the organization’s needs as well as its tolerances for risk.
Elements of a Funding Plan include:
- Realistic estimates of fundraising that include projected cash flow, the likelihood that major liquidity events (sale of property, for example) will occur in a specific time frame, and calculations on the present as well as future value of planned gifts.
- Determine the cost of building today versus in the future. Are there significant savings to be had by building today when construction costs are relatively low? What happens if costs rise, might they eclipse fundraising progress in three years?
- What is the cost of not completing the facility soon? An academic building that will allow increased enrollment in revenue generating programs has a projected current revenue value as well as a lost opportunity cost. If construction is delayed three years, how much revenue is lost?
- What is the organization’s ability finance debt? Whether short term construction financing or longer term debt, what is the cost to finance a project in interest and/or bonding costs?
Each of these points requires creating a set of assumptions and making judgments about what will likely happen in the future. Well conceived plans can allow organizations to create flexible funding strategies that can be adjusted as circumstances unfold, but may provide the opportunity to move ahead with construction while fundraising is still underway.
In today’s economy waiting till all the cash is in the bank, may not be the most cost effective way to fund a new building.