The Kendeda Fund will be remembered for both what we accomplished and how we worked. We will have created new pathways to solve seemingly intractable problems, supported transformative leaders, and worked in ways that simultaneously enhanced people and planet. Our donor and our staff will be remembered for having done so with grace, curiosity, creativity, caring, and passion. We hope to serve as an inspiration for other philanthropies in the issues we tackled and in how we tackled them. -Kendeda Fund Legacy Aspiration
As the Kendeda Fund enters its final few years of grantmaking, we find ourselves spending more time contemplating our legacy and the ‘good end.’ Specifically, we are asking ourselves: What can we do in our remaining two-and-a-half years to leave our grantee partners stronger, more resilient, and well-equipped for the future? In what ways can we continue to impact the issues we have funded for more than a quarter century? And, finally, how can we best support the transformative leaders who will carry the work forward after we’ve concluded our work?
With the aspirational legacy statement (above) as our north star, Kendeda is testing some strategies that we hope will leave our partners – and the sectors in which they work – stronger and more resilient.
Whether they are stewarding protected lands, building a more racially equitable South, designing sustainable solutions for our built environment, or engaging young people in creating a stronger democracy, nonprofit organizations need flexible funding to perform at their peak. One way the Kendeda Fund is helping grantees achieve that needed flexibility is through building operating reserves.
Operating Reserves Build Organizational Resilience
At the most basic level, an operating reserve is an unrestricted fund balance set aside to stabilize a nonprofit’s finances by providing a cushion against unexpected events, losses of income, and large un-budgeted expenses.
But a well-designed reserve fund has far more power and potential than simply cushioning or floating an organization through rough patches. When appropriately structured and managed, operating reserves can also help build organizational resilience by unburdening staff from constant worry about cash flow. Over time, the flexibility it affords can begin to fundamentally re-wire an organization’s approach to innovation, program development, and risk-assessment.
Much has already been written about how the COVID-19 crisis brought into clear focus the value of financial resilience for non-profits, many of whom play outsize roles as service providers, advocates, and thought leaders. When the pandemic struck, far too many of those organizations were forced to retrench. Many shed services and cut staff just to stay afloat. Others weren’t so fortunate.
According to a recent report developed by Candid and the Center for Disaster Philanthropy, by December of 2020, more than 930,000 jobs had been lost at U.S. nonprofits during the pandemic. The study went on to explain that in a worst-case scenario, prolonged crises could lead to upwards of 38 percent of 300,000 nonprofits — more than 119,000 — closing their doors for good.
It shouldn’t have to be this way.
Industry standards suggest that a healthy non-profit should have between three and six months of operating costs on its balance sheet at all times. Best practice is for the board of directors to have decision-making authority over the use and management of those funds, with a clear set of guidelines governing when and how to spend them and, most importantly, how to replace them when they are used.
In reality, however, very few nonprofits come close to meeting that bar. This is often because there is an ingrained belief among many donors that a nonprofit should always be financially lean, that groups should make do with whatever funding they have and put all resources to immediate programmatic use. Our goal is to challenge that notion. That’s why Kendeda has issued $8.2 million in capacity and challenge grants to 36 of our grantee partners with the aim of helping them establish, or increase, an operating reserve fund.
Our first step was to issue flexible fundraising capacity grants so the organizations could begin to strengthen their internal fundraising systems, and determine the viability of raising money for a reserve fund. We have already heard back from several grantees that these planning grants have been game-changing.
As one executive director told us, “This small grant has been…transformational. We are thinking in entirely new ways and getting creative, and out of our comfort zone. Not everything will work, but I feel like I can’t overstate how much this targeted investment has opened up our thinking about how we raise money.”
The next step is to work with each partner through their process of raising funds to establish, or in some cases increase, an operating reserve fund. We will then match what an organization raises, up to one and a half months of their operating expenses. Our goal is to leave each of these core grantees with a reserve fund of at least three to six months of operating reserves by the time we close our doors at the end of 2023.
The point of this program is not for Kendeda to single-handedly create a rainy-day fund for each of these trusted partners. Rather, we are trying to catalyze or, in some cases accelerate, new ways of thinking about fiscal health in order to build more robust and enduring organizations.
As a sunsetting foundation, Kendeda is always looking for ways to have a lasting effect on the issues we care about. To that end, we believe strongly that funding reserve funds is an investment in the long-term sustainability of any organization. We look forward to working alongside our grantee partners throughout this process as they confront challenges, embrace opportunities, and celebrate successes on their journey to building lasting financial stability. Our role will be as cheerleader and advisor, and we will track the lessons we learn.
We will be sure to share our insights and progress along the way.