MacKenzie Scott has already donated an estimated total of $146 million to 24 nonprofits this year, according to The Chronicle of Philanthropy. This amount is based on organizations that have publicly stated they received a donation from Scott in 2023. The number of nonprofits is probably much higher. Scott’s donations range from $1 million to $15 million, and she has given to community-led and -focused organizations with operating budgets of no more than $5 million.
Let’s put that into perspective:
Many Scott grant recipients–nonprofits managing on very tight budgets–received financial windfalls many times their current budgets. While these gifts hold the promise of immense positive impact, they also bring forth financial and investment challenges that can be as daunting as they are exhilarating. As the saying goes, “With great power comes great responsibility.” In other words, deploying a large gift requires strong governance and expertise not usually available within the organization.
Nonprofits that are successful in deploying a large donation give significant attention to the intricacies of managing and investing the gift. The following are a list of potential challenges nonprofits could face and the appropriate solutions to allow the organization to deliver impact without wasting time and precious resources.
Challenge: Maintaining Organizational Focus
Large gifts can sometimes lead nonprofits to divert their attention from their core mission, even if the gift is unrestricted. The allure of new projects, expansion, or diversification can dilute an organization’s focus. It’s crucial for nonprofits to maintain a strong connection to their original mission and ensure that any new initiatives align with their overarching goals.
Solution: Recruit a select committee that includes nonprofit staff leaders and board members to develop a strategy on how to deploy the gift. This group should include members who are collaborative, flexible and willing to work overtime to develop a fiscal and investment strategy for the increase in funding. For more on committees, read Quick Guide to Forming an Endowment Investment Committee.
Challenge: Perceived Imbalance
Other stakeholders, including staff, volunteers, and beneficiaries, may perceive an imbalance in resource allocation or decision-making when a major gift has a disproportionate influence on the organization. Worse, it could lead to resignations from key staff that feel overwhelmed and burnt out by the increase in workload to manage the new focus in addition to their existing responsibilities.
Solution: Once nonprofit leadership has crafted a strategy for the large gift and it’s taking the organization in a new direction, seriously consider a new hire or possibly bringing in a contractor to build out the new program without delay. An extra set of hands and minds will allow the gift to be deployed more quickly showing new and existing donors that the nonprofit has what it takes to deliver impact.
Challenge: Developing Capacity
An influx of funds often necessitates an expansion of an organization’s capacity, including hiring new staff, improving infrastructure, enhancing operational efficiency and implementing risk mitigation. This can be a daunting task, as nonprofits must strike a balance between using the gift for immediate impact and investing in the long-term sustainability of their operations.
Solution: Leverage specialist partners in the nonprofit’s network that can advise on what new processes and policies will be required to effectively deliver impact with a large gift. Recognize that the organization may need to spend more to get more out of the gift.
Challenge: Complying with Appropriate Nonprofit Regulation
Navigating the complex regulatory environment of nonprofit investments is crucial. Tax laws and regulations governing charitable organizations often come with restrictions on certain types of investments. Compliance is essential to maintaining tax-exempt status and avoiding legal challenges.
Solution: Get educated about the regulatory requirements around a major gift or grant. Schedule time with a nonprofit attorney who will highlight what your nonprofit needs to know. Start by reading Why UPMIFA Matters.
Challenge: Identifying and Managing Risk
As a nonprofit expands with the help of a large gift, complexity of operations increases. This increase in complexity further exposes the organization to excessive operational risk—the likelihood of a process breakdown at the organization. A nonprofit that is continually scrambling to put out fires makes existing donors anxious about the organization’s ability to deliver on their mission.
Solution: Nonprofits that implement a risk management program can demonstrate to potential donors that they take financial and operational governance seriously. Learn more by reading Recession-Proof Your Nonprofit in These Five Ways.
Challenge: Plan for Long-Term Sustainability
Large gifts can lead to an influx of resources, but nonprofits must plan for the long term. Developing an investment policy that focuses on sustainability, including the creation of endowments or reserves, is essential to secure the organization’s future.
Solution: Ensure your nonprofit implements reserving, investment and spending policies to govern the organization’s generous gift. Guidelines on how the nonprofit manages these funds are critical to the organization’s survival through this time of change. To learn more, read What Your Nonprofit Endowment Needs and Why, Endowment Spending Policies: Read The Fine Print and How Much in Reserves Should a Nonprofit Have?.
Challenge: Financial Management Complexity
Managing a substantial influx of funds can be challenging, especially for organizations that lack the financial infrastructure to handle large sums of money responsibly. This includes proper investment management, accounting, and reporting. Nonprofits that have been surviving with a thin infrastructure and governance, won’t have the policies or expertise to manage a large windfall, whether the gift is restricted or not. Sometimes the gift sits in a checking account for months, maybe for well over a year, as the nonprofit grapples with what to do first.
Solution: Nonprofits that put large gifts to good use do their homework. There are many good resources that will guide nonprofits through the financial and investment management process. Some also provide a database of consultants skilled in nonprofit finances and investments. Some helpful sites are Fundamentals for Nonprofits | Nonprofit Finance Fund and Propel Nonprofits. Or check out the Social Impact Advisory Network for relevant nonprofit partners Directory — Social Impact Advisor Network.
Conclusion
Large philanthropic gifts offer nonprofits the potential to make transformative impacts on their communities and causes. However, they also present financial, investment and operational challenges that demand careful consideration and strategic planning. Navigating these challenges requires expertise in asset management, compliance with regulations, and a commitment to preserving the organization’s mission and values. Talk to the experts at Fairlight Advisors to learn how you can better deploy a large gift or grant. Schedule a free consultation today!
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