I recently joined a meeting with a new client that is about to embark on his first capital campaign. He asked a great question, “What do you wish you would’ve known before your first capital campaign?”
Hindsight is usually 20/20 so I was grateful for this great question and the ability to help this client avoid some preventable pitfalls.
A few tips came to mind:
1. It is highly unlikely that every donor will pay in cash on day 1.
(Unheard of really!) You must have a plan to bridge the funding of construction costs as you receive pledge payments over what is likely a 3-5 year period. It will be important to have your best estimate for how long the campaign will last (often 18-24 months) and what your projected cash flow needs are as you ramp up for the campaign, execute it, and operate your new (or renovated) facility.
You may have cash reserves that you can use for this purpose. It’s likely though that you will need a “bridge” loan from a financial institution. You may choose to roll directly into any permanent financing your project requires OR bifurcate the opportunities to different lenders or to review your financing strategy before committing to long-term funding.
2. As important as knowing what it will cost to build and furnish the building, you must understand how this facility will operate once it’s built.
What is the economic impact once you build it? Is the proposed operating model sustainable? I’ve heard it said that the only thing worse than no building is a building that is a burden. Looking at the effect of construction on existing operations and building proformas for the first five years of operations will help you in securing financing AND will answer important questions from a subset of potential donors who care deeply about these questions.
3. Keep a separate bank account for capital.
A separate account ensures your donations and expenses are separate from all other operations of your organization. This provides transparency to donors, allows for impeccable tracking, and might even open the door to a relationship with another lender/financial institution in your community.
While you can’t prepare for every possibility during (and after) your capital campaign, these are three tips I’ve found to be tried and true each time. Heading into a capital campaign with your eyes wide open and your financial ducks in a row will put you in the strongest position for success.