This month, the Donor By Design Team is discussing campaign readiness: the things that (should) happen before you begin a major fundraising campaign. Today, Jim asks the question that you should ask yourself before your next campaign: are you ready?
Dreaming of that new facility? I bet you’re busy planning the capital campaign and recruiting the leadership. Maybe you’re even identifying those “lead” gifts already. It is exciting, and yes, all those component parts are critical.
But, there is some preparatory work that needs to be considered before you launch that campaign. Just like launching a ship, there are a few items that need to be considered before you leave the dock to ensure you are sea-worthy.
Even with excellent planning, the right leadership, the right vision, and the right partners, you need to be sure to address the most basic of questions: do we have the financial capacity to expand, not just build, the new facility?
Here are the two financial questions that help you answer that big question:
Do we have the financial resources necessary to open the facility before we build it? Opening a new facility is exciting and represents years of hard work and dreams. But few, if any, new facilities can just open, and begin to operate “in the black.” It is not unusual for a new facility to lose money for months or years before it breaks even. Where will the funds come from to fill the loss until the new facility breaks even? Is it from reserves (money that was put aside for such a purpose) or were those funds included in the total project budget? Regardless, this is a real loss of operating dollars and needs to considered and planned for before the “surprise” of losses overshadows the euphoria of the grand opening.
Do we have the financial strength to carry any gap between the total project budget, and our campaign results? If your new facility has a total cost estimate of $12 million, that likely includes the construction contract (75%) and all the “soft costs” (25%), including but not limited to architect and engineering fees, furniture, equipment, technology, signage, capital campaign costs, construction loan expenses, opening expenses, and everything else including the proverbial (and possibly literal) kitchen sink.
If you’ve estimated that the campaign will raise $8 million, that leaves a gap of $4 million. These are all “pre-launch” estimates. The question is “do we have the financial capacity to carry an additional $4 million debt as an organization?” The issue of financial capacity of carrying debt can be measured both before and after the project is complete, both today and in the future after the new facility is built and operating. A wise captain will know the answer before the launch.
A new facility is exciting, and the prospect of connecting with the community to raise the necessary funds is both challenging and rewarding; but before you launch, make sure you know the financial sea-worthiness of your organization’s financial strength.