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All the necessary resources for success

The end of financial year is an important time for philanthropists and the for-purpose sector alike.

For philanthropy, it’s about finalising conversations with existing or potential partners and making decisions around grants that need to be distributed before 30 June. For the sector, it’s about sharing stories of impact, outcomes and ambitions for future projects and initiatives.

Philanthropists often ask, ‘what does the client (the charity’s end-user) need to succeed?’ – it might be a scholarship, or a medical researcher’s salary, maybe it’s access to education resources or the construction of a building that delivers training programs.

But do we also ask, ‘what do YOU as the program-delivery organisation, need to create impact?’ For a for-purpose entity, this might be funding to support a fundraiser to seek sustainable sources of income, it might be technology upgrades for critical databases, it might even be office space for the team.

In our work with philanthropists, Equity Trustees advocates a holistic approach to strategic grant making. We seek to understand – what are the overall outcomes being sought, what are all the elements of a project or organisation that allow those outcomes to be delivered, and does the organisation have all the necessary resources for success?

The unfortunate answer is that organisations don’t always have everything they need to succeed.

For some time, the global philanthropy scene has been discussing the concept of the ‘starvation cycle’ and the chronic underfunding of the sector’s indirect costs. In 2022, a research study was produced by Social Ventures Australia, Philanthropy Australia and Centre for Social Impact, to help us better understand the landscape in Australia.

This study, Paying what it takes: Funding indirect costs to create long term impact provided a number of useful insights, including:

• Indirect costs as a proportion of total costs are not an indicator of either the efficiency or effectiveness of a not-for-profit;
• A Not-for-profit’s ‘true’ indirect costs often far exceed the amount the funding they receive for them;
• Caps on indirect costs leads to lower capability and effectiveness; and
• The drivers of indirect cost underfunding are complex and interrelated.

The report found that the average indirect costs of the organisations analysed was 33% of total costs, which is contrasted to the average ask in funding agreements of 10 to 20% of overall costs. A common theme was that for-purpose organisations underinvest in their core capability.

The for-purpose sector needs both direct and indirect costs funded in order to deliver outcomes and impact. Trust-based relationships between philanthropist and beneficiary partners are critical to ensure resources, both direct and indirect, are allocated efficiently to get the greatest return on investment.

In 2013, American entrepreneur Dan Pallotta delivered a TED Talk, The way we think about charity is dead wrong sharing his perspective on the starvation cycle. He has recently launched a feature-length movie UnCharitable which will be available on streaming services from mid-June 2024 (iTunes, Amazon and Google Play). UnCharitable presents a radical new way of thinking about giving, confronting the traditional societal perceptions and financial models stifling the ability of charities to overcome the social and environmental challenges they were created to solve. It is a must-watch movie if you are passionate about ensuring the sustainability of our for-purpose sector.