According to data from research “The Importance of the Third Sector for GDP in Brazil”, March 2023, coordinated by Sitawi, commissioned by Movement for a Culture of Giving and executed by FIPE/USP, O third sector is responsible for more than 4% of Brazilian GDP – what does it represent? more than R$ 400 billion added to the country's economy.
Despite the economic relevance of NGOs, some institutions still face difficulties in maintaining themselves: more than a third of organizations cease to operate after 5 years of operation, second IPEA data. This is due to several factors, but mainly to financial instability.
Because they are called non-profit organizations, many believe that non-governmental institutions cannot have money to spare or financial reserves. However, this idea is wrong: NGOs They may have a surplus of financial resources and these need to be saved for the future (which could even be next month).
NGOs need financial sustainability
Just like private companies, third sector organizations have different sizes and maturities. Consider the different aspects of financial management of a NGO is essential to define the ideal approach for the financial reserve. Check out our take on the 3 basic types of reservations what NGOs can/should structure:
reserve fund operational
Did you have a weaker month of fundraising?
In this case, your organization will need a reserve to continue operating at the same level, while looking for alternatives to restore revenue levels and/or adjust expenses..
This type of fund must have a goal of cover the total amount for the organization's expenses during a given period (e.g. wages, rent and bills for 3 or ideally 6 months).
In practice, all resources that are in the current account and do not have a pre-defined destination make up the reserve fund and the more the better, but only up to a level that allows the organization's managers to make decisions based more on long-term benefits than short-term needs. This means that organizations with smaller reserves need to have actions that work in the short term, while organizations with larger amounts of resources can plan for the long term.
Challenges/Opportunities Fund
Will the workplace need a new roof in a few months? Is a program coming to an end and will it be necessary to lay off – and compensate – part of the team? Is an activity in high demand and will it make sense to invest in structuring a new area?
These are some of the situations in which this resource will be used. This type of fund is created to deal with future expected disbursements – although with an uncertain date – that happen to an organization. It is a type of “savings” that we intend not to touch until the indicated event materializes. For this, it is suggested that it be in a current account separate from the operations account.
In practice, it is common for the two previous funds to become confused and end up becoming a single fund for “emergencies” – both foreseen and unforeseen. On the other hand, the best practice is that, depending on the Operational Reserve Fund achieve your goal, additional resources will be earmarked for the challenge/opportunity fund.
Equity Fund
When the funds with short and medium-term logic are more or less “full”, it is time to think about a long term fund, aiming to guarantee permanence for your cause.
Endowments represent a long term reserve, which will generate monthly financial returnss for your organization. They start with an initial contribution – high or low – that is preserved and invested, but yields a monthly percentage that goes back to the organization. This means that NGO has a value allocated to a reserve, but does not consume it. The resources used in projects and programs will, in fact, be the income from that amount..
For this reason, the Endowments – synonym of Endowments – are long-term and are generally created by medium and large organizations, who already have a certain financial maturity. Obviously, the higher the amount invested, the higher the return tends to be.
The partnership of Sitawi with the Endowments of Brazil – the first Equity Fund Management Organization (OGFP) multi-cause and multi-beneficiary of the country – enables differentiated conditions so that any organization*1 can access the mechanism Endowments as provided for in law 13.800, which brings more transparency and security for donors, in addition to lower costs for organizations, since the legal, administrative and financial infrastructure is shared.
For an organization to create its own OGFP, the initial investment should be R$15-20 million. With our solution, a NGO he can start an Endowment immediately from a much smaller resource and offer the possibility for its donors to support this reserve.
This is how we created the first fund dedicated to the LGBTQIAPN+ cause. The partnership between Sitawi and Endowments do Brasil is ideal for institutions like Casa Chama, which Casa Chamastarted his own fund with the intention of reverting this investment to his projects, but he did not need to create and manage another organization.
Have you identified with the objectives and requirements of an Endowment Fund?
- *There are still some criteria required for organizations interested in establishing a Patrimonial Fund with Sitawi. “Any organization” means that our conditions cover a wider range of third sector institutions, not just the largest ones.. ↩︎
