Can You Have Too Much Funding?

Fundraising is often deemed the ultimate goal as you tirelessly seek financial support to deliver your charitable objectives. However, amidst this fervent pursuit, a pertinent question arises: Is there such a thing as too much funding? At first glance, the idea may seem counter-intuitive. After all, wouldn't an abundance of resources only serve to bolster your capabilities and impact? While adequate funding is crucial for operational sustainability and programmatic success, an excess can introduce unforeseen challenges.

One primary risk associated with excessive funding is the development of dependency and complacency. Another consequence of excessive funding is mission drift. As you pursue funding, you have to align priorities and activities with funders' preferences rather than staying true to your core mission and values. This can dilute your impact as they veer off course in pursuit of financial support, ultimately undermining their effectiveness and credibility. Excessive funding can also lead to inefficiency and waste, diverting funds from where they are most needed and discouraging prudent financial management practices.

Striking a balance is essential. You should prioritise achieving sustainability, innovation, and mission alignment rather than maximum funding at all costs. To mitigate dependency on external funding, your charity should diversify revenue streams through earned income ventures, individual giving campaigns and strategic partnerships. Effective resource allocation is key to prioritising investments aligned with the mission, goals, and desired outcomes. Instead of growing complacent amidst ample funding, you can enhance performance by meticulously allocating resources for impact and cost-effectiveness, fostering a culture of innovation and adaptation.

While often rare, we’ve seen some instances where clients can have too much in their reserves.  We recommend, at a minimum, that you have 3 months, and at a maximum, no more than 12 months.  Having beyond 12 months can indicate to funders that you don’t actually need funding— think about it from their perspective: why would they fund you when other organisations don’t have sufficient funding or are in such desperate need they’re using their reserves for their cause? If you have more than 12 months of reserves, we recommend you ring-fence some of this money towards projects (making it restricted) so it wouldn’t be a red flag for a funder.  It’s important to do this on your annual accounts each year as these will be publicly visible to funders.

It is crucial for you to recognise that more is not always better. While financial resources are essential for supporting mission-driven work, excessive funding can introduce challenges, undermining its effectiveness and sustainability. Maximising impact and achieving long-term success requires striking a balance between adequate funding and prudent resource management.

Take a look at our other posts:

The difference between project, core and capital funding
Charity vs CIC vs CLG
Automatic Rejection