Article 3: The most expensive money per euro

Series: subsidies and financial health

As an advisor on financial strategy in the non-profit sector, you don’t often come home with remarkable stories about what you experienced during a working day. Something that did happen this year: an organization that can no longer afford the administrative burden of obtaining and justifying one subsidy line, and is therefore looking for a second subsidy line to be able to bring in additional FTEs. Anyone who has ever written a policy plan, completed a progress report, or prepared for a site visit will not be surprised by this.

A subsidy feels like money you receive. If you include the hours spent acquiring and justifying it, you arrive at a different calculation. A subsidy may well be your most expensive money per euro.

The juice and the squeeze

Part of that burden is entirely justified. It involves public money, and those who receive it should be able to show what they do with it. The problem lies in the proportion. Is the subsidy, all things considered, worth the trouble? For large structural subsidies, usually yes. But by no means always.

First, take the accountability cost. In quite a few decrees, the administrative planning burden is virtually the same whether you receive the basic amount or a million: the same policy plan, the same reporting, the same assessment visit. For the large organization at the top of the scale, that is a bargain. The small organization that just reaches the minimum amount submits exactly the same paperwork for a fraction of the money. Per euro, it pays many times more.

Then there is the acquisition cost. Project subsidies are the textbook example: a fully developed application, a balanced budget, partners signing on, and all that for a modest amount and with a real chance of rejection. The time that goes into it does not go into your actual work. Economists call them transaction costs, marketers call it cost of acquisition; I call it the juice and the squeeze. Count them in before you call a subsidy free money.

And there is a cost that rarely comes into view: liquidity. Subsidies often arrive late, in instalments, with a balance that is only paid after your report has been approved. In the meantime, your operations continue and you pay wages every month. An organization with too few reserves bridges the gap with cash-flow pressure or a line of credit. That cost appears in no subsidy application.

Upward, inward, outward

That burden comes with subsidies and will not disappear. But you can turn it to your advantage if you see that accountability runs in more than one direction.

There is accountability upward, to the government. Organizations know this one best, because that is where the subsidy burden lies. There is also accountability inward: to your board, your volunteers, your members, your staff and your participants, the people who sustain your organization. And there is accountability outward: transparency towards the wider world, which becomes increasingly important as soon as you start fundraising. Public administration scholar Filip De Rynck refers to these three together as public accountability.

You have to provide accountability inward and outward anyway, subsidy or not. An organization that only accounts upward experiences this as a pure cost of subsidy. If you already have a clear story inward and outward, then the content of your accountability upward is already largely ready. The format often remains that of the government, with its own templates, indicators and criteria, and translating that takes time. But far less than building everything separately.

So the principle is simple. Build your accountability properly once, in all three directions at the same time. Start from one clear story about your impact and your choices, a story that you need first and foremost yourself. From that, you derive your internal communication, your outward transparency and your subsidy reporting. Then the subsidy burden no longer depends on your coordinator’s overtime, because most of the work was already there.

Operational strength

That brings us to operational strength, the second dimension of financial health. Strategic fit determines what money you want. Operational strength determines whether you can also carry it: the people, processes, systems, and tooling needed to implement, monitor, and adjust your choices.

Every payer requires its own machinery. Subsidies require accountability, donors require relationship management and a good thank-you policy, and earned income requires sales and customer service. The choice of your funding mix therefore also helps determine which skills and instruments you need to have in-house. An operationally strong organization is set up for the mix it chooses.

Accountability is only the tip of the iceberg. The core is steering, and accountability is largely derived from that. Take an indicator. In your reporting, you use it to show what you have achieved. To achieve something, you first have to be able to steer by it: monitor where you stand, adjust where necessary, and consciously link people, resources, and time to it. If you build the indicator properly for steering, the accountability largely follows afterwards.

For that, you need tooling, instruments that allow you to look cyclically and ahead. Where were we yesterday, where are we today, where should we be, and where are we heading tomorrow? You need that perspective for your substantive objectives and your financial targets, and in a healthy organization they run together in the same cycle. We often build that tooling together with organizations: a balanced scorecard, a well-thought-out dashboard, sheets that are accurate and that you actually use.

The administrative burden of subsidies does not disappear, and sometimes it is excessive. That remains the most expensive aspect of this money. An operationally strong organization can bear that burden without collapsing under it, because it has built its accountability into its operations. A good first step is to calculate what one euro from each funding stream costs you, in hours, in cash-flow pressure, and in accountability.

In the final section, I look at the third assumption, and perhaps the most surprising one: structural subsidies seem like the safest money, but may in fact be your most uncertain funding.