How does a network best handle money? Inevitably, a growing network will come to realize that accomplishing its objectives requires funds to make it happen. Perhaps the network wants to implement a network-wide communication platform, offer scholarships for its conference, or pay for a part-time administrator.
A Natural Outflow of Collaboration
In fact, we know that healthy and mature networks take steps to secure the funding they require for their own operations and projects. These funds are typically for internal operations or network projects. This is a natural outflow of collaboration.
“Healthy and mature networks take steps to secure the funding they require for their own operations and projects. This is a natural outflow of collaboration.”
But money handled by networks can be a two-edged sword. It can be done well, or it can cause such consternation that it tears a collaboration apart. This article shares several proven approaches that can help networks handle funds effectively.
As it grows, a network will soon begin to identify the operations and services it must provide and fund in order to accomplish its mission. This may include obtaining funds for activities such as:
- Conference costs and scholarships to help bring people to a network event
- A mid-year facilitation team planning retreat to plan activities and guide the network
- Leadership travel expenses for necessary network-related trips such as attending another network’s meetings in order to craft an agreement with them.
- Safe and secure online communications such as fees for an online collaboration site or for network communication tools for newsletter production and mailing.
- Payment for a network leader’s dedicated time to provide more reliable and constant leadership. It could vary from a few hours a week to a full-time facilitator role depending on the need.
Beyond internal operations, there are also specific projects a network might pursue that require pooled funds. These projects may address an issue no one organization can tackle alone or may identify a particular function that is not otherwise fulfilled by a member organization. If approved by the network, these projects would be collaboratively funded by contributions from network members or outside fundraising These are ordinary and excellent steps for a network to take.
Here, too, a network will be wise to make sure the network’s projects do not compete with its member organization’s projects, but rather work in harmony with them. In other words, a network’s projects must not be ones that individual network organizations could do on their own or projects that are the main thrust of one or more member organizations. Network projects are best left to those purposes that unite network members in a shared or joint project not otherwise addressed.
“A network’s projects must not be projects that individual network organizations could do on their own or projects that are the main thrust of network members.”
Examples of fundable network projects we have seen operate successfully include:
- A Language-Learning Scholarship Fund for any network organization member to pay for tutoring to improve skills in their target-country’s language
- Funds to bring in teachers and trainers to offer a service for the whole network
- Funds to launch a shared media outreach campaign, including website construction, server, domain name, computers, etc.
- Funds to launch a community computer lab or social services center
So far this article has addressed the purposes for having and using money. Now let’s discuss how a network might hold funds.
While there are several approaches to managing your network’s fund, it is essential that you have a way to regularly monitor, report on, and track these funds. Holding funds improperly can all too easily result in a misuse of funds, individuals spending the network’s funds without proper authorization, or worse. One network collected its funds in the personal bank account of a leader, and the government taxed all those funds as personal income to that leader. Clearly there are better ways to hold and disburse funds using properly accountable systems.
Incorporate, or Not to Incorporate?
Informal networks are not a legal entity and thus cannot hold funds in bank accounts in their own names. This has led some networks to consider incorporating their network as a non-profit organization.
In general, we advise networks to avoid incorporating or registering as a foundation or association in order to employ people and bank in its own name. When a network incorporates, it can easily begin to act more like an organization than a network because it must fulfill the conditions of being a corporate entity. It must have a legal board and officers who must hold official meetings. Official papers must be filed with governing authorities.
These steps in turn may prompt the network to need or want organization-type leadership (a CEO) rather than to remain with network-appropriate leadership (a facilitator or team). The problem, of course, is that while organizations might eagerly collaborate with their peers in a network, few organizations in a network want to be led by another organization, or have a new “boss” imposed over them. This violates a fundamental aspect of successful networks – that each participating organization retains its sovereignty and is not forced to yield on any of its values.
“While organizations might eagerly collaborate with their peers in a network, few organizations in a network want to be led by another organization, or have a new “boss” imposed over them.”
In fact, a tragic development is if a network (once incorporated) starts acting as a competitor to its own members. It does this when it starts performing activities that its own members are doing.
For example, one network proposed a member-funded project to recruit, send, and support church planters. As recruiting, sending, and supporting church planters was a core part of the network members’ services, this alarmed members who felt the network would be competing with them rather than helping them address common challenges. Fortunately, this idea was scuttled.
As we have shown, it is better in most cases to stay unincorporated as a network. However, there are exceptions to every rule. If your network operates as an association, it might be wise to incorporate. If the size of your network’s operations are very large, the demand for multiple staff pronounced, and your network’s projects so complex, it may make sense to incorporate.
A Better Way to Handle Network Funds: A Fiscal Sponsor
But then, we might ask, how can networks best deal with the money raised for most normal uses? How, for instance, can a network handle funds raised to pay for network projects or network operations?
The prevalent solution is, thankfully, relatively easy. The network leadership asks one of the incorporated network member organizations to receive and handle funds on behalf of the network.
Once this arrangement is made, the network can announce to its members and supporters, “For our operations and projects approved by our facilitation team, we are raising this amount of money. If you would like to contribute so that this network can fulfill its vision, send your contribution to ‘X’ organization and note on the gift that it is for the XYZ Network’s use.” This makes it easy for outside individuals, organizations, and foundations to contribute to a network as well, since contributions can be directed to an accountable incorporated non-profit organization.
This function of receiving funds for others is technically called being a “fiscal sponsor.” The organization receiving the funds must account to the XYZ Network for all funds received and paid out. Meanwhile, a treasurer on the network’s leadership will serve as the one who tracks the funds in the account and authorizes the fiscal sponsor (the organization) to pay out funds to some vendor or to reimburse some individual for expenses incurred for which the network agrees to pay.
The fiscal sponsor may volunteer to do this service for the network for free (as part of its contribution to the cause), or it may place a reasonable “handling and accounting” charge on all funds received (say, 5%). For example, if the fiscal sponsor receives $1000 in contributions for the network, it will retain $50 of those funds (5%) to cover staff time for accounting and handling of the funds.
This fiscal sponsorship approach consistently works out well for everyone – the network and the fiscal sponsoring organization. The network does not need to handle funds – the fiscal sponsor does that – but the network decides how to spend the funds.
Transparency and Trust — and Celebration!
The twin values of transparency and trust are vitally important for networks whenever they deal with money. Transparency allows for uses of money to be open to the view of network members; which builds trust that funds are rightly collected, held, and used.
In practice, a network might choose to share a simple balance sheet with the network at its annual meeting each year, or share it upon request, or routinely make an accounting available to the full steering or facilitation team.
Managing funds effectively are a crucial element of a network’s success. With appropriate steps and accountability however, it need not be a complicated or burdensome process, and can be a cause for celebration as the network acts collectively.