Most nonprofits have a standard process in place for building a relationship with a new donor. It’s likely that your organization does too.
The flow is probably relatively standard: someone donates, they receive a thank you, they’re added to your email stream, they might receive an event invite, etc., etc.
However, many nonprofits are not as well-equipped to handle when they have a sudden surge of new donors. Whether you have a campaign go viral or there’s an event that causes a peak in interest in your cause, your nonprofit should be prepared to properly steward all new donors, even if they come in bulk.
For example, consider the current situations in Houston, Florida, Mississippi, Louisiana, Alabama, and the Caribbean. Four separate hurricanes have tragically taken many lives and destroyed entire regions and communities.
First, Harvey hit Houston and brought with it severe winds, rain, and flooding. Then, Hurricane Irma made its way through the Caribbean with record-breaking intensity. Everywhere Irma made landfall, from Barbuda to Haiti to Florida, felt the storm’s power and experienced immense devastation. Next, Hurricane Maria built steam as it moved along a course very similar to Irma. Maria hit Dominica and neighboring islands, and then absolutely pummeled Puerto Rico, ravaging the U.S. territory.
Most recently, Hurricane Nate hit regions in Central America, including Costa Rica, Honduras, and Nicaragua, and caused at least 28 deaths before moving north toward the Gulf Coast of the United States. Hurricane Nate has officially made landfall in the U.S., largely affecting Mississippi, Louisiana, and Alabama, causing flooding and mass power loss.
It is absolutely devastating. And many folks who have not historically been charitable donors are admirably stepping up to help the relief effort (learn more here and here).
As a result, many of the nonprofits serving those communities are experiencing a spike in donations and new donors. Those nonprofits now have an opportunity to bring great assistance to the areas affected by the hurricanes, and if they are strategic about how they steward their new donors, they’ll be able to continue providing vital services to the region for years to come.
Recovering from Harvey, Irma, Maria, and Nate is going to take years, and the nonprofits in the impacted cities need every donation possible to aid in their regions’ rehabilitation.
It’s a very real and very sad example of exactly why nonprofits need to be ready to make the most of their new influx of donors, with a proper plan.
To help you put that plan in place, we’ve compiled 3 effective strategies:
What sets nonprofit organizations apart from for-profit businesses? The answer is simple. Each has its own criteria for financial success.
For-profit organizations focus on profitability, whereas nonprofits use fund accounting to focus on accountability. Success for nonprofit organizations is determined by fulfilling its mission. To accomplish this, nonprofits must raise money and be accountable to funding sources.
Contrary to a for-profit, a nonprofit has two bottom lines. One is to fulfill their stated mission while the other one is having the necessary funding to support their mission.
Nonprofits are held to different standards than for-profits and are required to separate revenue sources into categories or funds. This allows nonprofits to demonstrate accountability rather than profitability.
Fund accounting identifies revenue sources and provides transparency for the organization. It shows how revenue is being spent and determines if the revenue is being used for its specific purpose.
When managed properly, fund accounting can reveal areas of strength and weakness. A fund is like a separate company within your organization. Each fund has its own self-balancing set of books to track assets, liabilities, revenue, expense and fund balances or net assets. Revenue earned by nonprofits has different characteristics than for-profit businesses.
3 Fundamental Types of Funds
1. Unrestricted Fund
There are no restrictions placed on this type of fund. The nonprofit can use the revenue as it sees fit. Restricted gifts, or gifts with strings attached, fall into two categories known as the gift instrument, which is the document that determines how the donated funds will be used. This could be an award letter from a foundation or a letter from an individual donor.
2. Temporarily Restricted Fund
These funds have time restrictions.The donation can be used for a specific purpose for a specific period or must support a specific program or campaign like a capital fundraising campaign. Examples include purchasing computers for a classroom, or completion of a building project.
3. Permanently Restricted Fund
These funds never expire. However, there is a catch. Only the income earned by the assets can be used. The original gift must be kept intact forever or for a designated period of time. For example, a permanently restricted fund may go into an endowment that supports a particular activity or the organization in general.
Subcategories Identify Funds for Specific Purposes
There are subcategories of funds that can be part of the nonprofit’s overall financial makeup, such as Board Designated Funds. These are a subcategory of unrestricted funds. It is established when the board transfers or separates part of the unrestricted fund into a fund intended to use for a specific purpose.
For example, let’s say you set up a Fixed Asset Fund to track all buildings, furniture, fixtures and equipment.
In this case, the board might want to separate these assets from the unrestricted fund. This way the unrestricted fund can clearly represent the activity of the current program use. This is an arbitrary decision by the board.
Fund Accounting Basics
Fund accounting focuses on accountability and proper stewardship. This is essential for nonprofit organization compliance of government regulations and requirements.
Most importantly, fund accounting enables nonprofits to manage revenue received by funding sources by monitoring the restrictions typically associated with the revenue. By separating revenue into specific funds, it prevents misuse of funds. Each fund has its own revenue and expense report, its own excess or deficiency calculation, and its own balance sheet.
A fund accounting system groups funds into three categories of net assets: unrestricted, temporarily restricted, or permanently restricted, which nonprofits can use to satisfy GAAP and FASB 116/117 requirements and easily report on the breakdown of net assets on IRS form 990.
Common Mistakes Made in Fund Accounting
One of the biggest mistakes nonprofits make when it comes to fund accounting is to segregate assets by fund. It is not necessary to create separate bank accounts for the cash attributable to a fund, especially when all of the organization’s cash is in a single bank account. The only thing that comes out of this is extra work.
Another popular mistake is to set up a fund for every program, grant, mission, project, or other activity that the nonprofit operates. This is especially true for churches and missionary organizations.
For example, a church may set up a separate fund for every ministry such as women’s, men’s, children’s, alter guild, flowers, refreshments, bible study, etc. Some nonprofits tend to set up separate funds for each of their grants because they think it is required.
A better way is to track all this activity by program codes within a fund. If created properly, a program classification within a fund can easily track and designate revenue and related expenses for specific activities. These separate areas are referred to as functional areas and fall under three categories: management and general, fundraising, and program.
Fund Accounting Rules for Donations
It is up to the donor to decide on whether a donation is restricted or unrestricted. They can specify their wishes by a letter or through an agreement with the nonprofit.
When it comes to grants from foundations, these are typically restricted to a particular program or purpose. Usually the restrictions are spelled out in the documentation for the grant award.
Nonprofits must be open when asking for donations from donors. They may ask for unrestricted funds when soliciting donors by email or direct mail. A clause will clearly state this on the donation form or in the gift acknowledgement. There are exceptions to this when asking donors to give to capital campaigns, a building fund or a scholarship fund.
This is particularly important when it comes to donors who specify donating for a specific purpose only to find out that the charity used their gift in an unrestricted way.
To avoid this, a good suggestion is to give donors a choice of designation at the time of the donation. In this way a donor can choose their option among several options. If a donor specifies the donation be used for a specific purpose and the nonprofit does not comply, then the donor can demand a refund and legal action if needed and report the charity.
In order to maintain nonprofit status, the objective is to keep a clean image in the public eye. By implementing fund accounting methods, your organization can become compliant and accountable to funding sources.
This article was generously contributed by Joseph Scarano of Araize. Thank you, Joseph!
ABOUT THE AUTHOR Joseph Scarano is the CEO of Araize, Inc., developers of cloud-based FastFund Online Nonprofit accounting, fundraising and payroll software solutions to help your nonprofit become more transparent, accountable and sustainable.
Prospect research is useless if nobody makes the call.
Development professionals have it so easy in the twenty-first century! Or so you’d think. They’ve got access to technology nobody even dreamed of last century, like social media, specialized donor-management platforms, and the coolest, most insightful prospect research services ever.
In spite of it all, the industry still suffers from a lack of productivity. In fact, Bristol Strategy Group’s long-term study of fundraising productivity, the Leaky Bucket Assessment for Effective Fundraising, with over 1,000 responses from every size of organization, sector, and continent on the planet, shows a median score of somewhere around C minus-D plus.
There’s one piece of data the Leaky Bucket doesn’t test for, but anecdotal evidence shows it’s a widespread deterrent to fundraising success. It’s Call Reluctance, sometimes referred to as Ask Reluctance. Informal surveys of chief development officers and executive directors state it as one of their biggest frustrations.
This little syndrome is a habit anyone can fall into, for any number of reasons.
Don’t we all, at some time or another, procrastinate, avoid, delay, and hide behind myriad excuses not to make the call, or write the email, or schedule the appointment? Let’s spare ourselves the rationalizations, just in case we list something you hadn’t thought of before. “The dog ate my homework? Say, that’s a really great excuse!!!”
Face it. You, or someone in your organization, is either experiencing Call Reluctance right this minute, experienced it recently, will probably experience it soon, or they’re lying. Why should you care? Because for one thing, Call Reluctance leads to another embarrassing syndrome, the Premature Ask. The caller becomes so anxious about making the call that he or she jumps from “hello” immediately to “give us some money quick or we’ll die!” thus instilling in the callee a sense of disgust often leading to the rapid end of both the call and the relationship.
In this paper we’ll discuss how to (a) avoid Call Reluctance and (b) train ourselves out of the habit.
To avoid Call Reluctance, we need to:
You’ve mapped out an online strategy that engages donors and makes the most of your relationships, boosting annual giving and catalyzing major gifts. Your cultivation efforts are honed in on capturing the hearts, minds, and giving spirits of your donors so that they not only invest in your annual fund, but also make a multi-year commitment to your capital campaign. You’re talking about your mission, building on the clarity of your vision, and launching cost-effective strategies for making all of this happen online.
Just don’t forget fundraising compliance.
Being compliant helps instill confidence in your donors so their focus stays on your mission.
Why does fundraising compliance matter for you?There’s an excellent chance that your organization is incorporated in one of the 41 states that require charitable solicitation registration. There’s also an excellent chance that you have built or are building your fundraising clout to a notable level.
Your donors’ networks have become your network, spreading your message and expanding your outreach. You’ve made it easy for donors to give from wherever they are, and online giving for your organization is on the rise.
Online giving requires online fundraising compliance.
It’s reasonable to wonder where you need to register. In short, you need to register for anywhere you ask!
It’s not just about where you are; it’s about where you’re asking. Are you casting a wide net, asking everyone you’ve connected with on your website and through social media to participate in your annual giving? Have you made your “Donate Now” button prominent so that anyone, anywhere can find you and give? Maybe some of your donors have moved away, but remain loyal givers. All of these donors, and their locations, need to be taken into consideration.
Don’t trip over technicalities as the money comes rolling in. Register before you ask so you don’t leave money on the table. Determine that you’re meeting all of the necessary requirements.
What are some best practices?Let’s keep it simple. There are four key steps to remember if you want to stay on track:
Research: You need to know your status in each state. Once you know that, you can easily map out your path to compliance, including which applications to complete and what fees may be charged.
Apply: Each state has it’s own application process, so make sure you are preparing the correct forms in the most streamlined and cost-effective manner.
Monitor: As with any other submission you make, you’ll want to follow these applications through to approval, for your – and your donors – peace of mind.
Renew: Mark your calendar so that once you’re compliant, you stay compliant. Track due dates and fees so that your renewals are on time and complete.
This post is brought to us by Victoria Dietz, Vice President of The Curtis Group. Learn more about The Curtis Group at the close of this article.
As you probably know, 40% of giving occurs in the last four months of the year. Of course, December remains the prime time for when those gifts are actually made.
Does your fundraising plan include month-by-month steps for year-end giving? If you haven’t already started your year-end campaign, you’re behind. But if you act quickly, there’s still time to bring in some sizable donations. Ideally, your year-end fundraising will follow this timeline:
Here are some of our top tips for maximizing your donors’ year-end giving.
Get your board on board.
One of the first pieces of the puzzle you need in place is board support. All board members should have made meaningful personal gifts and are thinking about other ways to get involved—making calls, setting appointments, giving tours, signing appeal letters and thank-you cards, or maybe considering issuing a challenge gift to the community.
Let’s face it: board members will not wake up one morning and think of these ideas themselves.
You, as a staff leader, need to communicate with them early at board meetings and through one-on-one conversations to help them get engaged and maximize success.
Don’t wait until November 29 to send the first communication.
We know starting early is a must. That doesn’t necessarily mean that you’re asking in September, but it should mean you’re planning and ramping up communication so that when a donor is thinking about where to give toward the end of the year, you have laid a solid foundation and built a great case for a gift.
Use the early fall to show impact and tell your story so your organization is top of mind.
This article is brought to us by Eileen Blake, Marketing Manager of AlumniFinder.
Sometimes knowing what you shouldn’t do is every bit as important as knowing what to do. Anyone who has ever accidentally put metal in a microwave can tell you how true this is! There are some sure-fire ways to accidentally set back your #GivingTuesday efforts on the one day a year you should absolutely be trying to reach new donors and supporters.
Here are a few mistakes to avoid this #GivingTuesday: