Demystifying Contributions

Nonprofit organizations generally have three main sources of revenue: program revenue or earned revenue, such as tuition, fees, and membership dues; investment income, generally from surplus cash, investments, or endowment funds; and contributions.

But here's the truth, program revenue rarely covers the full cost of operations.

Most nonprofit organizations ultimately succeed or fail based on their ability to raise and properly manage contributions.

And that's where things get complicated because not all contributions are created equal.

The most common and simplest contribution is the unrestricted donation.

These contributions have no restrictions, no conditions, and the organizations can use them to fund their operating mission.

The problem arises when donors or grantors get specific.

Also, many fundraisers find it easier to solicit contributions to support a specific purpose or a cause.

For example, financial aid, a capital project, or new equipment.

When this happens, the organization has a fiduciary responsibility to track and use these funds exactly as intended.

Let's give you a few real-world examples.

Let's say an organization raises forty thousand dollars to purchase a twenty-five-thousand-dollar 3D printer.

Sounds like a good problem, right? Until you realize these excess funds are now restricted and may sit unused for years until we need a second or a new printer.

Or the opposite could happen.

An organization raises fifty thousand dollars towards a two-hundred-thousand-dollar project.

Now leadership is forced to cover the difference from operating funds.

In addition, I've seen organizations so focused on fundraising for a specific project that they don't raise enough money to cover their unrestricted needs and their administrative costs.

The lesson here, specific solicitations create accounting and governance consequences.

It should be one tool to raise funds, but not the only one.

This is why I generally recommend leaving room for flexibility in our solicitations.

Instead of asking for a 3D printer, ask for equipment and technology for the arts department, including a new 3D printer.

Instead of launching a capital campaign without certain commitments, secure lead gifts first.

Good fundraising language protects both the organization and our donor relationships.