4 Types of Donations and How Nonprofits Should Budget Them
As a nonprofit professional, much of your time is likely spent defining financial goals and brainstorming fundraising ideas to meet those needs. But accepting donations requires more than just setting up a donation portal.
Just as you’d create plans for your personal budget, it’s important to evaluate your nonprofit’s income and decide how you’ll use it to reach your goals. Specific donation requests and targeted budgeting plans can help your nonprofit meet its financial goals and form strong relationships with your donors through reliable support.
Before you request donations from your supporters, consider these four donation types and how they should be budgeted.
Cash and card donations
You might not see a need to categorize donations since so many supporters give cash and card gifts. This donation type is straightforward and likely the most common way people donate to your organization.
Especially with the ever-increasing popularity of online donations, card payments likely account for most of the payments your nonprofit receives. In fact, according to fundraising statistics, donating online with a credit or debit card is the preferred method of 63% of donors. Common ways that donors might give cash or card donations include:
- Event registration fees
- Auction payments
- Product fundraiser purchases
- Cash donations
- Payments made digitally, such as through your website’s donation portal
- Money spent on behalf of the organization that isn’t reimbursed
Since cash and card donations are such a common donation type, your nonprofit might use them for year-round expenses such as your overhead costs.
Although cash and card donations are common gifts, some donors may find it hard to give out of their limited resources. According to Freewill, “donors are often more willing to give out of their wealth than out of pocket.” Instead of giving what’s in their checking accounts, supporters might choose to donate other assets to your organization.
Stock is a common asset that supporters give instead of cash donations. Supporters can donate three types of stock gifts to your nonprofit:
- Publicly traded: This is a corporation’s stock traded on the stock exchange. It’s the most frequently donated non-cash asset.
- Privately held: This is a stock that is held privately among a few individuals. It’s often offered exclusively to a private company’s employees or investors and is significantly higher in value.
- Mutual fund: This is an accumulation of funds from many investors that is put into securities, such as stocks and bonds. This is a less risky stock that might be donated by everyday traders.
To accept and manage these gifts, your nonprofit needs a brokerage account, or an investment account that can be used to buy, sell, and trade investments. You’ll also need a stock-giving tool, which streamlines the donation process for your supporters.
Just like your nonprofit might be new to accepting stocks as donations, your supporters might not know they can donate these assets. When marketing your nonprofit’s giving opportunities, segment your supporters based on known wealth and deliver specific messages that explain how to contribute stock donations.
Planned gifts are donations that come out of a supporter’s financial or estate plan. Because these gifts come from some of your donors’ largest assets, they can be among the largest gifts your nonprofit receives. Here are a few examples of planned gifts:
- Bequests: A supporter leaves part of their estate in their will to your nonprofit.
- Retirement plans: A donor gives your nonprofit their unused retirement assets.
- Charitable gift annuities: A donor gives a large gift to your nonprofit in exchange for a fixed income payment.
Although planned gifts are larger donations, your nonprofit won’t necessarily get to budget this gift any way it wants. Some donors designate specific purposes for their gifts and your nonprofit must use those gifts to honor the donors’ wishes.
According to Foundation Group, restricted funds are set aside for specific purposes and donors can take legal action against an organization if the funds are used for any other purposes. Evaluate all your nonprofit’s income to ensure it isn’t misappropriating any funds.
Even if you have a brokerage account and an efficient website donation page, monetary donations aren’t the only way your nonprofit receives support. In-kind gifts are non-monetary donations that can significantly further your cause.
For example, if your nonprofit aims to provide your community’s homeless population with food, you might ask for canned food items instead of money. There are three general types of in-kind gifts:
- Goods: Donations of clothes, shoes, toys, books, or any other tangible items that help your nonprofit accomplish its mission.
- Volunteers: People who help further your work donate their time and labor when they manage events, ask for donations, enact your nonprofit’s plans to promote positive change, or do anything else you need.
- Professional services: Professional establishments might share their resources with your nonprofit, such as letting you borrow a venue or providing discounted services. This might be a donation of their labor, assets, or expertise.
No matter what type of contribution contributes to your budget, be sure to thank every volunteer and donor whether they give money, goods, or services.
When it comes to handling your nonprofit’s resources, it’s important that you closely monitor income and expenditures.
First, note any relevant restrictions on donations. Use the money only for its designated purposes. For any unrestricted funds, categorize them and plan how they will be used or distributed throughout a certain period of time.
For example, consider these distribution plans for the gift categories we’ve discussed:
- Cash and card donations: How much money did your nonprofit receive during the month? Determine the priorities of all your expenses and distribute the money accordingly.
- Stock donations: Record the donation as an asset, using the amount at the date of receipt as the gift’s monetary value. Decide if your nonprofit should sell the stock or hold it.
- Planned gifts: Categorize your planned gifts according to the type of asset. Then, determine which assets you will sell and which ones you will keep and utilize.
- In-kind gifts: Record your inventory of tangible goods and identify any immediate needs. Create a timeline for the distribution of goods and use of services.
The consequences of poor money management are bad enough, but the penalties for misappropriation can be even more serious. If you don’t have an experienced volunteer or staff member to keep your nonprofit’s books for you, consider outsourcing this task to make sure it’s done correctly. A nonprofit bookkeeper handles an organization’s day-to-day finances, including donations, expenses, and bills.
Monetary and non-monetary donations can power your nonprofit’s mission, so it’s important to understand the different types before requesting gifts from donors. Create a detailed plan for how you will use each donation and seek professional advice for further budget management.
Author: Greg McRay
Greg is the founder and CEO of Foundation Group, one of the nation’s top providers of tax and compliance services to nonprofits. Greg and his team have worked with tens of thousands of nonprofits for over 25 years, assisting them with formation of new charities, plus tax, bookkeeping, and compliance services. He is credentialed as an Enrolled Agent, the highest designation of tax specialist recognized by the Internal Revenue Service. Based in Nashville, Tennessee, Greg and company work with charities and nonprofits all across the country and worldwide.