Raising Funds

How does my organization pay for stuff?

Nonprofits have missions, they don’t have products. When you buy a product, you are paying for the product and you get something tangible. When you give money to a nonprofit, you don’t receive anything other than a warm feeling and a tax receipt.

The tax receipt is why many people donate to nonprofits. Otherwise, would people really pay money so someone else could get their house fixed?

So, nonprofits need to raise money to fund their missions. The first question a new board needs to answer is How much money do we need?

Did you do a business plan? That would tell you. If you didn't, maybe this is the time to do one. 

There are three main ways for a nonprofit to raise money – donations, grants and service fees.  There are other methods, as well, but the big three will be where most organizations generate their funds. 

Self-Funding 

If you don't like asking people for money or your mission doesn't cost much to implement, then you can just write a check yourself. Technically, you are donating money to your nonprofit, so it is a donation for you (as long as the organization has a 501(c)(3) in place.) If you do this, don't pay for things out of your personal account! Donate seed funds to the organization, deposited in its account, and let the organization pay for its own needs.  If the organization runs low on funds, donate some more seed money. 

Fiscal Sponsorship

A 501(c)(3) can act a a fiscal sponsor for another organization or individual. In this case, the sponsor funds programs and the funded organization executes the programs. If your organization does not have a 501(c)(3), so you can't request donations or apply for grants, you could find a similar organization that does have a 501(c)(3) and ask it to fund your programs. This assumes both organizations have similar missions and the fiscal sponsor has the money to spend on other organizations doing programs for them. 

Think about a civic organization that gets a grant to beautify the city. The organization can use the grant money to hire artists to create works of art - paintings, murals, sculptures - to place about the city for beautification. 

There are a lot of rules around fiscal sponsorship. Make sure you understand them! It is not just a way for a 501(c)(3) to collect donations for your organization because you don't have your paperwork done. 

Donations

Donations are often small amounts, but they are reasonably easy to acquire. With social media, you can have other people ask for you. Donations may not be enough to maintain an organization, depending on the programs, but they should be available to all organizations.

For any volunteers, employees or board members who are working, make sure they remember the organization at United Way time each year. There are many companies who highly encourage their employees to donate to charity, but allow them to choose the charity. Also, see if any of the companies will donate money or equipment.

Always thank your donors! IRS rules define the amounts that must be acknowledged with a note (really, a tax receipt), but I think it is a good idea to thank all your donors. Maybe they will donate again.

The other donation to never overlook are donations-in-kind. Some companies may be willing to donate goods instead of money. Never pay for something you can get free (or at a discount). Maybe a local web designer will help you with your website. Maybe a pizzeria will donate pizza for a volunteer meeting. When you start doing a budget for an event, look at the line items, and see what you can ask for directly, instead of purchase.

Donations-in-Kind

A specialized donation - donations are money, donations-in-kind are stuff. Think about whether a local business will donate something that your organization needs. If you can get something donated (plane tickets for a raffle, pizza for a volunteer meeting, materials for projects), you don't have to purchase it.  Anything your organization don't have to purchase saves money. 

Grants

Grants are (usually) relatively large amounts of money that will fund a specific program. A program has a beginning and an end and a way to measure its success. It also has a budget, so the grantor knows how much money is required. A grant is not a blank check. Each grant will have its own process for applying, and suggested limits for funds. Each grantor supports different areas, so only apply for grants that actually pertain to your mission. Any grant money can only be used for the program the grant is funding – and the funder usually expects reports on how the money is spent.

So, if you’ve heard, “Just get a grant” – it may not be that simple. (We can help you prepare. We can help you apply.)

Service Fees

Service fees only apply if you provide services to your clients and want to charge your clients for them. This will depend on the program. If you are feeding homeless people, you probably won’t be charging them. If you are rescuing puppies, you probably won’t be charging them – although you may charge their new parents an adoption fee.

Unrelated Income

Some larger nonprofits start side businesses to raise funds for their programs. I know one rescue that has a thrift store, for example. The warning I give people about unrelated income is that you don't want it to become a distraction from the mission - don't be a lemonade stand that rescues puppies, be a rescue that has a lemonade stand.