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[ASK AN EXPERT] What’s The Best Way To Frame Monthly Gift Asks To Minimize Accounting Complications Between Restricted And Unrestricted Gifts?
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Our Ask An Expert series features real questions answered by Claire Axelrad, J.D., CFRE, our very own Fundraising Coach, also known as Charity Clairity.
Today’s question come from a nonprofit leader who wants advice on how to frame monthly gift asks to minimize accounting complications between restricted and unrestricted gifts:
Dear Charity Clairity,
At the nonprofit I run, we are considering starting a monthly giving program. I am trying to figure out how to frame what donations would go to, and what we would ask people to give to.
I know the IRS’s distinction between unrestricted and restricted donations, technically, but I am unsure how this plays out in the framing of monthly giving asks.
For instance, let’s say a nonprofit seeking to help farmers in third world countries says $100 covers the cost of a cow to a family, or $75 covers the cost of 20 chickens, is this organization committing to spending the money in exactly those ways if someone gives the corresponding amount? Or are they just saying the donation amount happens to be equivalent to what it costs to provide a cow, but it could be spent on anything mission-related whatsoever? Put another way, if we ask donors to cover the cost of a learning event to help students gain job skills, with different set amounts per month (e.g., 1 lesson; 3 lessons, is this restricted or unrestricted?) It feels like an unrestricted donation because to provide the experiences really requires a variety of costs to be covered: staff salary, rent and utilities costs, etc. for that 2-hour learning period; lesson preparation time; supplies, etc. So, would it be fair to say you could treat monthly donations given for this purpose as general donation income, which we could spend on any number of things that contribute to the learning events happening and being possible? Or is it “restricted” because we’re asking for this particular training program?If it is restricted, would this make the accounting complicated? I’m looking for a way to motivate giving, without the complicated accounting often associated with restricted donations.
–– Mr. Social Entrepreneur
Dear Mr. Social Entrepreneur,
You’ve wrapped a number of questions into one here. Let’s take them one at a time.
1. Is promoting giving for a specific purpose helpful in attracting monthly gifts?
Yes! It’s always helpful when donors can visualize specifically how their money will be used. This is especially true for monthly gifts, where it can be meaningful to know you’re rescuing a different dog every month, or feeding a different child. Why would a donor ever want to stop?!
That’s why it makes sense to “frame” an appeal according to areas of your mission you know resonate with supporters. If people like the learning sessions, pick that. If they prefer scholarships for youth to get on-the-job training, pick that. How to find out? Send a donor survey..
Generally, most of your pitches will be for a purpose that is part and parcel of your core mission. Think of it as the functional equivalent of operating revenues. If your mission is job readiness, a 2-hour learning event is one of the core ways you deliver on this mission. It’s not a separate program outside your mission, as might be the case if you were starting something brand new.
A wise practice is to sit down with finance department staff before your appeal goes out. Discuss the purpose of the appeal, and how the money raised will be allocated. Both fundraising and finance staff need to be using the same chart of accounts structure for the fund designations to align.
2. When suggesting a specific purpose for a gift, is there a way to assure any additional income generated above and beyond what’s needed for that purpose can be used for general operations?
As you point out, rescuing a dog, providing a meal, sourcing 20 chickens, or teaching a child new skills are multi-faceted processes. Whatever purpose you suggest for the donor’s consideration, it is perfectly appropriate to wrap your associated overhead costs into the equation.
- One way to encapsulate this in your monthly appeal is to suggest “all gifts provide critical skills, on-the-job training, paid work experience, and more.” Then you can break options down into check boxes, e.g., “$25/month underwrites a job skills training session for one youth;” “$50/month underwrites a job skills training session for two youths,” and so forth.
- You can also “enlarge” the specific purpose by simply adding “$25/month underwrites job skills training and other activities for one youth.”
It’s a good idea to compare apples to apples, rather than suggest $25 pays for X program while $50 pays for Y program. Why? Sometimes a would-be $50/month donor will prefer the X program option, and will end up giving you less than they otherwise would have. So don’t overcomplicate the choices by including multiple variables (e.g., different amounts for different purposes). Pick one variable, include a disclaimer that lets folks know their gift may also be used for associated program costs, and you’re good to go.
Another way around this is to skip the amounts entirely, and let donors choose both the amount and the purpose. For example, Heifer International gives people the choice of goats, chicks, pigs or heifers, stating “Choose an Animal. Make a Monthly Gift. Impact a Community.”
3. How do you account for monthly gifts that are earmarked for particular purposes?
Development and finance departments will often have different record-keeping systems. Development cares about (1) tracking what donors are interested in so they can tailor future appeals according to what floats particular donors’ boats, and (2) monitoring fundraising results by campaigns so you can learn which strategies are most successful.
Finance cares about tracking revenues and expenses for different line items according to GAAP accounting (U.S.) and FASB rules. It’s okay if your record systems don’t match, as long as you can explain the variances through reporting. That’s what footnotes on financials are for!
Thanks for this question, and good luck with your mission.
— Charity Clairity
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