General Principles of Nonprofit Fundraising

I kept looking at this article and everytime I would go back over it and read it again, I'd find a tidbit that I thought was spot on. For instance, how many nonprofit board members really don't understand the IRS designations and what they mean for the organization? And the information about organizations that form a 501 (c)(3) arm, like the American Pharmaceutical Association, to make contributions more attractive to donors is excellent. Being in the DC area, there are a lot of nonprofits that are formed as 501 (c)(4), so they can conduct lobbying, but many of those organizations fail to understand the benefits of forming an additional 501 (c)(3). This is another one of those good articles to print off and pass out at your next board meeting. Enjoy. Bunnie

General Principles of Nonprofit Fundraising
by Terry Scott Boykie, CSO, ABS, Inc.

Charitable Nonprofit Organizations

All charities are nonprofits, but not all nonprofits are charities. The Internal Revenue Code defines more than twenty categories of nonprofit organizations under Section 501(c). Examples include labor organizations [501(c)(5)], fraternal societies [501(c)(10)], cemeteries [501(c)(13)], pension trusts [501(c)(18)], veteran's organizations [501(c)(23)], and charities [501(c)(3)].

Colloquially, the terms "nonprofit" and "charity" are often used interchangeably. Technically, a 501(c)(3) organization is a charitable nonprofit organization as opposed to a labor nonprofit, a fraternal nonprofit, a business league nonprofit, etc. To avoid confusion, many charitable nonprofits say, "We are a 501(c)(3)."

Those nonprofit groups that want to raise tax deductible contributions seek classification by the IRS as charities under Section 501(c)(3) of the Internal Revenue Code. They also register with their respective state governments, and most do not pay sales, real estate, income or capital gains taxes on their investments. Because the tax deduction for a charitable contribution is so attractive to potential donors, nonprofit groups that are classified by the IRS as other than 501(c)(3), often establish ancillary 501(c)(3) charitable nonprofit organizations as a base from which to raise funds. Example: The American Pharmaceutical Association established The American Pharmaceutical Association Foundation.

The vast majority of charitable nonprofits form a corporation in order to limit their board members' liability in case of litigation. In reality, 501(c)(3) organizations are special business corporations that operate for the benefit of the general public; they have special tax dispensations under the assumption that their work can not be accomplished at a profit by a commercial business corporation.

There are direct parallels between charitable nonprofits and commercial businesses: each has incorporation papers, a board of directors, a vision of what is to be accomplished, products or programs/services, budgets, staff, a physical plant, a public image, and a need to plan long range for programs, personnel, and funding. They are more similar than dissimilar, and their operations are about 80% parallel. (That is not surprising when one realizes that Benjamin Franklin borrowed the business corporation model and modified it for charitable nonprofit use when he established the first charity after the Revolutionary War.)

When a business corporation wants to raise money by obtaining a bank loan or selling more stock, it produces a business plan to prove its management ability to potential investors. Charitable nonprofits generally call their business plan a long range strategic plan; it demonstrates to key donors that the organization can manage well and convinces them that a gift to that particular organization is an "investment" in the betterment of society.

Boards of Directors

A charitable nonprofit's directors are volunteers who govern the organization in the name of the general public. The board approves the work (programs) and the budget of the group, and it is responsible for seeing that the funding is there to achieve that work. Therefore, a key component in successful fundraising is the selection of board members who are willing and able to raise money. During long range planning, a strategy is drawn up to recruit people for the board who have direct connections to funders identified as likely to give support. While some charitable nonprofits hire staff to assist in raising money, the principle underlying charitable fundraising is that it is done by volunteers who first have made their own donations to the group and now are requesting similar contributions from others. A skilled development (fundraising) staff can greatly facilitate board fundraising.

Non-Board Volunteers

Volunteers appear in a variety of places in charitable nonprofit fundraising. Organizing volunteers requires a decision by the board to commit a board or staff member and a budget line to recruiting and training volunteers for fundraising. Well trained volunteers equipped with high quality material about your work can make effective solicitation calls or produce a variety of events. The key to keeping volunteers involved is offering a permanent liaison to the volunteer corps who is knowledgeable about fundraising goals and about the organization and who is available to volunteers when needed. Volunteer fundraisers respond best when they have job descriptions, specific goals and timetables, and know how the money they raise will be spent.

Competition for Funding

Many charitable nonprofits collaborate in program work, public education activities, and legislative liaison. Some even coalesce in united fundraising drives. However, the majority of philanthropic organizations raise money for themselves alone. Competition between charitable nonprofits for financial resources is an integral part of the philanthropic field and will not disappear in the foreseeable future. Only a group which has an endowment large enough to fully generate its annual budget can be classified as a non-competitor for funds.

The Energy Behind Fundraising
Long Range Market Plan

Unless an organization has a "golden goose" to whom it can turn for short range donations or an asset against which it can borrow, there are no "quick fixes" in the charitable nonprofit world. Traditional funders (foundations, corporations, etc.) usually avoid an organization in crisis because, to them, the need for fast cash means that the group has not planned well for its needs and has not developed alternate sources of funding over time to backstop emergencies. Cold as this may seem, it is a reality of the contributions marketplace.

Successful fundraising is based on the fundamental marketing principle that a contribution is part of a satisfying mutual exchange which takes place between the donor and the organization. The charitable nonprofit facilitates that exchange by carefully analyzing the contributions marketplace and planning to build bridges directly to the funding that seems ideal for their programs. Most of those bridges are board members, senior staff, advisors, and special friends of the organization. Their efforts are augmented by clear, logical material that describes the needs of the group's constituents, the organization's work, its cost, and its projected results. When the exchange happens, the philanthropy receives the funds, and the donor receives the satisfaction of knowing that he/she has helped to provide a service or program for the group's primary constituents.

The strategic organizational market plan comprehensively re-defines the organization for a specific term...usually three to five years...and it acts as an operational blueprint. It analyzes the needs of constituents, offers programs to suit those needs, projects costs and reliable income, provides a specific fundraising plan for each program, and provides sub-plans to recruit human resources, communicate effectively to the world about the group, implement itself over time, and continue to evaluate constituents' needs and responses to the organization's current work.