Finance & Strategy

Real world nonprofit finance matters, and real world thinking about strategies for financial, programmatic, and leadership sustainability. This column is written by Steve Zimmerman, principal of Spectrum Nonprofit Services.

photo of Steve Zimmerman

Everything We've Been Taught About Major Gifts is Wrong

Of course, by "everything" for purposes of this article I mean "three big things." But conventional wisdom can lead us astray when devising effective fundraising strategies. Like leprechauns, these mythical truisms can mislead us into thinking we should be chasing pots of gold that will always remain out of reach:

Myth #1: People have been acculturated to resist asking people for donations. Training them in "doing the ask" and inspiring them about goals are good ways to overcome this resistance.

Actually, only a few people are very resistant to asking strangers . . .

Why Don't Foundations Build Capacity in Fundraising?

Foundations often encourage nonprofits -- especially grassroots organizations -- to develop non-foundation income streams as part of sustainability. So then why do so few of our grantmakers invest in building the capacity of those groups to raise independent money? Aaron Dorfman of the National Committee for Responsive Philanthropy takes on this mystery:

Said a major grantmaker: "The most significant regret I have in looking over my 15 years as a leader of two big philanthropies is that, while we thought a lot about sustainability at the Open Society Foundations and at the Atlantic Philanthropies, we rarely made grants to strengthen organizations' fundraising." -- Gara LaMarche . . .

Untangling the Elements of Impact

"Some problems are so complex that you have to be highly intelligent and well informed to be undecided about them," said Laurence Peter. Sometimes nonprofit "impact" can feel like one of these complex issues. Blue Avocado columnist Steve Zimmerman helps us out with an excerpt adapted from his new book, The Sustainability Mindset: Using the Matrix Map to Make Strategic Decisions. (co-authored with Jeanne Bell):

Nonprofit sustainability lies in making ongoing strategic decisions that account for both mission impact and financial viability. In Blue Avocado we've written about using the Matrix Map to visually illustrate how an organization's programs work together to meet this dual bottom line. But coming to a shared understanding of "impact" is difficult, and assessing impact requires candid conversations that happen too rarely but can be very powerful.

In this article we untangle -- or unpack -- the various strands of meaning that combine into impact. In particular, it's useful to distinguish between impact assessment and program evaluation . . .

Sample Tax Deductibility Handout for Auction Participants

This handout illustrates income tax points that can be included with materials provided to auction participants and their advisors. It can help prevent negative reactions resulting from common charitable auction misconceptions, while helping donors achieve desired benefits available from this type of fundraising. Organizations can select questions they feel comfortable including with auction materials, and give the handout to participants as they arrive.

At the end of this article is a link to download this document as a Word file to make it easy to customize.

Dear Friends,

In order to help inform you regarding federal income tax issues associated with a charitable auction, we are providing you with this information as a courtesy for educational purposes. This is not legal or tax advice. Consult IRS resources or your tax advisor for additional information and personal guidance.

Q: May I claim a market value deduction for property that has appreciated in value and that I contribute for sale at a charitable auction?

The answer may depend on the type of property contributed, how you used the property, and how long you owned the property. For most property contributed for auction sale, a tax deduction is typically limited to the lesser of the items' current value or your tax basis, which is usually the amount you paid for the item if you acquired the property by purchase. See IRS Publication 526, Charitable Contributions, or consult a tax professional regarding situations where appreciated property may be deductible at market value.

Q: May I claim a tax deduction for property I purchase at a charitable auction?

You may be able to claim a charitable income tax deduction for the excess of the amount you pay for an auction item over the item's current market value. But in order to claim . . .

A Board Member's Guide to Nonprofit Overhead

Calculating overhead rates and managing overhead expense are important staff roles. Board members are not required to know how do staff accounting work, but we do need to bring an informed perspective to our oversight:

Harvard's indirect cost rate is 68% while Iowa State's is 48%. Should the board members of either institution be concerned? As a alumnus of one or the other, should these numbers affect our donations? As a parent of a high school senior, do these numbers influence where we want our child to go? Should they?

Amid the crosstalk about nonprofit overhead, board members and staff do need to understand what the conversation is really about, and how to interpret "what is overhead" for your own organization. Here are eight key things to know about overhead:

1. Apples, oranges, and alligators: One of the more surprising facts about overhead is that while it seems that everyone is talking about it, everyone is actually talking about the different things. The word "overhead" isn't an accounting term, so different people define it differently.

Some accounting terms which are similar to "overhead" and often confused with it are:

  • Indirect costs
  • Administrative costs
  • Shared costs
  • Fixed costs

In one study, respondents were asked which of the above was the closest synonym . . .

Nonprofit Auctions: A Complete Compliance Guide and Sample Forms

Auctions are known for two characteristics: they raise money (sometimes a lot), and they are a ton of work. Blue Avocado contributor and CPA Dennis Walsh gives us a complete, handy compliance guide, and even better: five sample forms to make sure your wording is right:

Charitable auctions have stood the test of time as a great way to leverage our consumption-oriented culture for the benefit of nonprofit efforts. And while auctions have been traditionally held at special events, online auctions have recently increased in popularity, making it easier for volunteers and allowing people to bid from their homes and over an extended period of time.

But whether an auction is live, silent, or online, there are compliance issues. This article presents an overview of key charitable auction compliance issues and how to use donor education as part of compliance. With this background, and the sample worksheets and forms included, you can more easily meet reporting responsibilities . . .

Why is Fundraising More About Leadership Than About Skills? editor notes #93

Fundraisers never lack for advice. One board member tells you that foundations should be giving you money, while another thinks we should talk to Bill Gates. The staff thinks you should raising money from corporations. And the friend you run into at the grocery store tells you to raise money via Twitter or on Kickstarter.

The reality is that the board members should be raising money from foundations and major donors. The staff and the executive director should be raising money from corporations. The friend should be raising money for you on Twitter and Kickstarter.

So actually, fundraising isn't about you raising money, it's about all of them raising money. And your job isn't about so much for you to raise money; your job is about getting all of them to raise money.

And right there is the link between fundraising and leadership.

In fact, fundraising has more in common with volunteer management and community organizing than it does with technical knowledge about prospect research or grantwriting skills. Let's start calling fundraisers what they are: organizational leaders and movement builders. And fundraisers: let's start acting like what we really are!

* Are you an executive who followed a founder or longtime executive director with a compelling story to tell? Much of the literature on nonprofit executive transition has focused on the departing executive director. What about the trials, tribulations and triumphs of the person who comes next? We want to interview you for a First Person Nonprofit article; you can choose whether to use your name or stay anonymous. Please send an email and include your contact information and time zone!

* Discounts and free stuff for the next Blue Avocado Bonus Issue: Got a truly unusual and nationally accesible opportunity our 64,000 readers would love? Let us know! Email Susan Sanow susan at blueavocado dot org.

* In this issue: Ten Things Your Board Is Doing Right And Doesn't Even Realize It, Fundraising in Communities of Color, a quick DIY project with bylaws, and a guest humor columnist about a board comprised of cows (yes, cows). And news from our sponsor, American Nonprofits. -- Jan Masaoka and the Blue Avocado team