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

Is Your Nonprofit Ready for a Capital Project?

I have an almost-two-year old who just discovered Mega Blocks and how to stack them as tall as possible before they fall. That usually leads to some two-way negotiation about where the next block should go, to avoid a cascade of blocks and tears. (Sometimes the game is to build it high and knock it down, but that's a Blue Avocado article for another day!)

Here's where I tell you that nonprofit construction projects are something like negotiating with a toddler still practicing his stacking.

Fortunately, a real expert is here to move us from an awkward metaphor to some practical tips because a capital project -- maybe you've outgrown your space or had a piece of land gifted to you from a donor -- can be an incredible opportunity. But only if you are prepared. Kate Stephenson is a partner at HELM Construction Solutions in Montpelier, Vermont, and former nonprofit executive director herself. Here are her field-tested tips for your next capital undertaking:

Financial Prospects for Nonprofits: How Does Your Nonprofit Rate?

Blue Avocado bubbles with insight because you, our readers and our writers, are astonishingly smart. We've heard great ideas from you along with suggestions for how we can be even more relevant with what we publish here on the site, so this issue we're doing something new.

Starting with this issue of Blue Avocado we're including a poll. Please take a minute to let us know what's happening where you are, and you'll see the aggregate results in the next issue, along with content that takes your responses head-on. (Responses are all anonymous.)

Take the Poll!

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 . . .

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 . . .