Nonprofit accounting and fundraising teams often have the same goal in mind: to earn the funding necessary to run the organization. However, a lot more goes into this process than asking for and receiving money from supporters. Your nonprofit needs to ensure you manage the money you receive.
This management ensures your funds are used for the most important operations and that you’re staying accountable to those who contributed the funding. For instance, if a major donor restricts their donation to be used only for your scholarship program, you’ll need effective management systems to stay true to their wishes.
Fundraising and accounting may seem like very different departments. However, they both deal with the organization’s funding and need to understand how the two subjects collide. In this article, we’ll explore why accounting is so important for your nonprofit’s fundraising efforts through the following subjects:
- Goal Identification
- Grant Management
- Pledge Drives
Your fundraising team may run into some tension with your accounting team from time to time due to poor communication between the two departments. However, keep in mind that you both have the same objective: to help the nonprofit succeed. With that as the bottom line, let’s dive into why nonprofit accounting matters for your fundraising team.
Each of your nonprofit’s fundraising campaigns has a specific goal associated with it. These goals are based on the past success of campaigns and initiatives as well as what you want to accomplish with the funding.
For instance, an animal shelter might decide that they need $50,000 to pay newly rescued dogs’ medical bills. You decide to host a fundraising auction because a similar event helped you raise $52,000 last year. However, there are other questions you’ll need to ask to be sure this is the right course of action:
- What was the total ROI on the fundraising auction last year? Can you use the past expenditures to estimate the cost of the event this year? How much more will you need to raise to earn back your investment and obtain the $50,000 for the medical bills?
- How did you estimate the medical bills cost? Is $50,000 an arbitrary number determined by a member of the team? Or was it figured based on the number of dogs that need care and the average cost of medical bills per animal?
All of these questions are factored into and determined by your nonprofit’s operating budget. Jitasa’s guide to nonprofit budgeting explains that the operating budget, “breaks down your revenue by different funding sources and your operating expenses by program and overhead costs.”
Your budget should help your organization establish goals for various fundraising campaigns. This budget is generally designed by your accounting team, but it can help your fundraising team determine the estimated ROI for campaigns and set appropriate goals for various initiatives.
The more informed your goals are, the more likely you are to meet them, bolstering team morale and motivating your supporters to continue giving in the future. Share these goals with your supporters as well with visuals. It’s rewarding for a donor to see the notch of a fundraising thermometer increase as they give, then to see the overall goal met and exceeded throughout the campaign. It gives them faith in your team and encourages them to continue contributing.
Align with your accounting team to make sure your fundraising team’s goals are not only possible but also fit with the organization’s operating budget.
Grants can be an incredible funding source for nonprofit organizations. Plus, a well-written grant proposal may be remembered for years to come, helping you develop relationships and secure funding from the same grantmaker time and time again.
There are a number of different types of grants available, ranging from corporate to foundation to government funders. No matter the type, most grantmakers require organizations to accurately track their grant’s allocated funding and report back that it was used for the intended purposes to ensure accountability.
This is more challenging than you might initially think for several reasons:
- Different grantmakers require different reports on different timelines. You need to make sure you meet all of the required deadlines for each grant, rather than batching your financial reporting and doing it all at once.
- Some grant monies might overlap in purpose. Let’s say that a nonprofit dog shelter receives a grant to help pay for the vaccinations of animals. They also have a second grant from a different grantmaker dedicated to the medical expenses of animals. That animal shelter should be sure to use the funds allocated by the first grant to cover vaccinations and use the second grant for other medical expenses. Otherwise, the shelter may end up not spending all of the first grant’s funding on vaccinations and have to reimburse it, whereas the second grant is more flexible and can be used for other medical expenses.
- Different types of grants are recorded in different ways. From the perspective of your accounting team, some grants must be recorded in the system at different times. The image below shows that grants provided without conditions can be recorded right away when it’s awarded; those provided with contingencies are recorded at the time of each installment; reimbursable grants are recorded when you receive the funds from the grantmaker.
Grant management can get complicated quickly. It requires effective organization and grant management strategies to keep everything straight and to make sure all funds are used correctly.
When your fundraising team applies for a new grant, be sure to discuss the grant types with your accounting department. Because your accountants are the ones with boots on the ground, they’ll be able to help determine the best and most necessary grant to apply for.
For instance, if your animal shelter already has two large grants, one for vaccinations and another for more general health expenses, you might end up with too much grant money for your capacity if you were to apply for another healthcare-related grant. Instead, the accounting department can help direct your team’s attention to another need, such as hiring training specialists, for which they may ask your fundraising team to find a grant and write a proposal.
Pledge drives can be incredibly helpful for nonprofit fundraising teams, especially when they’re faced with crisis situations. These drives are a great way to get immediate support when there are natural disasters or other similar issues in your community. Snowball Fundraising’s pledge fundraising guide provides this example about how it works:
Out of 1,000 potential donors, 900 chose to pledge a donation using a pledge-style fundraising page. Of those 900, 85% of them followed through to complete their pledged donations. That’s 765 completed donations!
Compare this to traditional donation pages — only about 250 out of 1,000 potential donors actually bother to complete the donation process at all. You leave a ton of money on the table that way.
While this example shows how valuable pledge fundraisers can be for your organization, they do present a challenge for your nonprofit’s fundraising and accounting teams.
Here’s the problem:
When fundraising teams receive a pledge, they generally record it the same way as a donation in their fundraising system. This happens before the money is collected from the supporters. However, the accounting team doesn’t record this funding until after the pledge is paid out by the supporter.
This means that if only 50% of those who pledged to give have followed through so far, the fundraising team will have recorded 100% of the revenue compared to the 50% of the accounting team. Their reports will differ until the pledge campaign is closed out and all funds are collected.
When your organization launches a pledge drive, keep in mind the differences between how accounting teams and fundraising teams record their funding.
By doing so, you’ll be able to account for and anticipate the discrepancies between the reports between the two departments. Then, when you present to an executive, you’ll have the answer to their question about discrepancies on the tip of your tongue before they even ask the question.
Let’s say a nonprofit raises $300,000 during one year. It was a really good year for them! The year prior, they raised $220,000, and the following year, they raised only $75,000. While this situation is exaggerated, it’s not out of the ordinary for nonprofits to see their revenue fluctuate from year to year.
This type of situation presents a nightmare situation when it comes to crafting a budget for the accounting team. The revenue has been all over the board, making it challenging to predict how much revenue will be raised during any given year. If the expected revenue is too far off track, the planned expenses and revenue will rarely match up to the actual amounts. So what was the point in the budget?
For a budget to be as useful as possible, nonprofits should have somewhat predictable revenue and expenses from month to month and year to year. That’s why sustainable fundraising practices are so helpful for your accounting team.
Here are a couple of the initiatives you can push to help make sure your fundraising practices are sustainable and predictable:
- Focus on donor retention. Donor retention means you won’t need to spend as much to acquire donors that replace those who lapse because there will be fewer who lapse! When donors give over time, you can anticipate the same and even additional revenue from the same base of support.
- Push for recurring donations. Recurring donations are one of the best ways to increase your retention rate and create sustainable revenue for your organization. Donors don’t even need to think about their recurring gifts on a regular basis because it is automatically collected from their account if they sign up on your website.
Build out an effective stewardship program to capture and keep your existing donors, turning them into retained supporters. Be sure to appeal to them personally and get them involved with activities other than giving to help them connect with your cause. Then, conduct a marketing campaign for your recurring donations. Invite your supporters to become monthly donors, especially if they already give on a semi-regular basis.
This will not only help your fundraising team raise more over time, but it will also help your accounting team create the most accurate and effective budgets. It’s a win-win!
Accounting and fundraising teams are often butting heads. Lack of effective communication and a misunderstanding between departments at nonprofits can create a lot of animosities, even though both are working toward the same goal.
This can be amplified if your organization doesn’t have a dedicated accounting department. If your accounting processes are handled by the executive director, then you also have to deal with the hierarchy as well as the tension between departments (which is never a good combination).
The best solution to this problem is by leaving your accounting processes to the experts. By outsourcing your accounting and bookkeeping, you’ll work with experts who have seen all of the problems and tensions in the book. They’ll be able to help identify when things go wrong and even answer any questions that your fundraising team may have about nonprofit accounting.
Author: Jon Osterburg
Jon Osterburg has spent the last nine years helping more than 100 nonprofits around the world with their finances as a leader at Jitasa, an accounting firm that offers bookkeeping and accounting services to not-for-profit organizations.