Fundraising for nonprofits: the common methods
Nonprofit organizations employ different methods for raising funds for different purposes.
However lets first stick to the most traditional and the most commonly used fund raising methods applied by nonprofit organizations in the United States.
When drafting your nonprofit fund raising plan – be sure to include most of these time tested traditional methods of fund raising for nonprofits in addition to other methods that you may choose to include.
1) One time/Episodic fund raising – This is generally done in the form of bequests and/or special events and is generally targeted at individual or corporate donors. The funds generated from such events may be restricted or unrestricted funds depending upon whether or not the end use of the funds is decided in advance by the nonprofit organization.
2) Ongoing Fund raising – The most commonly used methods to raise ongoing funds for nonprofit organizations in the U.S.A are:
a) Annual giving – Also known as annual funds, this often represents a major part of an organization’s income in the U.S.A. Annual giving implies an annual (or periodical) fund raising exercise conducted by many nonprofit organizations aimed primarily at supporting the general day to day operations or the shortfall in budgeted collections of the organization and is thus generally an unrestricted income for the organization.
Annual giving is generally conducted through mailers or a direct one to one solicitation. The salient distinguishing feature of an annual giving is its regularity and may even be undertaken more than once a year.
b) Sale of Products and services – Many nonprofits raise ongoing funds through sales of goods and services that promote their objectives. The only restriction is that the sale of such products or services should foster the objectives of the organization and should not be unrelated to the mission of the organization. If the product or service is not directly related to the mission of the organization, the organization must pay unrelated business income tax on such a sale.
c) Endowments – A funding method which allows for generating funds or income stream for an organization by investing the principal amount but with a condition of keeping the principal fund intact for perpetuity or during a specified time period or till the time sufficient assets have been created or mobilized to achieve a designated objective.
d) Project grants – Such grants are generally restricted funds (funds which cannot be used for a purpose other than specified by the donor), raised from foundations and are paid over a period covering the project tenure – and may even extend to several years.
e) Planned giving – Realizing the emergence of planned giving and other annuity instruments, the National Association of Insurance Commissioners drafted the Model Charitable Gift Annuities and Charitable Gift Annuities Exemption Acts in 1998 to govern and control of charitable gift annuities.
The Act imposes several financial and administrative regulations on organizations that use these instruments for fund raising beginning with the need to register with state officials.
As per this act, an organization must have been in operation for at least three years, have an available asset of at least $300,000. States are slowly adopting this act.