Five Minutes for Finance - Collaboration with the Fundraising Team
Collaboration with the Fundraising Team
In our previous article, we discussed cash flow forecasting. In this activity, one crucial element is to ensure that communications are open and frequent between the Finance and Fundraising teams.
Bridging Strategy and Execution
Finance teams are responsible for budgeting, managing cash flow, and ensuring financial transparency, which provides a clear picture of an organization's fiscal health. Fundraising teams, on the other hand, focus on generating revenue through donations, grants, and fundraising campaigns. When these two departments work together, they can align their efforts to create more efficient and impactful strategies.
By collaborating closely, the finance team can help the fundraising department set realistic, data-driven goals, based on the organization's financial position. This ensures that fundraising targets are attainable and that resources are allocated appropriately to maximize revenue generation. Conversely, the fundraising team can provide valuable insights to the finance team regarding cash flow needs, which helps the organization plan for both short-term and long-term sustainability.
Building a Holistic Approach to Resource Management
Effective collaboration allows nonprofits to better understand the relationship between financial health and fundraising success. For example, the finance department can track the effectiveness of past campaigns by analyzing donation trends, donor retention rates, and funding gaps. This data, when shared with the fundraising team, enables more informed decisions on where to focus efforts and how to engage donors.
Moreover, collaboration can help secure diverse funding streams. Fundraisers may bring in unrestricted donations, while finance teams ensure that grants and major gifts are used efficiently and in line with financial regulations and donor restrictions.
Enhancing Transparency and Trust
One of the most important outcomes of collaboration between finance and fundraising teams is enhanced transparency. When both departments communicate openly, they can provide a unified, transparent message to donors, showing how funds are used and the tangible impact they have. This builds trust with supporters and strengthens the overall fundraising strategy.
Specific Challenges
The primary challenges facing finance and fundraising teams center on the differing approaches to recognizing revenues.
Restricted Grants: Per Generally Accepted Accounting Principles (GAAP), grants are restricted if the donor specifies limitations on the use (purpose and/or timing) of the funds. For example, a grant for “children’s services in calendar year 202x” may only be used to support children’s services in the specified year. These funds cannot be used to fund any other activities (e.g. senior citizens’ services, capital expenditures) during any other time period. GAAP specifies that the award be recorded in the full amount of the grant as restricted revenue as of the date of the award. Typically, these types of grants are paid to the organization in full at the beginning of the grant period and are “spent down” as the restrictions are satisfied. It is essential that the fundraising and finance teams are clear on any restrictions placed on the award to ensure that compliance and reporting efforts are aligned.
Timing: If a grant period spans more than one fiscal year, it may result in reporting differences between the finance and fundraising teams. Whereas the fundraising team will usually report the full amount of the grant as of the date of the award, the finance team may only recognize the portion of the grant that applies to the current fiscal year as unrestricted revenue and the remainder as restricted revenue. This difference in approach should be communicated between the teams to ensure understanding.
Conditional revenues: Donors may also specify certain conditions on their contributions, such as for the purchase of a building or to sponsor an event. Although the fundraising team will want to count this type of donations as revenue when the promise is made, GAAP requires that conditional revenues are only recognized when the condition has been met (the building purchased or the event held). Again, this could lead to differences in revenue reports produced by the two teams.
Pledges: Donors sometimes make pledges to donate money in the future, such as a promise to give $100 per month for the next 12 months. Fundraising teams will usually want to recognize the $1,200 ($100 x 12) as revenue as of the date of the pledge. On the other hand, the finance team may be reluctant to recognize any of the pledged amount until the funds are actually received, especially for smaller amounts or if the pledge is not in writing. The two teams should discuss the pros and cons of recognizing pledges so as to ensure consistent treatment and reporting.
Timing of reports: Typically, financial reports are based on month-end data and are usually delayed until the month-end closing process has been completed. Fundraising reports, on the other hand, often include up-to-the-minute revenue information, which may not align with the amounts in the financial reports. The Finance and Fundraising teams should recognize this potential disconnect and take steps to minimize confusion. One approach would be for the Fundraising team to report as of month-end (in alignment with the financial reports) and add supplemental schedules of revenues received after month-end.
Conclusion
In a nonprofit organization, collaboration between finance and fundraising is more than just a matter of convenience—it's essential for growth and long-term success. By working together to align financial goals with fundraising efforts, these departments can ensure the nonprofit has the resources it needs to fulfill its mission and drive meaningful change.
About this Series
Subsequent articles in this series will cover other topics related to nonprofit financial management. Here is a list of, with links to, previous articles:
About the Author
For over 30 years, Robert Pascual has been a leader in nonprofit financial management as a CFO, consultant, conference speaker and educator. He holds an MBA from the Haas School of Business at the University of California and is the founder and principal of Robert Pascual, MBA LLC. He has worked with small, mid-size, and large nonprofit organizations spanning the fields of education, workforce development, housing, health, philanthropy, social services, media, fiscal sponsorship, nature, and the environment. Each of these organizations has faced both unique and common challenges, some of which are probably similar to ones that you wrestle with.