Frank Jakosz Article on Fundraising Creativity for Not-For-Profits (Journal of Accountancy)

All the elements of a successful not-for-profit fundraiser come into play each year when the Eiteljorg Museum of American Indians and Western Art in Indianapolis holds its popular Quest for the West art show and sale.

The Eiteljorg, founded in 1989, is dedicated to inspiring an appreciation of the art, history, and cultures of the American West and Native Americans. The Quest for the West event fits perfectly into the museum’s mission, as it features work from 50 prominent Western artists. Event attendees visit the museum and bid on paintings during a live sale. The art is displayed at the museum for a month and then shipped to the buyers.

“It’s a big deal,” said Susan Lewis, CPA, CGMA, the museum’s CFO. “We sell a lot of art, over a million dollars’ worth, and we retain a quarter of that. That’s a great event that we do every year.”

Great events have become an important tool for not-for-profits in recent years in their quest to raise funds to support their missions. Because competition for donors’ dollars is fierce, not-for-profits are finding that they need to do more than just ask for funds. To attract donations, they create value for donors in the form of events and perks, explore partnerships with for-profits, use technology to explore new avenues for fundraising, tell their story in an engaging way—and, of course, thank donors appropriately.

These actions are necessary because the number of organizations registered with the IRS as not-for-profits has climbed from 1.09 million to more than 1.57 million in the past 20 years, according to the National Center for Charitable Statistics database. Meanwhile, the estimated annual growth in giving between 2006 and 2016 was just 1.1%, far below the 6.6% estimated from 1996 to 2006, according to The Philanthropy Outlook 2016 & 2017, a report published by Marts & Lundy based on research by Indiana University’s Lilly Family School of Philanthropy.

In this environment, not-for-profits need to run their organizations with the precision and data-driven mentality of a for-profit while treating donors like investors, said Frank Jakosz, CPA, CGMA, partner-in-charge of Sikich LLP’s not-for-profit and higher education practices in Naperville, Ill. CPAs who help manage not-for-profits and serve on not-for-profit boards need to be aware of the changing landscape as their organizations pursue the revenue that enables them to fulfill their missions.

“Donors and consumers are more involved and more conservative in who to support. Restricted contributions are more prevalent than ever,” Jakosz said. “They want to understand the return or value on their donation or investment in the organization.”

CREATING VALUE

Innovative fundraising is a necessity for the Eiteljorg, as about 60% of its annual revenue of about $7.5 million is generated through donations. In addition to the Quest for the West art show, the museum has incorporated auctions and an annual event known as the Buckaroo Bash into its fundraising. One year, it even held an event with an entertainer who plays loud music to fire up a crowd while he furiously paints murals to be sold to members of the audience. And like many not-for-profits, the museum has used events such as raffles and casino nights to raise funds, taking care to procure the licenses and perform the special reporting that such events require in Indiana. Despite the regulatory challenges of fundraising with raffles or gambling events, Jakosz has seen many clients conduct them. He suggested that they consult with legal counsel to manage the legal risk and complexity associated with those events.

Another fundraising method that requires careful planning is the use of for-profit partnerships or sponsorships. Many businesses are willing to contribute gifts-in-kind or funds to a good cause, but not-for-profits need to be aware of regulations so they won’t owe unrelated business income tax, or UBIT. Not-for-profits also need to choose the right partner to avoid reputational risk and structure the agreement to avoid liability. Jakosz recommended that not-for-profits ask the following questions before agreeing to a corporate partnership or sponsorship:

• Does it make business sense? An organization dedicated to the protection of birds may not want to partner with a restaurant chain that sells chicken wings.
• Are the purpose and goals of the venture clearly defined? In an ideal sponsorship or partnership, the not-for-profit’s mission is prioritized over revenue objectives.

In any partnership, not-for-profits also will want to make sure their assets and mission are protected and that their benefits will be proportionate to their contributions, Jakosz said.

Many not-for-profits also organize fundraising drives into “campaigns” in which they raise money for a certain cause during a specified period. John Kroll, CPA, senior adviser for finance and administration at the University of Chicago, said large colleges and universities almost always are involved in some kind of campaign. Campaigns are built around a theme, which may be to provide financial aid, fund construction of a building, or develop new programs.

“You have to have a theme, and you have to have a good, solid message that people can rally around and give money to and say, ‘Hey, I gave money to this building,’ or, ‘I gave money to establish this program.’ That’s very important,” Kroll said.

OPPORTUNITIES IN TECHNOLOGY

The ALS Association’s Ice Bucket Challenge is the ultimate case of a technological triumph in not-for-profit fundraising. As the result of a social media campaign that went viral, the association increased its revenue from $24 million in 2013—2014 to an astounding $138.6 million in 2014—2015 while raising awareness about amyotrophic lateral sclerosis. More than 17 million people uploaded videos to Facebook of themselves dumping cold water over their heads while urging friends to donate.

Although most not-for-profits are not going to quadruple their revenue in a Facebook campaign, social media can be a powerful tool for raising awareness and fundraising, particularly with younger audiences. Lewis said the Eiteljorg spreads its message through Facebook, Flickr, Instagram, Pinterest, Snapchat, Twitter, Yelp, and videos posted on YouTube.

“New sources are not going to replace traditional sources, but they are growing and definitely need to be part of the equation,” Jakosz said. “Social media is used to communicate not only an ask for support, but also to keep the younger donors and investors involved and informed. Facebook, Twitter, and other social media need to be embraced by NFPs.”

Not-for-profits also are using their websites to facilitate donations; the Eiteljorg is one of many organizations with a “donate” button on its site that allows visitors to contribute electronically. Sources such as Amazon Smile, Fundly, Stripe, and YourCause also allow donors to contribute electronically to a charity of their choice when they purchase certain items on those platforms. Lewis said the museum has received very little revenue so far from those kinds of platforms, but fundraising personnel are participating in hopes that it may be more lucrative in the future.

Another online source of revenue that not-for-profits are exploring is crowdfunding, which presents some challenges. Individual state laws may vary, and not-for-profits may have to register with a state before seeking donations from residents of that state. Crowdfunding platforms also may charge a service fee. Jakosz said he advises clients and organizations to proceed with caution when considering crowdfunding, because of its many complexities.

“You need a thorough understanding of all the aspects of the complexities, agreements with the sites, and transactions,” he said. “Not everything is a good fit for every organization, depending on its size, nature of activities, and situations.”

TELLING YOUR STORY

Kroll and his wife donate to a Lutheran theological seminary that appeals to donors’ emotions in an effort to get funding. In one donation request, the seminary told of a young man who is taking his family to a foreign country where he will work as a missionary. Another request provided details about a second-career pastor who is looking for financial aid, asking donors to adopt a seminarian. The communications generate an emotional response while providing transparency into the work the seminary is performing.

“I find those compelling,” Kroll said. “You could say that about a zoo, about world hunger, about anything. Anybody that tells you that solicitations need a storyline behind them, I would agree wholeheartedly because [donors] are looking for something that tugs at your heart.”

This kind of storytelling builds familiarity with a cause and trust, Jakosz said, but he added a caveat, saying he believes such emotional “hard sells” may be less effective with younger donors (see the sidebar, “Focus on Younger Donors Is Critical,” below). The other essential aspect of transparency, Jakosz said, is providing financial information coupled with impact information. At a time when the internet puts nearly limitless information at people’s fingertips, donors are eager to see how a not-for-profit spends the funds that are donated. This makes it essential for not-for-profits to tell their story with thorough financial reporting and provide regular details about performance and the impact they are making in their mission. Annual updates and annual reports are no longer enough, Jakosz said. He said it’s good to think of donors as investors when thinking about how to communicate with them.

“Organizations need to connect with the donors, investors, not just during the ask, but periodically on their terms,” Jakosz said. “They want to be communicated with timely and in the manner they prefer—whether it’s email, social media posts, or newsletters. Once you’ve connected with a donor, ask their communication preferences. If you don’t, it’s unlikely you will retain them.”

HOW TO REWARD DONORS

Few things in not-for-profit fundraising are more important than thanking every donor. Thanking donors for their gifts provides both the opportunity to show appreciation and the documentation that donors need to receive any tax benefits to which they may be entitled. The Eiteljorg gives all donors a thank-you letter and provides members with discounts at the museum store and café.

“Most donors want benefits.” Lewis said. “And we provide those.”

Organizations, of course, must provide donors with a contemporaneous written acknowledgment for any donations of $250 or more, including listing the amount of cash and/or describing property donated and stating whether the organization provided any goods or services in return for the donation (and, if so, including a description and good-faith estimate of the value of the goods or services provided).

There are many ways to thank donors. Many not-for-profits use their newsletters or event programs to list names of contributors who have reached certain thresholds. Access to preferred parking and seating at events also is a common donor perk. The Eiteljorg holds a yearly volunteer appreciation dinner, and donors who contribute $1,500 or more gain invitations to special trips and receptions in artists’ homes.

One important aspect of a reward system, Kroll said, is enforcing thresholds for recognition. In university fundraising scenarios, it may take millions of dollars to have a professorship endowed in your name, or perhaps tens of millions of dollars to have a building named after you. If the university allows thresholds to slide, it’s unfair to those who previously donated more.

“You have to have some discipline in that regard so that there’s an element of fairness,” Kroll said. “It shouldn’t be a negotiation.”

PERSISTENCE PAYS

Not-for-profits that put together enough well-run events, capitalize on opportunities to innovate, skillfully tell the story of how they accomplish their missions, and show abundant gratitude give themselves a chance to succeed. But it takes persistence and the understanding that you never know which door will open if you keep knocking.

For instance, it makes sense that the hometown Indianapolis Colts football team would be a corporate sponsor for the Eiteljorg, and it is. The franchise contributes annually to the museum, and its stadium is a part of the museum’s popular Jingle Rails holiday railroad experience through downtown Indianapolis each year. The late owner of one of the Colts’ rivals also gave the museum a huge boost.

Eiteljorg President and CEO John Vanausdall developed a relationship over many years with the late K.S. “Bud” Adams, who was the owner of the Tennessee Titans. Adams, who was one of the most successful businessmen of Native American ancestry in the nation, never hinted that he was interested in donating to the museum. But after he died in 2013, his will left his collection of paintings and Native American artifacts to the museum. It was worth tens of millions of dollars and added highly significant works to an already nationally respected Eiteljorg collection.

“Fundraising and development is a science or an art,” Lewis said. “… Fundraising takes years of donor cultivation, and we never really know how many contacts it takes to receive, for example, a large contribution.”

Focus on younger donors is critical

Building loyalty early creates opportunities for the future.

The small enrollment of the University of Chicago (5,681 undergraduates in 2015–2016) enhances its reputation as one of the nation’s most elite private universities. Only the best and brightest students get an opportunity to enroll, as just 8.35% of the students who applied for admission in 2015 were accepted.

A small enrollment also can be a challenge in college and university fundraising because it limits the number of potential donors compared with a school’s peers. The contributions of each alumnus are critical, which is why the University of Chicago’s Student Alumni Committee starts educating students on the importance of giving even before they graduate.

Not-for-profits are focusing on younger donors as the Baby Boomer generation ages. Young people may not have as much money to give as their parents and grandparents do, but if they can be recruited and retained, they may provide larger contributions later.

The Eiteljorg Museum of American Indians and Western Art in Indianapolis has a special program called “Agave” for donors ages 40 and younger. The group has its own board of directors, and they work with the museum staff to create events just for their age group.

“We are focused on that group,” said Susan Lewis, CPA, CGMA, the museum’s CFO, “because the older donors have been very loyal, but they are getting older and we know this is a great need for us.”

Frank Jakosz, CPA, CGMA, partner-in-charge of Sikich LLP’s not-for-profit and higher education practices in Naperville, Ill., offers the following tips for recruiting younger donors:

• Soften the sales pitch. Younger donors are less likely to be persuaded by requests that tug at their heartstrings, Jakosz said. He said they are more likely to want more details about where their money is going.
• Find out how they want to communicate. Younger donors are more likely to be reached through social media.
• Make it easy. Instead of insisting on large lump sums, investment firms make it easy for young investors with programs that enable small, frequent investments. The same tactics can work for not-for-profits.