In-kind gifts can be valuable to a nonprofit. Draft policies and procedures to get the most out of these contributions.
Draft policies and procedures to get the most out of in-kind gifts
Although nonprofits often focus on procuring cash donations, gifts from donors may come in many forms. If your nonprofit receives in-kind contributions, here's help understanding their value and knowing how to manage them.
Defining in-kind contributions
In-kind contributions are donations of goods, services or time — instead of cash.
Tangible goods include things like equipment, books, cars, clothing, furniture and supplies. Goods may also be intangible, such as advertising, patents, royalties and copyrights. Goods may be used, surplus, brand new or even loaned.
In-kind services are professional services donated by groups such as corporations, small businesses, vendors, colleges, individual professionals or tradespeople. For example, your organization could be given transportation or publishing support.
An in-kind donation involving time occurs when people give their time free of charge or for payment by a third party on the nonprofit's behalf. An employer might also loan paid employees to help support a nonprofit.
In-kind contributions as a revenue source and more
In-kind contributions can be an important source of nonprofit revenue, especially during times of economic recession. But there's more.
In-kind gifts can be valuable if donated items are central to your organization's mission, such as providing clothing for the homeless. Other in-kind gifts can help your nonprofit provide its programs and activities at a reduced cost. In-kind gifts may even free up your nonprofit's cash for operating essentials, such as payroll taxes.
Beyond revenue and cost savings, many charities find in-kind contributions an effective way to cultivate supporters and build capacity.
Establishing the value of in-kind contributions
When your nonprofit receives an in-kind gift, you must record it as revenue using the fair value of the gift and noting the date of receipt. Fair value is the price that you'd receive to sell an asset or be paid to transfer a liability.
How can you tell if an in-kind gift is worthwhile? Start by creating your own gift acceptance policy. A written policy can help manage your donors' expectations and help staff and board members who might be asking for or receiving contributions.
Your gift acceptance policy should include:
Specific types of gifts that are appropriate and not appropriate
Any thresholds to gift acceptance, such as donations of a certain amount or value over a specific period of time
Details about how gifts are evaluated and how unacceptable gifts are handled
A statement explaining that prior to accepting certain types of gifts, such as real estate, your nonprofit will conduct a review and seek legal advice as needed
Whether gifts may be anonymous
To guide donors, post your policy on your website or make the policy available in hard copy.
Establishing parameters for in-kind contributions
To effectively manage in-kind donations, you'll need to establish a process for accepting, documenting and acknowledging gifts.
If you're dealing with a large in-kind gift given for specific purposes (such as building supplies for disaster relief) or an in-kind gift accompanied by specific or complex requests from the donor, you might use a written gift agreement. This will ensure that your organization and the donor agree on the nature and purpose of the gift. The document also can be used as a reference should a dispute arise. While not a legal document, it can help ensure that both parties' expectations will be met over time.
A gift agreement should be signed by both parties and include details such as:
The names of the donor and your nonprofit
The start date and, if applicable, end date
A description of the gift and the mode of giving
The intended purpose of the gift specified by the donor and how your nonprofit plans to fulfill that purpose
How your nonprofit will acknowledge the gift
Any monitoring, reporting or other undertaking that your nonprofit has agreed to or will do
A clause stating that the purpose of the gift is subject to change due to unforeseen events
Then, consider creating an in-kind form to ease the process of recording, reporting and acknowledging gifts.
Finally, cover your success stories in newsletters, social media sites and other marketing materials. This may inspire others to give it a go, too.
This article draws on the expertise of Grace Davies, a Minneapolis-based attorney with special interest in product liability, medical malpractice and employment discrimination.
MissionBox editorial content is offered as guidance only, and is not meant, nor should it be construed as, a replacement for certified, professional expertise.