Planning For, Securing, and Documenting In-Kind Donations
- ID'ing wants and needs
- Relationship Building
- Acknowledging your Donors
In-kind donations are given in goods or services rather than money.
Donations of goods and services can be extremely valuable to nonprofit organizations. For some organizations it is central to the mission of the organization to secure and use donated items and services, and the organization’s positive impact depends on those donated services. Although these are often the most welcome kind of donations, organizations should properly advertise their needs, target the most likely donors, and document all items properly to ensure they receive the items they need the most.
Some examples of in-kind donations include:
- Office equipment
- Office furniture
- Games or toys
- Meeting/office space
- Professional services (accounting, lawyer, etc.)
- Editing/publishing support
- Event planning
- Advertising space
There are a number of benefits for giving in-kind donations for donors.
Many donors are drawn to giving in-kind donations rather than money. Some people might be looking to increase their personal storage space, avoid disposal costs, or receive a tax deduction. Others are interested in reducing waste by finding a new home for the items they no longer use. Finally, many are interested in giving their time doing things such as mentoring, bookkeeping, or helping to organize other in-kind donations.
Many people are interested in ensuring that specific items reach members in their own community versus sending money to a national organization. Some organizations are interested in providing in-kind donations for the positive public relations. Whatever the reason, knowing your audience can help you determine how to ask for donations, specify what you need and do not need, and politely decline offers.
Creating a wish list of the in-kind goods and services your organization needs will help focus your donation outreach.
There are many benefits to creating a wish list, or a list of desired or needed items. First, you can use the wish list to reach out to local businesses and volunteers, making each request intentional and specific. Use the list to advertise those needs through a newsletter, website, or by posting a sign at your drop-off center. As you receive items, check them off so that your supporters can see your progress.
You don’t need to accept every in-kind donation that is offered, as you might create a negative relationship if you accept a product or service that you cannot use. If it is a donation that you can’t use or do not have the capacity to manage, gracefully decline the offer. Some donations, though well-intentioned, have hidden costs and pose issues such as requiring time, money, and personnel to process. The wish list allows you and the donor to see what is needed and reduces your chances of receiving a donation that you will not use.
It is important to consider both large and small organizations as potential in-kind donors.
While it is important to consider the large, nation-wide companies based in your city or town as potential in-kind donors, before jumping into what can be a long process with large businesses, think of the small business owners in your community as well. Build relationships with small business owners and solicit them first. Don’t be discouraged by rejections – the more organizations you contact, the more people will get to hear your story.
When you do decide to ask a large corporation, do your research first. Many corporations have a giving philosophy and process. Make sure your mission aligns with theirs before you approach them. Both large and small businesses are affected by your work, as the big organizations often employ the people that you are serving, and the smaller organizations sell products to the people that you serve. Understanding what drives these organizations to donate will result in a more productive search for support.
Think about individual community members or groups
Although large and small companies may provide great quantities of donations, think about individuals that you may be able to leverage for specific items. For example, landlords or office property owners often need to remove items that tenants leave behind, including furniture, fixtures, and appliances. Establish a partnership with the individuals so you are the first person they call to get rid of unwanted items. Another idea is library and schools that often refresh their collection of books and may be willing to give away their older or overstocked books to a nonprofit organization.
By networking with people in the community and your own network of friends you might encounter individuals who are interested in helping. Maybe the sister of one of your board members is an accountant and is interested in helping. Or maybe a friend of one of your employees is looking for a community service project for her class. There are many people who might be interested in helping, but they just need someone to steer them in the right direction to get started.
It is much easier to ask for a donation when you know who you are asking.
The process for securing an in-kind donation is the same as the process used for securing monetary donations.
- Develop positive relationships with local businesses and people. These relationships are integral to securing a donation.
- Do your research to determine your target audience. This is typically made up of the people who care about you and your mission, but might also be an organization or individual looking to get rid of unwanted items.
- Be prepared. Have an introduction to your organization ready to go, and know what you are asking for before the meeting begins. This is your “stump speech” to get people interested.
- Ask. It’s tough, but you have to do it.
- Be flexible and gracious. If someone says your mission does not match their goals, work with them to find a common ground.
It is much easier to ask for a donation when the person you are asking knows you and shares the values and mission of your organization. Additional information also increases donors’ interest and support as they learn of the problems they can solve through in-kind donations.
When you target the right people, it is much easier to develop the relationship into donations.
Many use the “ABC” (ability, belief, contact) approach for identifying prospects. The actual order of importance is “C-B-A.” First, utilize your existing contacts to determine if there are any prospects. Expand to the next level in your network; perhaps you have something in common with these people, maybe you both know another donor, or maybe the prospect knows someone in your organization socially or professionally.
Many prospects believe in your cause-and a big part of that is being able to see how a gift might affect them, their community, or those they care about. Consider how you can bring your cause closer to the prospect’s personal experience. In terms of ability, keep in mind that many organizations, groups, or individuals may not be able to provide a large quantity of items; but rather, many can utilize their abilities to donate time to your organization.
Asking may be one of the most difficult things you can do, but it is also the most important.
The first step to asking for donations is creating a stump speech, which is how you will get your foot in the door. This includes introducing the organization, laying out the problem to be solved, and possible solutions. This should be done by individuals who have a passion for the situation with rational and logical communication. Individuals who take on this task should be consistent in their approach and follow the guidelines set forth by the organization.
The approach to solicitation can be quite varied even though everyone has the same stump speech to work from. First, each person should have an engaging opening to establish common ground. They should use open-ended questions to discuss the potential donor’s interest in the organization. The person asking for donations should always remain faithful to him/herself and the organization using the skills they feel most comfortable with.
You must keep in-kind donations in your budget.
In-kind donations may become items that you need to budget for when they are no longer provided in-kind. For example, imagine that an organization receives free office space from a board member early on in their existence, but then the board member is no longer able to afford the costly donation. Office space is one of the most costly budget items, and if the organization did not have in-kind donations noted in their budget, they may not be prepared for the large budget jump required. If the organization had been documenting the in-kind donation, they would be aware of the market value of that donation and the impact that losing the donation would have on their budget. Additionally, disclosing this information to funders would have helped to reveal the full budget picture.
There are several steps when documenting the value of in-kind donations. This includes first estimating the value of what was received. There are many ways to go about doing this and many places that this information needs to be documented. The value of the donation also needs to be assessed for depreciation or loss of value to accurately budget each year. Finally, the accuracy of documenting in-kind donations will result in more accurate reporting for the IRS.
There are three places where the value assigned to an item should be documented.
The first is to the donor when you are acknowledging the donation, the second is to the IRS for reporting purposes, and the third is in your organization’s budget. There are also three ways to consider determining the value of an in-kind donation.
- You can ask the donor for the traditional cost of the donated services and/or goods.
- You can obtain quotes from competitors to determine the “going rate.”
- You can use a salary survey document to determine the average cost of the skill level needed for the services provided.
As an example of determining value, imagine you receive an in-kind donation of a space for your office. The office space can be calculated by the per-square-foot value of the building, as determined by a local realtor. For example, at $2.00/sq. foot, a donation of classroom space of 150 square feet would equal $300 per month. An in-kind donation of space can be broken up into smaller units, but each unit cannot be used for more than one program or initiative. Even if the classroom is used for more than one program, the whole in-kind amount cannot be claimed for each program.
Depreciation is the reduced value over time of tangible items.
Goods such as office equipment and office furniture depreciate in value over time because of wear, tear, and aging. In-kind donations that depreciate in value should be added to your organization’s depreciation schedule. An asset remains on a depreciation schedule until the asset becomes fully depreciated or is discarded.
A simple explanation for the process is below. Generally accepted accounting principles (GAAP) require a rational and systematic approach to depreciation, as well as consistent financial reporting. For more detailed guidance, speak with your accountant.
1. The first step is to determine the current value of the good. For example, a computer purchased a year ago might have cost $650, but according to a sales representative at a local store that sells the current model of that computer, the current value of the year-old computer is $400.
2. The second step is to determine the anticipated “useful life” of the computer. In the US, tax authorities have given computing hardware a prescribed depreciable life of five years. The computer was used for one year already, so it has a “useful life” of four years. The computer will depreciate in value from $400 to $0 during those four years. The resulting $0 value is because the asset has no residual value or in other words the asset could not be retired or scrapped for any value.
The simplest depreciation schedule is Straight Line Depreciation. This is when you spread the expenses evenly across an asset’s depreciable life. For the computer example, this would mean you would claim a $100 (Current Value of $400/Useful Life of 4 = $100) depreciation expense each year for 4 years. Other types of schedules have varying percentages for each year of depreciation.
Documenting the in-kind donations that you receive will ensure that you have the information needed for the Internal Revenue Service.
Talk to your accountant to learn more about which donations require documentation, and be consistent with which donations are documented and which are not. Many organizations put together an in-kind form that is a guide to streamline the process of recording, reporting, and acknowledging gifts. Information typically provided on the form to be filled out by the donor includes:
- A description of the gift (Note if the gift is used. If so, indicate how old it is and its condition)
- The date the gift was received
- The contact information of the donor
- The estimated fair market value of the gift and how the value was determined
- The name of the staff member who is knowledgeable about the gift
- Space for any administrative information
Additional information about reporting donations can be found on the IRS Website.
Thanking your donors is the most effective way to get them to give again.
Expressing gratitude to your donors doesn’t have to be hard work if it becomes an organic part of your organization’s culture to continually engage and appreciate your supporters. Keep donors in the loop—and personalize communication as much as possible. This can include mentioning how items will be used today and over time. Consider the most appropriate ways to stay in touch with donors, which might include:
- Email updates from your top people
- Meetings with donors to gather feedback
- Newsletter updates
- Hearing a variety of voices (e.g., teachers, artists, doctors, etc.) convey in their own words the difference donations have made to them
Remain a vocal presence with your donors. Silence communicates inactivity or a lack of need. The more personally involved donors are, the fuller their giving is likely to be. Point out the great stuff that happens when people give.
Remember your donors both when times are tough and when you have something to celebrate.
Research shows there is a relationship between gift amounts and level of recognition received by donors. Donors who report receiving "substantial" recognition for their gifts made larger contributions than those receiving "minimal" or "moderate" recognition. Recognizing donors doesn’t have to mean giving them a tangible reward; in fact, research indicates that, with token recognition, donors may see their gifts more as transactions. Giving a donor more personal recognition can help them understand how their contribution impacts an organization’s work. In turn, that may help move a donor toward making larger philanthropic gifts.
Remember: your supporters are your fan club! As one donor says, "Our chances of being ‘heroes’ are few and far between in life—it feels good to be needed here." You can help empower donors by listening to them. Sometimes donors dream big, and many are willing to make a significant investment if given the opportunity.
For further information and additional resources, please see the following:
In-Kind Donations: Hidden Assets for Your Organization. A Resource Guide.
Foundation Center: Frequently Asked Questions – How can I find sources of in-kind gifts?
Idealist.org: Fundraising: In-Kind Donations