Nonprofit Investment Management Blog

How to Use Your Nonprofit’s Form 990 to Increase Major Gifts

Posted by Carnegie Investment Counsel on Feb 1, 2022 9:15:00 AM

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Finance documents can seem confusing and boring to nonprofit fundraisers and marketers. But with more nonprofits fighting for a limited amount of donors, it is critical to be strategic and thorough in your marketing and fundraising efforts.

Due to the increased popularity of online rating and charity evaluator sites, donors are turning to public records more than ever to evaluate nonprofit organizations. Continue reading to find out what a form 990 is, why it is important, and how you can optimize it to maximize major gifts and donor relations.

What is your nonprofit’s Form 990?

Your Form 990 is an annual reporting return that most tax-exempt organizations must file with the Internal Revenue Service (IRS). This form is used to share an overview of the organization related to its finances, governance, and nonprofit activities.

There are two main purposes of Form 990:

  1. To inform the IRS of the financial activities of the organization in order to remain tax-exempt eligible
  2. To provide a reliable document for the public to obtain necessary information on finances and critical aspects of the organization

 

Who looks at your Form 990?

According to the IRS, most charities must make their form 990 available to the public in order to remain tax-exempt. So in addition to the IRS, any individual or entity that would like to read your Form 990 can have access.

But who is most likely to read your nonprofit Form 990?

Potential board members, grantmakers, major donors, corporate sponsors, the media, third-party evaluators, auditors, and Donor Advised Fund managers are all people who regularly read through 990s to get a snapshot of the health and mission of an organization. These individuals use this form to help determine if your organization is an effective place to donate their valuable resources.

They will:

  • Review governance structure, policies, and compliance
  • Ensure the mission and activities align with their values and goals
  • Assess program accomplishments
  • Evaluate financial responsibility and health of the agency

So, how can you step up your Form 990 to increase major gifts?

 

Tell your story and make a connection

Think of your Form 990 as much more than a financial document. Rather, consider it an avenue to share the story of your nonprofit and make a good first impression on a potential donor. Serious major donors want to know they are giving their money to a nonprofit that will spend it responsibly and make a difference. You can use the narrative sections in your Form 990 to showcase how you will do that.

There are a few sections that allow some creativity and explanation. In these sections, use the space given to underline the effectiveness of your programs, the efficiency of your organization, and the unique qualities you possess. You can pull out your organization’s last submission or here is a copy of the IRS Form 990 from 2020 if you would like to use it as a reference.

In Part I, you can share a summary of your mission, activities, and persons served. Use clear language, not nonprofit jargon.

In Part III, go further in-depth into the impact of your top-performing programs. Use this section as a public relations piece and showcase your accomplishments using both qualitative and quantitative outcomes.

In Schedule O you can expand on Part III and further emphasize the effectiveness of your programs. By doing so, you are adding emotion and a story that speaks to the reader and draws them in.

It is important that your messaging is complete, accurate, and cohesive with the rest of your outlets. This includes your website, brochures, events, etc. Use your financial and nonfinancial information together within this form to communicate your organization’s story. Convince the donor that you are carrying out an important mission, using your resources effectively, and are deserving of their donation!

 

Make it readily available.

Now that your Form 990 clearly shares your impact, it’s time to utilize it. Having your Form 990 readily available makes a great first impression as a nonprofit that is legitimate and working honestly in pursuit of its mission. It quickly shows potential donors that your organization values transparency and honesty and that you are in compliance with federal law. Failure to have this information can decrease donor confidence in the nonprofit.

Ensure your documents are up to date on charity rating and watchdog sites such as Guidestar, Charity Navigator, Foundation Directory Online, etc. Many potential donors will use these ratings to make a quick decision of whether to continue a relationship or move on to another nonprofit. You can also publish your 990 on your website and share an electronic copy with current major donors to make them feel more connected and in the loop.

 

Add your form 990 to your overall communications plan.

You can add your Form 990 to your current sponsorship packages, major donor packets, and website. Use it as a marketing tool that speaks to a slightly different audience: people that like looking at numbers, black and white facts, and straight to the point information. These people will appreciate studying your Form 990 and following the story of your organization’s impact and activities that you’ve laid out for them.

“But I have an Annual Report already!”

Yes, your Annual Report is visually pleasing and goes into greater depth about program outcomes than your 990 can. But each organization’s report is customized to their brand and contains different information. Is the financial reporting at the beginning or at the end? Is the list of board members on page 3 or page 26? Does it talk about compliance? Not to mention it is not certified by a third party. Major players in the philanthropy world want one form they know will have all the necessary information they need for a snapshot of an organization and where to find it.

 

Showcase your fiscal responsibility

When considering making a large gift, donors want to do their due diligence to ensure their money will be spent in the most impactful way possible. Emphasize your low overhead, a positive revenue to expense ratio, diversified funding, or a good debt ratio to showcase fiscal sustainability. Use these numbers to highlight that you are fiscally responsible and will spend their money on programs and persons served.

Do you have investment income reported on your 990? Use this as an opportunity to introduce donors to your nonprofit endowment fund and how it helps your organization. Explain what it is, emphasize the impact it has made on persons served, and show gratitude for the support it will give to your programs in the future. By discussing the importance your nonprofit endowment fund has on the people you help, you will plant a seed that, with care, will bloom into a major gift towards your fund.

 

Highlight special gifts

While distributing organizational information and reviewing packages with potential donors, use your 990 to feature special gifts. Did you receive an unexpected gift of stocks or cryptocurrency that shows through in your income statements? Were you gifted with a major donation towards your endowment fund?This is a great way to bring up the idea of these types of gifts and educate donors on what they are. Many major donors do not know these are options or that they have many tax benefits!

The advisors at Carnegie Investment Counsel know how confusing and frustrating it can be to donate or move non-cash assets. Planning, coordinating, and executing a donation such as this is time-consuming and sometimes complex. Contact Carnegie today to speak with a nonprofit investment advisor about options to donate these unique assets and what tax-related benefits apply to you.

 

Provide additional information or clarification

Use Schedule O to provide additional information and clarification to something stated earlier in the form. A few examples include:

  • The purchase of a fundraising software or change of event caused a drastic increase in fundraising expense but will be offset by an increase in revenue in the future
  • Provide information on a new program or change to an existing program
  • Explain a response from earlier in the form that can easily be misinterpreted or needs further explanation. This comes especially in handy when there is something on the form that highlights a flaw in the organization and can be further clarified
  • A large investment in training or licensure for an employee that will be paid for overtime by a grant or funder

 

Next Steps:

Step 1: Take a look at your organization’s most recent Form 990. Does it tell an accurate and concise story of your nonprofit and the impact you make? Spend some time reading through to identify areas you can showcase to donors, and pinpoint sections that need improvement. This could include:
  • Adjusting your messaging to better align with your mission
  • Updating inconsistencies or changes in the organization
  • Adding essential information normally left out
  • Getting rid of “See Section ___”. Do not make the donor work to learn about you. If there is room to write, take that space to share and educate!

Step 2: Take notes on the adjustments you would like to make to your next filing. Chances are you won’t remember what you planned to do, so document your ideas and save this article to use as a reference.

Step 3: Notify the necessary people about your plans (Finance Director, CPA, Board Finance Chair, etc.) and share this article with them so they understand the importance of making these changes.

Step 4: Contact your nonprofit investment advisor to ensure you have efficient processes in place to accept major gifts and non-cash assets. Don’t wait until a donor is knocking at your door to figure it all out. Don’t have a financial advisor? Contact Carnegie today to speak with an advisor.

Step 5: Add a reminder in your calendar to start early so you aren’t rushed at year-end, and let the impact you are making shine through everywhere your donor looks!

It can be easy to phone in the bare minimum requirements on your nonprofit’s Form 990. But by simply checking the box and never thinking about it again, you are missing out on an opportunity to connect with potential donors and share your impact. If you take the time to craft your message, you will see major dividends when talking to major donors and funders.

As you were looking at your last year’s Form 990, did you notice that your reported Investment Income was a bit lower than you would have liked it to be? A nonprofit financial advisor at Carnegie Investment Counsel can help create your custom investment plan. Schedule a no-obligation consultation today.

 

 

Carnegie Investment Counsel (“Carnegie”) is a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The information herein was obtained from third party resources, and Carnegie deems the information to be reliable as of the original date of publication. Carnegie does not provide legal or tax services. The information provided is for general informational purposes only.

 

Topics: Nonprofit

Carnegie Investment Counsel

Written by Carnegie Investment Counsel

Carnegie Investment Counsel is an Registered Investment Adviser (RIA) providing personalized financial guidance to help you preserve and grow your wealth, so you are freer to enjoy your life. As your fiduciary, we are obligated to place your investing success ahead of our returns.

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