Soapbox Engage Blog

There are more nonprofits than ever, which means there is more competition for donations. To complicate matters further, donors are more informed and savvier than ever. They know good fundraising, and they are cautious givers. Donors have access to more information, thanks to the internet, and are becoming more sophisticated givers.

Donors want to know how nonprofits use their generous financial contributions. If we’re honest, that’s not an unreasonable expectation! Most nonprofits agree that fiscal responsibility is a good thing. In the past, financial transparency was an excellent "bonus" feature to an organization’s fundraising methods, but not really a necessary part of the process.

Today, donors expect to know how your nonprofit handles finances. Organizations must demonstrate that they are a worthy investment.

This might seem like a daunting task. After all, most nonprofit budgets are far more complicated than the usual household budget. But, with a little preparation and effort, you will be able to share your financial statistics with your donors confidently and in a manner that actually builds trust!

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Financial transparency boosts donor confidence

In one study, 50% of the people surveyed said they were "put off when they didn’t know exactly how the money was being spent," and 45% were concerned that a charity might be associated with a political party or religion.

Beyond what the law requires, nonprofits can boost donor confidence by becoming as transparent as possible with financial and fundraising information.

Transparency includes more than financial information

Transparency goes beyond just publishing your financial numbers. Donors want to receive information that is accurate, honest, and easy to understand. This includes only using images and videos of people with their permission and never using information with images that might be considered "personal identifying information."

Organizations should also strive to create practices that show respect and accountability in all areas. Small actions, like sending gift acknowledgments on time, respecting restrictions on donors’ gifts, and providing accurate reports to foundations and government agencies (where applicable) go a long way to build trust.

Pursuing integrity in these small areas demonstrates that your organization is trustworthy in larger areas--like your finances.

Make information easy to find

The law requires tax-exempt nonprofits to make some documents available to the public. For example, organizations are required to provide copies of their most recent tax returns (IRS Form 990) and their application for tax-exemption. One way many nonprofits demonstrate transparency is by putting these documents on their websites, along with other financial information.

Many organizations also publish their expense policies. Offering information instead of waiting for people to ask is an excellent way to build trust and create a culture of honesty within your organization and with your donors.

4 ways to help your donors understand where their money is going

In addition to taking practical steps to demonstrate transparency, it is essential to help current and potential donors know how you use your valuable resources. After all, having access to IRS forms is all well and good, but most donors really want to see that they are making a difference in the world.

Here are some practical ways you can help people understand how you are using their hard-earned money and the impact your organization is making.

1) Write specific financial goals

Your total annual budget might be in the hundreds of thousands or millions of dollars. It’s hard for many people to wrap their minds around such large numbers. It can get complicated for organizations to rationalize seemingly-outrageous budgets.

Be honest about your total budget, but provide specific financial goals that are smaller and easier to comprehend.

For example, if your budget requires $100,000 to provide healthy meals to at-risk school children, provide information about how much it will cost to feed each child for the year. This makes the numbers easier to understand and connects dollar amounts to individual people whose lives will be impacted.

2) Provide visuals

Give your donors charts and graphics to help them understand your budget. However, it’s time for nonprofits to retire the age-old pie charts that show the breakdown of "administration," "fundraising," and "program" costs. These over-simplified charts unintentionally communicate that the day-to-day operations of our organizations are diverting money away from the "real" mission.

Instead, nonprofits should help their donors understand that investment in critical infrastructure is a valuable part of the core mission. Investing in talented development staff, quality board governance, ethical and progressive human resources, and strategic finance and accounting are actually part of the mission itself!

3) Help your donors understand the purpose and benefits of overhead costs

Becoming transparent about your finances means you will probably receive some questions about specific line-items, like overhead costs.

Overhead usually includes the costs of management, general operations, and fundraising. Help your supporters understand that the true cost of accomplishing your mission goes far beyond the direct, program-specific expenses.

People used to be very suspicious of overhead costs, speculating that nonprofits with higher overhead costs are less trustworthy (or at least less effective). Fortunately, views on overhead are changing, and more donors understand that overhead expenses are part of running an impactful organization. Supporters are more understanding that overhead costs are not a good measure of a charity’s performance.

Offer as much detail as possible to your supporters about your overhead or operating costs. When in doubt, more information is almost always better. Remind your donors that overhead costs pay for essential things like training, employing top-notch staff, and other things that make your organization sustainable.

4) Always bring it back to your mission

Even when you are communicating about finances, don’t forget about your core mission. Your donors want to know what you accomplished with their hard-earned cash. Were your programs successful? Did you achieve your goals?

Share outcomes, results, and stories that "close the loop" on the gift and help your supporters feel like at least one task is complete (even if the mission is far from over).

Donors want to give to nonprofits that are transparent and honest about their finances and their impact. Even being transparent when a program or initiative did not produce the results you expected can go a long way to build trust with your supporters.

Are you planning to upgrade your communications with your donors about your finances? Here are three more resources to equip you to improve your overall interaction with donors.

• Don’t Choose A Nonprofit CRM Without These 6 Features: One way to improve your communication with donors is to have a reliable CRM system. They help nonprofits organize and keep track of interactions with current and potential donors, volunteers, and everyone else! Simplify your donor communication processes by choosing the right CRM system.
• Surefire Ways To Improve Your Nonprofit Storytelling: The best communicators are usually great storytellers. Whether you are communicating about your finances or updating supporters on your latest project, stories help communicate complicated information and help people connect personally. Here are some practical ways to become a better storyteller.
• 6 Cost-Effective And Creative Donor Thank You Gifts: Communicating appreciation and gratitude is just as crucial as transparent communication about fundraising! Sincere gratitude helps build a strong, healthy relationship between you and your donors. Here are some practical ways to thank your donors!