When to run a Capital Fundraising Campaign (and when NOT to!)

The following article I wrote was published in Fundraising NZ magazine in December 2018.  It covers the “when”, and “what” of Capital Fundraising Campaigns, not the “how” which is a subject I have covered before.

building a church

Is a Capital Campaign for You?

The professional fundraiser can select from many different fundraising vehicles: annual giving, direct mail, major gifts, deferred gifts and capital campaigns when they plan their fundraising activities.  Each one of these vehicles has a time and a place in the fundraising cycle and the strategic cycle of an organisation, but none is more misunderstood in my opinion than the capital campaign.

In annual giving you are looking for repeatable gifts, which may be modest to begin with, but you hope that over time a proportion of the givers will increase their annual gift.  Such gifts are most useful if untagged, or if not, directed to broad areas of the organisation’s work and mission.  Direct mail utilises a similar process, but usually has a more specific emotive focus.  These two vehicles (supplemented often by grant writing and events) both have the functions of interesting prospective donors in the mission of the organisation, seeking first gifts, developing a stewardship relationship and seeking renewal and hopefully increased gifts in later years.  A mature fundraising programme will deliver many qualified prospects for a capital campaign, although it is always possible to run a capital campaign for a new cause and start from scratch.

A Capital Fundraising Campaign is, or should be, a rare event in the life of an organisation.  Significant gifts are required to achieve the campaign target. Deciding to use this fundraising vehicle is a decision that cannot be made lightly and cannot be made by fundraising staff but must be an informed strategic decision of the governance body.

A Capital Campaign has the power to bring an organisation together, with a razor-sharp focus on a much-needed project, in ways that few other fundraising vehicles offer.  Done well, it is a whirlwind of activity.  It is exhausting for all involved and involves a singular type of leadership at multiple levels – humble leaders who continually point people to the need and the project.  Leading a Capital Campaign is not something that should be done for personal or political exposure.  To quote Lao Tzu: “A leader is best when people barely know he exists, when his work is done, his aim fulfilled, they will say: we did it ourselves.” This is the art of leadership at its best: the art that conceals art.

lao tzu quote

It is important to understand what a Capital Fundraising Campaign is and isn’t.  Traditionally defined as a process to raise significant funds for the important asset building needs of an organisation; it is typically short, intensive, focused and volunteer-driven.  Projects, which make the best Capital Campaigns, are urgent (it must happen now), relevant (to the organisational mission) and important (distinguished from other operational and minor capital needs).  This means that Campaigns run for endowment needs, debt repayment and augmentation of annual fund are, by definition, extremely difficult to incorporate in a Capital Campaign.

As in any fundraising endeavour the starting point is the need, which then defines the project and creates the funding target.  Problems can occur when there is no clarity in each of these three areas. Let’s unwrap this a bit further.

The project which is the subject of a capital campaign should always be based on a realistic appraisal of the actual needs.  Asking “What must be done and done as soon as possible?” begins this process.  By this I do not mean what is the project, but the presenting need. We know that all organisations have a Vision – a picture of their preferred future.  Other organisations, individuals and stakeholders may also share that vision.  The mission of the organisation is the unique response made to bring the vision to life.  This is basic case development, but many organisations struggle with it particularly when there are marketing departments and governance committees involved.

An example of a Vision could be “A World where no child goes hungry.”  The mission adopted by the organisation could be as specific as “providing school lunches for all children in xyz”. The goals of the organisation may include physically making lunches for children, or they may include wider wrap-around services and programmes.

Let’s say this organisation needed to create a central point from which lunches were produced and dispatched and other relevant services could be located.   Such a project would be a good contender for a capital campaign.  The needs would be known:   x meals provided per week, with an annual increase of y per annum, indicating that the current need is likely to continue in the future.  The current space utilised to carry out this work is no longer suitable or available, also indicating that it is urgent to develop a project or other strategy to meet this need that is directly relevant to the mission of the organisation. Furthermore, the likely investment required will be far greater than what could be reasonably expected to be available from the organisation’s resources, irrespective of historical prudence.  This is what makes it important. For the organisation to continue to achieve its mission in the community it serves, the next step is a purpose-built production, distribution and support centre.

Therefore, the starting point for a capital campaign is not “how much money can we raise?”, but “what compelling, urgent needs confront the organisation and what buildings, or other capital developments are necessary to meet these needs?”

big dreams

Only when the governing body has established such a strategic direction and the idea has become a concept plan, with a rough order of costs, is it time to start to estimate the fundraising requirements.  At this point I have two pieces of advice: “Plan big because people don’t give to puny dreams” and “if the cost were of no significance, what would you really do?”  Both questions move the considerations and conversations from a natural desire to minimalise dreams and costs for the organisation.  My experience, and that of many other fine professionals I have met over the last 30 years, is that people give more readily and generously to a project that captures their imagination and then stands up to scrutiny on the realism front as well.  Projects which are presented tentatively, with costs scraped to the bone and only barely satisfying the need are not as likely to be supported. The cost estimates should cover the minimum necessary to achieve the project objectives and extend to the full and proper expression of the project (not needlessly extravagant, but appropriate for the needs and purposes to which it will be used).  It is useful to have this range as when preliminary planning is done with the prospective donors the groundwork will have been done in terms of what should be done versus what could be done.

A capital campaign should be a rare event in the life of an organisation, so it is too important and valuable an opportunity to enter into unnecessarily or without proper planning.

Once the project is crystallised in this way, all sources of income can be investigated.  It may well be that the organisation can sell other assets or realise investments to invest in the project.  They may feel that some loan funding is realistic.  All gift markets can be considered.  Government or local body funding may be available.  All of these reduce the amount that is to be sought in philanthropic funding.  As I have said, a capital campaign should be a rare event in the life of an organisation, so it is too important and valuable an opportunity to enter into unnecessarily or without proper planning.

In common with any fundraising vehicle a clearly articulated and compelling Case for Funding Support is vital.  People do not just give, however “worthy” the cause is.  Notions of “if everyone in our city gave $100 our target would be achieved” must be heartily put aside.  The reality of raising major capital funds is that the majority of the gifts will come from a few individuals with the interest, ability and linkage to the organisation or at least the cause it serves.

This article is not intended to be a “How to run a capital campaign”, my brief was “what is a capital campaign, and when should you do one?”  So, I apologise if my concluding paragraphs cross that line from “what” to “how”, but I can’t describe adequately “what it is” if I do not at least mention some of the essential characteristics, a few of which are unique to this fundraising vehicle.

One of the first hallmarks of a successful capital campaign is a competent and thorough Fundraising Feasibility and Planning Study.  Best results in the Study are obtained by fundraising professionals who are not “part of” the organization.  If an organisation is considering engaging outside consultancy; this is the time to do it.  The reason for this is that, the Study comprises face-to-face, confidential interviews with key people in the organisation’s constituency.  These people must feel able to respond in a frank manner so that an accurate impression of the acceptance of the project, and support in terms of time, energy, skills, and money can be gained.

The strategic decisions and assumptions of the Board are some of those matters tested in the Study:

  • Is there sufficient need and urgency to justify asking for gifts?
  • What is the best timing for the Campaign?
  • Is the inner group, especially the Board, united behind the project?  Does this group accept its responsibilities and is it willing to support the effort with gifts, influence and participation?
  • What constituency preparation is needed?
  • What will be the most effective method of solicitation?
  • Who are the better prospects?
  • How should leadership be selected?
  • How should volunteers be selected?
  • How should they present the case for funds?
  • Can the support (as sponsors or donors) of corporates and Trusts be obtained?
  • How should bequests and gifts of securities and property be handled?
  • Is the goal attainable in the light of economic conditions? Is the amount to be raised realistic when measured against the scope of the programme?
  • Will competing campaigns of any size cut seriously into the volunteer force or limit gifts to your project?

A Study will give an assessment of the above and recommendations will make clear whether the organisation is “ready” for a capital campaign for the project as expressed.  Furthermore, it will indicate a campaign strategy for successful achievement of your goals.  If institutional readiness is not proven, the reasons “why not” will be explained, with instructions on how to address this, where appropriate.

These questions highlight some of the key principles of the campaign – the leadership support of the Board, shown by gifts of money and time, the use of volunteer donors as the key askers, the need to identify and qualify prospective donors and the ability to achieve key gifts necessary for the achievement of the campaign target.

A gift range chart is a vital tool in the Study as well as the campaign.  Experience has shown that 50% of the target will come from ten donors, of which one will give 10-15% of the total.  Applied to a $10m target, this means that the top gift will be in the range of $1-1.5m and the top ten gifts will realise at least $5m between them.  The importance of such a structure can’t be over-estimated.  If the top gift is too low, the target is unlikely to be achieved.  This is why projects and campaigns must be tested in a feasibility and planning Study.

I will conclude and hopefully leave the reader wanting more!  “How to” is a volume on its own!

Lisa Wells, BA, FFINZ, CFRE

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Lisa has been a professional fundraiser for more than 30 years and now works for the Presbyterian Church of Aotearoa New Zealand as a mission Catalyst, helping churches ignite their missional imaginations, dream big dreams and make them happen!

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Engaging with charismatic and Pentecostal Christianity today – Kevin Ward

Very interesting article, I am very engaged with the conclusion that over-focus on Christology in Mission (what did Jesus do) can limit our ability to continually discern what the Spirit is saying/doing in the present and future. Lots to discuss here …

Candour

group of people raising hands silhouette photographyIn this article by Kevin Ward, senior lecturer at Knox Centre for Ministry and Leadership, Kevin discusses his realisation that re-engaging with the charismatic movement is critical for our future as a Church. Find out why.

We are all only too aware of the explosive growth of charismatic and Pentecostal churches in New Zealand and elsewhere since the 1960s, and the decline of most other forms of church since the 1960s. The 60s have been called the “expressive revolution” which lead to the significant culture changes that came to be labelled post-modernity in the 1990s. This can be seen as “the recovery of the experiential to complement the cerebral”.

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Giving and Receiving – Lisa Wells

Just published in PCANZ’s Candour blog

Candour

christmas xmas gifts presents

The annual season of gift-giving and receiving is nearly upon us. The malls have been decorated since October and the advent calendars (with Ninja Turtles, super heroes, Barbies and other commercially appropriate images) are prepped with daily chocolates for the beginning of December when the unavoidable countdown begins. What does this teach us about giving? Is it that the anticipation is sometimes better than the reality?

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Liturgy: The Greater Loss – Malcolm Gordon

A thoughtful piece about the importance of liturgy to give signposts on the journey of a worship service. My experience gives rise to similar questions and conclusions …

Candour

Malcolm is the Worship, Music and Arts Enabler at the Knox Centre for Ministry and Leadership

Criticising contemporary worship songs has become pretty old hat. It’s such an easy target, with favourite gripes including (but not limited to): the lack of good theology, the ever-increasing prominence of ‘me, myself and I’,

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A Health Check on “Healthy Congregations” – Tom Mepham

More “reality check” questions … having diagnosed a problem, who in our system is accountable for taking action? The congregation? The Presbytery? Council of Assembly? What is the result of ignoring a “health” issue? Yes! Let’s ask PCANZ to go for a check-up!

Candour

Tom Mepham is a first-year ministry intern with KCML and a co-leader of Student Soul, a young adult congregation in Dunedin.

Since 1995’s General Assembly we have used a model for assessing the well-being of our Church called “Healthy Congregations” (see Appendix 1 in Strategic Directions). This provides us with a way to measure the health of each parish in the PCANZ. Putting this model to work would be the equivalent of sending a congregation to the doctor’s office for a full-scale health check up; and by extension, measuring the overall health of the whole PCANZ.

I wonder how healthy we are!

This model uses a qualitative assessment process (as is appropriate for measuring the most important things in church life) and focuses on four relationships: a congregation’s relationship with God; with the wider environment; with the wider church, and within it’s own life. (These are similar to the

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Strategic Planning or Herding Cats

Strategic Planning is one thing churches get hung up on and try to cover all their activities rather than narrow it down to the strategically important ones to focus on. This article is a good beginning and there are other resources if you follow the embedded links.

Clergy Coaching Network Blog

cat-334383_960_720The Reverend Dr. Teresa Angle-Young, Church Coaching Solutions

If strategic planning with your church feels like “herding cats” then listen up!

Clergy from around the country share with me that strategic planning can be one of their most frustrating processes, for the following reasons:

  • Getting leadership and/or staff to agree on strategy can feel like herding cats. As one pastor shared, “If we have 12 people in the room, that means there are 24 opinions on every issue.”
  • The strategic planning process results in too many ideas and priorities, so that the church tries to do too much and spreads itself thin.
  • After the leadership ratifies the strategy, the church doesn’t have the bandwidth to execute it, and so the strategy sits on shelf.

Strategy doesn’t have to be stressful. You can get your leadership aligned and in agreement about your church’s strategy. You can set up accountability structures so that…

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Understanding donations, grants and GST

I had a question on the GST treatment of donation and grants and found that the answer was not straightforward, so I have compiled what you need to know from the IRD and Charities Register.  If you want to discuss this or need more information, don’t hesitate to contact me.

GST treatment of grants and donations

I was asked this week if churches have to pay GST on a grant from PressGo (either from the Mission Enterprise Fund or from the Presbyterian Foundation).  The short answer is “no”, but the area around grants, donations, koha is a bit confusing so here is a guide with references back to the IRD website for additional information if you require it.

Churches are defined as charitable organisations and a charitable organisation needs to be registered by Charities Services to receive tax exemptions. Most charities don’t pay income tax, but many pay GST on taxable income and claim GST on expenses.

Donations made to a church by individual taxpayers are eligible for a rebate of one third the amount donated (up to the level of the donor’s taxable income).  In registering with Charities Services most churches will have Donee Organisation status and can offer this benefit to donors.  If you are registering a separate Trust with Charities Services (one your church set up to fund youth or community work for example) you need to make sure that you apply for Donee Organisation status at that time.

This is what IRD says about Donee Organisations:

An organisation must meet certain conditions before we can approve it as a donee organisation. You will find the qualifying criteria in our booklet Charitable organisations (IR255).

If your organisation is registering as a charity with the Charities Services, and indicates that donations are a source of income on the application form, this information will be passed on to us and we will automatically consider donee organisation status. If your organisation is not registered as a charity with the Charities Services you must apply in writing directly to us to be considered for benevolent, philanthropic or cultural donee status.

 Note: Donations to organisations that apply most of their funds overseas will not qualify for donee organisation status, unless the organisation:

  •  has been approved as a donee organisation by the New Zealand Parliament, or
  • sets up a separate fund maintained exclusively for providing money for charitable, benevolent, philanthropic, or cultural purposes within New Zealand.

 Donation receipts:

The donation receipt needs to show:

  • the name of the donor(s)
  • the amount and date of the donation
  • a clear statement that it is a donation
  • clearly at the top if the donation is a payroll giving donation
  • the signature of an authorised person, and
  • an official stamp with the name of the approved donee organisation.

 

Most gifts and donations are unconditional gifts.  This is a donation or payment made voluntarily to any non-profit body, where there is no identifiable direct benefit to the donor or the donor’s family.

Some unconditional gifts can be:

  • donations or koha
  • money from door-to-door appeals and street collections
  • bequests
  • voluntary school fees (but not school activity fees).

Subscriptions, payments from trading activities and payments made by the Crown or a public authority are not unconditional gifts for GST purposes. This includes grants from Lottery, COGs and your Local Body.

 Some grants are unconditional gifts (even if you are required to use the money for the purpose applied for and then complete accountability reports).  This includes grants from community and charitable trusts, statutory trusts like gaming and utility company trusts, grants via PressGo and some others.  Usually the application guidelines will tell you whether you need to pay GST on your grant.

If you are uncertain you could check with the Trust you are applying to, but the PressGo Catalyst can provide advice on this.

How to find out what income is liable for GST (and/or income tax):

Your organisation may receive many different types of income, including:

  • subscriptions
  • grants
  • subsidies
  • donations or koha
  • fees
  • raffle money
  • trading profits, and
  • proceeds from selling assets.

Some grants made to non-profit organisations can be an unconditional gift or donation, especially if given by charitable trusts.  This table makes clear how you should treat each from of income.

Liable for income tax Not liable for income tax Liable for GST Not liable for GST Exempt from GST
Subscriptions  y y
Donations & Charitable Grants y  y
Koha y*  y
Bequests  y y
Grants (from the Crown)  y y
Unconditional gifts  y  y
Subsidies y**  y
Suspensory loans  y y
Trading activities  y y
Raffles or housie proceeds y**  y
Admission fees  y y
Affiliation fees  y y
Sale of donated goods or services  y y
Sale of purchased goods  y y
Sale of assets or equipment  y y
Insurance receipts  y y**
Hall or equipment hire  y  y
Rent received (residential)  y  y
Rent received (commercial)  y y
Penalty payments (fines)  y  y
Advertising or sponsorship  y  y
Interest or dividends  y  y
Gaming machines (as an owner of machines)  y  y

*  The tax treatment of koha depends on what it is. See our booklet Payments and gifts in the Mäori community (IR278). ** Liable in certain situations.

If your income is exempt from GST

If your income is “exempt from GST”, it’s different from income that’s “not liable for GST”. This is important when you’re working out your claim for GST input tax credits on goods and services for your organisation.

Claiming input tax credits on expenses

If you’re a GST-registered non-profit organisation you may claim input tax credits on expenses.

These tax credits can be claimed on expenses gained from income that’s either:

  • liable for, or
  • not liable for GST.

Tax credits can’t be claimed on expenses gained from income that’s exempt from GST.

Example

If you’re a GST registered non-profit organisation that receives income from… then you’re…
a government grant liable for GST
trading activities liable for GST
Donations and some grants not liable for GST
renting a residential property exempt from GST

As a non-profit organisation you may claim a GST input tax credit for all expenses, except those from receiving the rent, which is exempt from GST.

If you have any questions in this area, please contact the PressGo Catalyst for advice.

 

Lisa Wells, 22 May 2018

(Material abstracted from ird.govt.nz, correct at that date)