6 Things to Consider When Planning a Capital Campaign

Launching a successful nonprofit capital campaign requires careful planning, clear communication, and a deep understanding of donor relations and accounting best practices. To ensure a seamless fundraising campaign, you must first understand the different types of donor pledges and establish clear fundraising policies to guide your campaigns. 

In this guide, we’ll explore six key considerations that can make or break your capital campaign’s success.

#1: Understanding Intent vs. Promise to Give

At the heart of any capital campaign lies the distinction between an “intent to give” and a “promise to give.” While they sound similar, the differences between these two pledge types have strong implications not only for your campaign, but also for the donors themselves.

In short, an intent to give is a non-binding expression of a donor’s willingness to contribute, often using language like:

• “I intend to give”
• “It is my intention to donate”

This communication is not a legally enforceable promise. As such, contributions cannot be recorded as receivable or revenue until the cash is actually received by the organization. 

For example, if a donor submits a pledge card stating, “I intend to give $50,000 towards the new community center,” the organization cannot recognize that revenue until the funds arrive. 

On the other hand, a “promise to give” is a legally binding commitment by a donor to make a contribution. It can be made verbally or in writing, as long as it is clearly stated as a “promise” and includes specifics like the amount and payment schedule. 

For example, a donor might say, “I promise to give $100,000 towards the new building, payable in four annual installments of $25,000.” In this case, the nonprofit could record the funds according to established revenue recognition processes, and the donor would be legally obligated to follow through with their promise.

While the difference in phrasing may seem minor, it has major implications for both the organization and the donor, making clarity of phrasing a key concern for any fundraising effort.

#2: Crafting Effective Pledge Cards and Campaign Materials

The language used in pledge cards, brochures, websites, and other campaign materials can have an enormous impact on the overall success of a campaign and donors’ willingness to contribute. 

This is because using words like “promise,” “commit,” or “agree to pay” creates a binding promise to give, while “intend” indicates a non-binding intent. A legally binding promise offers less flexibility to donors—for example, if their financial circumstances were to change drastically—and, consequently, could result in more conservative donations. 

Additionally, if your campaign has multiple purposes (e.g., construction and endowment), pledge cards should clearly specify how donations will be allocated or allow donors to designate their intent. 

For instance, an effective pledge card might state, “My pledge of $_____ is designated for the following purposes: $_____ for the new science building and $_____ for the scholarship endowment.” This allows donors to contribute to the causes they most care about, without a restrictive binding agreement that could cause them problems later.

#3: Handling Conditional Promises and Matching Gifts

Some promises may be conditional, such as a matching gift contingent on raising a certain amount from other donors. These conditional promises cannot be recorded as revenue until the conditions are substantially met. 

For example, a donor might pledge, “I will match all donations up to $500,000 for the new library construction, provided the total raised from other donors exceeds $1 million.” In this case, the nonprofit cannot recognize the $500,000 matching gift until the $1 million threshold from other donors is reached. 

Clear communication and thorough documentation are essential when dealing with conditional pledges. This practice helps to avoid misunderstandings and ensure proper accounting treatment. 

Establish procedures for tracking and monitoring conditional pledges, including regular communication with donors and timely recognition of revenue when conditions are met.

#4: Developing Policies and Maintaining Donor Relations

While accounting rules govern how pledges and promises are treated, nonprofits often prioritize maintaining positive donor relationships over strict enforcement. Clear gift acceptance and campaign counting policies can help align fundraising practices with accounting requirements while fostering trust and transparency with your donor base. 

Involve key stakeholders, including accounting professionals, in developing comprehensive policies tailored to your organization’s needs and donor preferences. Regularly review and update these policies to ensure they remain relevant and effective. 

For example, your policies might outline acceptable language for pledge cards, procedures for handling conditional pledges, and guidelines for recognizing revenue from multi-year promises to give. Clearly communicating these policies to donors can help set expectations and avoid misunderstandings.

A well-informed capital campaign committee plays a vital role in upholding these policies and managing donor commitments. 

Committee members should be thoroughly trained not only on your organizational policies, but also on the distinctions between intents and promises to give. This enables them to effectively communicate with donors, ensuring clarity in pledge discussions and documentation. The committee can also help develop strategies to convert initial intents into firm promises, maximizing the campaign’s financial impact while maintaining donor relationships.

#5: Managing Revenue Recognition and Cash Flow

When unconditional donor promises are made to fulfill a pledge over multiple years, the full amount is recorded as revenue and a receivable upfront, even if cash payments are outstanding. This accounting treatment can potentially create cash flow issues if the nonprofit incurs expenses before receiving all promised payments. 

To mitigate risk, estimate an allowance for uncollectible pledges based on historical collection rates. For example, if your organization typically collects 90% of pledges, you might record an allowance for doubtful accounts equal to 10% of the total pledged amount. 

To optimize your donation accounting processes, develop a cash flow projection model that accounts for the timing of expected pledge payments alongside anticipated expenses. Regularly monitor and adjust these projections as needed. This not only helps you develop a fuller understanding of how much money is actually available to use, but also helps predict cash flow issues. 

For instance, if a major construction project is scheduled to begin before significant pledge payments are due, you may need to secure bridge financing or explore other options to cover short-term cash needs. Accurately projecting your cash flow would help you anticipate this issue.

#6: Common Errors and Best Practices

A common mistake nonprofits make is recording an “intent to give” as revenue before cash is received. This can lead to inaccurate financial reporting and potential compliance issues. 

Ambiguous language in pledge cards or campaign materials can also trip up organizations, leading to confusion over whether a commitment is binding or non-binding. 

To avoid these errors:

• Lean on prior experience and strategize for your capital campaign
• Develop clear policies and procedures for handling pledges and promises
• Communicate effectively with donors, using precise language and setting clear expectations
• Make informed decisions based on historical data, industry benchmarks, and professional guidance
• Regularly train staff and volunteers involved in the campaign on proper procedures

Smith + Howard: Expert Nonprofit Accounting + Advisory Services

A well-planned and executed capital campaign can inject much-needed funds into your nonprofit, enabling you to pursue your mission and help more people. But planning an effective fundraising campaign can get complex. It requires navigating a maze of pledges, promises, and policies, all while fostering trust with your donors. 

If you’re planning a capital campaign, partner with an expert nonprofit accountant from Smith + Howard. Your advisor’s expertise can help you ensure compliance, donor satisfaction, and long-term success for your organization. Contact Smith + Howard today to learn more about our accounting and advisory solutions for nonprofit organizations.