I met a new client yesterday. He had an exciting nonprofit theater, about 18 months old. He wanted to know about making a budget. But he didn’t understand the different types of income he should be considering.
I know lots of you folks are in the same boat. So here is a cheat sheet for nonprofit income.
Two Types of Income
Nonprofits have two different streams of income.
- Earned income. This is money your company earns. Ticket sales, admission fees, concessions, contracted performances, membership fees. Stuff like that.
- Unearned (or Contributed) income. This is money your company receives as donations and grants. Your company doesn’t actually earn it. It is a gift. There are four basic sources for unearned income.
- Individual donations. These are gifts from regular people. This is your largest single source of unearned income, to the tune of 75% or more. It is the most reliable place to find money.
- Corporations. This is money from businesses, large and small.
- Foundations. Foundations are nonprofit corporations that make grants to charities.
- Government. This funding comes from city, county, state or federal sources.
There are variations on the four themes: corporate foundations or public-private partnerships come to mind. Don’t fret about that. Just make sure you have a strategy for pursuing each funding source.
And let me repeat, in all caps. INDIVIDUALS ARE YOUR SINGLE MOST IMPORTANT SOURCE OF FUNDING.
Got it? Good.
My only quibble – and I quibble because words do matter – is calling contributed income “unearned”. Speaking as a fundraiser, believe me, it’s earned!
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Hi, Mary. I think that’s a reasonable quibble, Sybil! Updating now.
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Occupational hazard. 🙂
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I agree with this quibble wholeheartedly. I’m an accountant and the nonprofit I works for is a performing arts organization. When I hear adminsitrators use “unearned income” I get confused, since we have unearned ticket income/revenue. I have to always clarify. Contributed Income is concise. Thanks for pointing that out!
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I always break my individuals down into Big and Small (though I sometimes use a variety of fancier terms for the categories)…if your client is really trying to wrap his head around revenue streams, it seems useful for him to think about strategies for getting a steady base of small gifts and a few big gifts when it comes to individual giving.
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Shana, good advice. I also suggest they have Board Donations as a subcategory of Individual Contributions. It helps remind the board that they have a responsibility to financially support the organization.
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I like it. 🙂
You also inspired me to write a blog post that’s been in the hopper for a couple of weeks…a riff on “unearned” income, and why it might be better to fight your prejudice against that term than simply rename it. http://developmentshrink.blogspot.com/2013/07/accounting-vs-plain-english-problem.html
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Shana, this is great. I’m going to share.
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