Project sponsors are usually concerned about the value for the money provided to non-profit organizations because these organizations are established with the aim of addressing specific issues. Income classification for non-profits revenues becomes vital in eliminating financial “fuzziness” which is associated with abetting financial impropriety and mismanagement in organizations.
Income classification is crucial in highlighting the source of funds and the nature of the resources, including how its expenditure aligns to the overall goals and objectives of the organization.
Here is the classification of the types of funding that non-profits are exposed to:
These are sums of money provided to non-profits by donors on condition that the fund will be used strictly for a purpose that has been specified. The determination for the particular purpose where the funds can be utilized can originate from either party. The non-profit can make an appeal for funding based on these specific issues, and hence the donor will support the specific activities. However, a donor may also identify a particular area in a project where they feel their funds will serve best, and hence decide to explicitly provide resources for this area of the project. This designation of where the funds will be used is the basis for the restriction of use.
The alternative to restricted funds is the unrestricted fund. Under this category, the funds provided by donors are utilized at the discretion of the project owner, in this case, the non-profit, provided that these resources are prudently engaged in the pursuit of the organizations’ goals. In most cases, unrestricted funds are availed for the facilitation of logistics and operations support that determine the success or failure and the quality of the outcomes of a project.
Also known as temporary funding, bridge funding is provided to non-profits as contingency resources issued as supplemental funds to meet short-term organizational needs. Bridge funding is specifically used as a “firefighting” fund that cushions an organization, a project or a project activity from becoming inconsequential. For example, in the event of political unrest, natural disaster or when anticipated funds have not yet been received, a non-profit organization can acquire bridge funding to stabilize the project before a long-term solution can be adopted.
Apart from understanding the different types of funding available, it is equally important for organization’s to understand how policies can be formulated to guide the organization in the application of this information in different situations. This includes in accounting, financial reporting, and strategy formulation. For example, how would you respond to an offer for a restricted donation to be applied to a program that has been fully funded but is not yet operational?
Chris Bouchard is a creative coach who helps artists and non-profits position themselves for success and realize their full potential. An accomplished grant writer and fundraising consultant, Chris started his business in 2013 to help small non-profits through the sometimes overwhelming prospect of navigating the world of social business. To contact Chris, please visit his coaching website at http://www.cbouchard.com
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