Managing Financial Records for Digital Fundraising: 4 Tips
In today’s online-focused world, digital fundraising is essential for nonprofits to thrive. Research shows that revenue from online donations increased by 10% from 2021 to 2022, and that number is only projected to grow as more supporters take advantage of the convenience and versatility that digital fundraising provides.
When your organization is incorporating new methods of online fundraising such as crowdfunding or investing for your nonprofit, financial management can become complicated. This is especially true when making sure that all of your donations are recorded properly, which is key to ensuring compliance with legal and regulatory requirements for fundraising.
In this guide, we’ll walk through the following four tips for effectively managing your nonprofit’s financial records when doing digital fundraising:
- Understand the Different Types of Online Donations
- Consider the Implications for Your Budget
- Compile and Analyze Financial Statements
- Focus on Financial Data Security
As you adapt these tips to meet your nonprofit’s needs, keep in mind that your fundraising and financial management strategies should work together. To further your organization’s mission, you not only need to maximize the amount of revenue you bring in, but also handle that revenue appropriately. Let’s get started!
1. Understand the Different Types of Online Donations
While the donation page on your organization’s website likely comes to mind when you think of the term “digital fundraising,” not all of your online contributions come in through that page. There are many types of digital donations, each of which needs to be recorded slightly differently in your nonprofit accounting system.
Some of the most common forms of online fundraising revenue include:
- One-time donations. These contributions are the most straightforward to track. Each donation amount is simply recorded as revenue with a few additional details such as the date the gift was received, the donor’s name, and their payment method.
- Recurring gifts. If a supporter sets up an automatic monthly, quarterly, or annual contribution through your online donation page, the gift amount is recorded each time it’s received with a note that it’s from a recurring donor.
- Crowdfunding campaign donations. Because crowdfunding contributions usually come in via a third-party site rather than through your organization’s regular donation page, it’s best to record them separately and organize them by campaign.
- Peer-to-peer contributions. Similarly to crowdfunding, record contributions that come in through a peer-to-peer platform separately from the ones made through your nonprofit’s website. Additionally, the donations should be recorded under the name of the person who made the gift, not the person whose name is on the fundraising page.
- Virtual event revenue. Virtual events often provide multiple opportunities for supporters to donate. For instance, at an online silent auction, one participant may pay for an event ticket, buy auction items, and make an additional gift. Each of those contributions should be categorized by type in your accounting system and marked with the donor’s name.
- Matching gifts. When a supporter who works for a company with a matching gift program donates online and submits a match request, you’ll need to record two separate contributions. The original gift should be attributed to the supporter with a note that their employer matched it, and the matching gift should be attributed to the employer and categorized with corporate giving revenue.
With all of these revenue sources, it’s important to reconcile your donation records on a regular basis—at least once per quarter, if not once per month. Working with a nonprofit accountant can help with this process. They have the expertise to ensure all of the information in your accounting system matches the data from the various online fundraising platforms you use and resolve any potential discrepancies.
2. Consider the Implications for Your Budget
If you’ve ever created a nonprofit operating budget, you know that this document is used to predict your organization’s revenue and expenses for a given fiscal year. Of course, digital fundraising provides revenue to include in your projections, but you should keep in mind that it also affects your expenses.
Most nonprofits divide their predicted expenses into program costs, which are incurred while doing activities that directly relate to your mission, and overhead costs. Overhead costs include not only administrative expenses like rent and staff salaries, but also the expenses required to fundraise. In the digital space, this may include:
- Payments for fundraising software like virtual event platforms, payment processors, and matching gift databases.
- Marketing costs, such as paid social media ads or website hosting platform subscriptions.
- Fees paid to consultants, graphic designers, or other third-party professionals who help with your digital fundraising efforts.
As you develop your budget, make sure to figure in all of these costs. Additionally, remember that both the revenue and the expenses you record in your budget are just estimates. If possible, try to budget for a revenue surplus so that you can still cover all of the costs of digital fundraising if you bring in less funding than expected.
3. Compile and Analyze Financial Statements
In addition to your budget, your organization’s financial statements are some of the most important documents for sound management. They summarize and contextualize data from digital fundraising and other financial activities so you can accurately assess your nonprofit’s financial health.
Jitasa’s guide to nonprofit financial management recommends compiling and analyzing the following statements:
- Statement of activities. This document is the nonprofit parallel to the for-profit income statement. It allows your organization to review your revenue and expenses over time, which can help you make more accurate projections for future digital fundraising efforts.
- Statement of financial position. Also known as a balance sheet, this statement categorizes your nonprofit’s assets and liabilities, some of which are likely connected to digital fundraising. For instance, the revenue you generate from online activities falls under your organization’s assets, while any related debts or expenses payable count as liabilities.
- Statement of cash flows. This document shows how cash moves in and out of your organization—digitally and otherwise—to provide insight into your nonprofit’s spending and fundraising habits.
Some organizations also compile a statement of functional expenses, which breaks down your costs based on programming, fundraising, and administrative activities. Although this statement is optional, it organizes your digital fundraising data in the same format as the IRS Form 990, so it makes filling out your nonprofit’s annual tax return easier.
4. Focus on Financial Data Security
Data security measures are an important part of your nonprofit risk management strategy, especially when it comes to financial information. Keeping your digital fundraising data safe is important not only to protect against theft and fraud, but also to build trust with supporters by protecting their contact and payment information.
Some strategies to increase financial data security at your nonprofit include:
- Requiring two-factor authentication for account logins.
- Granting user permissions only to those who require access to financial data for their job responsibilities.
- Investing in a PCI-compliant or PCI-certified payment processor for your online donation page.
- Training staff members in data security best practices.
Additionally, be cautious about the types of online payments you accept. According to NXUnite, data security is especially important when it comes to donations made through mobile payment services since they typically ask for bank account information from both your organization and the donor. Stick to trusted providers and research their internal security measures before accepting contributions made through those services.
As your nonprofit expands its digital fundraising efforts, you’ll also need to be more mindful of how you manage and record the funds you bring in through online channels. A robust accounting system, a well-organized budget and financial statements, and strong data security measures are essential for your organization to not only comply with regulations but also make the most of digital fundraising.
