The annual fund: steady, unrestricted giving every year

This guide is for the founder, board or volunteer team who want fundraising to feel less like a series of emergencies. The annual fund is the money your charity raises every year, mostly from individuals, to pay for its everyday work. It's usually unrestricted, meaning you can spend it wherever the need is greatest: salaries, rent, insurance, the program that just lost a grant. After reading, you'll know how an annual fund fits with your other fundraising, how to set a realistic goal, how to plan a year of asks, and how a broad base of donors helps your charity's tax status.

Why the annual fund matters

Grants and big one-off gifts are welcome, but they're often restricted to a project and they end. The annual fund pays the costs nobody wants to fund but everybody depends on.

• Flexibility. Unrestricted money lets the board decide where it's needed. Our guide to restricted funds explains the difference.
• Stability. Many modest gifts, renewed year after year, are steadier than a few large ones.
• A pipeline. Today's annual fund donors are tomorrow's monthly donors, major donors and legacy donors.
• Public support. A broad base of donors helps you pass the IRS public support test (see below).

How it fits with everything else

Think of your fundraising in layers:

The annual fund is the base. Keep asking for it even in a year with a big campaign.

Set a goal you can defend

Start from what actually happened, not from what the budget needs.

1. Look back. Add up last year's gifts from individuals, and the year before. Count donors as well as dollars.
2. Estimate renewals. How many of last year's donors usually give again? Our donor stewardship guide shows how to work out your own retention rate.
3. Add new donors realistically. How many new donors did you gain last year, and from what?
4. Add any upgrades you'll actually ask for. A goal that assumes everyone gives more, without anyone asking them, is a wish.
5. Compare with the budget. If there's a gap, the board decides how to close it: more asks, other income, or a smaller budget. Don't just raise the goal.

Write the goal, the donor count and the assumptions on one page, and share it with the board.

Plan a year of asks

Most small charities ask two or three times a year, with plenty of thanks and news in between.

Ask people in the way they prefer. Long-time donors may like a letter and a call; younger supporters may give by email or text. Board members should give each year and help thank donors.

Unrestricted means telling the truth

An annual fund appeal can still tell one story about one program. That's fine, as long as you don't promise the money will go only to that program. Wording like "Your gift supports everything we do, including programs like this one" keeps the gift unrestricted. If a donor writes on the check that it's for one program, treat that gift as restricted.

Thank and receipt every gift

• Thank quickly, by letter, email or phone.
• Meet the IRS rule. For any single gift of $250 or more, the donor needs a written acknowledgment from you to claim a deduction. Publication 526 says separate gifts aren't added together for this test. Our guide to donor acknowledgments explains what to include.
• Send a year-end summary in January to people who gave several times.

How broad giving helps your tax status

Most charities are public charities because they get enough support from the public. The Schedule A instructions explain the main test: a charity generally qualifies if 33 1/3% or more of its total support, over five years, comes from governmental units, contributions from the general public and gifts from other public charities.

There's a catch that makes the annual fund important. In the public support figure, each individual donor's gifts over those five years count only up to 2% of total support. A single generous donor can't carry the test alone, but many modest donors can. Our guide to the public support test explains the calculation.

Track a few numbers

Once a quarter, look at:

• total raised for the annual fund, against the goal
• number of donors, and how many are new, renewed or lapsed
• your retention rate
• average gift

Compare with your own past years. A simple donor database makes this easy.

Annual fund checklist

• Our annual fund goal is based on last year's gifts, donor counts and realistic assumptions
• The board has agreed the goal and every board member gives
• We have a calendar with two or three asks and regular news in between
• Appeals keep gifts unrestricted, and we honor any restriction a donor adds
• Every gift is thanked within days, and gifts of $250 or more get a written acknowledgment
• We invite annual fund donors to give monthly
• We review donors, retention and the goal every quarter