Capital campaigns for small charities

This guide is for small charities thinking about raising money for something big and one-off: buying or renovating a building, a van, a kitchen, a playground. A capital campaign is a fundraising effort with a fixed goal, a fixed deadline and a physical result, run alongside your everyday fundraising. After reading, you'll know whether you're ready, how the phases work, how to handle pledges and gift agreements, what to put on receipts, and what to do if the project changes.

A capital campaign depends on larger gifts. Read our guide to major gifts first if you haven't asked anyone for a large gift before.

Are you ready?

A capital campaign is hard work for a small team, and it can drain the money you need to run programs. Before you start, be honest about these questions:

• Is the project really needed? Can you explain, in two sentences, why this building or vehicle matters to the people you serve?
• Do you know the full cost? Include fees, permits, furniture, moving, a contingency for overruns, and the higher running costs afterward: utilities, insurance, repairs.
• Can you still pay for programs? Donors who give to the building may give less to your annual appeal. Plan your regular fundraising for the campaign years too.
• Is the board committed? Every board member should give at a level that's meaningful for them, and help ask. Funders and major donors may ask whether your board has given.
• Do you have a few likely lead donors? Most campaigns depend on a small number of large gifts. If you can't name people who might give them, start by building those relationships.
• Does someone have the time? Somebody has to manage the list, the meetings, the paperwork and the thank-yous, possibly for a year or more.

Many charities test these questions with a feasibility study: confidential conversations with likely donors and community leaders, often run by an outside consultant, to see whether the goal is realistic. A small charity can do a lighter version itself: talk privately with ten or twenty supporters, share a draft plan, and listen.

The phases of a campaign

Most capital campaigns follow the same shape:

1. Planning. Set the project, the budget, the goal and the timeline. Write your case for support for the project. Agree a gift acceptance and naming policy.
2. Quiet phase. Ask the board and your closest supporters privately, starting with the largest gifts. Many campaigns aim to have a large share of the goal pledged before announcing anything, so the public phase starts with momentum.
3. Public phase. Announce the campaign and invite everyone to take part, with letters, events, a progress thermometer on your website, and smaller gifts.
4. Finish and thank. Close the campaign on time, celebrate, report what was raised and how it was spent, and thank every donor.

A gift table

A gift table (or gift range chart) lists how many gifts of each size you need to reach the goal, and how many prospects you'll need for each gift. It keeps the plan honest. Build it from your own donor list, not from a formula: if the largest gift your charity has ever received is far below the top of your table, the goal may be too high.

Pledges

Many capital gifts come as a pledge: a promise to give an amount over a period, often a few years.

• Put it in writing. A simple pledge form or letter with the amount, the schedule, what it's for, and the donor's signature.
• Send reminders before each payment is due, with thanks for the last one.
• Track pledges separately from cash in your books and reports, so the board can see what has actually arrived. Ask your accountant how to record pledges in your financial statements.
• Plan for some to fall short. People's circumstances change. Don't spend pledges before they're paid.

For the donor, IRS Publication 526 says "you can deduct your contributions only in the year you actually make them in cash or other property," and that a promissory note given to a charity "isn't a contribution until you make the note payments." So donors should expect to deduct pledge payments, if at all, in the years they actually pay. They should ask their own tax adviser.

Gift agreements and naming

For larger gifts, write a short gift agreement signed by the donor and your charity. It should cover:

• the amount, the payment schedule and what the gift is for
• any recognition, such as a named room, and for how long
• what happens if the project changes, is delayed or is cancelled, or if you raise more than you need
• what happens if a pledge isn't paid in full

Gifts for a campaign are usually restricted to the project: you must spend them on it, or get the donor's agreement to use them differently. Our guide to restricted funds explains why that matters.

What if the project falls through? Publication 526 gives an example close to a capital campaign: a donor gives cash to a local school board to help build a school gym, and the money will be refunded if not enough is collected. The IRS says the donor "can't deduct your contribution until there is no chance (or only a negligible chance) of a refund." If you promise refunds, tell donors that, and talk to an accountant. Many charities instead say in the gift agreement that, if the project doesn't go ahead, the board will use the gift for a similar purpose agreed with the donor.

Naming. Agree in writing what a name covers, for how long, and what happens if the building is sold or rebuilt, or if a donor's reputation changes. Our gift acceptance policy template helps you set the rules before an offer arrives.

Receipts

Capital gifts follow the same IRS rules as any other gift:

• For any single gift or pledge payment of $250 or more, the donor needs a written acknowledgment from you with your charity's name, the amount (or a description of a noncash gift), and whether you gave anything in return. Our guide to donor acknowledgments explains each part.
• If donors receive goods or services in return, such as a dinner at a groundbreaking event, for a payment of more than $75, you must tell them in writing how much is deductible and give a good-faith estimate of what they received. A charity that fails to do this can be fined $10 per contribution, up to $5,000 per fundraising event or mailing, unless it shows the failure was due to reasonable cause.
• Gifts of stock, property or equipment have extra rules. See our guide to noncash gifts.

Keep everyday fundraising going

A common mistake is letting the campaign swallow everything else. Keep sending your year-end appeal, keep your grants up to date, and tell donors clearly when you're asking for the building and when you're asking for programs. Some charities ask lead donors for a combined gift: one part for the building and one part for running costs while the campaign runs.

Capital campaign checklist

• The board has agreed the project, the full cost and how it will pay higher running costs
• Every board member has given and is helping to ask
• We tested the goal with likely donors and built a gift table from our own list
• We have a case for support, a gift acceptance and naming policy, and a pledge form
• Large gifts have signed gift agreements, including what happens if plans change
• Pledges are tracked separately and we don't spend them before they're paid
• Every gift of $250 or more gets a written acknowledgment that meets IRS rules
• Our everyday fundraising continues throughout the campaign
• We report to donors on what was raised, what was spent and what was built