Development

501(c)3 Federal Tax Status

After an organization is formally incorporated, it can apply for nonprofit status with the IRS. Under 501(c)3 status, the IRS recognizes an organization as a tax-exempt and charitable. This designation indicates that the funds used to operate the institution do not profit any private shareholders and that the institution will not try to influence legislation or participate in campaign activity. IRS uses the term “charitable” to describe organizations with missions dedicated to the “relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.”

Of particular importance to museums and historic homes, organizations with this status are eligible to receive tax-exempt contributions. The IRS will require a receipt from the museum for the donor to file if these gifts exceed $250. If a person donates an object, a third-party is required to assess its value.

Any donation made to an organization without this formal status from the IRS may not be tax-exempt, so it is crucial that you file the necessary paperwork before fundraising. To gain 501(c)3 status, an organization must file the appropriate paperwork with the IRS annually. These forms include the 990, the 990EZ, or the 990-PF. To learn more about the application process, visit the IRS departmental website at https://www.irs.gov/charities-non-profits/application-process.

Sources on filing for 501(c)3 status:

  • NOLO Law for All offers legal information for a variety of institutions. Visit the site to find useful articles, downloadable legal forms, and legal information for nonprofit organizations. NOLO’s explanation of 501(c)3 requirements is very well-written and easy to follow.
  • The IRS provides information on 501(c)(3) exemption requirements on their website here. The site also links to additional information on the application process and other important information.
  • In 2012, the N.C. Center for Nonprofits compiled this booklet, “How to Start a 501(c)(3) Nonprofit Organization.”
  • Here, Findlaw.com defines the five different types of 501(c)(3) non-profit organizations and their different classifications.
  • Is your organization in compliance with federal law? Check out this Compliance Guide for 501(c)(3) Public Charities from the IRS.

Capital Campaigns

While many of the other areas of development are open-ended, capital campaigns focus on reaching a specific funding goal for particular projects. These projects tend to be related to the building in which the organization is housed – buying new computers, building repairs, funding a new wing, etc. Make sure to take time to develop a list of donors  in advance of conducting a capital campaign. “The Basics of a Capital Campaign” (pdf) by The Nonprofit Partnership briefly outlines important characteristics and phases of capital campaigns.


Crowdsourced Funding

More and more museums have turned to Kickstarter to raise funds for projects.  Kickstarter was designed for funding creative projects.  It allows backers (friends, fans & strangers) to support your project by pledging.  You can set an amount goal and deadline while tracking the funding progress. Kickstarter now has a #Museums tag where you can view other museum funding projects.

An alternative to Kickstarter is IndieGoGo. This brief article from Idealware compares Kickstarter and IndieGoGo and will help you consider which platform is the better option for your small museum fundraising project.


Donations (Individual, Annual Fund, and Major Gifts)

Donors can be courted individually, through an annual fund, or through a major gifts program. Individual donations are built upon relationships between potential donors and the people operating and working at the museum. Develop these relationships through regular contact – options include but are not limited to meetings with museum board members and staff, personal walk-throughs at the museum, private events for certain donors, and opportunities to witness how the museum used the donation if tangible. With individual donors, follow-up is key.

Distinct from membership drives and direct contact with individual donors, your organization may benefit from holding annual fund appeals regularly. The money collected for the annual fund is unrestricted and can be used as needed within the budget. Donations for the annual fund can be collected through individual meetings, special events, or annual fund drives throughout the year.

A major gifts program, meanwhile, targets donors who seek to make a larger contribution. The lower limit of these donations is at your discretion – $500, $1000, and $2500 can all define the minimum donation amount that counts as a major gift for your organization. Major gifts have much in common with individual donations – face-to-face interactions and developing relationships with major gifts donors is the cornerstone to this form of fundraising.

Templates for requests for donations:

  • Writing appeal letters is nothing short of an art. Check out these pointers for improving your next letter.
  • This Nonprofit Quarterly article provides a template for “The Donor-Centric Pledge,” part of a strategy to communicate clearly and maintain relationships with donors.
  • Although the basics of fundraising are typically constant, fundraising strategies differ based on the size of the organization. Blackbaud has created a video aimed at smaller organizations, “The Secrets to Fundraising Like the Big Boys.”
  • It is a great idea to actively look for opportunities to reach out to your donors. Here are 10 Reasons to Contact Donors other than to ask for money.
  • The Fundraising Authority also has fundraising tips for organizations with small, even one-person, development teams.
  • Sandy Bradley of The Grantsmanship Center produced this useful guide on how to get donations for a fundraising auction.

Templates for thank-you letters:

Sources on donor management strategies and software:

  • Having trouble keeping track of donor information from year-to-year? Check out this guide to donor management software. (pdf).
  • Interested in prospect research? We created a sample donor profile, with the types of information you will want to collect.
  • Prospect research is an important, but time-consuming task. This article contains the basics of prospect research. It is written with libraries in mind, but translates well to museums.
  • The Nonprofit Partnership’s study “Effective Fundraising for Effective Nonprofits” (pdf) outlines trends of donor behavior and lists 6 recommendations to consider for your fundraising strategy.

Earned Income

Earned income from a museum can span many areas – admissions fees, museum store profits, dining facilities profits, space rentals, and entry fees for workshops and special exhibits. Unlike the other funding sources detailed here, earned income is entirely dependent on visitation and the opportunities for additional spending that a given organization presents. Keep in mind that, while these may serve as important sources of income for your organization, such costs may prove to be prohibitive to some prospective visitors.


Endowments

Money donated towards an institution’s endowment may not be spent directly. Rather, these donations are invested and their earnings are available for use by the institution holding the investment. There are two different types of endowments – unrestricted endowment funds and restricted endowment funds. Restricted endowment funds are reserved for specific purposes whereas unrestricted ones are not. Your organization can hold an endowment fund drive to court donations to further invest for the museum. It is important to note that endowments are less prone to yearly fluctuation than donations and grants, making it an important source of income for institutions of any size.

Sources for additional information:

  • This paper by Carol Norris Vincent is intended to serve as a guideline for museums which are considering providing for the stability of their future through endowment funds.
  • Here, Guidestar outlines how small nonprofits can establish endowments.

Grants

Grants are among the most restricted funds available for small museums and historic homes. Applied for directly from funding organizations, grants are designated for a specific purpose to be given at a specific time. Conferring organizations lay out the requirements for their grants, including the size, programs, and location of the organizations that they seek to fund. Don’t be afraid to get creative with the types of grants that you apply for! Matches may come from unexpected places and there are many different types of organizations – government agencies, state agencies, private foundations, family foundations, independent foundations, community foundations, corporate foundations, and national foundations – looking for organizations like yours!

Grant opportunities:

Resources available when applying for grants:


Membership Programs

Paid membership is a central means of developing income for your organization. Before offering this opportunity, define the benefits of paid membership and their cost. Will paying members have unlimited visits to your institution for the year? Can they bring a guest? Do they have access to special events or early access to tickets? Does paid membership include regular emails or letters about upcoming events? How much will a potential member have to pay your organization for these benefits? Describe both the work that your organization does and the additional benefits that membership would provide for any interested parties. You should address the benefits that both the organization and the potential member receive from their collaboration. It is also important to keep in mind the cost to your organization for paid membership – mailings, special events, and discounted entry all come from your budget. If you decide to initiate a paid membership program, anticipate your costs when deciding the cost to members.

You can also increase your membership numbers through annual membership drives. These drives can offer the same access and benefits as currently paying memberships. If arranging a membership drive, collect or update your mailing list first through board members and their contacts, contact information from previous members, contact information collected at previous events, or other means. This process entails directly contacting people, often through snail mail, to court their visitation and potential membership with your organization.

Sources about building membership:

  • How can small museums use research to build and diversify their membership? This article by Engaging Places LLC will show you how.

Resources for operating a membership program:

Revising your membership program: