Realizing the Benefits and Risks of Capital Campaigns for Your Nonprofit

By Stan Hutton, Frances N. Phillips

Before your nonprofit takes on a capital campaign, you should be aware of the benefits and risks of your undertaking. Although you may describe your request for capital support as a one-time need to potential supporters, many campaign donors continue to give after you finish the campaign project. They’ve been introduced to the agency, they’ve left their names in its lobby or attached to a scholarship fund, and they want to be sure that it succeeds over time.

In the best situations, capital campaigns strengthen the nonprofit organization’s programs both by enabling it to improve services and by broadening its donor base. A capital project also can benefit staff morale because it improves working conditions.

In recent years, some thoughtful foundations, service organizations, and consulting groups have advocated for better “capitalization” of nonprofit organizations. Their point is that donors — particularly foundations — have encouraged nonprofits to come up with break-even financial results year after year. Although breaking even is much better than going into debt, emphasizing it as a virtue means that nonprofit organizations rarely put money aside for an unexpected crisis or infrastructure investment.

No for-profit business would thrive under these circumstances. And nonprofit organizations, many of which are formed to tackle important social and educational needs, should be just as innovative as businesses — maybe even more so. A campaign to raise “working capital” for your nonprofit that you can use to innovate or to weather a financial shortfall may be harder to explain to donors than a campaign to build a building, but it may be just as important to your organization’s vitality.

Checkout the Nonprofit Kit page at Dummies.com for some key papers about capitalization that may help your nonprofit make the case for a campaign to raise working capital.

Although capital projects are meant to enhance your organization’s programs and vitality, capital campaigns also have their drawbacks:

  • Capital campaigns may detract from organization’s fundraising for operations. If you ask a donor to contribute to a building project, he may not contribute to the organization’s ongoing programs in the same year.
  • Capital campaigns may double, triple, or quadruple an organization’s fundraising expenses while they’re being conducted.
  • Campaigns that don’t succeed or that drag on for a long time can damage an organization’s reputation. Because buildings tend to be visible entities, the public may be more aware of an organization’s slow-moving construction project than of a problem with its programs or services. If the campaign doesn’t succeed, it is important to discuss the situation with its donors, and, of course, honor the terms under which the gifts were made. Donors may want their contributions to be returned, or — if taking the tax deduction is important to them — they may choose to alter the terms and purposes of their gifts.
  • Organizations often have turnover in their fundraising staffs after a capital campaign. Employees may stick around to achieve the campaign goal, but a heavy workload may cause burnout.

In short, capital projects offer opportunities and pitfalls, buy-in and burnout, and new donor development and loss of current annual fund donors. But when completed, they often pay for concrete, lasting benefits and are worthy of celebration.