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What is the difference between donations, grants and fundraising?

by | Feb 8, 2022 | Emma Willder

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As a charity, it’s important to know exactly where your sources of income come from. 

In fact, having this level of in-depth accounting analysis is vital for you to build and grow your charity. Also, to plan for the future and set realistic yet ambitious targets and objectives.

In this sense, knowing your donors also becomes essential. You want, and in some cases need, to connect and engage with them as much as possible.

That’s why understanding the differences between grants, donations, and fundraising and highlighting these through your various revenue streams can help you to: 

  • set clear goals and objectives 
  • define your vision and mission, with a clear understanding of where funding fits in
  • identify how much income you need to achieve these goals and vision 
  • outline your desired timelines.

However, first, let’s delve into the differences between the three funding areas and how each of these could be of benefit to your charity.

Donations

A donation is money or gifts that are freely given.

We generally class donations as unrestricted, so the charity can spend the donation on anything that furthers the charity’s purpose (object).

Donations can come from individuals (and gift aided (subject to certain conditions)) or organisations. 

Donations are often a consequence of fundraising, made by individuals and businesses because they have a connection with the charity or specific project. In addition, donations create a feel-good factor for people as they’re aware that they are contributing to a worthy cause and helping to make a real difference.

Different ways to receive donations is through:

  • Gift Aid/Just Giving pages – for example, OJ’s Care encourage donations through their dedicated Just Giving page, where they promote their story, pictures, and vision for the future.
  • Donation pages – Women Working Worldwide, operate a “Give as you Live” donation initiative through PayPal, making the process of donating as seamless and straightforward as possible.
  • Door to door requests
  • Donation phone calls
  • Direct mail shots/email bulletins
  • Text to Give – with most people now owning a mobile phone and finding donating through such technology easy and efficient, charities are maximising this opportunity to full effect.

Grants

Purpose specific, grants are usually for a nominated project or piece of work and often come with associated terms and conditions.

Due to grants being project-specific, they are often classed as restricted funding, as you can only use the money received for the specific project and nothing else. It is important that any grants that are restricted are shown separately in your accounts.

However, you can receive grants for core funding (i.e., unrestricted funds), and we’re not going to sugar-coat it; core funding grants are like the holy grail. A no strings attached grant that a charity can use so long as it sits within their charitable objects. 

Providing charities with greater control unrestricted funding allows those that lead the organisation to make the best, most informed decisions on how funds are best put to use.

Grants are issued from specific parties such as the government, large corporations, businesses, foundations, education institutes, etc.

Due to the restrictions and terms and conditions associated with grants, grants will always go through an approval process, meaning it can take a considerable amount of time to receive funds, even when approved.

This process is very different from how donations are received and often requires separate accounting lines, as funded projects are monitored, and you must showcase results during and after.

Grants tend to be much larger donations and sums of money, helping to support larger projects and future initiatives and ambitions.

However, you must remember it takes time, energy, and expert grant writing skills to put together a winning application.

Fundraising

Many, if not most, charities will hold events and activities throughout the year to help with their fundraising efforts.

In some instances, these fundraising activities do not cost the charity anything as individuals and businesses take to holding events on your behalf. On the other hand, some events held and organised by the charity to raise funds do incur expenses, so you must plan and budget to ensure that any income raised exceeds what it costs to host the event.

Fundraising provides charitable assistance and is an excellent way to persuade people to donate money for a specific purpose or cause. Helping to raise the charity’s profile, fundraising events can also be a great way to boost PR and brand awareness. Often attracting additional resources to help raise the vital funds to support your overall vision and mission.

Types of fundraising activities and events could include:

  • A charity ball – the charity Spoons hold an incredible charity ball as part of their “Get Involved” events, always popular and now with a sell-out reputation.
  • Sponsored walks/runs – the charity HaTS host numerous fundraising events throughout the year, including the ever-popular sponsored walks and marathons.
  • A boat race or abseil challenge – maybe not for the faint-hearted, but fundraising is a fantastic way to challenge yourself and collect a lot of donations. At Wood Street Mission, they host an array of fundraising events for people of all ages and abilities, offering something for everyone.
  • Cake sales and coffee mornings
  • Auctions
  • Sporting events
  • And so much more!

Measure and evaluate what works for you

Not all ways of fundraising, collecting donations, or grant applications may be viable for your charity. You need to decide on the right funding strategy for you. This means knowing your sector, donors, and what your business needs now and in the future.

There is no right or wrong formula, only one that works for your charity (although we have to admit, incorporating a mix of donations, grants, and fundraising into your strategy is generally good practice).

If you would like any further help and support with your charity finances and you’re looking for more than just your average accountant to help you streamline processes and efficiencies, why not call us today on 01204 528 104 or drop us an email at hello@beyondprofit.co.uk.

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