When you are involved with fundraising for a charity, you’ll know that donations come in many shapes and sizes. This includes in-kind donations. Today we take a look at what this type of benefactor bequest entails, and how a nonprofit or charity organization should record it. 

What is An In-Kind Donation Exactly? 

The term 'in-kind donation' refers to a contribution to a charity that is anything other than money. This includes professional services, labor, shared expertise, as well as physical goods. These donations can be made by individuals, as well as businesses and corporations. This includes: 

Goods or Property

For instance, tangible items such as office furniture, computer hardware, and software, foodstuffs, etc. It also encompasses intangible assets like copyrights and patents. 

Professional Services

Such as legal support, accounting services, web design assistance, social media marketing, videography or photography, copywriting or editing, etc. 

In this case, the term ‘pro bono’ is synonymous with ‘in kind’.

Asset Creation

E.g. When a group of volunteers comes together to build a structure, create a garden, clean a space, etc. 

The benefits of this type of charitable contribution include: 

• Access to goods and services that are outside of a nonprofit organization’s budget. 
• Freed-up resources that can be put to good use elsewhere. 
• Operational support (e.g. thrift stores, food pantries, and shelters that are dependent on various small items, food, bedding, etc.).
• Ease of donation for businesses (no need to free up cash flow). 
• Larger donations from certain bigger enterprises (their buying power allows them to buy cheaply, so they can donate more goods than they would be able to give in terms of money). 

5 Important Things Every NPO Should Realize About In-Kind Donations

It May Not Always be Something Your Organization Needs

Although all donations are, of course, welcome, you may find that certain in-kind donations are simply not suited to your organization’s particular needs. 

Sometimes, you have to deal with items that don't form a part of your operational strategy. On the other hand, it may also cause some issues when you need to find storage space, for example.  As such, it helps to tailor a policy with regard to in-kind donation acceptance. 

This type of gift acceptance document should always be very respectful, yet professional. Depending on the nature of your charity, it could include a list of suitable gifts and a list of donations that you cannot accept. Take care to explain why certain in-kind donations are not suitable. Also, stipulate how gifts will be recognized. 

TOP TIP: If you do find yourself with some in-kind donations that your organization does not have a use for, an online auction might be a good way to go. This way, you can put the items up for bid and generate some cash income for your nonprofit organization. With an all-in-one auction management solution, it's easy to build your own auction website within minutes and accept cash donations online. 

Being Proactive in Terms of In-Kind Donations Helps a Lot

If you want to be sure that your organization gets the right kind of in-kind donations, it helps to be proactive about it. Make a list of the goods and services that would be welcome, and find likely businesses and/or individuals who would be able to provide it. 

In-Kind Donations Need to Be Valued

Your nonprofit organizations should record any in-kind donations in the period that you receive them. These types of donations are to be recorded at 'fair value' (the price that it would fetch on the open market between willing buyers and sellers). 

For goods like computers, you can simply look up what it would cost. You can track and value services provided according to the hourly rate of the donor. 

Acknowledge In-Kind Donations

Aside from the fact that it’s just polite to thank your donors for any contribution they make to your organization, there are also certain legal obligations that you need to fulfill. 

For one thing, a donor will need an official letter in order to claim a tax deduction. To this end, a gift acknowledgment should include a few important things. 

This includes: 

• An official letterhead that states all of your NPOs registration information, etc. 
• A clear date of the donation receipt. 
• A description of the goods or services donated, along with the assigned value thereof. 

It helps to have a template on hand that the person in charge of donation receipts may use when they respond. For instance: 

Good day <insert name + surname>, 

On behalf of Charity XYZ, we would like to thank you for your gift of _____, to the value of _____, which was received in good order on _____. This also serves as an acknowledgment that now goods or services were provided to you in exchange for this valued contribution. 

Your generosity will allow us to ______. We thank you for your support and will do our utmost to see that it makes the best contribution possible. 

Kind regards, 

___________

<insert designation within NPO>

Capture It Correctly in Your Financial Records

Always liaise with your financial services provider when capturing in-kind donations. Depending on the nature of the gift, there may be several factors at play, even if it does not affect your income and expenses in any tangible way. 

For instance, if you receive pro bono social media assistance, you would capture the revenue as 'gifts in kind - services', and the expense would be 'professional services'. The revenue will equal the expense, so there won't be a net impact on your books, but it is a tax requirement nonetheless. 

Conclusion on In-Kind Donations

In-kind donations are contributions in the form of anything other than cash, e.g. pro bono services, or physical goods. There are many benefits to this type of donation, but you do need to manage it correctly. 

Tailor a policy with regard to in-kind donation acceptance, and be proactive in seeking out the right types. Value and acknowledge in-kind donations, capture them correctly in your financial records, and that’s that!