September 23, 2017
 
Giving Circles Are a Win for Nonprofits, Donors, Communities

By Leigh Tucker

Leigh Tucker
Nonprofits looking to enhance and perhaps broaden their financial base may want to consider creating their own giving circle, a relatively new form of philanthropy where groups of people pool their financial resources to support a cause.

More so than other types of philanthropy, giving circles focus on providing members—who jointly determine how the money will be distributed—with a rewarding, hands-on, communal experience through collective decision making and educational activities.

This personalized approach to philanthropy appeals to many donors who want to do more than write a check. These donors wish to actively participate in the circle’s grant making functions and build social networks of like-minded individuals. Examples of relatively new giving circles include SheGives and Womenade Boston.

How do giving circles fit into the nonprofit landscape?

Giving circles may be large or small, formal or informal, and are typically hosted by a nonprofit foundation. For a fee, the host organization provides support such as administrative resources, operational guidance, and instant credibility within the community.

More importantly, the host organization lends its 501(c) status, thereby eliminating the need for the giving circle to establish its own nonprofit structure with the IRS. This contribution alone significantly reduces the administrative burden on the members of the giving circle, allowing them to focus more on more fulfilling, mission-related activities.

Should my nonprofit host a giving circle?

Giving circles have the potential to bring value to the nonprofit in a number of ways including: access to new volunteers, a renewed sense of enthusiasm and awareness in the community, and the ability to have a broader impact in its mission. In an article by Angela M. Eikenberry, nonprofit professionals reported that beyond financial contributions, the members of the giving circles and their connections to more qualified leads can improve the overall caliber of the host organization.

There are, however, a number of issues that nonprofit boards need to consider to ensure that hosting a circle is a positive, mutually beneficial experience. Here are some important questions nonprofit leaders should raise:

Does this align with our mission?

Every nonprofit has an official mission statement that appears on their Form 1023, a document that is submitted to the IRS to achieve nonprofit status. In order to maintain nonprofit status, the organization’s activities must align with its stated mission. Activities that fall outside the scope of the mission (no matter how noble the intention) can put the nonprofit at risk with the IRS with penalties that can range from unexpected taxes to loss of exempt status.

In addition, engaging in activities unrelated to the mission statement can jeopardize a nonprofit’s good standing among its constituents.

What is the full nature of the commitment?

It is important for the leaders of the nonprofit and giving circle to clearly communicate the agreed upon level of support in terms of resources, data management, communication, and decision making authority. Documenting the roles and responsibilities will go a long way to ensure the success of the relationship.

What are the financial implications?

While many host organizations collect an administrative fee, these typically do not fully cover operating expenses of hosting a circle. In addition, some hosts offer matching funds to either seed a new giving circle or to support a circle on an ongoing basis. These and any other financial commitments should be clearly defined for the benefit of both groups.

The good news for the philanthropic community is that there is a trove of people who are looking for more meaningful giving experiences in the context of their 21st century lives. Giving circles, when supported by host organizations, provide a unique outlet that benefits the donor, the nonprofit, and the community – a win-win-win all around.

Leigh Tucker is Managing Director of the Nonprofit Practice at Accounting Management Solutions. Email him at ltucker@amsolutions.net or call 781-419-9220.

October 2015

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