Nonprofits like EarthShare of Texas can accept two different types of donations: restricted funds and unrestricted funds.
With a restricted donation, the donor designates how the funds must be used. It’s a donation with strings attached. An example of a restricted donation might be if the donor wants the funds to be spent only on programs that serve wildlife rescues. The nonprofit would then put 100% of the funds into an account that can only be spent for that purpose.
Unrestricted funds are given to a to charity spend it where they need it the most, so long as it is used by the charity for any legal purpose tied to achieving the mission of the nonprofit. These funds could be used for programmatic work, investing in the talent that keeps the organization running, sustaining a nonprofit during times of crisis, etc. Unrestricted funds can allow a nonprofit to dependably sustain itself so it can continue operations supporting the communities it serves.
EarthShare of Texas primarily accepts donations that can be disbursed to our nonprofit members as unrestricted funds. At the time of writing this post, we currently serve 35 environmental and conservation charities across the state of Texas.
When we support these organizations with a stable source of unrestricted funding, we empower them to be innovative, find local solutions, and expand their capacity.
Unrestricted Funds Put Trust in the Organization
We believe that the people on the ground, doing the work every day, are the true experts in their field. Their expertise makes them capable of making wise decisions regarding how resources are best allocated.
When we give unrestricted funding to an organization, we essentially say that we trust their expertise.
Moreover, unrestricted funds are an essential component of finding local solutions to environmental and conservation issues. It gives local nonprofit leaders the flexibility to work with impacted communities and tailor programmatic work to serve their specific needs, rather than asking donors what the solution should be.
EarthShare of Texas Holds Organizations Responsible for Good Financial Stewardship
We trust our nonprofit members because we undergo a thorough vetting process before admitting them to the federation. When an environmental organization applies to join EarthShare of Texas, we take a deep dive into their financial records. Then we make sure they hit the industry benchmark that at least 75% of funds are spent on programmatic work. That leaves just 25% for overhead and administrative costs.
After EarthShare of Texas staff reviews the organization, the current membership must vote them in. This gives the leaders of Texas’ environmental and conservation charities, people with their thumb on the pulse, a chance to weigh in on the value of the potential member’s impact and whether it serves a true need in the state.
After joining EarthShare of Texas, every nonprofit member is required to annually submit current financial records and maintain good financial stewardship in order to remain in the federation and receive funds.
Through these rigorous policies, we ensure that unrestricted funds are being put to their best use by the best organizations.
Unrestricted Funds Expand Organizational Capacity
When an organization has unrestricted funds, it can invest in capacity-expanding projects that may not necessarily fall into the category of programmatic work.
Some examples of capacity-building spending include:
- Hiring new talent and expertise
- Paying employees a fair market salary to reduce turnover
- Outsourcing to increase efficiency
- Professional development
- Investing in better technology
- Upgrading facilities
- Advertising events and programs
On the flip side of expanding capacity, unrestricted funds are actually cost-saving.
Restricted funds have to be placed in a separate account, carefully managed, and meticulously accounted for. While we’re all for accountability, excessive administrative burden can be expensive, time-consuming, and takes away from the mission of the organization.
By giving an organization unrestricted funds, especially once we know they are good financial stewards, we empower an organization to use the donation where it makes the most sense and the biggest impact, allowing the experts to decide what that is.