As a 501(c)(3) nonprofit, your organization likely receives a mix of contributions it can use in different ways. Decide from the onset what type of funds you want to solicit — and what types you’re willing to accept. Here are three categories to consider:
Unrestricted funds are free of donor stipulations. Nonprofits need an adequate and steady supply of unrestricted funds to meet ongoing operating expenses and unanticipated costs. Board-designated funds are included in this category because they aren’t restricted by the donor. Although the board has decided to use these funds for a certain purpose, it can “undesignate” the funds at a future date.
Temporarily restricted funds are subject to donor-imposed stipulations that can be removed with the passing of time or when spent for the purpose intended by the donor.
Permanently restricted funds,often called endowments, are subject to lasting donor stipulations, which mandate that the funds be “held in perpetuity.” The earnings can be used for a specific purpose or to support operations.