Matching Gifts Bring Financial Opportunities and Planning Challenges

New significant contributions with matching gift components can be a game-changer for nonprofit organizations. However, do not let a potential financial windfall cloud your judgment and decision-making. A matching gift that is not completely understood and optimized will lead to missed opportunities and even to possible negative consequences.

To make the most of new matching gift opportunities, use a three-prong optimization planning process that includes gaining a complete understanding of the matching gift, advance leverage planning to optimize the matching gift opportunity, and assembling a multi-year financial forecast showcasing expected resource utilization and financial impact of the matching gift.

Gaining a complete understanding of matching gifts must go beyond the obvious gathering of donor information related to time period, dollar amounts, matching formula, restrictions (if any), and other donor promises.

You should also endeavor to gain an understanding of the donor’s underlying intent. Does the donor’s intent align with your nonprofit’s mission and culture? Does your organization have the capacity to manage the matching gift and to use the funds as envisioned by the donor? Finally, are the matching criteria achievable and realistic or are they out of reach and beyond the capacity of the organization’s regular donor base?

Establish early communications with the matching gift donor. Learn about the donor’s connection to your organization, the donor’s goals for the gift, and what outcomes the donor would find most acceptable. Do not assume all matching gifts should be automatically accepted.

After you decide to accept a matching gift, transition to front-end advance leverage planning. Here the goal is to plan how best to manage the matching period in which donations will be solicited and acquired.

Matching gifts will have three key definitional criteria: (1) types of donations eligible to satisfy matching gift requirements (e.g., new gifts to buy books for the library under $500); (2) the period the matching gift is active (e.g., 18 months beginning on May 1, 2022); and (3) the matching formula, including any maximum limitations (e.g., “one-for-one,” a $1 match for each $1 collected).

Purpose alignment and timing are important considerations. Matching gift solicitations that begin too soon (just after a capital campaign concluded) will not have the best results and could be disappointing. However, a matching gift appeal to purchase new books could be very well-timed if launched at the beginning of a new children's afterschool reading program. For more tips on how to optimize a matching gift campaign, read Shay Lessman’s article “Matching Gifts Best Practices.”

Complete planning for new matching gifts by preparing resource utilization and financial impact forecasts covering the time periods for acquisition of donations and how these resources will be utilized in future budgets. Multi-year financial forecasts are a powerful way to show how matching gifts will impact future budgets and how these proceeds will be used to fund programs, cover operating costs, and advance the organization’s mission. Messaging in a multi-year format will showcase the true impact of the matching gift.

Planning Tip – For matching gifts, always emphasize the match formula and downplay the match maximum to the extent possible without misleading your donors. It’s best to have donors focus on the benefits of a one-for-one match where each dollar of their gift will be matched by a generous donor. Match maximums should be managed internally so falling short of the match maximum does not appear as a goal that was missed with negative repercussions.

For all matching gifts there are two parties involved: the donor offering the matching gift and the donors being solicited to meet the match. You can consider different time horizons and uses for these two sets of funds in a way that best resonates with each type of donor.

For example, suppose a nonprofit received a capacity building matching gift from a foundation for $500,000 with a 50% match for each new dollar raised, resulting in $1.5 million in total proceeds. In this case, the Board might vote to earmark the matching funds received from the foundation for future use through a $500,000 allocation to operating reserves, while deciding to use the $1 million from individual donors to expand programming budgets over the next four years with a straight-line utilization rate of 25%.