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How to Value In-Kind Donations

Recently I was volunteering at Catch a Fire and got to assist a non-profit with how to value in-kind donations. In-Kind donations are the hardest to value for a non-profit organization given the varied nature of items and services that may be donated to the organization. It's important to establish a policy that defines the following three things:

  1. What are the types of in-kind donations that the organization is willing to accept.
  2. What are the broad categories under which these in-kind donations will be categorized.
  3. How the organization plans to assign value to the in-kind donation.

Now let me elaborate each point here a bit further.

Types of In-Kind Donations

If I am running a charitable organization, chances are not every donor will donate cash to me. Some patrons might donate services whereas some might donate products. Especially a donor which is a business owner can donate some of his products to your mission. Individual donors might donate varied items like furniture, clothes, shoes, toys. Now it’s up to you to decide which of these items are relevant to your organizations purpose. If you are running a food bank, then clothes and shoes might not be relevant to you. So, you can define a policy which would state that we will not accept clothes or shoes. On the other hand, if you are a thrift store or goodwill store then these items would be graciously accepted.

Therefore, it’s important to decide broadly the types of goods and services that are relevant to your organization’s mission. This would allow the front-line staff and volunteers to make swift decision without any confusion or waste of time.

Define Broad Categories

After defining the types of donations that are acceptable in-kind, we need to define the categories under which these items will be categorized. For example, taking our earlier example a thrift store can have broad categories such as clothes, furniture, household, books, toy, etc. Try not to get into too much detail here. An overarching broad category would keep it easy and simple for the staff to categorize items quickly and efficiently.

Valuation of In-Kind Donations

Now valuation is the trickiest part of in-kind donations. This is the part which would get most skepticism from auditors as well because it can seem to be an arbitrary process rather than a factual one. So, it’s important to be careful when you are assigning a policy for valuation. Once you have defined broad categories you can then specify in your policy how you would value each category. For example, if you receive furniture as donation then you can have a policy that you would use Kijiji or Facebook marketplace to assign value to your furniture. The important thing to note is to use consistent valuation policy for each category. You cannot use your local second-hand furniture shop one day and use Kijiji the other day. It must be defined once and then adhered to.