Season's Greetimgs

I hope every reader has a wonderful Christmas and is expecting a Great New Year!.  See you on January 2,!

Keeping the Tax Man Happy

In "Climbing the Ladder to Nonprofit Success"* I try to emphasize that state and Federal laws governing nonprofits may not be the same. As tax season approaches, one of the areas that differs from state to state is whether or not you must have audited financial statements.

When deciding whether to accept a client requesting grant writing services, I pretty much have two iron-clad rules. You must be a 501(c)(3) and you must have formal accounting procedures in place that are at least capable of producing financial statements. My reasoning behind that is those are the two of the three things virtually every foundation or corporate sponsor requires, with the third being the 990. Without them, your application or entreaties for funding are going nowhere.

More importantly, not having at least the ability to produce audited financial statements can put you in violation of tax reporting laws.

The Council for Nonprofits has a list of states that will help you determine if your state requires audited financials. If you still have questions, the list also links to the specific regulatory reference for each state, or you can contact your state tax commission.

Income doesn't always predict the need for an audit.

While most small or new nonprofits will initially be under the income threshold that requires audited financials, several states require an independent audit if the organization employs "a professional solicitor", regardless of the revenue level, or if the organization receives a significant portion of their income from state funds. In general "professional solicitor" means any employee or paid professional that helps you raise funds, and can and usually does include everything from your CEO to your office manager, to contracted grant writers and  phone solicitors. Also, an independent auditor can't be the person who records or reviews your financial transactions on a regular basis.

Also noteworthy is that varying revenue levels may also require lower-level independent reviews such as an accountant's review or letter of compilation. For instance , Pennsylvania requires an independent auditors review of one form or another if your gross annual income exceeds $50,000, although the full-blown audit requirement doesn't kick in until receipts reach $300,000.

Audits aren't fun.

Last year, one of my former clients contacted me after her first-ever audit and was thoroughly incensed about the "intrusive behavior" of the auditors. The auditors had interviewed several of the staff members regarding how donations were recorded, and when the interviews indicated a somewhat chaotic system, they dinged the organization in their report. She was also angry that they "demanded every single receipt and every single phone message note" to back up expense records, including whether employees had called in or provided doctor's confirmations for sick pay. She wasn't complaining about having to provide the proof, as much as she was about the "inordinate waste of time" required to dig up the records  "to prove a $22.00 expense".

This is what an audit does. It isn't about whether you can add two and two. It's not even just about whether your books are in balance. It also evaluates whether you are exercising sound financial management. It can provide clues regarding the expertise of your staff. Perhaps you are recording expenses under the wrong category, or maybe you are reporting donations as unrestricted when they should have been applied to a specific program's income and spent only for that program. Maybe you are carelessly co-mingling personal and organization funds. It can uncover problems like embezzlement.

Audits should be learning opportunities.

Assuming that your audit problems stem from a lack of knowledge and not outright attempts to deceive, then your audit should be viewed as a chance to improve. You should want to have complete confidence that all the financial controls are in place, and that your financial position is exactly what it appears to be, good or bad. You should  be willing to either provide staff training or replace incompetent staff with people that know the rules and follow them.

Audits provide credibility with donors.

Being able to state that your financial dealings are honest and above-board as evidenced by your audit report reassures donors that their money will be used as they intended it to be when they gave it to you. That level of confidence can greatly impact growth in donations.

Good records mean smooth audits.

Depending on the type of audit or review, there are certain levels of sampling required under GAAP (Generally Accepted Accounting Principles). You are never going to get by without providing some selected source material, i.e. the invoice, receipt, purchase order, payroll check, deposit slip etc. that backs up the journal entry. Written procedures and even minutes of board meetings will also be on the request list.

However, if everything the auditor requests checks out the first time, there is usually no need for the auditor to keep digging. If the auditing firm has been hired on a total fee basis then they want to get done as soon as possible, but they are also required by law to investigate any irregularities. If they find something they don't feel is quite right, they have to keep digging until they have an explanation.

Hiring a proficient bookkeeper or retaining a bookkeeping firm to review your financial records monthly or at least quarterly might seem like an avoidable expense when you are first starting out, but in the long run, it will pay for itself in terms of smooth audits and happy donors. It is far better  to learn to do things properly now, before bad habits turn into bad audits!

© Rebecca L. Baisch 2013

* For your free copy, or to be on the subscriber-only newsletter list, email granthelp@ida.net

New features - Up Close and Personal!

I get a lot of emails that start out "I have a really dumb question, and I hate to put it in the comments because people will (laugh at me) (think I'm dumb)"

First of all, there is no such thing as a dumb question. The only thing that's not too smart is to flounder along because you are afraid to ask. Having said that, I know that privacy is important, particularly in today's world. While I plan on maintaining this blog without requiring a subscription for now, the volume of mail I am receiving tells me that it may be time to consider a subscription option. I am finding that I am answering the same questions repeatedly, and I think I can be of better service to you by aggregating them and answering them as a single topic. Request volume will determine frequency of the posts, but at present I am looking at a monthly newsletter format.

If you would like to have the ability to comment or ask a question  within a network of sympathetic nonprofit peers or receive more information about any of the topics, and receive occasional subscriber-only grant notifications, please send your email address and any topics you would like me to discuss to:  granthelp@ida.net. I plan to go live with the content on January 15, 2014. 

While I will still try to answer specific questions individually, many of the questions have common themes. Subscribers will get access to content answering those questions or concerns. Also, I occasionally find grants that are particularly well suited to small organizations, and I will include those for subscribers only.

Again, if you would like to subscribe, you have to send me your email. You can unsubscribe at any time. 

UPDATE! - The  first newsletter will be on "Are nonprofit volunteers considered as employees under the Affordable Care Act?"

Capital Campaigns - What's your battle plan?

In the life cycle of nonprofits there often comes a time when you need to expand your brick-and-mortar footprint. Maybe you need a larger administration building, or you want to build or renovate a structure to house clients, or expand your capacity by adding a larger warehouse. None of these things are free, so you may think that your first need is funding…lots and lots of funding.

New or inexperienced nonprofits typically think that because the need is so obvious the money will just magically arrive on time, and too often, that time frame is stated in weeks or months. In reality it can take years, and the process can resemble a military campaign.

Some nonprofits immediately start to look for grants to finance the construction or purchase. In reality, that's almost the last step.

After you establish a clear need and define the impact, most grantors want to see that your community monetarily supports the project, so making grants your first step is going to be pretty futile. In general, grantors do not want to provide more than fifty percent of the cost. The exception to that may be asking for funding for a feasibility study and sometimes for a planning document or architectural plans. So, if getting grants for the construction or purchase isn't first, how do you move forward with a capital campaign ?

1. Define the need.

Why does your organization want to do this and what will the community or your clients get out of it?  Why doesn't your current building inventory meet that need?  While you may feel that your organization "deserves" nicer quarters, unless that contributes to mission accomplishment, your funding appeals are going nowhere.

2. Demonstrate the benefits to the community or to your core mission.

What will the new building do to help your core clients? For instance if you are a food bank, adding a cold storage warehouse will allow you to improve the diets of your clients by adding fresh produce to your food inventory. This is your case statement or statement of need. What will be the positive impact of the expansion?

3. Set a budget goal.

For this you will need to some preliminary research on actual costs. At this stage, you might be able to get by simply researching what similar buildings and/or land costs in your area have been historically. You might call a few builders and architects and see if they will give you hypothetical per square foot building costs, or you may be able to research construction permits for similar buildings in the recent past. Check with your county clerk to see if you can research the permits. If your county keeps a record of land sales (not taxable value) you can look those over if you are contemplating purchasing land, or consult several real estate firms to see what comparable sites have brought in the recent past. You are looking for a ballpark amount for now, but you will have to pay to firm up the costs and planning at some point.

4. Establish your organizational capability to accomplish the capacity growth.

When establishing a preliminary goal, don't forget that you may need to increase staff to support mission expansion. Donors want to know that after the building phase is complete there will be staff or other resources on hand to attain the service objectives you have outlined in your statement of need. You will not include this cost in a capital campaign, but it is a question that comes up with some regularity on applications and onsite interviews. Organizational readiness and capability are definitely considered by donors.

5.Is the project feasible?

Determine if there is any monetary community support for the project. At this point you aren't looking for a full-blown feasibility study, just  a feel for whether this project is something the community will donate to accomplish. Grantors often don't even consider funding until you have raised fifty percent of the funds locally or at least regionally. Note: whatever your budget guesstimate is at present, be aware that inflation and rising costs will have a significant effect by the time you actually start construction or close a purchase deal. That is because it takes time to raise money, and prices typically do not go down over time. A rule of thumb is to add in at least 5% a year, or more if there are significant inflationary pressures.

6. Establish a timeline for fundraising.

Larger capital building campaigns take at least two years and often five years or more before everything comes together and you can break ground and actually construct the building. Outright purchases of existing space will have a shorter timeline for acquisition, but of course while you are raising money, the property could be sold to someone else. It is much better to have the funds on hand before moving forward. Break your project timeline into stages so that you can fund raise in phases. For instance you may want to raise ten or fifteen percent of the total for a feasibility study and architectural plans. Donors can relate to visuals, i.e. plans much better than they can to a general description.

7. Create a fundraising strategy.

Most capital projects receive their seed money from one or a few major local donors. Local individual contributions are helpful, but usually don't contribute enough money fast enough to accomplish the whole project on schedule. When you can see that you are at or approaching pledges or actual donations of 50% of the total cost then you can approach foundations, corporations and even the government for the balance from grants. You should have already researched the best prospective grantors, and perhaps even started to create a dialogue with them if they are local. At the very least find out when they typically open their grant cycle, and what their giving history has been in the past.

8. Think about loans.

Everyone wants to think that they can fund raise for all of the costs, but at least consider loans. If your nonprofit has a reasonably steady income from fees or services, this could be your fastest route to success. Donations are not usually considered as good collateral, since they can vary considerably year over year. If you typically have excess funds at the end of the year that can be committed to servicing the loan, this could the route for you. Again, if you have 50% of the cost covered by donations or pledges, loans become much easier to secure.

9 . Formalize your planning.

If you have gotten this far, it is probably time to move to funding a formal feasibility study, case statement and building plans or quotes for the structure. This is one area that you may be able to find grant funding to provide financing. The cost is less than the whole project, and grantors would rather see that you are doing your due diligence than throw money at a dream. If you have a well designed project, good preliminary cost projections, a clear need and a provable future benefit, there may be grantors willing to provide  seed money to formalize your planning.

10. Be prepared to pay for professional assistance.

While the director of development or even the ED may be willing to assume this responsibility, formal feasibility studies are more readily accepted if they are done by objective third parties. These firms will conduct extensive interviews of past and present board members, staff, donors and even vendors to prove (and in some cases disprove) the feasibility of going forward with the project. Architects do not provide plans for free.  By doing the first nine things above well, you may considerably shorten the amount of professional time necessary to create the formal documents. Conversely, you may want to turn it over to the pros in the beginning, simply to free up staff time.

Constructing and implementing a capital campaign is labor intensive, but like most things in life, you will get out of it what you put into it. 

Women's Organization Grant Opportunity

The eWomenNetwork Foundation aims to encourage an environment of caring, healing, and growth for women and children by helping them to achieve optimum potential in all spheres of their lives. To that end, the foundation is accepting proposals from nonprofit organizations for projects designed to improve the emotional and financial well-being of women and children.

The foundation awards individual grants of $6,000 to small entrepreneurial organizations that address the health, wellness, and/or safety of underprivileged women and/or children. In addition to the cash grants, the foundation will sponsor a representative of each recipient organization to attend a special grants program at the eWomenNetwork International Conference and Business Expo in Dallas.

For complete application and eligibility guidelines, visit the eWomenNetwork Foundation's Web site. Link:

http://www.ewomennetworkfoundation.org/Give_Grants_Process.html

Grant Criteria

In order to be considered for this grant, an organization must:

Be a certified 501(c)(3) non-profit; an Internal Revenue Service "Letter of Determination" must be available for submission/review. Canadian organizations must be registered with the Canadian Revenue Agency and be able to provide a letter of registration for review

Have been in existence for over three years, with an annual budget of over $25,000 and under $1 million and not be a part of a national organization.

Not be affiliated with a national organization.

Have submitted Internal Revenue Service Form 990 for two consecutive years and be able to submit an interim financial statement representing data as recent as the last 90 days.

Address the issues of health, wellness and/or safety of underprivileged women and/or children.

Prove that 80% of the clients benefiting from the grant will be women and/or children from the local city/county area in which the grant has been issued.

Submit a report on the use of grant funds and their impact one year after the grant has been issued.

Send a representative to Dallas to receive the grant award in person, and participate in a Grants Program in conjunction with the eWomenNetwork annual Conference.

Not have a partisan, religious or political agenda.

If you need any further information, please send an email to Foundation@eWomenNetwork.com.

Growing Your Board

Every successful nonprofit can trace its success back to a founder that had the foresight to assemble an effective board of directors. Good boards are not born, they are cultivated and grown.

There are boards, and then there are BOARDS. Good boards are not like a pile of cut lumber. They are more like branches of a tree, in that they constantly nurture the mother plant, evolve to meet changing conditions, and send out seeds or runners to stay alive and viable. Once a pile of lumber is used up, it's just gone. It's static, because the pile will only produce a pre-conceived structure. A tree keeps producing living tissue for decades, even centuries.

Developing good boards takes the skill of a master arborist. You have to know how to select the right seed stock, when to prune away the dead wood, and how to nurture it so it can produce the best fruit, before your nonprofit can collect a successful crop. Here are some of the indicators that your board is growing well. 

A good board provides structure for the nonprofit.

It maintains a coherent mission-centered direction, imposes reasonable limitations on behavior and finances, and oversees and guides mission accomplishment. Board members are legally responsible for the conduct and financial integrity of the nonprofit, as well as the success of the mission.

Good boards participate financially.

Every board member should have some financial investment in the organization. That doesn't mean the board is, should, or can be the sole support of your NPO. It does mean that they should give an annual sum that shows they are personally invested in success. Grantors often ask for the amount each board member contributes annually. That amount should show real commitment relative to the size of the nonprofit and its mission. For very small or new nonprofits maybe that's a few hundred dollars a year for the whole board, while larger organizations might expect a minimum four-figure donation from each member. After all, if the board doesn't support their own organization, why should anyone else?

Good boards set goals and make decisions.

The board must have performance standards and clear goals for the organization. If the same action items are on every agenda, or there is no or little progress being made in achieving predetermined goals, the board must be willing and able to take corrective action.

 Good boards understand the requirements of fundraising.

Every board member should understand how much needs to be raised, why it needs to be raised, and have a basic understanding of the process involved in soliciting funds.

Good boards get involved in fundraising.

There are many ways for the board to participate in fundraising. Perhaps they show up at events and pressers. Maybe they sign thank-you letters to donors. They can publicize the nonprofit through their business and personal connections. They can serve on phone lines at telethons. They may plan fundraising events. Whatever their contributions, they are active in the fundraising process at some point.

Good boards understand that there is a cost to fundraising.

"Free" money doesn't exist. Someone has to write the grants, research funding opportunities, attend events where there may be sympathetic prospective contributors, and manage the grants. Paper, printing, and distribution of fundraising documents or other marketing costs actual money. Controlling  fundraising costs can't be limited to "if it costs money we ain't doin' it". Pick a reasonable percentage of the budget to devote to fundraising, monitor its ROI effectiveness, and accept that cost without complaint.

Good boards show up.

Good boards have strict meeting attendance and conduct policies and enforce them. The board chair must take attendance and educate, caution, and finally eliminate no-show, unreasonably disruptive or overly passive board members and recruit new ones that will take their responsibilities more seriously.

Good boards invite civil discussions on issues.

Boards should not be rubber-stamps for the founder, board chair or president. No member should feel that they can't offer a suggestion or request clarification of a point. On the other hand, a good board chair does not allow these discussions to degenerate into shouting matches. Meetings should be run under Robert's Rules of Order, and after a reasonable discussion period any new information or dissenting opinions should be either voted upon, tabled and considered in the next meeting, or assigned to a committee for further investigation.

Growing your board is a learning experience, but the end result will be well worth the effort.

Seven nonprofit dream killers (and how to avoid them)

Many good people want to start nonprofits. They usually have great passion for their cause, and want to solve problems. They expect smooth seas and clear sailing on the way to their destination. Unfortunately, they often run aground on the rocks of reality. Here are some common pitfalls associated with starting a nonprofit.

1. You haven't developed a support network.

Nonprofits don't function well as one-man (or woman) shows. Start by identifying supporters, and hold a well-publicized informational meeting or two to assess the interest in your nonprofit. These folks will be your potential board members, donors and volunteers and the meetings may generate immediate financial support.  

2. You think your organization is the only one that can address the problem you want to solve.

It is unlikely that no one else has seen the problem you are seeing. Don't re-invent the wheel. Check for nonprofits in your area that are addressing the same issues, especially those that are currently receiving funding. There is a good chance that you may find not only kindred spirits, but organizations that are already dealing effectively with the issues that you can join. If no one else is in the arena, there is probably a good reason why they aren't.

3. You believe it is easy to get money to support the organization.

You may be willing to invest every dime you have in your organization, but the world of nonprofit funding is competitive and notoriously difficult to access for fledgling organizations, particularly for day-to-day expenses. Only about 20% of nonprofit support nationwide comes from grants and unrestricted donations. The other  80% is up to you to figure out.

4. You haven't researched the skills needed to operate the organization.

The mission is important, but it takes real-world business skills to achieve success and longevity. There are serious legal, financial and administrative aspects involved in being a nonprofit. If you don't have all the skills needed, you will need to attract or hire people that can fill in the blanks.

5. You are easily frustrated when things don't immediately go your way.

Growing a viable nonprofit is often arduous, expensive, frustrating and time-consuming. Starting a nonprofit is not the place to find instant gratification.

6. You think it will be an easy way to create a paying job for yourself.

Founders usually form part of the board of directors, since their goal is (or should be) to guide and expand the organization. Board members normally don't and can't receive a salary for serving on the board. If you can accept being an employee of the nonprofit as the CEO or executive director and understand the potential risks associated with that, there may be income potential, but it isn't a sure thing.

7. You don't have a coherent plan for long-term success.

You may know what you want to accomplish, but you need to have a way to get there. The time you spend on a five-year plan now will save you innumerable wasted and expensive hours spent in crisis management later.

Knowledge really is power. Know what you are getting yourself into before you start. For more in-depth insight into the realities of starting a nonprofit, I offer a free whitepaper, "Climbing the Ladder to Nonprofit Success". Request your copy at granthelp@ida.net. If you need assistance  in implementing or understanding  any of the steps, or just have a comment, drop me a line. Want to know more about my services? You can view my website here.

Nonprofits aren't businesses. Really?

Every once and a while I see someone railing against the idea that nonprofits should be managed much like their for-profit counterparts. After all, nonprofit staff can and actually should work for peanuts, right? All supplies will be donated, all services will be free, and the quality of their programs will still be top-notch.

If only it was that simple.

This morning I was forwarded a link to a nonprofit asking for contract grant writing services. The ad sounded great. 21-year old community healthcare nonprofit, multi-million dollar revenues, offering a long-term contract with a somewhat reasonable budget range for grant writing services.

However, upon looking up their 990 history, I could see why they were looking for grant money. Over the past five years this nonprofit showed steadily declining income. Nearly their entire revenue stream was based on one source of income, i.e. government payments for services. Those payments had dropped by almost 30% in that same five-year time frame. In the meantime their payroll costs had gone up by almost the same amount as a percentage of income. In 2012, they posted their first loss ever and it was in the mid-six figure range.

Healthcare is a very labor and supply-intensive field. Good help does cost real money, supplies are not free, the utilities still have to be paid with real money, and being a nonprofit doesn't change that.

You can see where this nonprofit is going. Newly mandated increased costs for healthcare and the natural progression of increasing salaries as employees stayed in place longer and improved their skills was pushing them over the edge. In their entire 21-year history, they had raised less than one million dollars in funding not related to the provider payments from the government. 82% of their income was now going to employee-related expense. Even in healthcare, that's out of line.

Nonprofits are not immune to market forces or economic reality. If your costs of operation outstrip your income, you are going down the tubes, no matter how big or small you are.

I don't know exactly what happened to this nonprofit. Maybe their patient days went down, maybe the provider payments were less than previously received for services, maybe the employees were asking for unreasonably high salaries or the perks had gotten out of hand. Who knows? The point is, their trend line was obviously going the wrong way, and they waited too long to try to address it. Now they are operating in the red, and that means they are unlikely to be considered for grant funding.

If they survive it won't be due to hiring a grant writer. It will be because they get a hard-nosed business management consultant in there that can get their business operations back on track. That's where they should be spending their remaining dollars.

There is no doubt that there are real differences between the motivations and goals of nonprofits vs. for-profits and that is as it should be. I addressed that in another post. Still, whether you like it or not, the nuts and bolts of accomplishing  the end result are pretty much governed by the same realities. Ignore that at your peril. 

The effect of the ACA (Obamacare) on nonprofit revenues

The government-run health insurance law will suck up a lot of nonprofit support dollars. Regardless of whether you like it, hate it, or just don't know very much about it because of the well-publicized website problems, it seems likely that it will have a lot of impact on the amount of money available to nonprofits from government, corporate, individual and foundation sources.

After earned income, government contracts make up the bulk of nonprofit funding in the United States. It is a commonly held misconception that the government gives away money to nonprofits with no strings attached.

In most cases, nonprofits are funded through government-provided contract income for things like childcare. An article in the New York Times details the general squeeze nonprofits are still feeling after the recession, and the role of government dollars and programs in that picture. After earned income, government funding accounts for three times the income from foundations and forty times the income from corporate giving.

Aside from the costs to get the Affordable Care Act website up and running (estimated at half a trillion dollars to date) there is the cost of providing subsidized healthcare insurance under the current law. Often forgotten in all the hyperbole over deductibles and cancelled policies are the ongoing administrative costs. The money to train and pay the so-called navigators, maintain the website even after it is fixed, the personnel required to route and process applications all comes out of tax dollars, which of course come from each taxpayer. While nonprofits often face scrutiny for their administrative costs, the government doesn't face that constraint.

Healthcare comprises one-sixth of the U.S. economy. While not everyone will get insurance through the government-sanctioned exchanges (if you don't qualify for a subsidy, you still need to get government-compliant insurance from a "private" insurance company), the higher deductibles and in many cases higher premiums will impact both individual and corporate incomes, leaving less money available for them to donate.

If the federal deduction for charitable giving goes away, as it has in some states, that will  further impact how much money is available from donations.

From the government's side, there is a high probability that the actual cost of the subsidies may lower federal and state discretionary spending capability.

So far, the Internal Revenue Service has not issued final guidance on how these higher costs may factor into arriving at adjusted gross income. If the allowable deductible amount for healthcare increases, that could potentially impact the final amount owed on both individual and corporate business income, which effectively reduces taxes paid to the government. If the deductible is not raised, then the additional money has to come out of the operating budgets of each business and individual as a direct cost. That too lowers income, with the same net result.

With more money going out and less coming in, it stands to reason that there could be less money available for nonprofits from all of the traditional sources.

If your organization hasn't factored these uncertainties into your five year plan as yet, it might be time to do so. Although many nonprofits find generating earned income and operating like a business to acquire that income to be distasteful and in direct opposition to their mission, survival may dictate that you adapt to that model.

Need help with planning?  Drop me a line at granthelp@ida.net. 

Sexy financial statements - Are you kidding!?

On a one to ten scale of what's sexy or exciting, financial statements generally rank at about minus one for most nonprofit board members. Nonprofits still in the early growth phase may not fully understand the relationship of the board's financial or fiduciary responsibility to their overall governance role. There may not even be a formal accounting system in place.

Board members, whether nonprofit or for-profit, typically aren't finance or accounting majors. I can clearly remember sending out the financials to the board members of a small nonprofit in advance of an annual meeting. One of them called and very nicely but sincerely told me that I shouldn't waste postage and paper sending them to him in the future, since it was all "just so much gobbledygook to me". When I explained that I was required to send them because the board was responsible for understanding the financial position of the organization, he asked if I could just tell him where on the papers he could see whether the organization was making or losing money.

This is an all-too-common reaction to the financial portion of a board agenda. In many cases, once the board meeting starts, the chairperson asks if anyone has any questions or comments, and then there is a voice vote to accept all the financial information as written. It's almost a Pavlovian response.

Fiduciary oversight isn't optional.

The problem with that is once you vote to accept the financials, you are effectively saying that you know what's in them. If something is amiss, you can be held responsible for any problems.

For those nonprofits that say they don't need financial statements due to their small revenue streams, or because they are about mission, not money, listen up. If you are a nonprofit corporation, you may be required to use the accrual method of accounting. That means you do need some sort of basic accounting system that can produce financial statements. Leaving the tax man out of it, prospective donors and grantors expect it as well.

Most board members don't intentionally shirk their fiduciary duties, and they are not too lazy or mentally incapable of understanding financials. Financial reporting is simply a foreign language to them. Sometimes they are successful professionals in other fields, but they rely on a staff of accountants to keep the books and synopsize any findings. Other times they are community members whose closest brush with accounting is when they file their taxes. Sometimes they just don't understand the legal impacts of rubber-stamping the financials.

Ignorance isn't bliss.

Not knowing what's contained in the financials is not a defense. Shareholders, members, donors, and the IRS won't accept that as a reason if there is some sort of mismanagement, fraud, or other illegal act discovered. The solution to that is developing a basic ability to understand the financial statements.

There are a number of mini-courses, books and video presentations available that offer financial training for non-financial people. Think of them as sort of a pocket dictionary for another language. When you travel to another country, you may not need or want to know how to carry on an hour-long conversation in another language, but you do need to know how to ask for a doctor or a bathroom.

No degree required.

This isn't about becoming a certified financial professional and to some extent, it isn't even about that much argued-over bottom line. Depending on your board composition, even a one or two-hour presentation can be sufficient to provide all the knowledge most board members need.

Local associations of financial professionals often have seminars that can be scheduled into a retreat or executive training session. In a pinch, you could even have a independent accounting professional or instructor attend a board meeting and explain the financials once a year. The goal is to be sure that everyone has at least a basic understanding of what to look for relative to seeing problems or trends. The purpose of reviewing financials isn't to check the math, it is to obtain operational guidance for the board.

Financials are more than just numbers.

The purpose of this instruction is not to turn the board into bookkeepers or accountants. It is simply to provide a way for the board to recognize problems or trends. For instance, if the depreciation figure is significantly different from last year or the last quarter, does that mean that something new was purchased?  If so, what is it, what did it cost, and is that cost reflected elsewhere in the financials? If not, why was the figure adjusted? If it is significantly lower, does something need to be replaced because it is too old to function properly anymore? Does that affect net worth?

Financial statement training isn't very sexy, but going to jail or watching your organization dissolve in bankruptcy isn't much fun either.

For many organizations, November is approaching the end of the fiscal year. Think about offering financial statement training as a year-end training camp or informational webinar. Some members might even consider it a perk!

Grant Planning- What is it and why should you do it?

Grant planning doesn't start with finding a grant. I get dozens of inquiries like this every year.

" We provide decorated  Christmas trees to low-income families. We need a grant to assist us in purchasing 100 trees. Please help us find grant money for this worthy cause" Rcvd. Nov. 1

Requests like this don't take into account the lead time needed to find a grantor, and certainly doesn't allow any time for the grantor to respond. Grant planning requires you to be proactive, not reactive.

Grant planning requires foresight

Grant planning begins at least one year from the time you need the money and it starts with refining your mission into a program or programs with a budget, and a specific, measurable goal. Here are some of the questions I asked this particular nonprofit.

How many trees do you need?  What is your budget?  Are there trees available at a price that will allow you to furnish 100 trees? Have you worked with vendors (tree farms, direct sellers, etc) to get a discount? Do you have a contract to provide the trees at a stated price? What size trees do you need? What about transportation, both to you and to the recipients? What species of tree do you want? Do you have alternatives? How do you qualify people to receive a tree? Can you store the trees, or do you need them very close to the distribution date? Who has supported this cause in the past?

Setting up a prospect calendar

Typically, foundations plan their giving cycles at annual, semi-annual or quarterly intervals. The application closing date for the grants might be as much as a year ahead of when the grant is awarded. That's why this is called grant planning, not grant getting.

After you have mapped out the when, where, how much and why for your appeal, it still has to fit into the grant calendar for the foundation. That means finding the prospective grantors well ahead of the opening date of the grant application or RFP date. Arrange your prospective targets in a format that allows you to sort by RFP opening date, closing date, amount available, and enter those into a working calendar or spreadsheet.

Qualify targets

If your targets are local, establish some sort of relationship with them ahead of time. Follow them on Facebook, or go to events they frequent. Find out who is on their board, and look for common associations with your board. Check to see if they have a prequalifying phase (an LOI or online qualifying protocol). Look at their previous giving patterns and assign a priority to the ones that are most likely to respond well. There is no sense in "shotgunning" your requests to any and all foundations that have only a very remote connection to your cause. That's expensive both in terms of time and money, and seldom results in an out-of-the-blue award.

If you need help designing a grant plan, drop me a line at granthelp@ida.net, or visit my website, http://www.cloudlancerwriting.com. 

Five tips to increase your grant funding success

There are a number of things that determine whether your mission will be adequately funded.  Here are five things you can do today to bring in more dollars.

1. Match your organization to the right grantor prospect.

All grantors have a specific mission focus.  For instance, while the grantor may generally support programs for low-income women, they may actually only support a single facet of that group.  There's no use in applying for funds for heating cost support if the grantor is only funding breast pumps to allow working mothers to stay in the job market. Read all of the information you can find on the organization and decide if it is a good fit for your nonprofit.

2.  Refine your focus to emphasize grantor/grantee alignment.

 

Don't rely on a one-size-fits-all application.  If you have a general emphasis on a specific client profile, emphasize the portions that have direct alignment to the prospective grantor.  Each grantor and their mission focus is different and should be developed as such.

3.  Match your grant development costs to the potential award.

If the grantor specifically states that their maximum grant is $1,000, and it's going to cost $500 for your staff or your contracted grant professional to produce the grant application and administer the funds, that might not be cost effective. All grants have non-reimbursable costs, and you want to get the most return for your investment of time and/or money.

4.  Be sure you meet the minimum requirements to apply

.

Most grants stipulate that you must be a 501(c)(3) to apply, and may include time in business, minimum existing revenue amounts, ability to show matching fund potential, formal organization and program budgets, audited financial statements or other qualifiers as well. If you can't meet ALL of the requirements, your application is likely to be discarded without even being considered.

5.  Document your results to date before you apply

Grantors want to know that your program is effective and/or sustainable.  Even if you are currently seeking funding for a one-time event, such as the coming year's holiday turkey giveaway, show how you will reach the maximum number of intended recipients and why your program is using the funds to the best possible advantage (things like getting wholesale pricing for the birds, for example).  Long-term existing programs need to show that they have made a lasting positive impact and have a good chance of continuing to do so.

None of these things will guarantee an award, but doing them well will greatly improve your success rate. 

Does your grant proposal have a bad "I"?

When you are presenting your charity to a prospective supporter, particularly if that first contact is an online application, establishing the credibility and effectiveness of the organization is vital.

When reviewing grant proposals for clients, many of them are written in the first person. "I started XYZ Charities"  "I contacted so-and-so", I did this  and I did that. Almost as bad is a constant string of third-person references to the founder.

There is always one person behind the formation of a charity.  Someone has to get the ball rolling, and that founder is very important.  If the charity achieves longevity, it will always be tied to its founder.  The Red Cross will always owe its existence to Clara Barton as the founder.  Any history of a charity will include a nod to its founder, but there does come a time when that same founder has to be part of a team.

Grantors are interested in supporting an organization because it effectively advances its mission, and that requires the efforts of more than one person.

If your grant application reads more like a political campaign speech than a mission narrative, it might give grantors the idea that the charity can't survive without you, or worse, that there are no other active team members.

When the grant asks for a history of your organization, it's fine to say it was founded by so-and-so, and if that person is still active, a brief biographical sketch of that persons contributions and qualifications. The transition to a team philosophy should be introduced as soon as possible after that initial introduction.

 

Try something like this.  XYZ Charities was founded in 2005 by Mary Doe, and now operates with a team that includes Joe Doe, Nancy Roe and Frank Moe, adding the titles and qualifications after each name. That tells grantors immediately that you are no longer a one-man show.  If you should get hit by a bus, the charity can continue to function, and the money the grantor is investing will not be lost or wasted.

The old cliché "You only get one chance to make a first impression" applies in spades here.  Be sure that impression is about your organization, and not just you.  

How does the Washington drama affect government grants?

In the short term the U.S. government is a non-functioning entity, rather more so than usual. Due to the debt limit/shutdown situation, if you go to most of their websites you will get a message saying the website is not being maintained due to the shutdown.

Grants.gov is still displaying, but a highlighted post from their blog indicates there could be problems due to staffing shortfalls in various departments. Of course, appropriations are still to be decided, so that may cause some funding changes when the current shutdown is resolved. Some current funding may be held up as well.

Whenever there is a potential disruption in the free flow of money from Washington, some pundit opines that this will be the end of some or all Federal grant money. That sort of sounds like wishful thinking or a political attempt to add to the fear factor.

The government is not likely to end the granting programs unless we truly do go bankrupt as a nation. Grants are the way that Washington furthers its social policies. Whatever the dominant party in power, the government "gives away money" to achieve some desired goal.

Individual departments within the government are subject to the whims of the majority party. Whether  they are pushing for aid to countries outside the U.S., education, housing, healthcare, or the arts, there will be a lot of money allocated to advancing those programs. Some individual programs may be cancelled, but only because they do not fit in the current administration's scheme of things. Some programs may be moved from grant status to competitive bidding contracts.

Grants and any other kind of federal funding is somewhat dependent on the supply of money, sometimes as a high priority, and sometimes not, but throughout our history, the Feds have funneled some funds back to groups that can advance the agenda du jour.

Forecasting where that money is going to go is far more important to nonprofits in the short term than worrying about whether the supply line is going to be shut off forever. If all grants do end, that will be the least of our worries. 

About that board of yours

There are generally three types of boards.

•             Committed and effective
•            Committed but ineffective
•            Disinterested and ineffective

If your organization has a committed and effective board, you are truly blessed. Unfortunately, the clients I deal with usually seem to have one of the latter two boards. What are the characteristics of these boards?

What makes a good board?

A good board works well together. They respect each other's views. There are no prima donnas. They each have skills and strengths that make the organization more effective as a whole, and provide stability, control, and guidance, as well as passion. They support the nonprofit and the mission in every way that they can. They give freely of their time, and their money if they have it. They are better ambassadors for the organization than any PR firm you can hire. Planning, dispassionately evaluating results, and applying corrective action are the strong points of this type of board.

Committed but ineffective boards

Committed but ineffective boards have the same type of passion for the mission, and very often are the hardest workers for the cause. Their weakness is that they tend to work hard, not smart. Sometimes they are so focused on success that they don't have the patience to follow through with strategies or do in-depth planning. They may not have useful skills, and by that I mean things that come from experience in meeting or solving ordinary business problems. They are what I call big-picture boards. They know exactly what result they want, but have no idea how to get there.

They often don't even recognize that they may be the problem. This type of board finds it easy to blame outside influences. Failure is always someone else's fault.

These are the boards that over-commit available resources, start programs without any idea of how to sustain them, hate fundraising, and don't understand the day-to-day process of running an effective nonprofit. If a grantor asks how they intend to meet their goal, they don't have a series of step-by-step, measurable goals. If something isn't succeeding, they don't know how to find the cause and correct it.

Fortunately, as long as this board has the desire and capacity to learn, they can almost always evolve into that dream board every nonprofit dreams about having.

Disinterested and ineffective boards

The third category is the hardest to deal with, primarily because the reasons for being disinterested and ineffective are so varied.

These boards can be poorly formed in the beginning. By that I mean that they were conned into serving on the board just so the nonprofit founder could say there was a board in place. They may have only a passing interest or even no interest at all in the mission. They may not have understood that they were making a commitment of time and/or money that they now find is insupportable in their life. The members may not have the skills necessary to run an organization. They may have no interest in, or ability to begin acquiring those skills.

They may be frustrated in their attempts to govern and guide by a single strong personality, either the founder or a single member that doesn't work well with dissenting points of view. After a while, the board feels like a well-used rubber stamp.

The board may be too well entrenched. While continuity is a great thing, when I see a board primarily comprised of a dozen or so twenty-year members complaining about lack of results, I worry. After a while, continuity can become stagnation. Any new members learn quickly that the old way is the only way.

The board could be made up of what I call "bio padders". They just like to say they belong to a board, any board, because it looks good in their biography. They join and that's just about the last time you see them unless the food is especially good.

Whatever the cause, this type of board needs a make-over, or even a do-over. The root cause for their situation has to be discovered and corrected. Sometimes it is up to the founder/president to get new members, and sometimes the board may have to deal with the disruptive member. Sometimes it is necessary to bring in a coach or consultant to get things moving again.

Judging from the number of people that say " I do everything and the board doesn't help", getting this type of board on the right track is difficult.

If you think you may have a board problem, give me a shout. Sometimes all it takes is a fresh set of eyes to begin to find the right path. You can reach me at granthelp@ida.net.

©R.L. Baisch October 2013

Does your nonprofit need better liability insurance?

Unfortunately, there has been another terrible bus crash. The bus was transporting members of a North Carolina church group when a tire failed. It seems like we hear about bad things happening to nonprofit groups far too often.

In a perfect world, bad things wouldn't happen to good people. In the real world it happens every day. I'm absolutely sure that the church didn't start  that day thinking, "Gee, what would happen if the bus caused a wreck and killed and injured a lot of people?"

A lot of things happen. Over and above the tragic loss of lives, survivors sue. If there is evidence of negligence, even something as simple as the tires being overly worn, the church may well be found to be the culpable party.

Nonprofits are probably not statistically more likely to have accidents than any other group. But if your liability insurance only covers the probable, and not the unforeseen catastrophic event, the repercussions are likely to be worse.

In working with many nonprofits, I often see insurances that are the minimum required by law.  Some  nonprofits do not even insure things like their volunteer activities other than through a minimum coverage general liability policy. Some even rely solely on the volunteer's own auto liability policy for protection. Sometimes that is a factor of cost, but in many cases the organization just doesn't think a high-coverage liability policy is necessary.

This all goes back to planning. Some things are obvious. If you rescue animals, it is likely that the animals could hurt someone. If you provide donated food to the hungry, someone could get sick  from eating it. But some things are not so obvious.

I am not an insurance agent. I don't even know any agents as personal friends, so I'm not shilling for the industry. As a small business owner for many years I know that the premiums can be a strain on budgets. But I also know that having to pay a big claim or a damage award can put you out of business.

Under constant pressure to keep administrative costs down, it is tempting to buy the cheapest insurance available, or even to go without it altogether. Don't do it. It's OK to hope for the best, but plan for the worst. 

Should you blog?

There seems to be two schools of thought on blogging. One says that in the era of short-form social media, it is a waste of time and resources. The other says that if you don't blog, you are throwing away many dollars in sales or donations. As is true with most things, the answer to the question is somewhere in the middle. Before beginning a blog, ask yourself these questions.

What is your target audience?

If you are just blogging for your existing customer or donor base you are preaching to the choir. If they are already following you on social media or donating and volunteering, they may read the blog and even enjoy it, but it isn't going to tell them much they aren't going to hear or read anyway. Blogs should not only keep existing contacts connected, but generate new customers or donors. You can host your blog separately, or combine it with your website. 

If your target audience is people who don't know about your product or mission yet, a blog can build customer interest or donor engagement. A 140-character tweet or a short Facebook post just doesn't have enough depth to truly engage a new reader. Business oriented blogs are both sales and educational tools. If you want the reader to support you, explaining why your mission, product or service deserves some of their dollars is easier on a blog. They have to be able to find you on the web, but after they find you they need a reason to stay connected.

What's different about a business blog?

Blogs have come a long way from an individual who is basically putting their personal diary online. Today, people use Twitter and Facebook for that. Blogs, at least business blogs ( nonprofits are businesses too!), are much more of a sales and educational tool than a blow-by-blow description of your day or week. They are a promotional tool. The purpose is to encourage the people who need a product or service to patronize your business or support your mission, without constantly interrupting their day with a constant rain of nonessential information. Your tweet or FB post is a headline, while the blog is the article.

Who should blog?

Blogging is a long-term strategy. Blogs don't normally immediately produce truckloads of money. Blog if:

1. You have the time and/or money to commit to it as part of your sales or fundraising strategy for a year or more. You can hire someone to do it, or do it yourself, but it should be done on a schedule. Think of the weekly TV program you just can't miss,  rather than the occasional mini-series or special that comes on once, and then is gone. Plan on blogging no less than once a month, and maybe as often as once a week. This is relationship building, not an annual grant or loan application. Additionally, search engines tend to pick up on blogs well, probably because you are repeating the same words or themes, i.e. they are good SEO candidates, because you are repeating those same key words of phrases in a totally natural way. 

2. You have something new or fresh to say or sell. Not every topic, mission or service can generate good content every week. If you have lots of programs, products, or services that you can "sell", or good stories that these things generate that you can share, then by all means go for the weekly schedule. Some highly successful bloggers even blog daily, but that is hard to do effectively. The daily  posts become so short on new content and so repetitive that a tweet would work just as well. You ideally want to be the weekly can't-miss program, not a male enhancement commercial.

3. Commit to a blog if you believe in yourself, your business product or your mission. This is about generating passion and a need to buy into your concept. Whether it is a need for a product that you sell, or hungry people you want to feed, or anything in between, your blog needs to sell that feeling.

4. Commit to quality. You may be able to get away with internet shorthand on Twitter, but blogs are more akin to white papers than a tweet. If you are bored with good grammar, hire someone who will refine your raw material.

Interested in engaging more donors or customers? Give me a shout at granthelp@ida.net.  I would be happy to assist you in starting, maintaining or expanding  your blog.

©R.L. Baisch   Reprints with permission only

Theater and Performing Arts Grant

The Shubert Foundation, www.shubertfoundation.org, announced the 2013-14 grant guidelines today. The following is from the website. 
"
The Shubert Foundation is dedicated to sustaining and advancing the live performing arts in the United States, with a particular emphasis on theatre and a secondary focus on dance.

In service of this mission, we provide general operating support to not-for-profit, professional resident theatre and dance companies, as well as some arts-related organizations that help support their development. Grant recipients must have track records of artistic achievement, administrative strength and fiscal responsibility."

You must be a U.S. based 501(c)(3) in good financial standing. They accept only hard copy submissions, and the application format is available on the site. 

Dot Org doesn't mean nonprofit

One of the suggestions I make so often that it should be a recorded message is that nonprofits need to provide substantiation of their status on their website home page. Here's a good reason why that is going to result in more donations.

Recently a friend asked me to research a charity. She had gone to their website, where everything suggested it was a nonprofit. It had a dot org DNS address, nice home page, well crafted mission statement, heartfelt stories of people they helped, donation button, in short, all the things you would expect on a nonprofit website. On the "about us" page however, there was some wording that disturbed me. It was subtle, and I don't think it would have set off alarm bells for most people.

I checked with all the usual verification sites, including the IRS. No listings. I checked social media. Nice page, but none referenced their NPO status specifically. Then I did a press release search, and there they were, back in 2008. "Local entrepreneurial group (name here) opens OJT training and placement firm".

This "dot org" is a business, plain and simple. Is it misrepresenting itself as a charity? It sure looks that way. Just for kicks, I clicked on the donate button, and there it was…"donations are not tax deductible" in little tiny print. It didn't specifically say that they are a business. They were relying on that "dot org" and the slick website to plant the suggestion that they are a charity. I also sent an email requesting a copy of their nonprofit paperwork, either Federal or state, but I never got a reply.

If you are putting up or revising a website, and you are a real nonprofit, I strongly suggest that you provide a link to a copy of your determination letter, or at least the date you got the letter on your site. Even if you are only a state-registered nonprofit corporation, don't make prospective supporters spend an hour or more trying to verify your status. They won't. They will just leave.

The dot org designation used to be more or less reserved for nonprofits, but that is no longer true. Schools, churches, some clubs, cities and really just about anyone can use that domain designation. I have seen some suggestions that nonprofits should have a DNS registry of their own, but so far it hasn't happened. Wikipedia states that the number of dot org registrations jumped from one million or so in the 1990's to over ten million as of June 2012. Could some of those be fraudulent charities?  Ab-so-lutely!

You should be proud enough of your nonprofit to provide irrefutable proof up front of your status. My friend is really into the cause this phony nonprofit supposedly supports. She would support a legitimate group well. But I can guarantee that she isn't going to support this one, and she'll be a lot more discerning about believing a website again, based solely on their URL and a donate button.  She is also reporting them to her state attorney general's office.