Thursday, May 23, 2013

Want to start a nonprofit?

Before starting a nonprofit there are seven questions you need to answer.

1.  What or who will the nonprofit help?

2.  Why can my organization do this better than existing organizations?

3.  How much money will we need, and how are we going to pay for it for the first one to three years?    (Because grant money simply won't be an option at first). 

4.  Do you understand the entire process of becoming an IRS-approved nonprofit, including the costs and legal requirements? Private and governmental grant funds  are typically simply not available to non-IRS organizations, or to those that have not been in business long enough to establish a track record of service delivery, sound financial accounting, successful grassroots fundraising and accepted outcome measurements.

5.  Will you have a board of directors that is willing to commit dollars and hours to the start-up phase? Most new nonprofits are initially funded by the board and/or a few committed supporters.

6.  Are you a team builder? This isn't a one-person job. You MUST be able to form effective teams, and be willing to eventually let them perform the bulk of the day-to-day  tasks.
7.  Are you a good planner? If you are a shoot-from-the-hip type that thinks planning is the most boring thing in the world, running a nonprofit is not for you.

If you can't answer these questions, save yourself the time, money and heartaches, and join another organization as a volunteer, or a board member. Sit in on any board meetings that are open to you. Help the organization with its fundraising efforts. After a few years "in the field" you can better assess the answers to the questions above. You will understand the pitfalls, the financing problems, the legal ramifications, and the need for sound planning and be far better qualified to start a successful nonprofit.

Friday, May 17, 2013

The IRS and politics - Why your nonprofit should care

Unless you live on a distant planet, you have probably heard about the Internal Revenue Service's improper targeting of nonprofit applications that implied a conservative political leaning as the core mission.

Without repeating too many of the hackneyed phrases, there is certainly truth in the phrase "The power to tax is the power to destroy" originally attributed to Daniel Webster. This could be revised to read "The power to selectively pick political winners and losers is the power to destroy democracy".

It does not matter what side of the political fence you are on, this selective process of holding 501(c)(x) applications in limbo and requiring a depth and breadth of disclosure not allowed by the law to create interminable delays should scare you.

By selectively holding up the ability of nonprofits to disseminate information and fundraise for a particular political viewpoint, the IRS may have had an effect on at least two elections, in 2010 and 2012. There was constant speculation and commentary on why the Republican party seemed to have a much less effective grassroots fundraising strategy than that of the Democrats. Well, if there are fewer organizations available to influence public thinking and fundraise for that political viewpoint, it could certainly have contributed to that perceived shortcoming.

As a grant writer and nonprofit consultant, I am familiar with the regulatory framework in which the IRS Office of Exempt Organizations is supposed to operate within.  I was even marginally involved in the process, since I reviewed a nonprofit 1023 that had been held up for fourteen  months.  I remember thinking that the requests for information seemed out of place, but ultimately, I felt that the way they were stating their mission and even their name was not really representative of their actual goal.  I had them reapply using different verbiage and the application sailed right through (no, this wasn't the nonprofit that has been on the news). At the time I just chalked it up to getting the presentation language of their mission, which was not political in any way, in line with the actual goal, and forgot about it. Looking back, I certainly wonder if something else was in play there.

There is no other agency in the government that is more viscerally feared than the tax collector. The potential power of that agency to intrude into your private life is virtually limitless. They can and do compel you to reveal things that you hold private and sacred. With great power comes great responsibility to balance and keep separate the necessary goal of fairly enforcing taxation and the collecting of taxes from the political process. It would seem that the IRS totally abrogated that responsibility on some or even all levels. 

If the party in power can, by either overt or covert means, stifle dissent and prevent discussion it can ultimately influence elections. That's a dictatorship, and it isn't what we are about. That's why you should care.

Tuesday, May 14, 2013

Starting a nonprofit - An Overview

From an email:

"We just filed our 501(c)(3) paperwork and it was rejected because we are not a corporation.  It costs at least $800.00 for us to register that way in our state. What can we do?"

Short answer - form a nonprofit corporation in your state and get it registered.

There are certain steps you HAVE to take to become a legal federally recognized nonprofit.  You need a board of directors. You need a mission statement. You need bylaws that follow the laws of your state, and certain other legal statements such as a nondiscrimination statement. You need a focus or field that embraces the public good, not just a narrow personal or political focus that does not serve a greater public good.
After you have put those essentials in place, then you have to register and pay whatever fees your state requires to incorporate. If you are not qualified to understand the legal aspects of both forming and running a nonprofit, you need some sort of legal and financial guidance.

Once you have all of that in place, and you have received your state notice of acceptance as a nonprofit corporation and filed for tax exemption in the state THEN you can file the paperwork with the Internal Revenue Service. That normally takes from 4 to 12 months to come through, and you can NOT advertise any sort of tax deductibility for donations until you receive it.

IMPORTANT: For the most part you will not considered for grant funding for a minimum of one to three years so you will need to put together a fundraising plan and a strategic plan or at least a series of goals for fundraising.  While you are in that phase you need to have an accounting program and year-end financial statements, because all grants require a financial history, budgets and audited financial statements.  It doesn't matter if you have $1,000 in receipts or $100,000 - you have to be able to show your verified revenues and expenditures to apply for grants. You must file a 990 (tax report) each year, even if it is the postcard format. 

There are various types of corporate types that are accepted by each state, and there is no universal rule that determines that, so check with an attorney and/or accountant that specializes in nonprofits in your state.

State law may determine how many members you must have at a minimum.  Some allow a single entity, some require three or even more board members. Your bylaws will need to include how often your board meets, as well as other common requirements. The board members are legally accountable for any professional or financial malfeasance, so your nonprofit needs to have errors and omissions insurance applicable to their roles. Your nonprofit board is also accountable for ensuring that the officers and key employees do not commit illegal acts, and all of them need to have a background check performed and kept on file.

There is a lot more to this nonprofit thing than many people understand, and there are no shortcuts. If all of this sounds too expensive and kind of scary, consider volunteering at other nonprofits until you can absorb the knowledge and expertise needed to start and operate your own nonprofit. Failing to understand and follow the process and account for all the costs is a waste of your time and money.  

Wednesday, May 8, 2013

Non-grant funding opportunities

How would you like this to be YOUR headline?

"The University of South Alabama in Mobile has announced a $50 million gift from local businessman and philanthropist Abraham "Abe" Mitchell in support of its business school and a new scholarship program.
The largest gift in the history of Alabama public higher education brings to $93 million the total given by Mitchell and his family to the university."

There is a tendency among smaller nonprofits confine their thinking to Facebook donors and grants. In reality, major gifts and bequests should form a large slice of your funding plan.

Landing a gift like this is a matter of relationship building. You can't just get a list of the 50 richest people in your area and send them a generic mailer.
One of the small nonprofit shortcomings that I see constantly is a reluctance to get out there and actively form alliances and use the power of face-to-face conversation. In today's wired world this is still a necessary skill to promote awareness not just of your mission, but of your needs. In business it is often referred to as networking.

One of your administrative focuses should be the creation of a major gift strategy. One person should be in charge of prospecting for events attended or sponsored by local philanthropists. If you don't know who they are, go to  number of events, preferably somewhat related to your mission, but at least that attract the so-called "moneyed" crowd.  If there are  local museums, art galleries, zoos or colleges in your area, go to those institutions and look to see who is on their wall of supporters, or search for press releases related to funding they may have received. Check Facebook or Google the supporters and look for press releases or articles that mention where they may be spending their dollars.  Look on the websites of charities that have a related mission to yours.  Many of them have a supporter page. Check the Board of Director lists for local foundations.  The information is publicly available on many nonprofit-related websites that rate foundations or compile information on them.

Once you have a target list of a dozen or so prospects, attend functions they may be at, and have your 15-second elevator/introduction speech ready  (I'm pleased to meet you.  My name is Jane Doe and I represent the charity, XXX, a nonprofit interested in helping Y")  if you are introduced to them.  Don't pounce on them like a starving hyena, or immediately ask for a meeting or donation.  Just make small talk, comment on an exhibit, or even ask for their opinion of something at the event.  People love to talk about themselves and their interests, so keep it on that level at first.  If you make them feel good about themselves, they will feel good about you.

Some nonprofit staff may feel inadequate or unprepared to attend gala events.  First, that is a skill that you learn, but if you really don't feel comfortable in that situation, or feel that you can't present yourself adequately see if a friend or volunteer would go with you to provide moral support. Just circulate, enjoy the event and observe.  You will very quickly learn the ropes and then you can go forward with your relationship building efforts. More informal gatherings such as community breakfasts or picnics are generally something anyone can enjoy attending and feel comfortable in the environment.

There is an old saying that goes "It's not what you know, it's who you know".  This is good advice for nonprofits, so get out there and start finding people that will support and validate your mission. 

Saturday, May 4, 2013

Your nonprofit doesn't need more money

Weird title?  It seems that all nonprofits need money, all the time. Let me explain. I am often approached by nonprofits that just can't seem to come up with a credible reason for the ask. These are often either organizations receiving a major portion of their funding from government funding or major gifts. They are unable to present a program that is clearly an unfunded addition to their program lineup.

Take nonprofit A. They received a three-year Federal grant focused on after-school care that literally financed the whole program, as designed. It even paid for salaries and most of the overhead. They wanted to secure private funding to continue the program after the Federal funds were exhausted. They approached most of the major players in the early childhood development field, but were repeatedly passed over for funding.

On the surface, their plan for program continuation seems sound. They wanted to diversify their funding streams so that they wouldn't have to shut the program down when the government grant ran out. The problem was that they didn't have a need, in the eyes of prospective grantors. At an on-site  meeting with one of the foundations, they kept having to answer the question, "what is our money going to fund at this time?" Ultimately the grant was denied with a comment that basically stated the title of this post. Their statement of need (program continuation) was too far in the future to interest the foundation.

Nonprofit B received a major restricted bequest in the form of both cash and stocks to support an environmental program to purchase land for a wildlife habitat. After a period of time all the land available in the nearby area had been purchased, but the reclamation costs and maintenance were not covered by the bequest. When the NPO went back to the executors for permission to modify the terms to use the money for those needs, it was denied on the grounds that Granny wanted them to continue to purchase land, period. If they couldn't use it for that, the funding would revert back to the heirs. The NPO began to solicit funding to replace the bequest but again ran into the problem that on paper they had all the money they needed, and more. Not wanting to tick off the estate, they were not indicating that they would lose the funding if they failed to use it to purchase land. The upshot of that was, most prospective funders decided that they didn't need more money. This is a perfect example of poor planning when accepting major gifts but that's a story for another time.

The moral here is that you have to show an unmet need. Whether you are in the position of having good funding at the present or you are a struggling start-up, if you can't show a need, grantors are going to ignore you. Most funding supports a program. If that program is already fully funded, you will probably be faced with the unenviable task of creating either an adjunct program that is unfunded, or having to shut down the original program when the current funding runs out.

Many foundations operate on the principle that they want to help by spreading the wealth over a wide variety of nonprofits. Most foundations will not allow repeated grants to the same organization, and most do not even offer short-term multi-year funding. That philosophy is what keeps nonprofits in the never-ending cycle of chasing funds, and dooms many good programs to failure. While I certainly would like to see the whole giving philosophy change to provide long term sustainable funding to a few truly effective organizations instead of spreading the wealth to many partially effective ones (and I could write several thousand words on that subject, pro and con), the reality is that if you can't show need, you aren't going to get funded. Your ongoing programs must either identify a new area of concern, or expand into unfunded areas of your original proposal.