Tuesday, December 24, 2013

Season's Greetimgs

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

Tuesday, December 17, 2013

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

Wednesday, December 11, 2013

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?"

Tuesday, December 10, 2013

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. 

Monday, December 2, 2013

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:

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.