Monday, March 24, 2014

Is your board helping you pay the bills?

Judging from the number of nonprofit founders that tell me they need a grant because they have maxed out their personal ability to support their nonprofit, I'd have to say the answer is a resounding "no".

In my white paper, "Climbing the Ladder to Nonprofit Success" (you can get a copy by requesting one here) I explain why depending on getting grants to start a nonprofit, or even winning grant funding in the first year or two, is not a very wise financial plan.

So where do you get your initial funding after you have put all the personal money you can afford into the mission? Normally, it is going to be from your board, your immediate friends and family, small local events or a combination of all three.

Everyone seems to get the friends and family and the small events part, but they don't want to make fundraising a board duty.

There will probably always be a philosophical discussion about whether to set fundraising goals for each board member. I don't understand why that is even a point for discussion.

Admittedly, many people start nonprofits and  ask people they know to be on the board, just to satisfy the legal requirement that they have a board. It is a good bet that some of the people they pick say something like "OK, but I won't have to do anything, right?"

The board should be initially a development group. First and foremost they should care passionately about accomplishing the mission, and believe that they can do it. Right after they affirm their allegiance to that idea, they need to understand that missions need money to succeed. Making the board an integral part of that aspect of being a nonprofit right at the start shouldn't be optional.

If founders would sit down and figure out how much money they need in the first two years, cross grants off the list of possible sources, and then approach perspective board members with a honest inquiry as to whether they can contribute to the organization, or at the very least, be willing to go out individually and raise funds to meet those goals, there would be fewer failing nonprofits.

When someone asks me to write a grant and then says the organization is essentially a one-man or woman show, I know that no matter what I do, the grant thing isn't going to happen. That just isn't a model that grantors can support.

Increasingly, prospective funders are starting to ask for a statement as to how much money the board members contribute personally to the organization. At the very least, they may ask for the amount the board as a whole has personally contributed in the past year.

The reasoning behind that question is first, to judge how committed  the board  is to the organization's survival and whether they are taking personal responsibility to ensure that success. Second, if all they see is zeroes or a few dollars from each board member, it tells them that the organizational strength may not be good enough for them to trust with their money. Third, they want to know that the nonprofit has enough reasonably stable funding to stay in business.

Underlying all of those questions is another big one…if your board doesn't support the nonprofit financially, why should anyone else do so?

Many more funding sources are starting to require proof of matching funds before they will fund a program, or they are making an award into a challenge grant. Very new nonprofits usually have a tough time with that, but if the board is willing and able to gather a few thousand dollars toward that requirement, it can open the door to more funding.

For those that feel that accepting board members on the basis of their ability to contribute monetarily leaves out  some otherwise well-qualified prospects, then consider setting a fundraising goal for those worthy but financially challenged people. If asking them to go out and solicit donations puts them off, they will probably never be fully committed in other areas either.

Like it or not, your organization will always be chasing the next dollar. If your board is so passive that they can ignore that immutable fact, it is probably the wrong board.

Having this conversation with your board can be tricky. You don't want to start off by saying "OK, you lazy pot-lickers, it's time to pony up", even if that's the way you feel. Sometimes all board members need is a firm goal to chase instead of a never-ending whine about how broke you are, and they will amaze you. By setting an attainable goal for board contributions, you maximize the chance that they will put some effort into reaching it.

If you aren't sure how to have this conversation with your existing board, or frame it in a recruiting pitch, drop me a line and I can help you present it in a firm but non-accusatory manner. 

Monday, March 17, 2014

The one question that many nonprofits can't answer

That question is…what are your costs?

I do a significant number of business plans and grant applications, and they all require some sort of budget or financial forecasting. For some reason, almost everyone can tell me how much money they think they need for a given program or to start their business. When it comes to filling in the other side, i.e. what costs will that money pay for, less than 50% can provide the information. Added to that is that often they really don't seem to know how to calculate costs. It's almost as though they feel that if they don't think about the costs, they won't have any. If only that were true!

Costs are not just paper plates, postage, and computers. When I ask about things like taxes, the answer is, "We are a nonprofit so we don't pay taxes". Are you sure? What about sales tax, property tax and payroll or self-employment taxes? What about your rent, mortgage and property insurance,  even if your operation is housed in your private home?  If you use your private vehicle in your business or nonprofit, what percentage of its cost of operation can be attributed to business use as transportation costs? Even your internet access fees can be prorated to your operations.

Every single dollar of revenue generates some non-program costs. If you need $5,000 to run a certain program, then you have to know how much of that will truly reach your clients. When you are asked to send in a report on the uses of the funds, it better be accurate.

Donors want to see that you have a grasp on costs and you know where to allocate them. If you don't understand the difference between program costs and administrative costs, there is a good chance that the money the donor thinks is going strictly to programs is actually being used to keep the lights on. Most donors don't like that if they didn't know about it in advance.

Grant applications, loan applications  and business plans always have a section for financial data. Some of them are extremely detailed, while others may just want a total cost figure. Some people try to plug in a number that sounds good, but if pressed for details, they can't provide them. Accurate, detailed financial reporting is important. 

For instance, one grantor followed up on an application with a request for the cost breakdown analysis for a program budget line item. The applicant couldn't provide historical data on the cost to operate a delivery truck, because they had simply never tracked it.

That's why winging it doesn't usually work very well for very long.  More importantly, if you do try to wing it, it is usually pretty obvious to both investors and donors and your funding requests will hit the proverbial round file.

If you aren't sure whether your financial reporting will pass inspection, drop me a line and we'll look it  over together.

Monday, March 10, 2014

How your 990 postcard could be hurting you

Nonprofits whose fiscal year ends December 31 have to file their 990 by May 15. If that fits you, consider NOT using the e-postcard information report, or 990N.

Most small-revenue nonprofits file their mandatory 990 report on the e-postcard. It's simple, doesn't require any extra costs to prepare and fulfills the IRS annual reporting requirement. It also tells every prospective grantor that your revenue is under $50K.

Almost every grant application asks for a copy of your most current 990. In part, that is because it proves you are current with IRS requirements and indicates that you are a legitimate nonprofit, but it also provides fact-finding information to grantors.
The 990 provides a way to cross-check your financial statements with your gross revenue as reported on the 990. Unfortunately, the e-card doesn't provide that information. There is a misconception that only the over-50K organizations can use the 990EZ, but in reality any organization can file that form if they elect and are qualified under the revenue restrictions to do so. The 990 EZ is a five-page form, which the IRS designates as a short form.

Some grantor websites state their minimum income requirements specifically, i.e. they say that they do not consider grants for nonprofits with revenues under "X". Most are more subtle. At the very least they want to support organizations with enough existing revenue to be effective operating at their current level. The long-format 990 or 990EZ tells them that you have a minimum income sufficient to keep the lights on, helping to assure them that their money will be used for your programs, not your rent or utilities.

While a lot of really small or very new nonprofits really don't have enough income or are operating in a deficit condition, many nonprofits that have enough revenue to support the organization's administrative costs still use the short form postcard simply because it's fast, cheap, and easy.
Those organizations might consider the longer 990EZ. This form provides the detail that grantors are looking for and can be used even for the under-50K filers. In some cases, grantors may even accept it in lieu of audited financial statements. The long form not only gives them total revenue, but allows them to see how the revenue is being used.

For instance, one family foundation only supports small nonprofits, i.e.organizations with revenues between 10K and 250K, and they do not require audited financials for NPO's under $25K in revenue, although they do require an accountant's  review letter.While that is a fairly rare scenario, this grantor still requires a long-form 990, even if it is the 990EZ.  Again, they are looking for clues as to how their money might be used. If your report indicates that most of the money is being used for CEO or ED salaries, they might feel that they would be supporting that person, rather than the mission.

Filing a 990EZ does require that you have some sort of formal financial record-keeping system, but then, you should have that in place anyway. If it means gaining increased access to grantor funds, the cost will be an investment in your future, rather than a liability.  As always, if you have specific questions regarding whether or how to file this form, check with your accountant. 

Monday, March 3, 2014

Creative grant writing - are you selling a zebra?

Grant applications are essentially tools for selling your nonprofit mission to donors. One of the phrases I see often in RFP's or advertisements for grant writing help is this one:

"…seeking creative writer to apply for grants"

That should  mean that the client wants someone to frame their existing message in a fresh, compelling, interesting  way.

Unfortunately, experience has taught me that clients advertising this way want a bit more than that. These advertisers might just as well say "Need fiction writer".

Let's look at the difference. Let's say you want to describe a zebra you really, really need to sell to someone that wants to buy a pony for their child, but really doesn't know much about horses or ponies. Seems easy, right?

One way could be to say:

"Zebras are black-and-white striped animals that live in Africa."  That's not creative or very informative, but it's true.

An alternate creatively written description could read:

"Zebras are undomesticated members of the horse family, and are native to Africa. Their typical black and white striped coats are easily identified at zoos and wild animal preserves. Unlike their domesticated relatives, zebras are seldom tamed or trained for riding or driving. Since both people and large carnivores prey upon them as a food source, they are highly defensive and can disable even a lion with a well-aimed kick. While most members of the horse family are tractable with proper training, zebras have a well-deserved reputation for retaining their wild characteristics even under trained professional handling."

That's all true too, but it is more informative, gives some insight into their temperament ,and even a hint as to why they have that temperament.  Even if you know nothing about equines you can deduce that this is probably not the pony of your child's dreams.

What happens when you add fiction into the mix?  Well, you get something like this.

"Zebras are Africa's answer to the beautiful Arabian horse. Their elegant black-and-white striped coats make them attractive and they are gentle and willing to please."

Paints quite a different picture doesn't it? There is a kernel of truth there, but if you were looking for a pet pony for your kid, you would  be terribly misled and have possibly tragic results if you bought into the fictional zebra description.

Grant applications need to portray your organization in a compelling, yet truthful way. Claiming outcomes  you can't prove or citing financial records that don't exist will not get you a huge grant award. Grantors do their due diligence before handing out money, and once they discover that your zebra is actually a wild animal and  not a pet, you not only won't get the grant, you will be forever branded as a liar. Even if you later acquire the most wonderful kid's pony in the world, everyone will remember your zebra.

I'm a pretty darn good writer, but if you hire me,  even I can't turn your zebra into a pony.