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?"

 

Wrong.

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. 

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.

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. 

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.

Impact of IRS 990 Rule Change for Donated Goods and Services

Effective with  the 2013 instructions, discounts on services or use of goods  can no longer be claimed as contributions,  according to the 990EZ instructions, p11, Section B2:

"B2. Donations of services or use of property Do not include the value of services donated to the organization (such as the value of donated advertising space, broadcast air time (including donated public service announcements), or discounts on services), or of the free use of property (materials, equipment, or facilities) as contributions on line 1."

As in all things relative to the Internal Revenue Service, consult your tax professional for guidance.

What it means to you.

Since many nonprofits routinely record items such as the donated use of office space, discounts on equipment and charitable discounts for services as part of their public support, this may impact their ability to meet the 33-1/3% of public support necessary to qualify as a publicly supported organization.

More importantly, the rule change could lessen participation by donors in these relationships. While most donors say that the deductibility of their donations is secondary to their desire to support a nonprofit, very few are willing to state unequivocally that deductibility is not a consideration in their business strategy. If you can't count it as a contribution, they can't count it as a donation.

In the case of large corporations that may donate excess goods such as software or electronic equipment, these donations provide a way to offset income. While the amounts may be insignificant relative to their revenues, every little bit helps. If the donor is a small business, they may not be able to absorb the cost without any offset to income.

At the very least, you should anticipate the effect on your organization resulting from this rule change. What happens if your office space suddenly becomes unavailable, or the brochures your local printing company has been doing for free suddenly have to be paid for? Can the donor just write a check back to you for the amount of the invoice as a cash donation without the transaction being suspect?

Every business in the U.S. spends a lot of time and money trying to interpret and comply with IRS regulations. Because of their tax exempt status, nonprofits are always under scrutiny by the IRS. Ignoring the impact of this rule change could be a very costly mistake. 

Beware of visiting board members!

No, not the ones from other nonprofits or businesses. I'm talking about your board members.

Some nonprofits tend to attract board members that don't participate in the nonprofit. Some may  technically show up often enough to fulfill the attendance policies, but they aren't really there other than physically. Others show up once or twice a year, but aren't true participants.  This can even result in having to postpone voting due to lack of a quorum.

A visiting board member isn't fully engaged in planning and implementing the success of your nonprofit. If you seem to have one or more members that show up so sporadically that they have to be briefed on months of history during the meeting, you have a visitor problem. If so, how do you fix it?

 Develop attendance policies

It goes almost without saying that you should have an attendance policy for board members. After all, it's hardly fair to vote them out for nonattendance if they have never been told how often they have to attend board meetings. Once you have that policy however, you must enforce it. Like standard employee attendance policies, it should include some sort of warning or review before taking  final action (perhaps there is a valid reason for the absence), but  noncompliance after that should result in removal.

The less often the board meets, the more important attendance becomes. Missing one or even two out of twelve meetings a year might not be an impediment to the organization. Missing even one semiannual or quarterly meeting definitely could be a problem unless there is a valid reason, such as a health issue.

Qualify new members

There will always be a certain number of people that join boards for all the wrong reasons. Some seem to see it as a social club, while others may find they are not comfortable with the legal aspects of being a board member. They may find that they aren't really compatible with the organization or the management, but don't know how to exit gracefully. Some people are serial joiners. They want to contribute but their time is so over-committed that they aren't able to attend meetings.

You should have a process for inviting and qualifying new members that includes some sort of review of their previous board participation. If they have recently served or are serving on many boards, that could be a red flag. If you have or develop that process and follow it faithfully, you can eliminate a lot of candidates that will be visitors.

Involve and develop all members

Even good board members can turn into visitors if they feel irrelevant. If possible, they should have a defined responsibility. Perhaps they can sit on a committee or attend functions as an official organization representative. At the very least, they should be encouraged to participate in the meeting. You presumably recruited them because they have a strength to offer your organization, so give them a chance to contribute.

Have a board development plan. No one is born knowing how to be a good board member. There are even grants available for just that purpose. Part of moving your organization forward is strengthening your board's ability to function cohesively and effectively as an asset to your nonprofit.

©2014 Rebecca L. Baisch

 

Need help?  Drop me a line and tell me how I can help.   granthelp@ida.net       

To keep your donors, think like a store.

If I asked you why you shop at your favorite store what would you say? Would your answer sound like any of these?

•         It is conveniently located.
•          The people are friendly.
•          They carry the brands I like.
•          The checkout lines are short.
•          They always thank me for shopping with them.
•          They give coupons for shopping there.

If you are nodding your head to any or all of these, you are reacting to your "customer experience". Something about your favorite store keeps you coming back as a paying customer.

That is the key to donor retention. The basic things most people want from a store are value for their dollar, appreciation for their patronage , and consideration of their time. They don't buy from a store because the store needs to pay its electric bill. They buy because the store fulfills their needs or wants.

Donors want the same feeling when they donate. They want to know that 

• Your mission fulfills their needs, i.e. they feel  their money helps achieve the outcomes they are expecting.
• They want to know that you truly appreciate them for supporting you.
•  They want the donation process to be easy.

Notice the italicized words above. This is often a hard concept for newer nonprofits to grasp. They get so focused on their mission, they forget that donors may have needs and expectations as well.  According to a 2012 report by Giving USA, nearly 9 out of 10 support dollars comes from individuals rather than from grants or sponsorships, so donor motivation is something you need to understand.

Every donor is looking for a reason to support you and your mission. Something about what you are doing needs to resonate with them. They usually know generally what type of cause they want to support. It's your job to let them know why your organization does that best, not to tell them that you are so broke you will be having a going-out-of-business-sale soon.

For stores the process is easy. They just monitor inventory. If a pink and orange starfish print shirt isn't selling, all they have to do is look at how many are left over at the end of the day, and they know it wasn't what customers wanted.

You can create an inventory for your donor appeals as well. Which ones bring in the most support over the shortest period of time?  Do some appeals work better at one time of year than another? What presentation works best, i.e. all text, lots of pictures, personal stories, community events, donor appreciation days,  video, short social media posts, interactive blogs, or private newsletters just for donors? Analyzing your fundraising results will keep you from repeating approaches that don't work.

Not every donor is going to donate every time, any more than every retail customer buys something every time they see an ad. What you want to do is keep donors connected to your organization. You can't force or guilt them into donating. Serial generic appeals usually wind up in the trash at some point.

When they do have the inclination and ability to donate, keep the checkout times short. A three or four step process online  is like standing in a fifteen person checkout line.

Offer them a chance to stay connected, but not at checkout. One NPO used a cliffhanger strategy. They presented most of a story about an animal rescue, but left the outcome hanging. If you wanted to know what happened you could sign up for their email newsletter. They had about a 70% positive response.

Always thank your donors. You should have a process to capture their contact information. Send them a short thank you note addressed specifically to them. A generic popup window when they finish checking out isn't going to provide the same feeling of connection as a personal note addressed just to them.

The nonprofit version of a coupon might be something as easy as a personal invitation to an event,  a badge, or a refrigerator magnet or other inexpensive merchandise item with your name and a short message telling them why their contribution matters.

Not all donor contact has to be or even should be online.  A food pantry serving a very local area sends a personalized small notepad as their "thank you" with the phrase  " Mary, each one of your dollars provides one sack lunch. Thank you from all our kids"  and their organization name.  If you depend on local support an all-online approach may  seem too detached to keep donors engaged.

Stores succeed because they understand where their money comes from and how to capture it.  The next time you think about fundraising, try thinking like a store.