Archive for the ‘Starting a nonprofit’ Category

As long-time readers of our articles know, most of our posts focus on tips and best practices for effective nonprofit management.  This post is going to be a little different.  There is so much going on right now that affects nonprofits, we thought it would be a good idea to provide you with a brief run-down of some things you need to know.  Some of it is related, some not.  Here we go…

1.  Many smaller nonprofits could lose their tax-exemption this year. How?  Tax filing year 2009 is the third year that the IRS has required the filing of Form 990-N for organizations averaging under $25,000 in annual revenue.  Prior to 2007, no filing was necessary.  IRS regulations state emphatically that any 501(c)(3) public charity that fails to file a required Form 990 for three consecutive years will automatically lose their tax-exempt status.  Unfortunately, many organizations are either still unaware or just whistling Dixie and not taking this seriously.  I expect panic to set in when letters of revocation start hitting mailboxes later this year. Read the rest of this entry »

Founder’s syndrome.  It affects nonprofits and for-profits alike.  And it can be crippling to any organization.  Understanding what it is and how to avoid it is crucial to the future of your 501(c)(3).

Taken from that most-reputable of sources, Wikipedia, founder’s syndrome is defined as, “a pattern of negative or undesirable behavior on the part of the founder(s) of an organization”.  While that can be true, we find that most cases of founder’s syndrome within nonprofits simply involve a founder with too much influence.  In plain English, it means that the universe revolves around the founder…and not in a good way.  Here is an example of the way it usually works:

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No decision you make regarding your nonprofit organization carries more importance than who is chosen to lead it.  The members of your board of directors make up the governing body of your nonprofit and are legally accountable for its actions.  Practically speaking, they are accountable to your supporters and beneficiaries to oversee the accomplishment of the organization’s purposes.  The buck stops with them…at least it is supposed to!  But that’s another article.

If you are just starting out, who should be asked to serve?  And, if your organization is already established, and vacancies on the board need filling, who should replace the exiting members?  These are questions that are asked by clients of ours quite frequently.  Understandably so.  Concerns of competency, trust, experience and compatibility loom large and demand answers.  In this article, I will attempt to answer these questions, looking first at the issue of installing an initial board, followed by a look at subsequent board positions.

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The concept of who owns a nonprofit organization can be hard for some to grasp, especially given that the answer is, “No one…and everyone!”  We encounter this confusion with new clients on a fairly regular basis.  And, given people’s understanding of how basic business operates, it is understandable.  In order to fully appreciate the concept of “non-ownership”, it is helpful to first talk about the various types of business entities.  Then, we’ll look at organizational purpose.  By the end of the article, it should make a lot more sense.

There are several different types of business entities.  For-profit companies make up most of them.  Here are a few (there are others)…all of these have an owner or owners:

Sole Proprietorship: One person who conducts business for profit.  The sole owner assumes complete responsibility for all liabilities and debts of the business.

General Partnership: Two or more individuals as co-owners of a for-profit business.

Corporation (for-profit): The corporation itself assumes all liabilities and debts of the Corporation.  A corporation is owned by shareholders.  A shareholder enjoys protection from the corporation’s debts and liabilities.

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Charitable Solicitations Registration. “Never heard of it,” you say.  Well, you are not alone.  As astounding as it may seem, estimates of noncompliance range from 85-95% of charities and nonprofits nationwide.  This level of noncompliance has persisted primarily because of 2 reasons:  1) lack of communication between state agencies and 2)  grace.  But, the times…they are a changin’.  It is time to get compliant!

What is it? It is helpful to start by explaining what we’re talking about.  42 states and the District of Columbia require nonprofit organizations that raise or intend to raise financial support from the public to register with that state’s Charitable Solicitations Department.  This department is typically run from within the state’s Attorney General’s office, though some originate within the office of the Secretary of State.

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The Alpha dog of the nonprofit world is the 501(c)(3).  It has federal income tax exemption, contributions to it are tax deductible to the donor and it is potentially state sales & property tax exempt.  Not bad.

The government provides incentives like these when an organization’s purpose is:  religious, educational, charitable, scientific, literary, testing for public safety, to foster national or international sports competition or prevention of cruelty to children or animals.  But what about the other nonprofit organizations?  What are their purposes and what benefits do they get?  We’ll talk a little about the three most popular nonprofits other than the more well known 501(c)(3).

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Tonight’s title match:  In the red corner, numbering 948,954, representing over half of all 501(c)(3) organizations, are public charities.  And in the blue corner, numbering 108,594, having increased 54% since 1998, are the 501(c)(3)s known as private foundations.  Both competitors bring a long and varied history into the ring.  Though greatly outnumbered by public charities, private foundations bring a lot to the contest.  Let’s take a closer look at the differences, and similarities, between these title contenders.

Many people have a layman’s understanding of the difference between public charities and private foundations:  Public charities are understood to perform charitable work, while private foundations support the work of public charities.  That grassroots definition is, in practice, mostly true.  The specifics, however, are slightly more complicated.

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In this tough economy, nonprofit organizations are needed more now than ever.  More and more people are finding themselves in difficult circumstances and, according to all available evidence, it’s going to get worse before it gets better.  Despite all the assurances of government, it simply isn’t possible for government to keep up with the need.  And even if it could, America’s charities prove on a daily basis how much more effective and efficient the private sector is.  But, there lies the quandary.  If times are tough for individuals and governments, times are also tough for charities…at just the time they are needed the most.  So, what steps are required to make sure the organization you are starting (or currently running) can work in tight economic conditions?

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Helping people start nonprofit organizations is one of the most important things we do at The Foundation Group.  In fact, we have helped over 10,000 organizations get started since 1995.  This is our first time to publish a “how to” blog article on the topic.  The following is really more of an overview than an exhaustive examination.  We’ll get into more detail in future installments.

Why Do You Want to Start a Nonprofit?

Before we get into the “how” of establishing a 501(c)(3) – or other nonprofit – let’s first look at the “why”.  We get a lot of interesting answers when we ask prospective clients that question, ranging from totally clueless to totally clued-in.  Most are somewhere in between.  Whether it is an after-school tutoring program, a food bank or a church, the answer usually involves people wanting to provide a service or program to other people who need it.

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Sounds like scary stuff, doesn’t it?  The decision to start a nonprofit organization is difficult in the best of circumstances.  But in a downright frightening economic climate, does it make any sense at all?  Some experts are predicting that this economy may doom up to 100,000 existing charities this year.  Could you possibly pick a worse time?

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