America's First Choice for Nonprofit Startup and Compliance

When Foundation Group launched in 1995, we were the first specialty firm in America dedicated exclusively to starting nonprofits and helping them to stay compliant with state and federal regulations.

20 years later, we're still going strong!  In fact, our client base continues to grow exponentially every year...and we've never been more committed to bringing our clients the expertise they need to see their vision come to pass.  Simply put, we love what we do and we're passionate about doing it with excellence!

We were the first...and we've never stopped leading!  Call us and see why we are America's first choice for nonprofit startup and compliance services.

Nonprofit Executive Compensation

Nonprofit Executive Compensation

Nonprofit executive compensation tops the current list of IRS hot button issues. In recent years, the IRS has been ramping up its oversight and enforcement of nonprofit executive compensation.  With all the rancor surrounding executive perks and bonuses on Wall Street, expect that populist sentiment to spill over into the nonprofit sector as well.  It all adds up to the equivalent of a message written in the sky:  get your house in order!

So, how do you do that?  Let’s take a look at a few key points that will go a long way toward ensuring that the compensation package for your nonprofit’s leader(s) is appropriate.

Reasonable compensation. It all starts here.  The IRS requires compensation packages for nonprofit executives (and other nonprofit employees, for that matter) to be reasonable.  Unfortunately, the IRS doesn’t really define reasonable…at least not in a way that you could look up in Websters.  Reasonable compensation is best understood in light of factors the IRS examines when determining whether or not a charity is exceeding reasonableness with its compensation arrangements.  These factors look something like this:

  • Actual job description
  • Required level of education or experience
  • Compensation averages in your area
  • Number of hours worked
  • The overall budget of the charity
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10 Business Essentials for Nonprofits

It often seems that when otherwise business-savvy individuals become involved in a nonprofit organization, they set aside all they ever learned in business and proceed to operate their nonprofit as if business rules do not matter.  As most soon find out, they matter a lot.  In this post, let’s take a look (in no particular order) at 10 business basics that nonprofits ignore at their own peril.

Money. This may come as a shock to some, but being “nonprofit” does not, cannot, mean NO PROFIT.  With the notable exception of GM, AIG and a few others, a business must make a profit to survive.  Your organization was probably not on Tim Geithner’s list for TARP funding, so red ink should be regarded as impending doom.  With the uncertainty of this economy, you simply must be solvent.  You and your board may have to make some tough decisions.  Some programs may have to be scaled back or eliminated.  Fundraising must become even more focused and intentional.  I won’t repeat a lot of what we’ve discussed recently concerning funding…suffice it to say you must keep a lid on overhead…now more than ever.

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The Dirty (Half) Dozen Nonprofit No-Nos

Occasionally, you have to protect people from themselves.  Even those with the best of intentions can mess things up so badly that it can jeopardize what they are trying to accomplish.  In the nonprofit world, there are best practices, good practices and acceptable practices…and, really, really bad practices that will cause your organization, its board, donors and beneficiaries headaches galore.  This week, we are going to explore the Dirty (Half) Dozen Nonprofit No-Nos, in no particular order.  We will limit our discussion to 501(c)(3) nonprofits.

1.  Dictatorships. If you want to be your own boss and run the show as a benevolent dictator, then by all means, go start a business.  Just don’t start a nonprofit organization.  What many people fail to understand before they establish a 501(c)(3) organization is that nonprofits do not have shareholders, i.e., owners…only stakeholders.  Stakeholders can be defined as an organization’s board of directors, its members and its beneficiaries.  No one can legally assume ultimate control.  In fact, the IRS requires tax-exempt organizations to be structured such that control rests within a group of individuals.  This protects everyone involved.  Many times we’ve seen placeholder boards who basically rubber-stamp every decision made by a dictatorially-inclined president or executive director.  That does everyone a disservice.  Even worse, the IRS will hold all the leaders accountable for the governance and management of the organization, not just the dictator.

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A Tale of Two Nonprofit Websites

Once upon a time, there were two websites, each belonging to a different charity.  Our tale follows the adventures of these websites.

The first website…we’ll call it “the good site”…was considered a real asset to its owner.  While not fancy or flashy, it was nice to look at and was obviously well taken care of.  The content of the good site talked about the charity, the charity’s mission, its programs…it even had nice pictures of some of the volunteers helping the charity’s beneficiaries.  And, everything was correct and up to date.  The good site was very good indeed.

The other website…we’ll call it “the bad site”…was also considered a real asset to its owner.  It was fancy and flashy and quite beautiful to behold.  The content of the bad site talked a little about the charity, the charity’s mission, its programs…but, it talked a lot more about the charity’s president, John, and John’s for-profit business.  In fact, it was kind-of hard to tell who the website was supposed to be promoting, John or the charity.  There were some nice pictures of John, John’s family…even John’s dog…plus lots of conveniently placed “Buy Now” buttons for website visitors to snap up John’s new book.  The bad site was very bad indeed.

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How to Protect Your Nonprofit’s Board Members

Your board of directors is one of the most important assets your nonprofit has.  Assuming they understand their role and are there for the right reasons, your board members provide invaluable insight, direction and oversight.  They volunteer their time and expertise, usually for little more than a pat on the back.  They also assume a certain level of liability in exchange for their efforts.  The old phrase, “No good deed goes unpunished”, is not something you want to see come true.  Let’s explore how to protect those who give of their time to your organization.

Understanding the issues. The first step to properly protecting your board members is to educate them as to what they are responsible for.  It is discouraging to see the level of ignorance that many boards operate under.  We frequently encounter boards where some members are merely placeholders who are doing a favor for the founder.  They rarely participate in substantive discussions or planning, nor are they consulted with by the program director.  They have no idea that there is any liability to them, but there is.  This liability usually falls into three categories:  1) corporate (state), 2) federal (IRS) and, 3) general liability.  Let’s take a closer look at each:

  1. Corporate liability:  Board members are the legal, governing body of a nonprofit corporation.  They collectively represent the organization and its interests.  Each nonprofit corporation is incorporated in a particular state, according to that state’s corporate law.  Board members are responsible to make sure the corporation follows state law and that it follows its bylaws.  It is not terribly uncommon to hear of court cases involving other board members, or members of the public, accusing the organization of not abiding by its bylaws.  And, if the corporation is an employer, the board members have a fiduciary responsibility to ensure that employment taxes and related things are properly handled.
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