Nonprofit Kit For Dummies. Stan Hutton
Planning, plotting, and projecting
If there was ever a time to plan, this is it. Planning is what turns your initial idea into a doable project. Planning is also a good way to find potential holes in your thinking. For example, you may believe that your community lacks adequate animal rescue services. You may be right, but when you begin to break down the idea of starting an animal shelter, you may find that the project costs more money or requires more staff or facilities than you first imagined. When armed with that knowledge, you can adjust your plan as necessary or scrap the idea altogether.
To begin planning, write a 1- or 2-page synopsis of your nonprofit idea. In your synopsis, include
Why your organization should exist
What you’re trying to do
How you plan to do it
Outline both short-term and long-term goals and the resources needed to meet those goals. The list of resources should include money, volunteers, and an appropriate space to carry out your activities. After you’ve prepared your synopsis and list of resources, talk to as many people as you can about your idea, asking for help and honest feedback about your project. The purpose of this strategic planning process is to think through your nonprofit idea step-by-step. (If you need help in the planning process, take a look at Chapter 8.) The planning process involves thinking strategically, plotting ideas on paper, and projecting the needed ingredients for operational success and sustainability.
Understanding Nonprofit Ownership
We (Stan and Frances) once received a telephone call from a man who was shopping for a nonprofit to purchase. “Do you know if there are any nonprofits for sale in New Hampshire?” he asked. Although this question doesn’t come to us often, it illustrates a misconception about the status of nonprofit organizations. No single person or group of people can own a nonprofit organization. You don’t see nonprofit shares traded on stock exchanges, and any “equity” in a nonprofit organization belongs to the organization itself, not to the board of directors or the staff. IRS regulations allow the assets of nonprofits to be sold, but the proceeds of the sale must benefit the organization, not private parties.
If you start a nonprofit and decide at some point that you no longer want to manage it, you have to walk away and leave the running of the organization to someone else. Or, if the time has come to close the doors for good, any assets the organization owns must be distributed to other nonprofits fulfilling a similar mission. You need to follow the laws of the IRS and your state to close the nonprofit organization, including selection of an appropriate and, in some cases, approved nonprofit that will receive the assets.
Benefiting the public for the greater good
People form nonprofit organizations to create a public benefit for the greater good of all. In fact, nonprofit corporations are sometimes referred to as public benefit corporations. A nonprofit organization can’t be created to help a particular individual or family, for example. If that were possible, we’d all have our separate nonprofit organizations. You can start a nonprofit to aid a specific group or class of individuals — everyone suffering from diabetes, for example, or chronically homeless individuals — but you can’t create a nonprofit for individual benefit or gain.
Being accountable and transparent
Although nonprofit organizations aren’t public entities like government agencies and departments, their tax-exempt status — and the fact that contributions are tax-deductible — require them to be more accountable and transparent to the public than a privately owned business is.
It takes only a few media reports about excessive salaries or concerns about how a nonprofit has spent donated funds to prompt donors, legislators, or the general public to begin asking questions regarding the nonprofit’s finances and management. An IRS tax-exempt, 501(c)(3) nonprofit organization is required to be transparent and open in all of its operations and transactions.
A few nonprofit organizations have taken on the task of collecting information about other nonprofits and sometimes rating them in various categories so that prospective donors can use this information to help them choose which organizations to support. Charity Navigator (www.charitynavigator.org), CharityWatch (www.charitywatch.org), GuideStar by Candid (www.guidestar.org), and the Better Business Bureau Wise Giving Alliance (www.give.org) are four prominent organizations providing information about domestic (US-based) nonprofit organizations. If you’re just starting out and your nonprofit is small, your organization us unlikely to be evaluated by one of these organizations; however, a new nonprofit should definitely create a profile on GuideStar by Candid. For small, early-on funding requests, foundation and corporate grant makers will look for your profile on this website. Be sure to update it annually.
We discuss nonprofit disclosure requirements in more detail in Chapter 6, but at minimum, federal law requires that nonprofits file a report (Form 990, 990-N, or 990-EZ) every year with the IRS. The amount of detail required in the report depends on the size of the nonprofit organization. States have their own reporting requirements, so contact your appropriate state office to learn what’s required.
A WORD ABOUT EXCESSIVE COMPENSATION
Although nonprofit employees have no dollar limit on the amount of compensation they can earn, the IRS does have the authority to penalize individuals (and organizations) who receive (or pay) excessive compensation. Whether the IRS considers benefits excessive depends on the situation. For instance, a staff member earning $100,000 annually