Managing The Non-Profit Organization
Managing nonprofit organizations with effective governance means running a nonprofit well. It also means watching out for risks, especially risks related to compliance. Good governance is a huge asset in ensuring that the board is performing at its optimal level, which will lead to good performance by the organization. Some of the areas in which the IRS may be scrutinizing nonprofits a bit more than in the past relates to fundraising expenses, compensation competence, showing losses to offset gains, taxable income due to parent and subsidiary transactions, and unallowable political activity. Nonprofit board directors must be as vigilant with respect to their board duties as directors of for-profit companies.
Managing the Non-Profit Organization
Nonprofits should also have a policy that requires the board to review a copy of IRS Form 990 before it gets filed. Form 990 asks additional questions of nonprofit organizations on Part VI, which includes several questions that are optional. Answering questions about the conflict of interest, executive compensation, whistleblower protection and document retention policies will help to demonstrate that a nonprofit is doing its best to be transparent and managing the nonprofit organization well.
Managing a nonprofit organization requires a knowledge of state regulations or applicable Internal Revenue Service (IRS) codes dictating the requirements for maintaining your nonprofit status. Also required are basic business management principles to keep the organization on a sound financial footing to meet its mission effectively. Understanding the aspects of nonprofit management will help you apply the appropriate management principles to your organization.
Review and understand the requirements under which you must operate your organization to stay within the laws governing your nonprofit. Some nonprofits are not governed by the IRS code--the nonprofit status is granted by a state and you will only need to follow that state's regulations. If you have received a 501(c) designation from the IRS, you'll have to follow the regulations for your particular designation.
Determine whether your organization has an IRS 501(c) classification. Your accounting practices and allowed operating methods will differ for different classifications. For example, a 501(c)(3) organization is considered a charity, and donations made to the organization are tax-deductible. A 501(c)(6) organization is tax-exempt, meaning it pays no taxes on most income earned, but donors to the organization do not receive a tax deduction for making a donation.
An example of a 501(c)(6) organization would be a trade association of plumbers. If that plumber's association set up a 501(c)(3) foundation, the foundation's donors could write off contributions. The 501(c)(3) foundation could conduct charitable, research or educational activities, but not promote the industry or plumbers, which the 501(c)(6) association could do under its IRS designation.
Read and understand your bylaws to ensure you follow the requirements to operate the organization under which your IRS status was granted. For example, if your bylaws state that you must have seven board members and a vote by the membership each year to elect board members, you must follow these bylaws to keep your IRS status.
Research nonprofit best practices for your type of nonprofit organization to ensure sound fiscal management and growth; proper membership or donor attraction and retention; industry supplier participation; cross-organization cooperation; and other areas of specific nonprofit operations. Organizations, such as the American Society of Association Executives, offer a wealth of information on the management and governance of nonprofits.
The National Council of Nonprofits encourages all nonprofits to be familiar with the employment laws in the state(s) where the nonprofit operates. State associations of nonprofits frequently offer educational programs and reliable resources related to managing employees and volunteers.
In addition to state laws, some federal laws, such as the Fair Labor Standards Act, apply to many employers, regardless of organization size. Other federal employment laws cover workplaces with 15 or more employees.
Starting a nonprofit organization can be an inspiring way to give back to your community and help those in need. However, it is important to understand all of the steps involved in this process before moving forward. Growing and sustaining a nonprofit may take years of effort and a great deal of determination.
The information provided in this article is intended to offer general guidance on how to form a nonprofit organization. Please note that specific steps may vary for each state, and we recommend consulting with a legal or tax professional for detailed assistance.
Find out if organizations (nonprofit, for-profit, or government) are already doing the same or similar work in your community. It will be harder to get support if you are just duplicating existing services rather than improving or adding to them. Also find demographic or population data that shows a need for your services, and explain how that need is not being met. Where can I find demographic information about my community?
Consider alternatives that can let you essentially operate as a nonprofit but with far less effort and cost. Thus, you can focus your efforts on serving your community right now while you develop experience and support that will serve you well if you eventually decide to form a separate organization.
Developing your mission statement is a critical first step. It communicates your nonprofit's purpose, what groups it serves, and how it will serve them. Every decision and action in your organization should support and further your mission. Where can I learn about nonprofit mission statements?
Just as with a for-profit business, a business plan can help a nonprofit describe how it intends to achieve its mission in more specific details. It also can be used to outline a new project or venture. How do I write a business plan for a nonprofit organization?
As your nonprofit's governing body, your board fulfills a variety of roles and legal responsibilities. In order to carry out these duties effectively, the board will change as your organization grows and matures. While recruitment is an important step in this process, a systematic approach to board development, including orientation, training, evaluation, and the cultivation of prospective board members, is critical to ensuring its long-term success.
Each state has an office charged with the oversight of charitable organizations and charitable solicitations (usually the Attorney General). If you plan to solicit contributions in other states, you may need to register there, too.
In most cases, an exempt organization must file some version of Form 990 with IRS, depending on its financial activity. Form 990 shows your finances, activities, governance processes, directors, and key staff, and it is open to public inspection. States have their own reporting and renewal requirements, too, and these will vary with each state. Thus, consider tracking your organization's finances and activities in a such a way that will help these annual reporting requirements occur smoothly.
Follow links from this page for various types of nonprofit organizations to find information about how to comply with IRS requirements at every stage of an organization's life, from starting up to termination.
This table lists the board member requirements for nonprofit organizations in each state, including any age or residency requirements for directors, required officer positions, and minimum number of directors.
As a nonprofit, you have a responsibility to your community, as well as your donors, to be successful and operate in a way that is, ideally, fiscally independent of donations. Choosing to run your nonprofit like a for-profit business can ensure you meet your revenue goals each year, as well as operate on the lean side without making unnecessary expenditures that could cost the livelihood of your organization.
Nonprofit is a tax status, not a financial situation. The nonprofit's mission is the focus. Fundraising and meeting budget, along with staff, marketing, communications, technology and program delivery, are tools to accomplish the mission. In other words, fundraising and meeting budget are tactics tied to an organization's effective operation goals and will help achieve the organization's mission. - Carlotta Ungaro, Fayette Chamber of Commerce
This guidance is intended to provide non-profit grant recipients with information to ensure that their organizations remain in compliance with the Code of Federal Regulations (CFR), Office of Management (OMB) cost principles, and the terms and conditions of EPA assistance agreements.
In nonprofit management programs, students learn how fundraising, effective leadership and financial management can improve a nonprofit organization. These are the best public affairs schools for the nonprofit management specialty. Read the methodology
The Nonprofit Security Grant Program (NSGP) provides funding support for target hardening and other physical security enhancements and activities to nonprofit organizations that are at high risk of terrorist attack. The intent is to integrate nonprofit preparedness activities with broader state and local preparedness efforts. It is also designed to promote coordination and collaboration in emergency preparedness activities among public and private community representatives, as well as state and local government agencies.
In Fiscal Year (FY) 2023, the U.S. Department of Homeland Security (DHS) is providing $305 million for facility hardening and other physical security enhancements and activities to nonprofit organizations that are at high risk of terrorist or other extremist attack.
The example below is the balance sheet for FAN. This format also delineates funds with restrictions from funds without donor restrictions. By focusing on net assets without restrictions, organizations are given the most accurate and relevant picture of the net assets available for use. For analysis, planning, and decision-making, it is important for an organization to understand what part of their net asset position is without restriction. 041b061a72