Pacific Business News

December 31, 2004

10 tips to help keep your nonprofit running in 2005

by Sally Little

Looking forward to the year 2005, nonprofits can expect an increasingly competitive funding environment.

Although 2004 has been a good “giving” year, the number of new nonprofit tax-exempt corporations has continued to grow.

As in years past, more nonprofits will seek financial support from a static number of funding sources. Those organizations that manage their operations, employees and financial resources wisely will have a competitive advantage.

Governmental scrutiny on the state and federal levels will continue. Excessive compensation as a “hot button” will continue to attract negative attention to the nonprofit community. With limited financial resources, nonprofits will struggle to adopt best practices to comply with approved and anticipated regulations.

However, before ringing in the New Year, I have created my ten top tips from 2004 that will be valuable in addressing the challenges of 2005:

* Understand and use business plans. Business plans help nonprofits determine the sustainability of their projects by paying close attention to potential customers and financial projections. The plan also determines whether the project fits into an organization’s long-term strategies and vision.

* Establish feasible, outcome-oriented projects. In designing projects a nonprofit should be attentive to its internal capacity and develop a budget that is compatible with the desired outcomes. Make sure you have enough staff to complete the necessary work. Nonprofit managers have a tendency to overextend both staff and financial resources. These projects result in high staff turnover and they are difficult to sustain.

* Create earned income opportunities. Earned income opportunities range from collecting a fee for a specific service to starting a business venture. Developing an organizational culture that supports earned income may be challenging. However, revenue from earned income gives nonprofits the opportunity to self-finance their own growth and establishes reserves that will carry nonprofits through uneven funding cycles.

* Approach funding from foundations realistically. By design, grants are time-limited and program specific. General operating grants are rare. With the exception of moneys for capital purchases, a grant from a Hawaii foundation rarely exceeds $50,000. There are many grants given in the $10,000 to $20,000 range.

* Recognize the value and limitations of grant writers. Grant writers provide a valuable service to nonprofits by researching and determining possible funding sources, building a strong case for funding your project and writing the actual grant. The grant writer’s success depends on the programmatic, financial and administrative information they receive from the nonprofit’s management team. This collaborative approach to grant writing will give your nonprofit a competitive edge when seeking grants.

* Develop partnerships with corporations. Not only are corporations an excellent source of funding, they also provide much needed volunteers for fund raising events and community projects. Take the time to research corporations that will complement your mission. Then develop a synergistic relationship that enhances the reputation and integrity of both the nonprofit and the corporation.

* Practice human resource risk-management strategies. Consider purchasing employment practice liability insurance. Make sure that your policy covers claims made before litigation or the actual filing of a grievance. It also should cover all employees, including part-time, temporary, seasonal and independent contractors. Disclose to your insurance agent whether you have volunteers and the extent of their participation in your organization. Legal liabilities with leased emplo yees are complex and you may wish to seek legal advice before considering this option.

* Manage volunteers with the same commitment as you manage your employees. Volunteers require realistic job descriptions, resources to accomplish their tasks and an understanding of their importance to the organization. Volunteers make a significant impact on the financial bottom line of any organization. Recognize and celebrate their contribution.

* Use due diligence in determining reasonable compensation. Establish a compensation committee that serves free from any conflict of interest. These committee members should research comparable compensation packages and determine compensation prior to hiring the employee. All recommendations and individual votes taken by the committee members must be documented in writing.

* Comply with state and federal regulations. The Form 990 is due to the Internal Revenue Service on the 15th day of the fifth month after the end of your organization’s accounting period. The IRS is proposing stiffer penalties on nonprofits who fail to complete, accurate and timely tax forms. Nonprofits incorporated in Hawaii must file a yearly annual report with the Department of Commerce and Consumer Affairs. Failure to file this report for three consecutive years may result in the involuntary dissolution of your nonprofit corporation and jeopardize your tax-exempt status. Nonprofits have a general excise tax liability unless they have filed and received an exemption for general excise tax. This exemption includes only mission related income; all fundraising revenue is subject to excise tax.

Thank you to all the employees of nonprofits and to those who give their time, talents and financial contributions to support these organizations. Happy New Year!

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Copyright 2004, Entrepreneurial Solutions, LLC