Nonprofit Kit For Dummies - Phillips Frances

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an important service to the community and then convince donors that you have the knowledge and experience to provide it. You can solicit contributions from individuals before the IRS grants the organization tax-exempt status, as long as you reveal that your exemption is pending (and will be deductible to the donor if the exemption is granted), and you have met state charitable solicitation registration requirements. These contributions become deductible to the donor if you file for your exemption within 27 months of the date you incorporated and receive tax-exempt status. If your exemption is denied, the contributions won’t be deductible and you may be liable for income tax on the money you’ve received. Startup grants from foundations or corporations are rare and next to impossible to obtain before the IRS recognizes your organization’s tax-exempt status, so don’t plan to receive any grants from outside organizations.

      

New organizations can avoid the awkward period between starting up and receiving tax-exempt status by beginning as a sponsored program of an existing nonprofit organization. This arrangement is known as fiscal sponsorship. We discuss fiscal sponsorship in detail later in this chapter.

      You also can try out your program on a small scale before filing for tax-exempt status by partnering with an existing nonprofit organization to test the success and need of your idea. For example, if you want to start a summer arts program for low-income children, talk to a local church or community center that serves that population and ask if you can teach an art class one day a week for a month. This enables you to try out your idea, demonstrate the need, and set up benchmarks for success.

       Taking a long, hard look in the mirror

      Ask yourself whether you’re the right person to start a nonprofit organization, and try to answer honestly. If your organization offers a service, especially in the health and social-service fields, do you have the educational background, qualifications, or license necessary to provide those services? In addition to being professionally qualified, you need to consider whether you feel confident about your management, fundraising, and communication skills.

      When starting and working in a new nonprofit organization, you need to be able to stretch yourself across many different skill areas. You may be dressed to the nines one day to pitch your project to the mayor or to a corporate executive, and the next day, you may be sweeping the floor of your office or unplugging a clogged toilet. In other words, you need to be versatile and willing to take on just about any task that needs to be done.

      

When potential donors are evaluating grant proposals, they certainly look to see whether the organization’s leadership has the background, experience, and knowledge necessary to carry out the proposed program. This doesn’t necessarily mean that you need to be an experienced nonprofit manager, but try to assess your background to see how you can apply your experience to the nonprofit that you hope to start.

       Planning – and then planning some more

      If there were 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 doesn’t have 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 thought it would. When armed with that knowledge, you can adjust your plan as necessary or scrap the idea altogether.

      To begin planning, write a one- or two-page synopsis of your nonprofit idea. In your synopsis, include why your organization should exist, what you’re trying to do, and how you plan to do it. It’s a good idea to 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 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 7.)

      Understanding Nonprofit Ownership

      We once received a telephone call from a man who was shopping for a nonprofit. “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 one 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. Nonprofit assets can 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 in the future that you can’t or don’t want to manage it anymore, 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’ll need to follow the laws of your state to close the nonprofit organization, including selection of an appropriate and, in some cases, an approved nonprofit that will receive the assets.

      

When nonprofit managers and consultants talk about “ownership” of a nonprofit organization, they’re using the word metaphorically to make the point that board members, staff, clients, and the community all have a stake in the organization’s future success and its ability to provide needed programs.

       Benefiting the public

      People form nonprofit organizations to create a public benefit. 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 heart disease, for example, or people living below the poverty level – but you can’t create a nonprofit for individual benefit or gain.

      

Just because you’re working for the public’s benefit doesn’t mean you can’t receive a reasonable salary for your work. And despite the name nonprofit, such an organization can have surplus funds – essentially, a profit – at the end of the year. In a for-profit business, the surplus money can be distributed to employees, shareholders, and the board of directors; however, in a nonprofit organization, the surplus funds are used to strengthen the organization or are held in reserve by the organization to respond to emergency needs or invest in future programming.

       Being accountable

      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 to the public than a privately owned business is.

      It only takes a few media reports about excessive salaries or concerns about how a nonprofit has spent donated funds to prompt donors, legislators, and the general public to begin asking questions regarding the nonprofit’s finances and management.

      A few nonprofit organizations have taken on the task of collecting information about other nonprofits and sometimes rating them in various categories so prospective donors can use this information to help them decide which organizations to support. Charity Navigator (www.charitynavigator.org), CharityWatch (www.charitywatch.org), GuideStar (www.guidestar.org), and BBB Wise Giving Alliance (www.give.org) are four prominent organizations providing information about nonprofits.

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