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Nonprofit 101

Nonprofit 101 . For ESC Consultants. Nonprofits exist to pursue a mission. provides nutritious food to hungry people statewide in a manner that respects their dignity, while fighting to eliminate hunger. Evaluating Success: For Profit vs. Non Profit. Photo credit: Craig Maccubbin.

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Nonprofit 101

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  1. Nonprofit 101 For ESC Consultants

  2. Nonprofits exist to pursue a mission provides nutritious food to hungry people statewide in a manner that respects their dignity, while fighting to eliminate hunger.

  3. Evaluating Success: For Profit vs. Non Profit Photo credit: Craig Maccubbin A sustainable for-profit should be socially and environmentally responsible, but to be a success it must deliver a financial profit A sustainable nonprofit should make a financial profit, but to be successful it must deliver on its social or environmental mission

  4. Profit Management: For Profit vs. Non Profit Photo credit: Nick Wheeleroz For-profits can pass along profits, property, or shares to individuals who manage or govern the organization or invest profits in the organization Nonprofits must reinvest profits in pursuing the organization’s mission Passing profits, property or shares to individuals is illegal

  5. What makes a nonprofit a nonprofit? Pursue a community benefit rather than a profit Nonprofits adhere to corporate law & regulations unique to this sector Names and Acronyms for Nonprofits Non-governmental Organizations (NGOs) Not for profits Social sector Voluntary sector Nonprofit Organizations (NPOs) Photo credit: Chuck Coker Additional Resources Citizen Media Law Project: What is a nonprofit? Idealist: Who can benefit from a nonprofit’s activities? Idealist: Nonprofit Regulations

  6. Organizations are deemed ‘nonprofit’ by state government, ‘tax exempt’ by federal government • Informal Groups (not incorporated) Nonprofit (incorporated in state) WA Secretary of State - Nonprofit Incorporation Nonprofits with federal tax-exempt status (incorporated in state AND meet additional federal requirements) IRS - Nonprofits Simplest Most Complex

  7. Examples: Community groups, Coalitions, Neighborhood associations, etc. • Legal Responsibilities: minimal • Legal Privileges: no group privileges • Advantages: Accomplish a shared goal with minimal requirements • Limitations: Informal groups can NOT - • Have a group bank account, • Ask for contributions • Win grants or contracts • Hire staff • Earn income Informal Groups • A small group of individuals who come together to pursue joint goals, but do not register as an organization Photo Credit: John Spooner

  8. Examples: most neighborhood groups, professional organizations, new organizations that haven’t received federal tax-exempt status yet. • Legal Responsibilities: Must provide social or community benefit, follow charitable solicitation rules in fundraising, pay state, local and federal taxes, have a board of directors. • Legal Privileges: Can enter into business dealings, form contracts, own property, similar to state-incorporated businesses, plus can: • Ask for contributions (if registered as a • charitable organization with Secretary of State) • Receive grants or contracts from some funders • Advantages: Earns business privileges with moderate need for extensive recordkeeping and reporting • Limitations : Contributions are not tax-deductible, Ineligible for some grants or contracts Nonprofits • A group that registers as a nonprofit with the Secretary of State

  9. Examples: most nonprofits you can think of! ESC, Goodwill, YMCA, UW, churches, etc. • Legal Responsibilities: All responsibilities of a state nonprofit, plus must file IRS 990financial reporting form annually • Legal Privileges: Exempt from federal corporate taxes (but may pay state and local taxes), additional privileges depends on specific type of tax-exempt designation • Advantages: Tax exemptions, eligible for more grants and contracts • Limitations: Must follow complex reporting and recordkeeping rules Tax-exempt Nonprofits • A nonprofit that registers with the Secretary of State and applies for and earns IRS tax exemption status Photo credit: ValentinOttone

  10. Common Challenges of Nonprofits

  11. Lack of clarity on which decisions are the Board’s to make and which decisions are the Executive Director’s (ED) to make. • If lack of clarity leads to a passive board, the Board might not challenge the ED enough. • On the other hand, a very involved Board, may not give the ED the freedom to make day-to-day decisions without consulting the board. Challenges with the Board “Very competent individuals can come together to form a very incompetent board.”John CarverBoards that Make a Difference

  12. Boards should decide what strategic Goals a nonprofit should pursue • Executive Director is responsible for the Means used to achieve those Goals • Boards get to set some Limits on the Means, example Limits • Don’t do anything illegal or unethical • Don’t treat clients, volunteers or staff unfairly • Don’t get into debt What is the Board’s Job? Executive Director Board • GOALS • MEANS ESC’s Board Best Practices

  13. Similar to small business, nonprofit staff wear many hats • Executive Director is generally management and program staff and often the chief fundraiser • Office manager is often the financial staff, HR person, business manager, etc. • Staff may not have special knowledge or training for some aspects of their job • Unique to nonprofits • Program staff may be Americorps members with time-limited terms or volunteers who leave quickly when life changes occur Challenges with staffing Staffing is typically a nonprofit’s biggest expense, but understaffing is common

  14. Donors can restrict contributions to a certain program • Contracts and grants restrict the percentage that can go to “overhead” • Nonprofits have few sources of general operating support • Impact: Low infrastructure investment • Out of date technology • Lack of investment in professional development activities Challenges with money Nonprofits face more restrictions on how they spend their money then businesses Getting what we pay for: How low overhead limits nonprofits effectiveness

  15. Knowing when to stop working can be tough in nonprofits • Desire to accomplish things (as in business), but in nonprofits there are also human impacts • How do you know when to go home, if you’re a food bank manager, and at the end of your official business hours there’s still a line around the block? • Impact: Burnout Challenges with time Knowing when to say enough

  16. ESC Client Sue Eastgard of Youth Suicide Prevention Program talks about having a small staff: Insert clip here

  17. How important are volunteers to nonprofits? Myth: Volunteers do only low value tasks

  18. Reality: Volunteers are a critical resource • All nonprofits are required by law to have Boards of Directors who are volunteers • Volunteers help nonprofits serve more clients • In hunger organizations, it’s estimated that 1/3 of services are provided by volunteers • The value of what volunteers provide can be great compared to a nonprofit’s budget size or staff size • For example, the Girl Scouts use their network of 928,000 adult volunteers to serve 2.4 million girls • Volunteers are much more likely to donate $ than non-volunteers

  19. ESC Web Site “Resources” Tab • Recommended Websites • Nancy Bell Evans Center at the University of Washington • Idealist.org’sNonprofit FAQ • Seattle University Executive Master of Nonprofit Leadership Helpful Resources Ten Websites All Nonprofits Could Use Want to learn more?

  20. ESC Intranet • Log in from escwa.org home page • User name: volunteer • Password: washington • Practice Areas • Topical list of articles, sample documents, templates and online resources • Consultant Tools • Project management templates and tools Want to learn more ?

  21. Appendix Facts and figures about the nonprofit sector

  22. ESC works mostly with 501c)3 organizations 501c)3 organizations can ask for contributions & donors can take tax deductions More information on Federal Tax Exemptions http://www.irs.gov/pub/irs-pdf/p557.pdf

  23. Popular Tax Exempt Statuses 501c)3 : religious, educational, charitable, scientific, and literary organizations 501c)4: civic leagues, social welfare organizations, and professional associations Data Source: Urban Institute http://nccsdataweb.urban.org/PubApps/profile1.php , accessed 4/2/2010

  24. How Many Nonprofits in Washington? How Big? Data Source: Nonprofits in Washington 2009 Data Source: Nonprofits in Washington 2008 • Most nonprofits are small • Median budget size - $100,000 • 90% reported revenues of 302,000 or less

  25. How do Nonprofits earn money? Myth: Most nonprofit revenue is from charitable contributions

  26. Reality: Most revenue is from earned income Sources of Revenue for Reporting Public Charities, 2005 data Source: Urban Institute found at http://nccsdataweb.urban.org/kbfiles/797/Almanac2008publicCharities.pdf

  27. Where do charitable contributions come from? Myth: Most charitable contributions come from corporations and foundations

  28. Reality: Most contributions come from individuals Source: Giving USA data found at: http://www.nps.gov/partnerships/fundraising_individuals_statistics.htm

  29. Nonprofit Board Governance • Board powers are defined in • Articles of Incorporation • Bylaws • Board is directly accountable for actions and policy of organization • Family members of staff should not be on the Board (conflict of interest) Board must have at least 4 people and meet at least 4 times a year Most Boards have about 15 people

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