Should You Start a Nonprofit Organization?

It's only mid March but already we have had about seven inquiries from people looking to start a nonprofit organization.   All great ideas.   All people who are passionate about their concept.   So what is our typical response?   We try to talk them out of it.

Why?  Because the cost to start up a nonprofit and to maintain it on an ongoing basis, can eat into the funds raised in the early years essentially curtailing a great concept before it can even get off the ground.

The initial costs to start a nonprofit include incorporation fees, assistance with the IRS form 1023 to apply for nonprofit status, the IRS filing fee, and the state filing fee.   These fees can range between $2,000 and $3,000.  

The ongoing fees at a minimum include director & officers liability insurance and the administrative costs related to fundraising and the required acknowledgments.  

Instead we encourage potential new nonprofits to consider two potential courses of action:
1-Is someone already doing something similar?  Can you partner with another organization?  Would your idea work as a program within an already existing nonprofit?
or
2-Consider a fiscal sponsorship arrangement.  In this arrangement, you operate under another nonprofit's formation but you are independent from a management standpoint.   The National Council of Nonprofits has a nice discussion on Fiscal Sponsorship here.

 A new client pursued the fiscal sponsorship arrangement and found a great fiscal sponsor.  Not only were they willing to set up the arrangement, they provided advice on the business plan and set up some valuable introductions for this new nonprofit.

Sometimes a nonprofit concept has already taken off.   Similar services are not available and the concept meets a great need in the community.  There is a strong volunteer base and donors want to provide funds.    In those cases, the organization has the foundation to move forward and is ready to apply for their own status.    We can help them apply for their IRS status.  For more information email us at cbergvall@bbco-cpa.com for our white paper-Basic Guide to Starting a Nonprofit in Pennsylvania.

Fundraising, Finances, and your Future

At the Catalyst Center for Nonprofit Management we are planning for this year's seminar topics.  When we look at the popular topics for past sessions, fundraising is always the most popular.  Topics around managing your finances are not as popular.

Why is this?  Fundraising seems to promise the possibility of more money.  Fundraising can increase revenues.  It may be also assumed that finances are harder to understand.  What is often overlooked is that financial management will impact your revenues and expenses.   Fundraising without proper financial management will be less effective.  You could increase revenues but still not increase your bottom line.

This article in the February 2014 issue of INC magazine tells the story of the Murder Mystery Company.  The business was growing rapidly but finances were out of control.  By getting a handle on the finances, the Company was able to decrease spending by tracking activity; capture revenue that they were losing; and develop a new revenue stream.

So as we look to the coming year we will still offer course in both fundraising and finances.  We hope to increase the attendance at the financial sessions.  We frequently get comments about our financial training from our attendees.  They note that the topics are taught in practical, easy to understand laymen terms.  We offer follow up assistance from our sister company the accounting firm Bee, Bergvall & Co.  Our goal is that our nonprofit community is better equipped to increase both the top line and the bottom line.

Lessons Learned from Knight Foundation's Digital News Study

This article from NonProfit Quarterly summarizes highlights from the Knight Foundation's study Finding a Foothold-How NonProfit News Ventures Seek Sustainability.   While the focus in on news organizations, the observations from the study are valuable to any nonprofit:

1- compare yourself to your peers and target those from whom you can learn
2-revenue diversity with a focus on individual donations is key
3-while some donations might be significant donations from high net worth individuals, most donations were much smaller
4-the correlation between stakeholder engagement and donations
5-attack your assumptions always
6-measure what matters

If you don't have time to read the whole report, the NPQ article is a great summary and the discussion of the recommendations at the end of the report are a quick but thought provoking read.

Thinking of Serving on a Board?

Maybe one of your New Years Resolutions was to get more involved in the community by serving on a Board.   Before you jump in, check out this article in the January 2014 Journal of Accountancy   Consider This Before Serving on a Board    Amy Waldron, CPA interviews attorneys James K. Thurston and Peter J. Larkin about the possible liabilities to be aware of when serving on a Board. 

The one issue they note--personal liability for unpaid payroll taxes is one we address in our Board Boot Camp.   We have seen some nonprofit clients get behind on payroll taxes--and the Board Members are not aware.   Because Board Members can be personally liable for these unpaid taxes, it is important for Board Members to make sure their nonprofit is current.

The attorneys note a number of strategies a Board Member can take to reduce risk.