Another Great Thing about Vermont

One of my favorite places to visit is Vermont. When people think of Vermont, they think of mountains, maple syrup, skiing, and hiking. Now something else—Vermont was the first state to enact the L3C (low-profit limited liability company). This is an innovative entity structure that has quickly gained in popularity and has been formally adopted by 5 states with legislation pending in a number of other states.

This entity combines the social mission of the nonprofit entity with the business concept of return on investment. The L3C can receive investment capital from foundations and the foundations can later receive a return on their investment. The Nonprofit Law Blog does a great job clearly explaining the details.

An entity can form the L3C in a state where legislation has been enacted and file as a foreign corporation in the state where they are located (similar to the idea of incorporating in Delaware).

The L3C offers just the right structure to meet the needs of certain industries as discussed by the Nonprofit Law Blog

As with anything new, there are some issues up in the air with the IRS as the NonProfit Times notes so the pros and cons of this type of entity need to be carefully reviewed before deciding if it is the right form of entity for your organization.

A Cornucopia of Ideas

In honor of Thanksgiving, here is a collection of ideas, thoughts, and concepts from the 2009 BoardSource Leadership Forum….

…Foundations are looking more closely at Organization’s financials, they are looking for Organization’s that are sustainable who will be around long after the grant money is used…lagging economic indicators include giving so as the economy recovers giving may still decrease…Board members should include “ask me about (my nonprofit)” in their email signature tags to raise awareness about their nonprofit….millennials are excited about the nonprofit sector and see it as a desirable life career, not just a volunteer activity…
…the new 990 is only the beginning of IRS regulations that will affect nonprofits….pay attention to social entrepreneurs who look at social change differently…things aren’t broken, they are broken open….nonprofits need to market community value…
…a problem in the nonprofit sector is the 1.5 million small, disconnected nonprofits each going their own way, nonprofits need to merge or collaborate more…the Board and the Executive Director are responsible for determining strategy, the Executive Director is responsible for executing strategy… make sure you are measuring the right things…and one of my favorites…if you haven’t failed, you haven’t experimented enough

…the list goes on, but each of these items by themselves could be a post on its own…all good food for thought---without the calories of the Thanksgiving feast!

Energized by the BoardSource Conference

I have just returned from the annual BoardSource Leadership Forum in Orlando, FL and I am re-energized to advance the cause of good governance. It wasn’t just the 80 degrees weather, the palm trees, the lake view, and the sound of the multiple waterfalls outside. (Although I suspect an environment like this on a daily basis could only continue to create energy) It was the reinforcement of what can be accomplished in any organization when they are established on a firm foundation.

We have worked with nonprofit organizations for over 25 years. Some organizations accomplish their goals very effectively. Their programs work, they are good at attracting donors and volunteers, and even in these difficult times, they are strategizing ways to continue on. Other organizations are not so effective. The key ingredient that is missing from the less effective nonprofits? Good governance.

The popular definition site, “Wikipedia” defines governance as: “consistent management, cohesive policies, processes and decision-rights for a given area of responsibility” We see it as the cornerstone for the foundation of a well run nonprofit.

BoardSource’s own site says it best “dedicated to advancing the public good by building exceptional nonprofit boards and inspiring board service” They accomplish this by focusing on Board governance and provide numerous resources and training on Board structure, meetings, legal issues, policies, financial management, etc.

My next couple of posts will focus on some of the great governance messages from the BoardSource conference.

Small Nonprofit Need to Remember to File the E-Postcard

You are part of a very small nonprofit. Keeping the books is simple, what could go wrong? Well if you don’t pay attention to the IRS filing requirements-you could lose your nonprofit status.

Small nonprofits with gross receipts of $25,000 or less need to annually submit the Form 990-N to the IRS. The form is filed online at http://epostcard.form990.org. There is no paper filing option. While there is no monetary penalty for late filing, an organization that fails to file for three years in a row, will have its nonprofit status revoked.

The filing is simple. You just need your employer identification number, name and mailing address, tax year, website (if you have one) and the name and address of the principal officer. You will be asked to certify if your gross receipts are $25,000 or less.

Not sure if you are up to date on your filings? You can search for your organization at http://www.irs.gov/app/ePostcard/

While it is easy to file, it is easy to forget to file. The epostcard is due by the 15th day of the 5th month following your year end. Nonprofit status will be revoked by the 3rd consecutive missed due date. This IRS provision was first effective for years ending 12/31/06. So if you are a 12/31 year end and have never filed the epostcard and do not file by 5/15/10, your nonprofit status would be revoked. Now is the time to file.

More information is available at the IRS website http://www.irs.gov/charities/article/0,,id=169250,00.html

Growing Your Future Board

Board members are typically older-in their mid 40’s to late 50’s. At this stage of life people have developed in their careers, made significant financial decisions, and have developed some “life wisdom”, that brings value to the non profit organization.

However, don’t discount the benefit of bringing younger members on to your Board. Although they might not have the life experience they can bring new insight and energy to your Board. It is generally recommended that your Board include someone with financial expertise and someone with legal expertise. Many Boards have difficulty finding professionals in these areas. They can tap the resources of someone in these areas with 3 to 5 years experience in their field. The expertise they have, even at this stage, will be valuable. As long as the individual knows when they need to research and when to ask questions, they can be beneficial.

Also, consider a “junior Board” for younger adults to participate in. Determine what rights this Board would have and what Board meetings they would attend. This is basically a Board in training from which hopefully you will develop future board members. Make sure, though, that this junior Board has an opportunity to share their suggestions and observations with the Board and that as much as possible, their ideas can be used. Give them responsibility over certain functions (like elements of a fund raising event). This Board needs to feel that their commitment and time is valuable to the organization.

Decisions, decisions

Still thinking about setting priorities, especially in light of some consulting projects we are involved in right now. Great missions, passionate staff, tons of ideas, not a lot of time or financial resources—yet. Lots of creative ideas. Some of the ideas have the potential to generate significant funds. What to do first?

Here is a model to help narrow focus. Look at your financial picture. Get it down on paper. Where are the current revenues sources coming from? What programs generate what type of funding stream? Analyzing objective financial data can help point you in the right direction. Next, use a matrix to classify ideas.

Classify your ideas into four categories: low risk or high risk and high return or low return.

The low risk ideas are likely to be successful. More people can be reached, better response rate to treatment more likely, etc. These are proven concepts with a likely chance of success. The high risk ideas are the long shots. Maybe it is a great idea, but you aren’t sure if it will really work.

The high return refers to the dollars likely to net from the idea. What type of donations will this attract? How will the fundraising event do? What type of program service fee could be charged? What are the costs associated with the idea? When you compare the revenue generated in excess of the costs what is the net return?

Next group the categories into quadrants.

High return, low risk concepts go in the upper left quadrant. High return, high risk ideas go in the upper right quadrant. Low return, low risk ideas go in the lower left quadrant and low return, high risk ideas go in the lower right quadrant.

Those ideas in the upper left quadrant are most likely to be successful. The concepts in the lower quadrant are least likely to be successful.

It is assumed that the ideas generated will be mission focused. However, if you feel your organization has drifted from its mission or is spread too thin you can substitute high mission and low mission for the low risk and high risk considerations.

Although you probably have a general perception of the ranking of the initiatives, charting them out and attaching objective financial data, clarifies things for everyone. Initiatives that offer a high return and low risk are the ones you consider first. Low return, high risk concepts may be less of a priority.

This model can also help you narrow down what you need to do to make an initiative better—how can more revenues be generated, how can risk be minimized—to improve a concepts position in the quadrant.

Pairing the objective financial data with subjective program information can help you see which ideas have the best chance of success.

Protecting People from Themselves

I find it interesting how many organizations are hesitant to institute checks and balances for fear of offending someone. They think that the person will think that the organization doesn’t trust them. Maybe the person will think that but it’s your responsibility to put safeguards in place, not only to protect the organization but because it is kinder to the individual in the long run for two main reasons:
1. We are all only human. If cash regularly passes through our hands and there aren’t any checks and balances, how long before we need $5 for lunch one day and decide to borrow the money. We might pay it back, we might forget. Time passes and later we need more money. If you are reading this and thinking—that would never be me—remember that many people who ended up taking large sums of money from their company said the same thing, with equal conviction, at one time.
2. We need to protect others from false accusations. You never know when the political climate of your organization can change. You may be doing well financially now, but in three years if finances change, people sometimes starting looking for somewhere to place blame. If someone falsely accuses another of misappropriating funds, you want to be able to say—“no, that’s not possible because of…(name safeguard that is in place)

General rule of thumb—make sure 2 to 3 people are involved in every financial transaction. Small organization? Make sure items go before the Board. Involve the Board in approving bills, signing checks, reviewing the monthly bank reconciliation, and reviewing monthly financial reports.