Nonprofit Information - A Site Full of Tips for Nonprofits

Nonprofit Resources

Tips To Having a Successful Nonprofit.

How Can Nonprofit Boards Develop a Merger Mindset?

By

Nonprofit Board Merger Mindset

When companies merge or acquire, stakeholders rightly expect the whole to become greater than the sum of its parts. Unfortunately, this happens less than half the time. Not only does one plus one not equal three; too often mergers and acquisitions result in losses. A once exceptional organization can quickly take a turn toward mediocrity, or worse.

Study after study puts the failure rate of M&A between 70% and 90%. Many researchers have tried to explain these abysmal results, usually by analyzing the characteristics of deals that worked and those that didn’t. That’s a start, but it only informs decision-makers about the features of the deals that caused or prevented failures. Statistics don’t truly get to the core of the cause–effect relationships among planning, evaluating, and integrating—the essential traits for successful M&A.

Deciding whether to do the deal presents the first round of tough calls, decisions about integration, the second. In the heat of finalizing the deal, board members often leave integration until the last minute or give it short shrift. Board members need clarity about what they should consider when they attempt to align two disparate organizational environments, histories, and cultures. When leaders make the decision to merge or acquire, board members know the stakes are high, and they also understand that they can set the stage for success. Too often, however, these same board members inadvertently invite dilemmas and disasters to come from the wings to take a bow in the spotlight.

Why does this happen? Because the same board members who influenced the initial decision to merge or acquire stop making the necessary tough calls to make the deal work. Realizing the dire consequences that can result, why would sane board members choose to place themselves and their companies in the line of fire?

Why Do a Deal?

When an organization considers an M&A deal, board members need well-honed judgment, courage, vast experience, and unimpeachable integrity to make the tough calls associated with any growth initiative. Unfortunately, judging from the number of failed deals, most decision makers lack one or more of these four constructs. They also need, but frequently fail to obtain, a clear answer to the question, “Why do we want to do this deal?”

The answer to this question starts with the leadership team and the board agreeing about why they want the deal, but then things get more complicated. The senior team, who must make the deal work, need to know why, and they need to be enthusiastic about the answer. Then, members of this team need to test their conclusions with key groups and stakeholders. Otherwise, everyone involved will lose the energy needed to make the deal work. In these situations, companies end up with a plethora of props but no performance.

When asking the reasons to do a deal, “We want to get bigger”—the response that often fuels the passion for a deal in the first place—is not the right answer. These reasons are better:

  • Our reputation in the industry will skyrocket.
  • We will attract top talent.
  • Customers will benefit.
  • We will enjoy better financial results.
  • A combined organization will better position us to compete.
  • Operational synergies become possible.

When an industry consolidates, board members wonder whether they are missing out by not acquiring or merging. These emotional and often unconscious motivations tug at decision makers, often relentlessly. To validate their emotions, leadership teams often conduct studies, analyze data, and hire consulting firms to validate their theses. Data from this kind of research can build confidence in the future success of the deal, but ultimately, clear benefits like these should surface, too:

  • A stronger brand
  • More customers
  • Improved speed to market
  • Increased revenue and margins
  • A bigger, stronger organization uniquely positioned for growth
  • The avoidance of costly mistakes that could tarnish the brand

The desire to amass data to authenticate gut feelings often serves as a powerful motivator—even more so because people don’t admit why they want the data. They feel the urge to believe, feel, and act in ways that others also believe, feel, and act. Board members tend to be smart people—smart but also emotional.  Their emotions guide them, but frequently they fail to analyze or talk about their emotional reactions—all the while hoping that logic will prevail.

Board members who possess a Merger Mindset balance logic with insight. They have a clear read on how others are responding or likely to respond. They react positively to change, control their own fears, and try to mitigate the negative reactions of others.  We can deny the emotional aspects of a deal, laugh at them, or ignore them, but these reactions create the path to perdition—not to good deals.

What Makes a Nonprofit Deal Different?

And what makes a nonprofit deal work well? The Chicago Nonprofit Merger Research Project wanted to know, so they analyzed twenty-five nonprofit mergers that occurred in the Chicago area between 2004 and 2014

When deals failed, the researchers blamed a lack of strategic intent. That means that too many organizations lacked clarity about why they wanted to do a deal. Instead of pursuing a merger based on opportunities to grow the company, leverage their competitive advantage, or offer more and better service, they responded to some sort of force, like the retirement of a CEO or some form of failure avoidance

In contrast, the researchers also uncovered several thoughtful, well-planned, and strategically-driven deals that resulted in more services and greater growth. They noted that the successful merger of mission-based organizations resulted in the expansion of their impact, which they advised should be the goal of all nonprofit organizations and should provide incentives for boards to explore mergers as a strategic option.

For instance, in 2013, United Cerebral Palsy of Greater Chicago merged with Seguin Services, creating UCP Seguin Chicago. The two shared a common mission of service to the disabled. Combining their separate competencies resulted in robust growth in both revenues and services.

Similarly, the 2015 merger of three Chicago area hospice providers created the largest hospice provider in Illinois, JourneyCare. The three geographically neighboring providers pooled their resources, expanded their collective customer impact, and gained a competitive advantage in an industry where for-profit providers had greatly expanded. In each of the twenty-five cases the researchers studied, the companies employed different merger strategies for pooling their resources for greater collective impact or for combining their competencies to grow in new or different markets.

Organizations that don’t take a strategic approach to an M & A deal risk creating unintended consequences, however. That’s what happened in Maine. Beginning in January 2019, MaineHealth became a single nonprofit entity with nearly 19,000 employees and more than $3 billion in annual revenue. MaineHealth joined a long list of hospitals that have merged to form large healthcare systems. According to the American Hospital Association, of the more than 5,500 hospitals in the United States, nearly 60% are part of a health care system. In many cases, a single board of trustees govern the large systems. From a purely strategic point of view, successful large healthcare systems can reach economies of scale, share resources, reduce cost, and leverage their increased revenue to attract physicians and purchase the latest medical technology.

From a mission-driven standpoint, however, the news isn’t all good, with rural hospitals facing the greatest challenges. Since 2010, The Cecil G. Sheps Center for Health Service Research has recorded 87 rural hospital closures in more than twenty states. According to one study, more than 600 additional hospitals in 42 states are vulnerable to closing, with 12 million patients losing direct access to care and about 99,000 jobs at stake. In short, nonprofit deals are more complicated because they must consider the Five Essential Traits of a Successful Deal with a robust focus on how these traits march in lockstep precision with the organization’s mission.

Five Essential Traits of a Successful Deal

Even if the board and leadership team make a well-formulated decision to go forward, more dilemmas surface during the integration stage. During both formulation and integration, board members should consider the essential traits of a successful deal and apply these principles to other difficult decisions:

Nonprofit Board Advice

A simple but clear vision helps everyone see where you’re going—a critical first step in formulating strategy. It defines what you want in the future; it inspires, motivates, and challenges. In conjunction with your organization’s values, vision helps you take a stand on all sorts of issues, including ethical ones.

Before discussing the organization’s vision, however, board members do well to revisit the mission to avoid the aforementioned unintended consequences. The mission clarifies why the organization exists; the vision identifies where the organization intends to go; and the strategy specifies what everyone must do to head into that ideal future. Vision comes from the mission, and strategy (which is shorter term and more specific) comes from both vision and mission—or at least it should.

Thinking about an organization’s future and imagining potential growth does not involve a tough call—at least not initially. Organic growth can happen slowly and deliberately, an approach that tends not to demand too much change too fast. It has an advantage in that people don’t usually fear organic growth. Nor do they need advanced critical thinking skills to formulate tactics for it. Even a little experience will serve to help replicate what you’ve done in the past. If the growth honors the mission of the organization, integrity issues typically don’t appear.

Decisions related to this kind of strategy formulation don’t usually involve tough calls—neither initially nor eventually. That may seem like a relief, but great board members consider this safe zone more imaginary than real. A current rate of unacceptable growth is one reason board members look to merge or acquire. When they do, the decisions they need to make will change markedly, and the speed at which they need to make them will accelerate.

Most board members find embarking on such a strategy far more challenging after many years of reliable, though slow, growth. When considering an M&A transaction, decision-makers will face a particularly tough set of decisions about people. While an organization may have many excellent people upon whom they can rely in the short run, their reliability does not guarantee future success. Of course, decision-makers will evaluate people in the usual ways—looking for evidence of a strong work ethic, high integrity, and effective interpersonal skills—but because deals tend to make things more complex, they will need to demand higher-caliber decision-making among the talent in the new organization.

A key attribute that differentiates those who will succeed from those who will not involves the ability to discern. People with a keen ability to discern see patterns, anticipate consequences, and solve the complicated problems a deal invites. They have a finer ability to distinguish critical issues from unimportant ones, and they don’t easily lose sight of why things need to happen. They differentiate, detect, and determine the tough calls they should make and the essential criteria they must use. While important in all situations, the powers of discernment show their value most clearly in high-stakes situations such as M&A.

Brilliant talent, a breakthrough product, dazzling service, or cutting-edge technology can put you in the game, but only rock-solid execution of a well-developed strategy can keep you there, especially after a deal. You must deliver—to translate your brilliant strategy and operational decisions into action. Your stakeholders will wait impatiently for these results, and they will usually fear the worst.

Therefore, you must make things work—quickly. Even very smart board members, in an effort to improve slipping performance, address the symptoms of reduced performance, not the root causes of it. Meanwhile, as they look around to determine which changes they need to make, people in the organization get nervous. Nervous people are distracted people. Before you know it, they don’t have eyes on the ball. Rather, they abandon their roles as star players and assume that of umpire or critic—two roles you don’t need at any time. A focus on what’s going wrong instead of why you’re experiencing problems never works. Too often, people get distracted by emotions when they should search for logical explanations.

Successful deals start with a strong investment thesis—a clear objective about what the organization wants to accomplish. Clear strategy leads the process; great performance completes it. However, we often get confused. We over- and misuse strategy to describe anything important, and strategic planning becomes an oxymoron. Senior leaders and board members formulate the strategy; they plan the execution—or at least the successful ones do. Execution involves discipline, requires senior leader involvement, and should be central to the organization’s culture. Done well, execution pushes the organization to decipher their broad-brush theoretical understanding of the strategy into intimate familiarity with how it will work, who will take charge of it, how long it will take, how much it will cost, and how it will affect the organization overall—and the customer, most importantly.

Operating plans often masquerade as strategic plans. Strategic planning too often involves a list of goals or set of tactics from which it is impossible to derive solid decision criteria.

In a newly merged organization, you don’t want your operating plan to concentrate on the past—to focus on the reflection in the rearview mirror. After all, at whose past would you be looking? And to what end? Furthermore, you will seriously undermine your ability to see the future. You’ll create an image more like the one you’d see in a fun-house mirror than an accurate reflection. Instead, your operating plan should resemble a kaleidoscope that exhibits various symmetrical patterns reflecting the loose bits of information you have aggregated. As you rotate the kaleidoscope with new information and contingencies, new patterns and answers will appear. If you focus on the bits, you see chaos. But look at the bigger view through the kaleidoscope instead, as if it were a strategy. Then, you can tolerate the disorder and still see the picture that emerges.

Some refer to “incompatible business models” undermining a deal, but what does that really suggest? It means the companies make money in different ways, perhaps doing things differently than board members initially thought they did. If board members don’t recognize and understand these differences, joining the two companies will prove challenging, costly, and probably ill-advised. If you don’t understand how the other organization makes money, you can’t assess the feasibility of its growth plans. Further, board members who overlook critical questions about the financial feasibility of decisions develop overconfidence.

Overconfidence is a key reason that financial performance post deal often disappoints. In fact, overconfidence about future revenue and overly ambitious goals for cost control and synergies do more than just disappoint. Too frequently, they also create a path for struggle and conflict.

On the other hand, the ability to paint an accurate picture of revenue and rate of growth is the single most important factor in evaluating acquisitive success. Even small changes in revenue can outweigh major planned cost savings. Similarly, a drop in sales immediately after an acquisition can have dire consequences, not only for the obvious reasons but also for less apparent ones, such as suspicion among customers, employees, and suppliers. Combined companies find regaining lost momentum far more difficult than preventing it from the outset. Even when board members have engaged in a financially solid deal, during the integration stage, they find their attention drawn inward. But that’s not where you’ll find the customer.

When a deal fails, too often culture takes the blame. Many view culture as some sort of complicated, abstract, nebulous force. It’s not, but research indicates more than 80% of board members don’t have a firm grasp of the culture that exists in the organizations they serve. While culture plays a role in any major transaction, the cultural differences that derail M&A deals have more to do with beliefs about the ways the companies make money and less to do with customs and interactions. Tough calls—good, bad, but especially those unmade—explain more about how deals turn out. Decision-makers need to think about and address the type of culture the newly formed organization will need to create in order to achieve its objectives. Board members must be prepared to make decisions about both the culture and the type of person who will fit into it.

Conclusion

When companies merge or acquire, stakeholders expect improvement. Sometimes the expectations are wildly unrealistic, but nonetheless they exist. Most expect one plus one to equal three or four. Unfortunately, as evidenced by countless failed or disappointing mergers, one plus one all too often doesn’t even equal one anymore, and the numbers move to the wrong side of zero. The deal disappoints, and the acquiring organization loses market share, margins erode, or profits drop

To prevent this scenario, ask yourself, “Do we currently run the existing business well enough to sustain the strain of integrating another?” If the answer is no, proceed with caution. It takes strength to bring companies together, and an acquisition will put a substantial strain on the acquirer’s resources. Ask, “Do we expect this deal to solve a systemic problem?” If so, an acquisition probably won’t solve that problem; rather, it will complicate the situation. In general, before you make a deal decision, start with questions about the current culture of the buyer. Better to clean your own house before inviting other people to live in it with you!

In the end, you’ll have the culture you shape. Whether you do it systematically or haphazardly, as a board member, your actions will sculpt the character of the organization. Decisions about the Five Essentials of the Deal—vision, talent, operations, financial synergy, and culture—will form the foundation. Prepare for things to happen in a simultaneous fashion, not a linear one. Think about how a deal should, ideally, unfold. Then work backward.

 



Nonprofit Marketing Resources to Help You Reach More Donors

By

Nonprofit Marketing ResourcesA marketer’s job is to utilize their budget to drive as much revenue as possible, and for nonprofit marketers this need is heightened.

But for the nonprofit marketer, “driving revenue” takes on a different and more delicate aspect. The goal isn’t to sell people on an expensive product they don’t really need. It’s to show potential donors the impact their funds can make, and reassure them it’s a good place to spend their philanthropy dollars. Because nonprofits invest so heavily into the vital programs they run, their marketing budgets are limited and their expectations are high.

The resources below were collected especially for nonprofit marketers, covering a variety of overlooked opportunities, free marketing tools, and special discounts offered exclusively to nonprofits.

Internal Resources You Might Not Be Maximizing

Because nonprofits are typically on a tight budget, it’s important for nonprofit marketers to maximize the resources they already have access to.

Google Analytics

Many nonprofit websites already have Google Analytics installed – in fact, Google’s Chief Business Officer Nikesh Arora was quoted in 2012 saying that more than 10 million websites worldwide do!

Most marketers have experience using Google Analytics, but fail to capitalize on the full benefit of this free software. Here are a few ways to use Google Analytics that go beyond looking at sessions and traffic sources:

    1. Create custom dashboards for automated reporting. Wired Impact has a few free dashboards made especially for nonprofits.
    2. Monitor site speed. Having a website that loads very quickly helps your visitors’ experience, and is beneficial for SEO. Significant changes in site speed may also indicate greater technical problems that your developer or webmaster can address. To view your site speed, go to Behavior > Site Speed in the left hand navigation and set your desired date range.
    3. Track custom goals. Setting up custom goals is a great way to track the different actions that you value. For example, you can set up goals to track newsletter subscriptions, donations, or online membership registrations. This helps you understand your conversion rate, or the percentage of users who complete a desired action.

Your Email List

Many nonprofits have email lists of current and potential donors who have expressed interest in the organization. Larger customer lists can be expensive to host and maintain, so it is important to maximize their benefit. Email lists are commonly used for sending updates, newsletters, resources, and requesting donations.

Here are a few other ways that you can use your email list:

  1. Use automation sequences to reach donors at vital points in their “customer” journey. Engage new subscribers immediately by sending a welcome email series. Send automated emails to donors at regular frequencies to solicit new donations. These emails will be in addition to timely campaigns that offer current news and updates.
  2. Cross-promote your social media channels and website. Reaching your donors through a variety of channels helps strengthen your brand and exposure. Encourage your email subscribers to follow your most important social media pages, and explain to them the unique value you provide on each channel. For example, you may share heartwarming volunteer stories on Facebook or re-share photos that your members tag you in on Instagram.
  3. Send surveys learn more about your audience. Quantitative and qualitative surveys can help you learn more about user demographics, perceptions, behavior, and objections.

Note: Respecting your members’ data privacy is vital, especially where email is concerned. Immediately set the expectation of exactly how you will use your member’s data and the types of emails they will receive before they subscribe – this is especially important for members from EU, where GDPR (general data protection regulation) applies. Discussions around GDPR and other governmental privacy regulations are beyond the scope of this post, and deserve specific attention by your legal team.

Online Reviews

If your nonprofit is active online, chances are you’ve already garnered reviews on Facebook or Guidestar. Online reviews can provide compelling, emotional testimonials that may attract new donors and members. Consider placing testimonials on your website, or using them for social media marketing.

Note: Be sure to ask the reviewer’s permission to use their positive testimonial in your marketing materials and retain documentation of their consent. Using testimonials may not be appropriate for all nonprofits such as those serving vulnerable communities or helping with sensitive topics.

Online reviews can also provide insight into the language your donors use. Reflecting your member’s concerns and objections using the same terminology they use doesn’t just help reduce miscommunication, it also helps you connect with your audience and build rapport.

Organizational Communications

Anyone in your nonprofit in a consumer-facing role will have valuable information about the challenges and objections your donors have, as well as the language they use when they talk about your organization.

Customer service representatives, sales people, and corporate donor managers are all valuable resources that you can use to take your marketing a step further. Try this:

Sit in on sales and customer service calls

Both sales and customer service calls can be leveraged for marketing. There is often a divide between departments, but working together can truly benefit everyone in the organization.

From these calls you can learn common objections that potential donors have, and you can begin to craft communications to overcome those objections before they ever speak to a representative.

You can also record calls to review or transcribe later, but you may be required to gain the consent of the caller to do so.

Ask customer service the most common questions they hear

Understanding the questions your donors ask allows you to clarify your messaging and answer customer questions. This increases the number of users who donate, subscribe to your newsletter, or register as members. Calls like this can also mitigate and reduce demands on customer service.

Free Marketing Tools and Software for Nonprofits

In addition to internal resources that many nonprofits already have but may be under-utilizing, there are dozens of free marketing tools that nonprofits can leverage.

SEO

Screaming Frog has a free website crawling tool that can help you identify broken links, analyze metadata, and see duplicate pages.

Web Page Test allows you to test your site speed performance from multiple locations, and identify opportunities to improve your site speed.

Email

Mailchimp has one of the most robust free packages available to nonprofits. Their basic membership covers up to 2,000 subscribers, 12,000 monthly emails, and includes automation features.

Hubspot offers robust contact management software including features like Gmail integration, pop-up forms, and email templates.

Social Media

Hootsuite has one of the most robust free plans that allows you to schedule up to 30 posts to 3 accounts.

Buffer’s free plan allows you to schedule up to 10 posts at once and create custom graphics.

Followerwonk is a Twitter tool that allows you to gain insights into your Twitter following, including their locations and when they are active online.  

Website Conversion Rate Optimization

Google Optimize is a free tool that allows you to run A/B and multivariate tests on your website. It has an easy to use visual editor, and integrates seamlessly with Google Analytics.

Stock Photos

Shopify Burst is a directory of free images that can be used for personal or commercial purposes with or without attribution.

Pixabay has a free library of 1.6 million photos and videos that can be used for advertising and marketing.

Create Her Stock is a free subscription service that specializes in authentic stock photos featuring black women.

Surveys

Google Forms allows you to easily create and share free surveys and polls. Responses are easy to view or download as an Excel file.

Typeform has a basic free plan that allows you to ask up to 10 questions, and collect up to 100 responses per month.

Events

Evite allows you to send digital invitations by email or social media, and track RSVPs for your event.

 

10 Marketing Tools With Nonprofit Discounts

The following marketing software companies offer exclusive discounts with proof of nonprofit status. If you have an existing paid account with these companies but do not have a reduced rate, many of them will apply the discount to active accounts.

  1. Moz – 75% off – Moz is a leading SEO software that can help you track your backlinks and important keywords.
  2. Buffer – 50% off – Buffer is a tool for social media that allows you to post, review analytics, and engage with users from all social media platforms in a single location.
  3. Todoist – 50% off – Todoist is an organizational tool that helps you manage tasks and projects.
  4. Eventzilla – 25% off – Eventzilla is event registration software that helps you sell tickets, process payments, and survey attendees.
  5. Wordstream – 25% off – Wordstream helps organizations maximize their results from multiple ad platforms including Facebook, Google Ads, Instagram, and Bing.
  6. Paypal – 24% off transaction fees – Paypal is a payment processor that can be used for donations, ticket sales, and e-commerce payments.
  7. Mailchimp – 15% off – Mailchimp is an email provider. They have a free plan for up to 2,000 subscribers, and offer 15% off to nonprofits for paid plans.
  8. Zapier – 15% off – Zapier helps you connect and integrate different more than 1,000 softwares and apps.
  9. Shopify – unknown discount – Shopify is an e-commerce website platform that allows you to build, host, and maintain an e-commerce site for your nonprofit. Contact their team for details on nonprofit pricing.
  10. VWO – unknown discount – VWO is a visual editor that allows you to test design modifications with A/B and multivariate tests. Contact their team for details on nonprofit pricing.

Marketing success doesn’t have to be defined by whoever has the biggest budget. Most marketers aren’t using the full potential of their marketing tools and the teams that make up the organization. There are also a wide array of useful free programs online that can help with everything from SEO to event management. And when expensive enterprise software is inevitable, many marketing software companies offer nonprofit discounts.

Remember, as a nonprofit marketer your career offers unique rewards. Not only will you be more successful: the farther you take your budget, the greater impact your organization can have on the community you serve.

 

How to Boost Nonprofit Board Performance

By

History has taught us that the prerequisites of nonprofit board success—courageous leadership, bold direction, clear goals, and a systematic approach to implementation—can also provide a recipe for disaster. The reason? Decision-makers must make choices with far-reaching consequences based on assumptions about what that future will look like. Of course, this paradox has always existed—nothing new about an inability to prophesize about the future. But one thing has drastically complicated the landscape—the future arrives much more quickly now than it used to, and many of the guests it tows along are neither invited nor welcome.

 

Boosting Nonprofit Board PerformanceMany board members feel unsure about their ability to create a credible strategy to boost their own performance and to influence the performance of those working in the organization. Yet, the best plans to improve productivity come from pragmatic business leaders who willingly consider alternative futures for their organizations. This doesn’t happen automatically, however. Board members must painstakingly address how to link mission to margins to create a stellar board that capitalizes on the organization’s unique contribution.

It all starts with the organization’s mission—but it can’t end there. Before board members influence leaders on strategy formulation, they should have a clear understanding of the mission of the organization and how to tie margins to it.

A mission statement should play the same role in an organization that the Holy Grail did in the Crusades. The mission defines the organization’s reason for being—the touchstone against which everyone evaluates strategy, activities, and expectations for overcoming the competition or making a unique contribution. Without one, members will diffuse resources, enable individual units of the organization to operate in silos, create conflicting tactics, and confuse customers, suppliers, financiers, and employees.

Conversely, when you have a well-articulated sense of purpose, you build a firm foundation that provides clear guidance for all significant decisions and establishes a point of reference for setting strategy and planning its execution. An effective mission statement answers these questions:

  • Why do we exist?
  • Who are our best customers?
  • What do they expect of us?
  • Who would miss us if we went away?

In addition to defining the organization’s identity, the mission guides its development over time. Although the mission should be resistant to capriciousness, as the external landscape changes, leaders must tweak the mission statement as they recognize how to translate purpose into practice—and how to take in enough money to keep the mission relevant and alive.

Most nonprofits don’t suffer because their board members don’t understand the organization’s mission. On the contrary, they miss the mark when they don’t figure out how to honor the mission while making money. I consistently repeat two mantras to my nonprofit clients: “No margins, no mission,” and “Nonprofit doesn’t mean not-for-money.”

Most boards understand how to make what I call “Mission Income.” This money comes from the products and services the organization provides. For example, a nonprofit hospital board knows that reimbursement is key, and they may also understand how to generate income from non-hospital amenities, like coffee and gift shops. But too often they leave other revenue streams like grants, individual contributions, corporate gifts, and government funding untapped.

Board productivity requires that decision makers at all levels of the organizations have the financial acumen to know what to do with the money once they have it, too. But if board members have overlooked these quantitative skills when they have recruited new members, the board will continue to struggle. Simply put, members need to know what the numbers mean, how to make sense of them, and how to use them to make sophisticated business decisions.

I have often said that on any board—public, private, or nonprofit—if you can sit on an audit committee, the organization will likely build a statue in your honor. If you can chair one, they will notify the Vatican of the miracle, and you will meet the requisite criteria for canonization. That’s not too much of an exaggeration.

In most cases, the real challenge for directors and executives in nonprofit organizations isn’t regulatory compliance or abandonment of the mission—it’s high performance. To achieve it, directors and executives need to systematically examine the five constructs of a successful, stellar board.

Nonprofit Board Performance Tips

Board productivity depends on strong leadership and tone at the top. Therefore, I recommend that the chair and CEO roles remain separate. Both directors and the CEO can be more effective when the roles and duties of the chair differ from those of the chief executive. Also, when different people have these roles, the chair can act as a lubricant between the board and senior leaders in the organization, especially when inevitable conflict occurs.

Board success starts with the relationships between the directors and the CEO.  The the CEO should regularly disagree with the board, and robust debate should occur, but never at the expense of good rapport. Embrace tension. Move beyond the outdated thinking that the board is a necessary evil and realize that a certain degree of tension is both healthy and desirable.

Contention, however, is not productive. The CEO should ask questions and question answers but all in a climate of candor and responsiveness. Trust, respect, and open communication form the foundation of any strong relationship; board relationships are no exception. Once the board has established rapport among themselves and with the leadership of the organization, everyone can focus on strategy.        

Too often board members don’t understand when and how they should be involved in strategy. Stellar Boards don’t formulate strategy, but they maintain a clear focus on it. They assess and critique it. Like the princess in the story about the pea, members need to detect flaws deep in the strategy—not to execute but to notice and report.

To safeguard the leadership pipeline, members will also want to influence succession planning—especially of C-suite positions. Members will certainly want to discuss the retirement plans for senior leaders plans, but they need to do more. They can play a more active role in setting criteria for hiring and promotion, identifying the stars in the organization, and creating opportunities to keep these people challenged and engaged. It’s all part of governance.

“Governance” is one of those all-encompassing words that people use but that few can explain in concrete terms. For nonprofit boards, it usually means general board oversight. Governance underpins the board’s ability to do all the aspects of its job. While strategy and succession planning address specific “What?” questions, governance deals with the “How?” It includes but is not limited to decisions about the board’s size, frequency of meetings, director selection, stakeholder relations, and social responsibility. When a board has a governance committee, those directors initiate action plans with specific timelines for implementation of recommendations. This committee should have the authority to shape and recommend policy and structure.

Why do board members so frequently fail at linking missions and margins? As noted, it’s not because they don’t understand the mission. They do. Boards run into problems for one reason. Most people who serve on nonprofit boards have a clear passion for their organizations, but they lack strong financial acumen that would help them make the margins that would ensure the mission. The remedy? Set the strategy, define goals for moving the organization forward, and become more self-directed than grant-driven.



Seven Essential Steps to Creating a Winning Nonprofit Annual Report

By

Tips Creating Nonprofit Annual ReportHow do you create an impactful annual report? Many nonprofit professionals struggle with this question—and it’s not hard to see why. An annual report can be a useful tool for spotlighting your organization’s recent achievements. But it’s tough to work with your colleagues to determine which accomplishments to feature and how to present them in a way that will resonate with supporters.

Your nonprofit’s unique characteristics—such as your fundraising processes and donor demographics—should influence how you approach your annual report. However, regardless of these details, there are several key steps that all organizations should take to produce a report that truly hits the mark:

  1. Analyze the landscape. Review annual reports published by other nonprofits to gather ideas for how to present your content. Seek out reports from top-performing nonprofits and peer organizations—especially those in your sector and in your community. Ask your colleagues to share any impressive annual reports that they have encountered.
  2. Identify top stakeholders. Determine who you need to win over with your report, both inside and outside your organization. Is your primary reader a current donor or a prospective donor? Which of your colleagues must sign off on the report?
  3. Pick the right format. Consider the communication needs and preferences of your readers and how you want to share the report. A printed brochure could work well with an older audience. A digital report is your best bet to engage younger supporters. Consider offering a couple of formats if you have different audiences that are equally important.
  4. Document the process. Develop a step-by-step plan for producing your report and edit your document throughout the process as your expectations converge with reality. That way, you won’t have to reinvent the wheel when you create next year’s report.
  5. Seek frequent feedback. Request input from your colleagues throughout report development to get their buy-in. Before you begin, ask how they plan to use the report and what they liked or disliked about past reports. During report development, share draft content to find out whether they think it will be compelling to readers. After the report is complete, ask if the report was helpful and if they received any feedback.
  6. Create donor-centered content. Make your reader the hero in the story. Avoid using jargon to talk about your organization. Instead, use simple yet emotive language to address the reader directly, emphasizing how his or her generosity is fueling your mission. Include technical information if necessary, but keep it to a minimum.
  7. Create a strong communication plan. A robust communication plan will ensure that your report reaches as many people as possible. Consider which channels to prioritize to reach your primary reader. Depending on the format(s) you choose, you may be able to share the report via your website, social media, email and mail, as well as at conferences and in meetings.

It’s not easy to create an effective annual report. Few other projects require a nonprofit professional to not only understand an organization’s overall impact, but also communicate it in a concise and compelling way to its most important raders. However, if you follow these steps, you’ll produce a report that makes a meaningful impact where it matters most.

Can the Nonprofit Sector Survive the Upcoming Cash Crunch?

By

Nonprofit L3C - Nonprofit ProfitsThe nonprofit sector is used to intermittent income. Individual donations and government grants rise and fall with the economy. Uncertainty is at heightened levels however, as crowdfunding for individual causes and impact investing compete for “giving” dollars. And above all of this looms the Tax Cut and Jobs Act (TCJA) of November 2017 that could slash individual giving. U.S. NGOs need to be pro-active in creating a form of “battle plan” to cope in adverse circumstances.

While the magnitude of the TCJA is still unclear, the sector cannot afford to wait to act. The biggest threat of the TCJA is the doubling of the standard deduction, which will reduce the number of taxpayers who itemize deductions and negate the value of a charitable tax break. Significant numbers of taxpayers relied on the break when determining both whether and how much to donate. It is estimated that the new law will cut charitable giving by about $16-$24 billion a year from a total of about $390 billion, and that the number of households claiming an itemized reduction will fall from 37 to 16 million in 2018. Individuals and households are more likely to give to smaller NGOs, who can less easily cope with funding shortfalls. This will compound the effect of the reduction in giving.

Some taxpayers may find workarounds. Some may donate larger sums once every two years, or open donor-advised funds. People may also increase IRA donations (which are not deductible but count as a required minimum distribution), charitable gift annuities and charitable remainder trusts. Despite this, the tax bill will likely wallop many nonprofits, especially smaller ones. Less certain and more “jerky” inflows can mean more closures, fewer programs and reduced ability to apply for grants and loans. The resultant increase in concentration in the NGO sector is perhaps one of the most damaging effects of the TCJA.

Back to that battle plan…

Tepid U.S. wage growth rules out relying on individual giving as a way forward, leading some to look at more unusual alternatives, like NGO-led crowdfunding campaigns (if you can’t beat them, join them). However, donor fatigue and resource intensiveness may rule out crowdfunding. A better option might be to use rebound of the real-estate market and the aging population as a platform to push legacy programs. Growing revenue from service fees, venue hire and merchandising will continue to be important, though some local markets may not be robust enough to support much growth in this area. Collaboration on grants and contracts is also a possibility, especially as a way to ensure survival of the smaller NGOs.

Obviously, a government expansion of tax relief options would also help. A possible solution may be to create something akin to Canada’s First-Time Donor’s Super Credit that was introduced in 2013 and allows new donors to claim a tax credit on donations. The Canadian legislature is also considering a “Stretch Tax Credit for Charitable Giving,” which would apply to incremental donations to prevent the cost to Treasury from donations that would have been made anyway.

L3C Nonprofits

A more extreme response would be for more charities to become low-profit limited liability companies, which are social enterprises that combine the legal and tax benefits of LLCs with the social benefits and goals of nonprofits. In the U.S., state law governs L3Cs. In particular, they are designed to allow private foundations to use tools like loans and equity instead of grants, which could increase the amount of private investment in the nonprofit sector. L3Cs themselves are not eligible for tax exemption, but are generally taxed as pass-through entities, while the for-profit investors are subject to tax on income received. This allows L3Cs to expand “commercial” offerings including things such as cause-related marketing, sponsorships and “knowledge sales.” NGOs can also opt to create L3C subsidiaries, which could combine more commercial-type activities with social welfare goals.

A potential snag may be that the IRS appears to be “resurrecting the obsolete, discredited commerciality doctrine, which says that a nonprofit cannot be charitable if it engages in activities, which are primarily commercial, even if the activity benefits only the general public or a charitable class”. This was abandoned years ago due to its dampening effect on innovation. The recent IRS approach may threaten a range of charities including community health centers, university bookstores, the NCAA. All of these offer services that could be perceived as competing with private business. NGOs might therefore be safer if they set up a wholly-owned trading subsidiary, with no limits on the type of services they can provide. They would have to pay tax on profits from these subsidiaries but after that the trading subsidiary could give all its remaining profits to the NGO as a charitable gift.

As government budgets are cut, there is a greater need than ever for nonprofits to “fill the gaps.” Sadly, their ability to fund this expansion is also being threatened and survival will depend on the availability of new structures such as L3Cs and an increase in fund-raising tools such as merchandising. What were once seen as alternative may soon become the norm…

Best Practices for Annual Reports for Nonprofits

By

Annual report for nonprofitsIt’s time to think about your annual report! This is a great opportunity to highlight your nonprofit’s achievements, to report on the impact you’ve made, and build trust. As you start, there are a few important things to remember:

1. Connect it all to the donors

Tie everything back to the donors. Focus on their achievements. Don’t just frame it in terms of the nonprofit’s achievements. What did the donors make possible this year? Did their generosity give scholarships to 253 kids? Did their volunteer hours help feed over 500? Do a little humble bragging about your donors.

Focus on each type of donor you have. Chances are there are different ways to support your organization. Do you have individual giving, corporate giving, planned giving? Include short articles on each; how Mary became involved as an individual donor, how ABC Company’s donation built a new gym, and why Hank and Betty decided to name you in their estate plans. Gather quotes on why they became
involved, how giving makes them feel. Personal stories make giving seem more approachable and human. People can imagine themselves giving. This approach can appeal to potential donors by showing them all the ways they can give, and can also motivate a current donor to support in a new way.

2. Make it visual

We all know that a picture is worth a thousand words, and in the digital age it has never been more true. Pictures can grab attention and convey the need more thoroughly, emotionally, and quickly than the most carefully crafted paragraph.

So include pictures! Do you have pictures of the people you help? Before and after pictures on a certain project? Pictures of your volunteers? Pictures of the donors whose story you’re telling? Include them! (And please edit them before you use them. A simple crop can improve a photo dramatically!)

Also use visuals with your financials and statistics. Maybe this is just me, but I find numbers much easier to grasp when I see a visual. Use bar charts, infographics, pie charts (or donut charts if you’re Homer Simpson). This is your chance to get your stats to stick in your donors’ minds.

3. Be clear with your financials

This may seem obvious. And it should be. Be sure your financial data is rock solid but clear as glass. Make sure the areas you are reporting on are consistent year to year. Your donors want to know that you are a good steward of their funds. Be honest, be transparent, and you’ll build trust.

4. Read it over with the eyes of an outsider

Read over your draft as if you knew nothing about your charity. Would you come away with a clear understanding of the mission, values, and impact? While we live and breathe the non-profit life, we can unconsciously assume that everyone knows this or that about our program, or where we are based, or our ways to give. Be sure that your Who, What, Where, When, How, and Why are all there. Also checkto see if you are also including the nitty gritty details of mailing address, who’s on the board, areas served, tax-id, social media handles, website, and who to contact if someone has questions or wants toget involved.

5. Read it over with the eyes of a long-time supporter

If you were reading the annual report of a charity you personally supported, what would you want to ee? I would say:
• Where the money went
• How it made a difference
• A thank you!
• Facts and stories to share

The annual report is an opportunity to get facts, stories, and your gratitude to stick in your donors’ minds. This may motivate more involvement, more giving from them. It also provides them the tools to become your new ambassadors, sharing your story and mission in a personal and authentic way.

Getting Products You Need for Free: How Gifts-in-Kind Organizations Make It Easy to Connect With Donors

By

In Kind Donations for NonprofitsWhen nonprofits think about what they need to keep their organizations running, they often think of fundraising campaigns. But what if they could get the items they need donated just by flipping through a catalog?

It sounds too easy, but that’s the idea behind gifts-in-kind organizations. These organizations act as a go-between between companies with excess inventory and nonprofits in need. Groups like social service organizations, schools and churches can all benefit from donations that range from office equipment and supplies to toys and clothing.

How does it work? A qualified nonprofit pays a small annual fee to join a gifts-in-kind organization. Once the nonprofit becomes a member, it can request any of the donated items the gifts-in-kind organization has in stock at any time throughout the year. The nonprofit may make selections by browsing through the organization’s catalog of donated items or scrolling through an online list of inventory. Once the nonprofit places its order for the items it wants, the nonprofit then pays only for handling and processing fees incurred to ship the items.

Who can join? You must be affiliated with a 501(c)(3) nonprofit organization, school or church to join a gifts-in-kind organization. This may include charities, community organizations, government institutions and health facilities, among others.

What are the limitations? A member can request as many items as they want throughout the year. The only requirement is that they act in accordance with IRC section 170(e)(3). According to those guidelines, merchandise must go to care for the ill, needy or minors. It can be given directly to such qualified individuals served by an organization or used in the administration of the organization. The emphasis is on direct use—the items cannot be bartered, traded or sold.

How much can I save? It depends on how many and what types of items you request. Members of NAEIR, a leading gifts-in-kind organization, have reported a wide range of savings. On the high end, one church reported receiving $2 million in donated merchandise in one year. (Those items mostly went to children overseas through the church’s ministry.) On a smaller scale, a school that hosted a family arts and crafts event received enough paintbrushes, ornament shapes, tablecloths, stickers and pipe cleaners for all 341 participating students. On average, NAEIR members receive about $18,000 worth of merchandise a year. To boost their savings even more, some members opt to drive to the NAEIR warehouse in Illinois to pick up and transport items on their own.

What types of items are available? Gifts-in-kind organizations may have printers, pens, art supplies, toys, clothing, tools, health and beauty products, cleaning supplies and more. While available stock will vary throughout the year, nonprofits will find a wide variety of items on hand.

What types of companies donate? Both large corporations and small business donate to gifts-in-kind organizations. There are no restrictions on the size of donations so even mom-and-pop stores can make donations. Items may come from large companies like Hallmark, Microsoft, Stanley Tools, 3M Rubbermaid, Reebok, Gillette, Xerox and SC Johnson as well as small businesses, like a family-owned comic book store.

Why do companies donate? There are all kinds of reasons they donate. A few include to promote good will, to make room in their warehouses for new stock, to keep their products out of landfills and to take advantage of tax deductions that are often more advantageous than liquidating or discounting unsold merchandise. Since companies pay only to ship their goods to a gifts-in-kind warehouse, donating to a gifts-in-kind organization can be more cost-efficient than designating employees to spend time seeking out prospective charities for their donations.

How can it work for you? Think about the larger items your nonprofit wants to replace or items that you need on an ongoing or monthly basis. Replacing any of those items with donations from a gifts-in-kind organization could save you money—and help you keep perfectly good merchandise from clogging up landfills. The one downside is that you won’t only have your pick of brands. You’ll have to choose among donated items. But just choosing a few items from a gifts-in-kind organization, or using it to provide supplies for one event, could save you money as well as time. And if you add in the manpower hours you would need to collect a similar array of donated items—or the cash to pay for them—the savings grows. In an environment where cost-cutting is key, a gifts-in-kind membership is definitely worth considering.

Why Nonprofits Should Rethink Risk

By

Nonprofit Management TipsNonprofit and risk are two words that tend to fit uncomfortably in the same sentence. When they do come together, it is inevitably in the context of the former avoiding the latter, as in risk management or risk mitigation. But, should nonprofits ever proactively seek to take more risk? If we hope to move the needle on the long-standing problems that plague our society, the answer is a resounding ‘yes’.

Of course, when we’re working with people and communities who are already in vulnerable situations, the idea of introducing any unnecessary variables may seem irresponsible. Ensuring we do no harm is essential. Yet, when people are suffering, disenfranchised, or otherwise unable to achieve their full potential, the status quo is also not acceptable. We have a responsibility to do the most we can. And, when our existing interventions are insufficient, that includes taking the calculated risk required to seek better solutions.

To put this in stark perspective, if the polio vaccine had not been administered, at some risk, to the first human being and then subsequently to thousands of schoolchildren through extensive clinical trials, hundreds of millions more people would have been paralyzed or killed by the disease. Of course, such experiments are only undertaken after eliminating as much risk as possible through lab and animal testing.

When we don’t run such staged experiments to allow for failing small, we risk failing big. One Acre Fund, a nonprofit that helps desperately poor smallholder farmers in Africa increase their incomes, learned this lesson the hard way. Early on, it rolled out passion fruit as a new crop to its farmer network after financial modeling indicated strong potential profits, only to discover that real world conditions didn’t match the theoretical assumptions. Transport was more expensive and fruit quality low in the absence of extensive training on proper cultivation. The economics never worked.

This failure motivated One Acre Fund to adopt an innovation framework to stage risk more gradually, so that potential issues would be identified and addressed earlier. Promising ideas are first tested with a small number of farmers, then successively larger trials, and either improved or discontinued based on the results. By the time something is rolled out to the full network, most of the risks are well understood. Today, One Acre Fund dedicates 7% of their annual budget to research and development (R&D), highly unusual for the nonprofit sector. Based on the impact to date, it estimates a four- to six-times return on investment. This means better livelihoods for more farmers.

In the private sector, investors treat a company’s R&D spending as a sign of health and a leading indicator of future growth. After all, wise investment leads to better products and services. While nonprofits do not have the same profit motive, the quest for mission fulfillment should equally drive a search for better solutions. Even for the most lauded programs, opportunities will always exist to enhance effectiveness, decrease costs, adapt to a changing landscape, and leverage technological advances.

Practically speaking, this requires both donors and nonprofits to make the tough tradeoff to forgo a degree of short-term benefit in favor of potential greater long-term impact. Here are four important steps to take to get started:

  1. Goal. Establish and reinforce an audacious goal for impact and scale, based on real world needs. A stretch goal that cannot be achieved with business-as-usual forms the foundation for innovation.
  2. Invest. Budget resources that are not tied to short-term deliverables to seek better solutions through staged experiments. The further the trajectory of current interventions fall short of mission achievement, the greater the appropriate investment. Funding may be sought as an R&D component of a larger grant or from new, flexible sources.
  3. Metrics. Identify and track the key unit-level (as opposed to aggregate) metrics that are the underlying drivers for success – such as conversion rate, unit cost, and success rate. Optimizing the metrics that matter will pay dividends over time.
  4. Culture. Reinforce a culture of innovation by incentivizing rapid learning rather than predictable execution. Celebrate rather than punish the small failures that underlie progress and prevent larger failures.

Just as companies are expected to maximize profits and shareholder value, nonprofits should be expected to maximize impact and stakeholder value. Doing some good is not enough. We need to raise the bar. And, that means risk can no longer be considered a four-letter word.

10 Management Best Practices for NPO Leaders

By

Nonprofit Best PracticesAs a nonprofit leader, you have more on your plate than ever before. Promoting your organization’s mission, securing donors, prospecting for new donors, and growing the influence of your organization leave little time for ensuring that critical business tasks are complete. NPOs, like any other business, must perform numerous regular tasks to ensure compliance with both state and federal regulations. Annual filings, keeping records, reporting, addressing tax and employment issues require careful management. Here are ten best practices for staying on top of these tasks, including tips for strengthening your management practices before problems arise.

  1. Confirm that required annual filings have been made.

Your state requires annual filings from your organization to maintain “Good Standing”.  You also must file annually with the IRS to maintain your tax-exemption. Ensure that these documents are filed correctly and on time. Pay attention to any additional requirements your organization may have, especially if you are incorporating for the first time or your mission has changed or evolved.

  1. Review of articles of incorporation and review of bylaws.

The articles of incorporation and bylaws that you produced and filed when your NPO launched shouldn’t be placed in a file and forgotten. It is essential for a nonprofit leader to review these regularly, making sure that the operations of the NPO align with these governing documents, such as the appropriate number of Board of Directors positions have been elected and filled.

  1. Review corporate meeting records.

Like any business, efficient and comprehensive record-keeping is essential for NPOs. Keep records of minutes and related documents from annual meetings, as well as any other meetings your organization conducts throughout the year. This documentation supports the actions taken by the Board of Directors to fulfill the mission of the organization.

  1. Mission conform and comply.

You were passionate and thoughtful when you launched your NPO and constructed your organization’s mission statement. Now that your work has begun, your annual filings must be consistent with that mission statement and any mission actions that were initially stated in IRS or state filings. Your mission, vision, and values in practice should reflect the commitments you made to the IRS and in your governing documents. Any changes should be reported and updates to your documents should be made.

  1. State boundaries.

With the influence and reach of crowdfunding, social media and email marketing, NPOs often find that they are serving out-of-state constituents or soliciting donations across state borders. “Cross-state service” may require additional agency filings, and these filings will also be critical to your ability to solicit out-of-state contributions in the future.

  1. Review IRS 990 forms.

Your NPO grows and evolves. The required Form 990, 990-PF or 990-EZ you file with the IRS provides the public with program and financial information about your organization and is often the only public source of such information. Check for accuracy on this form, ensuring that current Board of Director members are listed correctly, that general information about your NPO is right, and that your service area is described accurately. Ensure that any required state filings also contain the most current information about your organization.

  1. GuideStar review check.

The widely-used online resource GuideStar (www.guidestar.org) informs donors about the charities and issues they wish to support and helps funders locate potential grantees. You may also use the site to benchmark your organization against your peers. To maximize your use of this resource to inform your decision-making, increase your ability to make connections and learn from others, make sure that all of the information on the site regarding your organization is correct and frequently updated.

  1. COI Policy – Conflict of Interest.

Conflict of Interest policies are designed to help directors, officers and employees of your NPO identify situations that present (or may present) conflicts of interest. The policy should also assign responsibility for resolving any actual or potential conflicts. Make sure your policy is in place and that each member of your Board of Directors and all key staff sign the policy each year.

  1. Donation acknowledgment.

Patrons of your organization making tax-deductible donations expect a donor “receipt,” often called an acknowledgment letter. Whether the receipts you issue are in letter, email or postcard form, review the process for confirming and documenting donations on an ongoing basis. Consider your receipt process, making sure you include key information: your tax-exempt statement; your EIN; the names of your organization and donor; the date of the contribution; contribution details (i.e., cash or non-cash); and the value of any goods or services made to the donor (such as a fundraiser’s dinner or small token gift).

  1. Employee matters.

Review all employee compensation and policies on an ongoing basis for reasonableness and compliance with current laws. As long as your organization demonstrates that enterprises in the same position as yours would similarly value roles within the organization, the IRS will view your compensation structure as reasonable. Employee matter review should include benefits and insurance, policy standards, and any relevant training and certification updates.

Putting it all together

Keep three hard copies of all important documents: one at the organization’s principal office, one with a trusted advisor, and one offsite. You can also keep electronic files for these and other documents.  Consider tracking adoption, review dates and updates to important documents, as well as an annual action list for the Board of Directors. If you follow these recommendations, your organization will be well on its way to the efficient and effective management of the regular tasks NPOs are required to complete – enabling you to make more time for the outstanding work that achieving your mission requires.

Setting-up QuickBooks Online for Nonprofits

By

Quickbooks online nonprofitMany nonprofits utilize QuickBooks Online (QBO) for their accounting software – primarily due to its ease of use and ability to integrate with multiple applications.  And, since nonprofits are required to employ fund accounting and many fund accounting systems can cost upwards of $10,000 or more, QuickBooks Online is an effective solution for budget-conscious nonprofits.  However, because QBO is not inherently a fund accounting system, there are certain steps nonprofits should take to ensure their QBO account mimics that of a true fund accounting system.

Initial Settings

The first step nonprofits should take is to make sure they have turned-on all of the necessary settings in QBO in order for them to be able to track revenues and expenses by donor, by project, and by service activity.  To do this, they should make sure the company type in the settings field is changed to “nonprofit organization”.  This will change the QBO database so that the field “customers” is relabeled “donors”.  In the company settings, they should also ensure that the Tax Form 990 is selected.

Because the organization will want to track spending not just by donor but by project as well, it’s important to turn on the project feature in the account settings.  The organization should also turn on classes, as this will allow the organization to track both revenues and expenses against the organization’s various services or activities.

Donors

Once the organization has turned-on the appropriate features outlined above, they can then begin populating the system with their list of donors.  The organization should enter all of their donors in the donor section that was created once the company type setting was changed above.  QBO also allows the use of sub-donor fields, which can be useful if the organization is being funded by a donor with multiple agencies.  For instance, if the organization receives funding from various agencies of the United Nations (UN), you would want to list United Nations as the donor and the various agencies that are funding the organization (i.e., UNDP, UNICF) as sub-donors.  This will allow you to not only track funding from the various agencies, but to also see how much the UN as a whole provided the nonprofit.  This information will prove useful when reporting to the Board, government bodies, and management, and for strategic planning purposes.

Projects

The next step would be to enter all of the organization’s projects.  If the set-up outlined above to track revenues and expenses by project was turned on, then you will now see a new module appear on your dashboard titled “Projects”.  It is in this module that you would enter all of the projects and then assign them to each donor.  You will want to be very careful when naming your projects, especially if the organization receives multiple grants from the same funder, to ensure you do not accidentally enter a transaction to the wrong project.  Consider using a project number in addition to a project name to help prevent miscoding.

Program Services

Next, the organization should enter all of their services in the “Classes” list.  Doing this means the organization will be able to track their revenues and expenses against the various services they offer.  Nonprofits are required to report spending by program service area on their tax form 990, so having set-up the accounting system to track this information up-front, the organization can now easily extract these figures from the system.  Knowing how much an organization spends on each of its various services is also helpful for reporting to potential funders, for benchmarking, and for gaining inside into unit costs (such as how much it costs to provide a social service to one recipient).

Functional Expenses

The next step that the organization should undertake so that their QBO account mimics a fund accounting system is to set-up the three functional areas (program services, management and administrative, and fundraising) in the system.  This will allow the organization to easily produce the required Statement of Functional Expenses.  To do this, the best thing for the organization to do is to create three expense accounts: 1) Program Services; 2) Management & Administrative; and 3) Fundraising.  Then, set-up the normal expense accounts (such as salaries, fringe benefits, travel, etc.) as subaccounts under each of those three parent accounts.  This set-up will also help with allocating expenses across different functional areas.

Entering Revenues and Expenses

Now that the organization has set-up the system to track revenues and expenses by donor, project, service, and functional area, it’s imperative that all entries into QBO be tracked accordingly.  You can turn on alerts in QBO so that any transaction missing a class produces a warning, but this can also cause some confusion because QBO will generate this warning whenever the class field is empty regardless if it’s a transaction assigned to an asset and liability account (in which case a class is not actually needed).  The best way to handle this is to devise a coding system (using either numbers, letters, or a combination of the two) that matches the donor, project, class, and account set-up in QBO and to make sure staff are trained on the coding system.  Allowing staff to understand the coding system and requiring them to code all bills and financial documents using the appropriate code(s) will attest to the organization’s internal control system by confirming that everything is reviewed before being entered into the accounting system.

Editing Reports

Once you have successfully set-up your QuickBooks Online account using these techniques, your nonprofit will be able to easily run reports that are already within the QBO system under the “Reports” tab.  However, since the names of nonprofit financial statements differ from that of for-profit companies, you will want to adjust the header on the balance sheet and profit-and-loss statement to the correct nonprofit titles and save them as custom reports so that you can easily generate them again in the future without the need to manipulate the titles.

Wrapping-Up

It can take a little bit of time and effort, but setting up your nonprofit’s QBO is an important step to ensuring your organization is accurately practicing fund accounting.  This will allow the nonprofit to not only properly report to the IRS how donated funds are spent but will also allow the organization’s funders and constituents, who, if they are able to properly see how their monies are being utilized and have confidence in the organization’s ability to properly manage and track their funds, may be more likely to continue donating to the organization in the future.

Assistance

Nonprofits needing assistance in setting-up or managing their QuickBooks Online account are welcome to contact Altiga Accounting & Financial Solutions at altigasolutions@gmail.com.  Altiga can also provide you a step-by-step guide (with screenshots) for completing the steps outlined above.  Altiga Solutions is a Gold Member of QuickBooks Online and the author of this article (James Willis) is a QuickBooks Certified ProAdivsor.

Follow my blog with Bloglovin