Tag Archives: financial reports

Is Starting a Nonprofit for You?

“This dream of theirs is just that. Most of them don’t even have anything written down that they can present to me. They don’t have even a starting point yet. But they have the passion. They have the dream.”

Jim Maltry, SCORE Cincinnati

And many times the people who have the dream do not wind up creating a nonprofit. I agree with the article–that’s not necessarily a bad thing–but it’s important to understand why that is and how you can go from dream to functional organization.

Is the nonprofit itself a good idea?

Starting and running a nonprofit organization is a lot of work, and I think it makes sense at the beginning to decide whether or not what you want to do will work. If you’re thinking about it, I recommend asking yourself these questions:

1. Do you do something unique compared to the other organizations around you?

Often, people think of non-profits as somehow separate from the world of business. I don’t see it that way. Nonprofits have to deal with many of the same issues for-profits do, and one of those issues is competition. If you duplicate something that an already-established organization does, you might be better off working with them instead. Duplicate organizations compete with each other for donors and grant dollars, and that may lead to each organization being less effective than it could be without its competitors.

2. Is this organization aimed at a recent disaster or tragedy?

Sometimes a tragic event can cause an outpouring of support and assistance. There are others who disagree with me on this, but I’m generally not a fan of creating an organization in response to a specific event. Here’s why:

  • Other relief organizations already have assets in place to assist; if the disaster spurred you to create an organization, odds are you probably don’t.
  • Putting together an organization takes time. Governance structures, legal entity creation, and tax-exemption application are all important steps, and it really can’t (and even if it can, it shouldn’t) be done overnight.
  • Organizations that appear in response to a disaster are more likely to be scammers. Obviously, not everyone falls into that category, but that perception can hinder your efforts.

Short version: when a disaster or tragedy occurs, help through reputable, established organizations.


3. Do you have a plan?

I think that business plans can be helpful for a new (or established) business. It’s not so much that I think you need to have this pretty report with cool charts and graphs, but rather that putting together the business plan is serious work. It forces you to think about your business, and seriously answer questions like:

  • What is my business going to do?
  • Who will my business help?
  • Who is going to buy my product?
  • How will my customers know I exist?
  • How much money does the business need to keep running?
  • Who is going to run the business?
  • What competition does my business face?

Those questions, with minor modifications, can be asked of non-profits quite easily:

  • What is my organization’s mission?
  • Who will my organization help?
  • Who will donate to support my organization’s mission?
  • How will my organization’s potential donors and potential clients know I exist?
  • How much money does the organization need to accomplish its mission?
  • Who will be responsible for leading the organization?
  • What other organizations are doing the same thing my organization is doing?

I think that even if you don’t put together a pretty report with cool charts and graphs, I recommend writing your answers out. Putting the answers in writing focuses and clarifies your answers.

Is starting a nonprofit a good idea for you?

Also, starting a nonprofit organization isn’t for everyone. If you’re going to lead the organization, here’s what you should be asking yourself:

1. What skills do you and the other people involved bring to the organization?

In the early days of an organization, the people running the organization are usually the people that are working directly on doing the work. Later on, you might have people that manage the organization, staff, and volunteers, but in my experience, it usually doesn’t start that way. However, the startup phase is where a lot of the groundwork is laid–so the skills of you and your team are very important.

What kind of skills should you be looking for?

  • Management: At the board level, you want to have someone who can make high-level management decisions. In the beginning, those same people might also need to be able to lead others, both staff and volunteers.
  • Fundraising: Almost every mission requires some money to be accomplished. Without money, an organization is bound to fail. People with connections throughout the community and the ability to raise funds are vital to almost every organization’s success.
  • Finance: That money you need to bring in needs to be tracked. Even if you need help creating financial reports, it’s important to have people that can understand them on board.
  • Legal: Organizations can run into a variety of legal issues. It’s great to have your very own expert on board, or at least someone who may be able to recommend outside lawyers.

2. Have you (or at least someone involved in your organization) done work in the area you want to serve already?

If your organization wants to complete a certain mission, it’s reasonable to expect someone in the organization to have some experience executing the mission. This will help you understand what resources you need, the logistical issues you face, and the challenges of completing that mission. If the answer to this question is “no,” maybe now isn’t the time. If you don’t have this, you might be better off volunteering for a similar organization to learn about how to better fulfill your mission.

3. How will you support yourself during the start-up phase?

When you start a for-profit business, money doesn’t just appear out of nowhere; you need customers who want to trade money for whatever you sell. It’s a similar idea for a non-profit; money won’t just appear. You’ll have to get people to donate, and to do that, they have to believe that you will handle their donation wisely. That requires trust, and that doesn’t appear overnight either. I’d suggest to you that’s even harder than starting a business, because when you accept a donation, you have nothing to give in return. Money may be hard to come by early on in the organization’s life, and if you plan to work full-time for the organization and be paid, you may find life very difficult in the early stages.

Starting a nonprofit organization is not impossible, but it does require an honest assessment of your chances of creating something successful. If you’re gone through this assessment and you are confident in your project, then you likely have a good foundation for success. If not, you may need to make some adjustments before going forward.

Note: An earlier version of this post originally appeared on my firm’s website, attorneykevinkelly.com. I have updated the post for posting here. Enjoy!

Photo credit, Tim Gouw, via Unsplash.com, licensed under CC-0

Questions to Ask Before Joining a Board

If you’re active in the community–or you’d like to be–one of the things you might have considered is the possibility of joining the board of a nonprofit organization. Joining a board can be a tremendous opportunity: you can develop leadership and management skills, serve a cause you care about, and build your professional network.

That said, board service is not for everyone. Even if board service is for you, not every organization and every potential board member are going to be a good fit. And if it isn’t a good fit, it’s a lot better not to join that board in the first place.

What do you need to know? Let’s start here:

1. Why do you want to join this board?

Board service has a lot of personal benefits. Board members can meet people and expand their professional and social networks, add valuable experience to their resumes, and develop skills. But if you’re primarily joining for personal benefit, you probably aren’t going to be that great a board member–you’ve got to care about the cause or about helping whomever the organization is helping, or you probably won’t be effective.

2. Are you interested in this cause?

There are a ton of great causes out there, but not everyone cares about everything equally. You might agree that literacy and protecting animals and sheltering homeless people are all worthy things to be doing, but you probably care more about some things than others. That’s okay! Different people will have different priorities. If you’re not particularly interested in the cause of a particular organization, do them and yourself a favor and don’t join. Instead, wait for an opportunity with a organization that does something you are really interested in.

3. Have you read the organization’s key documents?

I know that an organization’s bylaws and financial reports are not usually very exciting reading. However, before you commit to the organization, you should make sure that you understand what’s going on in that organization. At a minimum, you should read the organization’s articles and bylaws (would you play a game without learning the rules first?) and the organization’s latest financial statement; you can find a good list of materials (and some other good questions) here.

4. What is expected of you?

Different organizations require different commitments from their board members. Can you make most (if not all) of the meetings? Are the board members expected to do additional fundraising activities or other work beyond the board meetings? Are there committees that you’ll be serving on as well? If you don’t have the time, it’s better to know that before you join.

5. Is the organization ethical and compliant?

This may be harder to determine from the outside, but does the organization follow the rules? Those rules include federal and state law as well as the organization’s own by-laws (yet another reason you should read them). If an organization isn’t compliant with federal and state law, or if they can’t seem to follow their own rules as set forth in the by-laws, run. Now.

6. How are the relationships in the organization?

You certainly don’t need everyone in the organization to be the best of friends, but the board, volunteers, and staff should be treating each other respectfully and professionally. If the board and the staff are stepping on each other’s toes or are unable to deal with each other appropriately, this may not be the organization for you. I’d also suggest looking out for a lot of turnover in board and staff, difficulty keeping volunteers, and donor attrition as well.

7. Does the organization carry directors and officers (“D&O”) insurance?

It is possible that directors and officers of an organization may make mistakes running the organization. In some cases, this might lead to lawsuits. Organizations can take out D&O insurance in order to indemnify their directors and officers against defending those lawsuits and paying judgments. Generally, these insurance policies will cover errors, but not intentional wrongdoing. If an organization is leaving its directors and officers uncovered, I’d probably stay away.

8. Are the organization’s finances in good shape?

Remember the financial statement you looked at up in Question 3? Well, how does the organization’s financial health look? Here are some of the issues I’d look for:

  • Is the organization following appropriate accounting procedures, and does the organization get independent audits?
  • Does the organization carry adequate cash reserves?
  • How well does the organization meet its budget? If there are major differences, what happened?
  • Is the organization susceptible to cash flow troubles? Is there a way to resolve those problems?
  • Is the organization carrying debt? If so, is the debt load manageable?
  • Does the organization depend heavily on a few donors or major grants, or does it receive broad-based support?

If an organization’s finances aren’t perfect, that might not be a deal breaker. However, the organization should be aware of any problems and committed to resolving those issues.

9. What’s expected of you?

You’ve probably already considered the time commitment needed for board meetings, but the organization may have additional expectations. In addition to board meetings, an organization may have additional committees that you may be assigned to, and in some cases, board members also do some of the work of the organization (often known as a “working board”).

Also, board members are often expected to make some sort of financial impact on the organization. Sometimes, this is a direct donation. Other times, it might be a commitment to raise a particular amount of money from others. Can you afford the amount involved, or do you have the skills and drive to raise it?

10. What is the organization’s strategic plan?

Nonprofit organizations often engage in strategic planning, which is how the organization identifies its strengths, weaknesses, opportunities, and threats (the “SWOT analysis”), it’s mission, and all of the parts needed to achieve that mission. Strategic planning is more of a process than a task; organizations often make the mistake of doing the strategic plan–and then sticking it in a file cabinet somewhere. Not only should the organization be involved in strategic planning, but that planning should be regularly reviewed, and should actually be used to guide the organization.

If you’re interested in joining a board, don’t go in blind; make sure you know what you’re getting into and what you can expect from the experience. And beware the organization that isn’t interested in answering your questions–board membership is a serious commitment, and an organization should be happy to make sure that you understand that commitment.

Photo credit: Negative Space, via unsplash.com, licensed under CC0