Nine Questions Every Non-Profit Should Ask Themselves

Transcription

1 Nine Questions Every Non-Profit Should Ask Themselves

2 Nine Questions Every Non-Profit Should Ask Themselves Starting a non-profit organization or reviewing a current organization can prove to be an exciting journey, but how did it begin? Did your nonprofit do the groundwork so it will last for years, decades? Ask yourself: Why does the non-profit exist? What benefits will the non-profit provide? Who will it serve? What do we expect of the leadership? How will it be funded? Many non-profit organizations look at their purpose and overlook some of the integral steps to make certain their organization has the right focus and strategy in place to succeed financially and legally. If your organization does not have a strong base, it s not too late. Here are nine key questions that every non-profit should ask themselves annually to help focus and re-focus their organization. u Do you have a Current Mission? An effective mission statement answers the following questions: What is the organization s purpose or cause it is looking to support? What services/initiatives will it provide to support this cause? The answers should express the authentic purpose of the organization and serve as a building block of the organization s brand and marketing efforts. The answers should also define whether the organization will operate under a non-profit status. A non-profit is a tax-exempt organization that does not declare a profit. Instead it utilizes all revenue available after normal operating expenses in service to the public interest. The purpose of the organization must be charitable, educational, scientific, religious or literary and funds are normally raised in the form of tax deductible contributions. Operating under these guidelines allows organizations to apply for 501 (3) tax exempt status designation from the IRS. If you plan to apply for tax-exempt status, the IRS will look at your mission statement to see if your organization matches its requirements for that type of entity. Your mission statement should reflect these requirements. v Do you have a Strategic Business Plan & is it Up-to-Date? When starting a business, whether non-profit or for-profit, the first step is to develop a strategic business plan. The plan will lay out all the key components required to start a non-profit organization, including: Mission Statement Fundraising Foundation Communication The business plan should be updated on a regular basis so it grows and changes with the mission of the organization. This plan is the road map to lead to the organization s success and will serve as a funding stimulus by showing prospective donors the transparency of the operation and how it is in sync with the mission statement. w Where are Your Funding Sources? An effective mission statement defines the organization and the source of the funding to start operations, as well as, sustain the organization s functions. Your organization must have a target audience for fundraising efforts as well as a fundraising plan and timeframe.

3 x Does Your Organization have a Solid Foundation? How will it be organized? An organization without a solid foundation is headed for failure. The support for the foundation starts with the formation of a solid board of directors. A description of the board of directors, and most importantly, their role in the management of the non-profit, should be documented and included within your entity s business plan. An engaged board is integral towards the success of an organization. y What are the Organization s Communication Plans? How does your organization plan to get their message out there to potential volunteers, donors and other supporters? Hiring a communication expert to set the tone and reach a large audience can be beneficial to new non-profits or existing organizations looking to bolster their communication efforts. z Does Your Organizations Have a Solid Legal Infrastructure? Does your organization have sufficient resources to create a strong basis for which the non-profit can be organized and operated? If you are not proficient in the legalities surrounding the formation of a non-profit, consult with an experienced professional to guide you through the process. If that is not an option, educate yourself on the laws applicable to organizing and operating a non-profit organization and begin to build around these laws. A non-profit built on a weak base can jeopardize the goodwill surrounding the organization. Some necessary tools to build a strong foundation for your non-profit include: Strong corporate governance: The level of involvement of the board of directors has a tremendous impact on the success of non-profit organizations. An engaged non-profit board is essential to the formation of your enterprise, its fundraising success, maintaining legal compliance and the quality of the leadership it hires. Establish by-laws: Your organization s by-laws should define the size of the board and how it will function, the roles and responsibilities of directors and officers, conflict of interest policies, the fundraising strategy, as well as, other corporate governance matters. Articles of Incorporation, if applicable: Articles of incorporation is a legal document that is filed with the state to create any type of corporation. Non-profit articles contain the organization s basic information including name, registered agent, office address, etc. and tax exemption information. { Is Your Organization Registered Properly? Non-profit organizations can be unincorporated or incorporated. An articles of incorporation document must be filed with the state in which it resides or must decide where will be the jurisdiction for legal purposes. Each state has its own rules and regulations, but most require a non-profit organization to have officers of the corporation, a board of directors, by-laws and annual meetings. Many states require non-profit organizations to register with state charity bureaus or similar agencies if they intend to solicit donations in each of those states. In order to gain tax exempt status, non-profit corporations must apply for 501 (3) status with the IRS. The designation 501 (3) refers to the section of US Tax Code that oversees tax exempt organizations. Because tax-exempt organizations do not pay federal corporate income taxes, non-profits must complete and file Form 1023, Application for Recognition of Exemption with the Internal Revenue Service. This is a public document and proper completion of this form is critical as it may face future scrutiny by government authorities, the public, and media, even if the organization is granted tax-exempt status. Organizations need to abide by state tax exemption requirements also. An unincorporated non-profit group can apply for tax exempt status under the 501(c)(3) designation as defined by the Internal Revenue Service. The group should consider incorporating as an option because without 501 (3) approval from the IRS, receipts of donations as well as grants, although possible, are very difficult. Are You Keeping Good Records? Diligent recordkeeping is a critical task for non-profits since they are required for audits, taxes, meeting regulations and providing transparency to the Board and its members. Evolving to electronic recordkeeping makes good sense and will save you time and money in the long run. } Have You Built an Effective Board How do you define effective? Are you focused on your mission and members? Is the Board organized properly? Are the right decisions being made in a timely manner? Constant interaction between the non-profit s management team and board of directors will drive the organization s mission, activities and ultimately, success.

4 Potential Pitfalls No matter how well intended a non-profit may be, even the best plans can have potential pitfalls. In any business venture, the following tasks should be maintained at all times: Failure to keep good records No investment in professionals No Funding Plan Non-compliance with IRS An organized accounting department allows non-profits to accurately report business activity, inclusive of the annual Federal Form 990 tax return, and provide transparency to the Board, as well as, the public. Retaining a lawyer as well as an accountant is recommended when starting a non-profit organization. Their expertise provides benefits when registering the organization as well as filing the required reports. The administration involved with running any type of organization costs money, and specifically for non-profits, providing services to support the non-profit s cause costs money. A strategic plan defining the funding necessary to fulfill the non-profits cause is mandatory for a non-profit to survive. Non-profits must remain informed of what is required to stay in compliance with the IRS, including the filing of Federal tax form 990. In order to receive the tax benefits of a 501 (3) entity, non-profit organizations must remain compliant with the IRS. Starting a non-profit is exciting. Having the vision to grow the organization through diligence and hard work will create a sustainable non-profit for years to come. The formation, if done properly, can serve as a must needed resource for like-minded individuals to support a worthy cause.

5 Christopher J. Niwinski, CPA Senior Consulting Manager Christopher is a Senior Manager for Smart Devine. He has over 17 years of non-profit management consulting experience. He has extensive experience providing interim financial and operational management within the non-profit industry, specifically to hospitals, health systems and higher education institutions as well as government, foundations and other non-profit entities. Chris has also provided assistance to these clients through internal audits and control assessments, best practices reviews, financial system process improvements, as well as grant and endowment management and expenditure reviews of non-profit entities receiving financial assistance. Chris earned his Bachelor of Science in Accounting from LaSalle University. He is a Certified Public Accountant in Pennsylvania and is a Member of the American Institute of Certified Public Accountants and the Pennsylvania Association of Certified Public Accountants, as well as on the Board of Directors of the Healthcare Financial Management Association (HFMA) and the LaSalle University Alumni Association. CHRISTOPHER NIWINSKI & SMART DEVINE CAN HELP YOU Chris Niwinski and the Non-Profit Practice at Smart Devine can guide you and inform you about being effective in planning and developing a strong organization. We offer a series of white papers to non-profit organizations board members and leadership to enhance the understanding of duties and requirements for non-profit organizations. Please contact Chris for more information at or cniwinski@smartdevine.com Topics: Introduction to the Non-Profit Industry The Do s and the Don ts of Starting a Non-profit organization What is My Role as a Board Member? Understanding Non-Profit Financial Statements Accounting for Endowments and Restricted Gifts Understanding IRS Tax Form 990 Differences Between Non-Profit and For Profit Accounting Fundraising and Development s Impact on the Finance Department The Board s role in Risk Management Non-Profit Planning Challenges Facing Non-Profits Smart Devine provides the superior service your organization deserves. Our enhanced list of services include: ACCOUNTING OPERATIONS GAAP Audits A-133 Audits Sponsored Program Compliance Budgeting Endowment Spend Review Financial Risk Assessment Accounting Outsourcing FINANCIAL ADVISORY Reconciliation and Remediation Finance Process Assessment and Reporting Optimization Internal Audit Outsourcing Enterprise Risk Management Internal Control Assessments IT Audit TAXES Form 990, 990PF, 990T, 1023 & 5500 Compliance Sales and Use Tax Exemption Issue Employment Tax Assistance Tax Free financing Analysis 501(c)(3) Tax Exempt Status Qualifications Tax Controversy Support CONSTRUCTION AND FACILITIES Monitoring Project Progress / Analyzing Cost Estimates Administration of Escrow Accounts Cash Flow Analysis Identification of Sources of Recovery Financial Analysis of Builder REVENUE MANAGEMENT AND COMPLIANCE Credit Balance Analysis Compliance Revenue Integrity Services Reimbursement Expense Management LITIGATION Internal Investigations Forensic Accounting Fraud / Billing Issues Litigation Support Smart Devine provides a full range of accounting, advisory, tax and investigative forensic and litigation services to organizations across a variety of industries. For more information about our services call or visit our website at smartdevine.com. Accounting Tax Advisory Smart Devine 1600 Market Street 32nd Floor Philadelphia, PA T info@smartdevine.com