What is nonprofit about nonprofits?
Nonprofits can’t be without profits [positive net income] or they go out of business. So, what does ‘nonprofit’ mean?
I have struggled to answer this question on many occasions. Well, I’ve finally come up with an explanation that works for me.
If I invest in a for-profit business, I do it in hopes of making a profit on my investment. This will be true whether I am buying a publicly traded stock or becoming a part owner in a friend’s start-up business.
If I put money into starting a nonprofit, it is without the expectation of making a profit on the money. Maybe, if the 501c3 status is approved quickly enough, I will have a tax deduction.
So, now I can say ‘nonprofit’ means not making a profit on the money you put into creating or supporting a nonprofit business.
It does not mean the nonprofit shouldn’t or can’t make a profit, i.e. have a positive net income.
This is going to help me help nonprofit entrepreneurs understand why they should use sound business principles to run their nonprofit businesses.
—————————————————-
photo credit: Philippe Put
Do you know the answers?
You are a nonprofit entrepreneur, a social entrepreneur or a volunteer leader.
Can you answer these questions* about your organization, your enterprise, your board, your committee, your program or your project?
• What are you building?
• Why does this [organization, enterprise, board, committee, program or project] exist?
• What results will you measure?
• How will you build this [organization, enterprise, board, committee, program or project]?
• What is the work to be done?
When you have the answer to these questions, there are two more.
• How will you track results?
• How will you track progress?
If you can’t answer these questions easily, you are seriously limited in your ability to get the best results.
Questions? Comments?
* Questions from One Page Business Plan by Jim Horan.
—————————
Nonprofit is more challenging to set up
…I like to ask budding nonprofit and social entrepreneurs to convince me they can’t fulfill their vision and mission in an LLC or an L3C. Whoa is that a heresy?
I ask because I think a nonprofit corporation is much harder to build than a for-profit.
Why is a non profit more challenging to set up than a corporation?
I answered the comment and decided to turn the answer into a post.
The following is based on my experience as a business owner, nonprofit board member, and consultant. I am not an attorney nor am I giving legal advice. Please contact your legal counsel.[disclaimer]
If you and I are starting a for-profit business [in most states in the US] we may want to incorporate but we don’t have to. We can start as a partnership.
If we decide to incorporate, we can be the sole shareholders and the incorporators. Depending on the state, the Articles of Incorporation and By-laws can be simple.
You and I will find the investment capital, usually from savings, friends, relatives, credit cards, working spouses, etc. to start the business. This will be an investment. If the business fails, we get write it off on our taxes. We can provide whatever product or service we want as long as we don’t break any laws and meet reporting requirements of the state and federal government.
However, if you and I are starting a nonprofit business, we have to incorporate. The number of incorporators required varies from state to state.
If our corporation is organized and operated exclusively for one of the purposes stated in Section 501(c)(3) and we want to offer our contributors the opportunity to deduct their contribution from their taxes, we will have to apply to the IRS to give the corporation an exemption from federal income tax.
The IRS has very specific language that needs to be in the Articles of Incorporation and By-laws if we are going to receive the exemption. The application for the 501(c)(3) exemption is expensive and time consuming.
The money we raise to start the nonprofit corporation is a contribution not an investment. So, any money you and I and our fellow incorporators put in to start the nonprofit is a contribution. Each state has statutes telling how a nonprofit can operate which, I believe, are more restrictive that for-profit statutes.
Once the board has been selected, it has the legal responsibility for the organization not the incorporators.
I believe nonprofit corporations have an important place in our communities and our economy. But some nonprofit entrepreneurs would be able to better accomplish their vision and mission with an LLC or L3C.
But that is only the beginning. The building of a successful corporation, for-profit and nonprofit, are difficult at best. And the nonprofit is usually handicapped by lack of capital and a need to staff with volunteers. This I will cover in a future post.
———————————-
Calm before the storm (of activity)
Nonprofit entrepreneurs need to take advantage of the period of calm before they start an organization. They can use it to set up a solid framework that they can build on for success before they spend a lot of money and time developing an organization.
But before that, I like to ask budding nonprofit and social entrepreneurs to convince me they can’t fulfill their vision and mission in an LLC or an L3C. Whoa is that a heresy?
I ask because I think a nonprofit corporation is much harder to build than a for-profit.
Even when the entrepreneur determines that incorporating under the nonprofit statutes may be the best choice, there is still important planning that needs to be done before incorporating.
The framework starts with an overall business plan for the organization. It includes both a plan for creating the board of directors and an initial plan for the results of the organization.
______________________
photo credit: Two.Ladies.&.Two.Cats
One Page Promise
I now have a new framework for my course Nonprofit Organization and Operation: A Hands-on; How-to Approach. I had the subjects I wanted to cover in the course but I wasn’t happy with the original framework.
The framework is the One Page Business Plan for Nonprofits. This book, software and web service was created by Jim Horan.
The concept helps leaders in nonprofits create a One Page Promise by answering these questions:
What are you building?
Why does this nonprofit exist?
What results will you measure?
How will you build this nonprofit?
What is the work to be done?
The main subjects I will be covering and putting into this framework are:
+ Governance and Results
+ Creating a board that uses a governance process and structure that creates an organization that gets its best results.
+ Creating organization and operation process that gets the best results for the agency.
If you are living in the Twin Cities, I hope to see you in class.
If you are not in the Twin Cities, contact me to bring the workshop to you.
—————————
Photo credit: photo credit: quinn.anya
Burn baby burn
Nancy Lublin was right on the mark in a Fast Company article when she observed:
The biz model [for nonprofits] destines us for burnout. We take people with big hearts and crush their souls; you sign on to help cure cancer and then leave because you’re just shilling rubber bracelets. You want universal literacy, but the only way to move toward it is a big chicken dinner at a fancy hotel.
She is speaking about the problem created by how nonprofit volunteers and staff are managed and how nonprofit volunteers and staff should approach their work.
This problem affects both volunteers and staff. It is indicates poor placement, supervision and management.
I think the nonprofits with few or no staff are especially vulnerable to this problem. It starts with poor volunteer screening and placement system. It continues with poor or no supervision. And is aggravated by poor planning and coordination by the board and leadership.
BUT all of these issues have relatively simple ways they can be solved.
When you screen for connection to mission, for governance vs results and for personal interests, the volunteer can be placed in the position that will maximize results and minimize burnout.
When committee chairs are placed effectively and given training in supervision, the volunteer will see results and have a sense of fulfilling the mission to which they are connected.
When the Board is focused on governance and creates a management team, the volunteer will function in an effective and rewarding environment.
None of these steps are expensive. They do require an experienced person to help create the operating system.
We do can help do that.
—————————
photo credit: DieselDemon
Support for new ideas
Discovery is wonderful.
I have recently discovered how many people have some of the same ideas as I have.
And I have a few strongly held ideas.
Nonprofits are businesses.
It is a positive sum game for nonprofit entrepreneurs, nonprofits volunteers and nonprofit staff to collaborate with others in nonprofits.
Nonprofits are helping drive the small business sector which is the sector that drives the economy.
Connected entrepreneurs will fund capacity and organization building in nonprofits.
Start-up nonprofits need organizational and operational process help to survive.
Volunteer recruiting and management is critical to the success of a nonprofit.
Nonprofit entrepreneurs, who are thinking about starting a nonprofit, need to apply the same analysis a for-profit entrepreneur applies before starting a company.
Nonprofit entrepreneurs are handicapped by not having to justify the enterprise to investors upfront with a business plan.
Those that believe some or all of these ideas, work daily with nonprofits in different parts of the country. I am pleased with their support of my championing these ideas.
Volunteers: Care of
Many nonprofits treat volunteers like fingers for a leaking dike. They stick them into whatever role seems to have the most need at the moment. This is a mistake.
Poor decisions about volunteer assignment, I believe, increases burnout and, more importantly, underperformance.
A board member or committee member, who underperforms, accepts a responsibility but doesn’t complete it or completes it late. The lateness and neglect undermine the effectiveness of the board, the committee and ultimately the organization.
Underperformance is more damaging than someone leaving because they are burnout. I know that a person who leaves won’t be doing anything. I don’t know a person is underperforming because he/she is in the wrong position will not carryout a responsibility until after the deadline.
All nonprofits should have an effective volunteer coordinator. This should be one of the first positions created after the initial board has been created.
I believe, strongly, that anyone helping a volunteer find their place in an organization should:
a. understand from where the volunteer’s passion for the organization and its mission comes;
b. identify, as much as possible, what are the volunteer’s unique abilities and interests; and,
c. offer to the volunteer as many options as possible from which to choose to increase the probability they will feel fulfilled and energized by their volunteer work.
____________________________
photo credit: maplegirlie
Nonprofit Organization and Operation: A Hands-on, How-to Approach
I will lead two of these workshops. Each of these workshops meets once a week for four weeks.
Inver Hills Community College Inver Grove Heights, MN beginning September 28, 2010
Minneapolis Community and Technical College Minneapolis, MN beginning September 29, 2010
Nonprofit Organization and Operation: A Hands-on, How-to Approach is designed for nonprofit entrepreneurs and volunteer leaders from organizations somewhere between the “start up” and the “staff up” phases. By taking an approach that is tailored to the needs of class participants, the course will help you to develop an organization with the means and resources to be successful. Topics of the course will include but not be limited to:
Beginning a nonprofit
Recruiting and organizing board members
Building committees and leaders
Building and leading a management team
Recruiting and placing volunteers
Creating plans and measuring results
Operating a results oriented organization
Creating resources
Communications
The course will use lecture, small group discussion, peer-to-peer discussion of issues brought in by participants, and case studies. There will be assignments to be completed outside of class, with the opportunity for feedback each week. You’ll have the opportunity to discover resources here that will help you focus your efforts as you move through the various steps of launching a functioning nonprofit organization.
Nonprofit Burnout
I am always on the lookout for someone who is writing about things that I think are important to volunteer leaders of nonprofits.
Nancy Lublin has once again hit a nail on the head with her new column in Fast Company March 2010.
Read it and learn.
In addition to her suggestions to organizations: 1. Don’t be crazy. 2 Ground people, don’t grind them. 3. Give them a break.
I go back to my big three: 1. Get you committee chairs off the Board. 2. Have a management team. 3. Screen and assign volunteers based on their interests and abilities.
