Managing Non Profits

So, what exactly is a non profit organization?

A nonprofit organization is an organization that uses its surplus revenues to further achieve its purpose or mission, rather than distributing its surplus income to the organization's directors (or equivalents) as profit or dividends. This is known as the distribution constraint.


The decision to adopt a nonprofit legal structure is one that will often have taxation implications, particularly where the nonprofit seeks income tax exemption, charitable status and so on.


The nonprofit landscape is highly varied, although many people have come to associate NPOs with charitable organizations. Although charities do comprise an often high profile or visible aspect of the sector, there are many other types of nonprofits.


Overall, they tend to be either member-serving or community-serving. Member-serving organizations include mutual societies, cooperatives, trade unions, credit unions, industry associations, sports clubs, retired serviceman's clubs and peak bodies – organizations that benefit a particular group of people – the members of the organization.


Typically, community-serving organizations are focused on providing services to the community in general, either globally or locally: organizations delivering human services programs or projects, aid and development programs, medical research, education and health services, and so on. It could be argued many nonprofits sit across both camps, at least in terms of the impact they make.


For example, the grassroots support group that provides a lifeline to those with a particular condition or disease could be deemed to be serving both its members (by directly supporting them) and the broader community (through the provision of a helping service for fellow citizens).


According to the IRS, to be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.


Organizations described in section 501(c)(3) are commonly referred to as charitable organizations. Organizations described in section 501(c)(3), other than testing for public safety organizations, are eligible to receive tax-deductible contributions in accordance with Code section 170.


The organization must not be organized or operated for the benefit of private interests, and no part of a section 501(c)(3) organization's net earnings may inure to the benefit of any private shareholder or individual. If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction.


Not all non profit organizations are classified 501(c)(3) by the IRS but those that are can use that tax exempt status as leverage when fund raising because donations to a 501(c)(3) are deductible.


So, how does one manage a non-profit?


Well... it would be almost the same as managing a profit organization with a few exceptions.


Every non profit will have a volunteer Board of Directors who set policy only but should never become involved with how those policies are being implemented on a day-to-day basis. If they do, it could become very uncomfortable for the paid staff.


All non profit Board of Directors should be small and composed of an odd number of members that are not self-perpetuating. In others words they must rotate off the board every 3 or 4 years typically. The ideal size is 7, but there is really nothing wrong with 9 or 11 other than having enough members present for the monthly meetings to have a quorum which is required by law and should be incorporate in the By Laws.


If the size of your Board was 7, then every 3 or 4 years, 3 members would rotate off then the next time 4 members would rotate off and 3 members the next time and so forth.


It is also a good idea to invite members to sit on your Board that have a skill that the non-profit can use free-of-charge. For instance, a non profit would want a CPA to make sure the accounting books are correct; and, a lawyer would be helpful in case there are any contracts that need to be written; and, someone in marketing and/or advertising would be useful; and, someone in finance, sales, journalism, etc.


Members are invited to serve on your Board not just because of a skill/ability that they bring to the table but because they are expected to raise money for the non profit as well, either by visiting people or with their own contributions and they should know this or be told this up front.


Caveat: Paid staff members should NEVER be used to solicit funds for the non profit unless they are accompanying a Board or other volunteer to provide explanations of services.


The non profit can have both individual members as well as group members who pay an annual fee in order to participate under the umbrella of the non-profit. Consequently, if donations were made to a member group of the non profit organization, those donations will still be considered charitable and deductible.


When a non profit does incorporate member groups it is also customary for those member groups to have their own Board of Directors and By Laws but not Articles of Incorporation as they operate under the Articles of the non profit parent. It is also customary for the Board of Directors of the parent organization to create an Annual United Fund Raising Drive that allocates monies received on a predetermined formula or distribution process.


Caveat: Some non profits actually allow member groups to have Board representation and while that may seem like a good decision to make at the time, it increases the size of the Board of Directors potentially to a size that is ineffective because smaller coalitions develop that lobby other Board members selfishly.

The paid staff of a non profit is kept intentionally low so that more of those fund raising dollars can be spent on programs and services. As a result, the non profit must rely on the help of volunteers to get much of the work accomplished. And, volunteers are a peculiar breed of animal because they do not have to be there helping out... there are there helping out because they want to... so, care should be taken in how those volunteers are treated and supported... and, they must be supported as well as recognized with free tickets to events, etc.

It may also be interesting to know that non profits can legally and without violating the 501(c)(3) status operate and manage for profit organizations that have been exclusively created to generate money for the non profit. Additionally, 501(c)(3) organizations can generate an unlimited amount of revenues as long as there are designs on those monies to be used for the non profit.

ENDNOTE: I was Executive Director of a non profit 501(c)(3) for 8 years and we had 16 member organizations, a Board of Directors of 33 members, conducted a Annual Fund Drive, created and operated 2 for profit organizations, and managed 500 to 1500 volunteer works for various programs each year. I had an administrative staff of 5 people and a contingent of artists that numbered between 12 and 15 during the school year. These artists represented: weaving, sculpture, oil/acrylic painter, potters, dancers, and various types of musicians including folk.

However, I cannot say those 8 years were the best 8 years of my 45 year career because they were not. I was pretty much “on call” 24/7 and constantly had to “convince” the Board of Directors that they were not supposed to be involved with implementing policies. All of the member groups were incredibly demanding of my time exclusively and were constantly demanding the need for more money, more support for their programs, and for the allocation of more volunteers to help them manage their programs. These member groups also thought that the administrative staff was there for the member groups and not for the parent organization.

My last 6 months of employment with the non profit was spend splitting the Board of Directors to keep them from terminating my contract because I had fired an incompetent staff member and was told by one Board member not to fire the person because she needed the experience. When I secured another job, I tendered my resignation at the next Board meeting and could not get out-of-town fast enough...