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by Peri H. Pakroo, J.D.
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Starting & Building a Nonprofit A Practical Guide
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by Peri H. Pakroo, J.D.
1st edition
Starting & Building a Nonprofit A Practical Guide
FIRST EDITION APRIL 2005
Editors LISA GUERIN
STEPHANIE BORNSTEIN
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Book Design TERRI HEARSH
Index ELLEN SHERRON
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Pakroo, Peri. Starting & building a nonprofit : a practical guide / by Peri H. Pakroo
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Acknowledgments Huge thanks to Lisa Guerin and Stephanie Bornstein for their crack editing and hard
work pulling this book into shape, and for their kindness in trying to keep me on
schedule.
Thanks to Jake Warner for everything: your ten-minute voicemail messages; your
helpful advice when I was stuck; even the swarms of questions scrawled all over the
first draft. I’ll deeply miss working with you.
Thanks to Janet Portman, Beth Laurence, and the rest of the Nolo editors for
welcoming me back on the team during my extended stay in Berkeley. Thanks also
to Ilona Bray for sharing her nonprofit fundraising info with me.
Thanks to Betsy Erbaugh, Katayoon Kia, Sara Jamieson, and Melina Salvador for
research and all sorts of other help along the way.
Loving thanks to my parents, Kay and Reza Pakroo, my sister Zara Pakroo, and
my grandmother Eunice Jones for cheering me on throughout.
Thanks to Sue Moon and Sandy de Lissovoy for warmly welcoming me to Grant
St. for my book editing retreat.
Thanks to all the folks who contributed to the book: Randolph Belle, David
Dabney, Erika Harding, Michael Hohner, David Kaseman, Giovanna Rossi, and Mona
Lisa Wallace. Your real-world experience is a real asset to the book.
Thanks and love to my homegirls, now scattered across red and blue states alike:
Alexis Mollomo, Stacey Stickler, Laura Louise Taylor, and Carolyn Nelson. I’d be
lost without you. Love also goes to my beautiful friends Inga Muscio and Samantha
Campostrini-Medeiros, and to my identical cousin Parisha Pakroo.
Thanks to WFMU (www.wfmu.org) for providing the soundtrack. Freedom is
freeform!
Thanks to Flying Star for allowing me to escape my lonely home office and
letting me write and edit this book for countless hours in your cheerful café. Juno
and I are grateful for the Petio and all the tasty snacks.
Oceans of love and thanks to Turtle, my very best friend. You make my heart
swell every day.
About the Author As a media developer and consultant, Peri Pakroo specializes in developing consumer-friendly materials on legal, nonprofit, small business, and intellectual
property issues. She owns and runs p-brain media (www.pbrainmedia.com), a
new media firm that develops content for Web, print, video, and other media. As a
nonprofit founder and board member, Peri is also actively involved in community
issues such as providing legal resources for artists and supporting local, independent
businesses.
Peri received her law degree from the University of New Mexico School of Law in
1995 and a year later began editing and writing for Nolo, focusing on small business
and intellectual property issues. She is the author of two Nolo books on starting a
small business, The Small Business Start-Up Kit and The Small Business Start-Up Kit
for California, and has edited several other Nolo titles. In between road trips she
lives in New Mexico.
I Doing Good and Doing It Well A. Who Should Read This Book .......................................................................... Intro/2
B. Nonprofit Basics ............................................................................................... Intro/3
C. Running a Nonprofit ........................................................................................ Intro/6
1 Naming and Structuring Your Nonprofit A. Choose a Name for Your Nonprofit ...................................................................... 1/2
B. Should You Incorporate? ........................................................................................ 1/5
C. Do You Want Tax-Exempt Status? ........................................................................ 1/15
D. Should You Have Voting Members? ................................................................... 1/24
2 Developing Your Strategic Plan A. Components of a Strategic Plan ............................................................................ 2/3
B. Decide Who Will Participate .................................................................................. 2/4
C. Develop Your Mission Statement .......................................................................... 2/5
D. Outline Specific Goals, Objectives, and Activities .......................................... 2/10
E. Assess Your Resources .......................................................................................... 2/12
F. Identify Strategies .................................................................................................. 2/13
G. Edit and Finalize Your Plan .................................................................................... 2/14
Table of Contents
3 Developing Your Initial Budget A. Set Up Your Budget .................................................................................................. 3/3
B. Estimate Income ....................................................................................................... 3/4
C. Estimate Expenses .................................................................................................... 3/5
D. Assemble Your Budget ............................................................................................ 3/8
4 Your Board of Directors A. What Makes a Good Board ..................................................................................... 4/3
B. The Board’s Duties and Tasks ................................................................................. 4/6
C. Board Policies and Procedures .............................................................................. 4/9
D. Recruiting Board Members .................................................................................. 4/13
E. Holding Effective Board Meetings ...................................................................... 4/16
F. The Role of Committees ...................................................................................... 4/20
5 Your Workforce: Staff and Volunteers A. Developing a Management Strategy .................................................................... 5/2
B. Hiring an Executive Director ................................................................................. 5/7
C. Hiring and Managing Staff and Volunteers ....................................................... 5/10
D. Employees and Independent Contractors ........................................................ 5/14
E. Required Paperwork, Filings, and Taxes ............................................................. 5/17
6 Fundraising A. The Golden Rules of Successful Fundraising .................................................... 6/3
B. Your Fundraising Plan .............................................................................................. 6/5
C. Define Your Fundraising Targets and Budget ..................................................... 6/6
D. Find Prospective Donors ......................................................................................... 6/8
E. Define Your Fundraising Campaign .................................................................... 6/11
F. Fundraising Tools .................................................................................................... 6/14
G. Funding From Grants ............................................................................................. 6/25
H. The Law of Fundraising ......................................................................................... 6/28
I. Working With Professional Fundraisers ............................................................ 6/30
7 Risk Management and Insurance A. Common Legal Problems ........................................................................................ 7/2
B. Who Is at Risk? ........................................................................................................... 7/7
C. Managing Your Nonprofit’s Risks ........................................................................ 7/12
8 Understanding Contracts and Agreements A. Contract Law Basics ................................................................................................. 8/2
B. Using Contracts in the Real World ........................................................................ 8/7
C. Typical Contract Terms ............................................................................................ 8/9
9 Marketing Your Nonprofit A. Marketing and Public Relations at Work ............................................................. 9/3
B. Fundamental Marketing Tools ............................................................................... 9/6
C. Creating a Website ................................................................................................. 9/11
10 Publishing Informational Materials A. Decide Whether to Publish .................................................................................. 10/2
B. Create a Publishing Plan ....................................................................................... 10/4
C. Copyright Basics for Nonprofit Publishers ..................................................... 10/11
11 Managing Your Finances A. Bookkeeping and Accounting Overview ........................................................... 11/2
B. Tracking Income and Expenses ........................................................................... 11/6
C. Creating Basic Financial Reports ....................................................................... 11/10
D. Audits, Reviews, and Compilations .................................................................. 11/15
E. Reporting Requirements ..................................................................................... 11/16
12 Getting Professional Help A. Relationships Are Critical ..................................................................................... 12/2
B. Working With Lawyers .......................................................................................... 12/2
C. Working With Accountants and Other Professionals ..................................... 12/6
Appendixes
A How to Use the CD-ROM A. Installing the Form Files Onto Your Computer ..................................................A/2
B. Using the Word Processing Files to Create Documents ...................................A/2
B State Secretary of State or Other Corporate Filing Offices
C State Charitable Solicitation Registration Offices
D State Tax Agencies
E State Sales Tax or Seller’s Permit Agencies
F Forms and Checklists Checklist: Naming and Structuring Your Nonprofit
Checklist: Developing Your Strategic Plan
Checklist: Developing Your Initial Budget
Checklist: Your Board of Directors
Checklist: Your Workforce: Staff and Volunteers
Checklist: Fundraising
Checklist: Risk Management and Insurance
Checklist: Understanding Contracts and Agreements
Checklist: Marketing Your Nonprofit
Checklist: Publishing Informational Materials
Checklist: Managing Your Finances
Checklist: Getting Professional Help
Contractor Work-for-Hire Agreement
Volunteer Assignment Agreement
Nonprofit’s Initial Budget
Index
C H A P T E R
1 Introduction
Doing Good and Doing It Well
A. Who Should Read This Book ............................................................................. Intro/2
B. Nonprofit Basics .................................................................................................. Intro/3
1. Nonprofit Corporations ............................................................................... Intro/3
2. Tax-Exempt Status .......................................................................................... Intro/5
C. Running a Nonprofit .......................................................................................... Intro/6
1. Importance of the Nonprofit’s Mission .................................................... Intro/6
2. Collaborative Management ......................................................................... Intro/6
3. Finding and Keeping Qualified Staff .......................................................... Intro/6
4. Raising Money ................................................................................................ Intro/7
I/ 2 STARTING & BUILDING A NONPROFIT
whether to form a nonprofit in the first place, to
engaging in strategic planning, managing your
finances and taxes, developing a website, and much
more. The first chapter explains some of the choices
you’ll have to face at the outset, such as what to call
your nonprofit, whether to incorporate, and whether
to apply for a tax exemption. Each subsequent
chapter focuses on an issue you will face when
launching your nonprofit, such as choosing a board
of directors, fundraising, and marketing. Armed with
the information in this book, you’ll be ready for the
challenges—and rewards—that await you in the
nonprofit sector.
A. Who Should Read This Book
This book is intended for anyone who is consider-
ing starting a nonprofit or reorganizing an existing
group. You may be working with a group in its em-
bryonic stages and coming to realize that you need
to organize more formally. (Often, a group’s lack of
structure makes it ineligible for grants, unprepared
to hire paid employees, or simply ineffective in its
day-to-day operations.) Or, you may just have a goal
or passion in mind and want to learn how to create
an organization devoted to achieving that goal. You
may be a budding founder of a new group, or a staff
member or volunteer at an existing group that needs
an overhaul. No matter what position you hold or
how far along you are in the process of bringing a
group together, this book will give you all of the
information on nonprofit organization, planning,
structures, management, and marketing you need.
For the most part, this book assumes that the
reader is a founder or board member of an exist-
ing or future nonprofit group. However, you may
be an executive director, manager, staff member, or
volunteer who is researching nonprofit management
in order to create or improve your group. Where the
information in this book is directed not at the board
or founder but at the executive director or other
manager, it is noted explicitly.
C hanging the world is not a one-person job.
Of course, one person can make a differ-
ence: Committed, motivated individuals
are often the seeds of major social movements or
the subjects of inspiring stories about how ordinary
people, through passion and tireless dedication, can
move mountains for a worthy cause. But there is
strength in numbers, and those who want to bring
about change are most likely to succeed when they
come together with like-minded comrades to work
towards a common goal. Nonprofit organizations
exist to bring together the people and resources
necessary to mount these noble efforts. If you’re
considering trying to bring about change in your
corner of the world by starting a nonprofit, this
book will help you make your venture a success.
Many people believe—mistakenly—that all
nonprofits are underfunded labors of love, kept
afloat by the scrappy and tireless efforts of self-sac-
rificing, long-haired activists. While this description
probably fits more than a few nonprofits, there are
also plenty of nonprofits that bring in millions of
dollars each year, pay hefty salaries to their workers,
have swanky corporate offices, and even impose a
dress code. In between these extremes, there are
scores of nonprofits with varying assets, diverse of-
fice cultures, and a wide array of political leanings.
While the volunteer-driven model of nonprofits
is alive and well, more and more nonprofits are
adopting the entrepreneurial strategies and busi-
ness models developed in the for-profit world. Many
nonprofit managers and staff members have discov-
ered that working for a nonprofit is a satisfying way
to meet important community and societal needs
and make a living at the same time, which can be
more difficult in the for-profit arena. Whether you’re
driven purely by a passion for your mission or you
want to combine your activist aspirations with a
solid career, starting and running a nonprofit can be
a great way to achieve your goals.
This book explains all of the practical steps
necessary to start and run a nonprofit, from deciding
DOING GOOD AND DOING IT WELL I/ 3
Icons Used in This Book
Throughout this book you will notice symbols,
or icons, that are designed to alert you to
certain types of information, as described
below.
This icon highlights a practical tip or
good idea.
This icon alerts you to potential problems.
This icon indicates that you should
consult with an attorney or other expert.
This icon lets you know that you can skip
information that may not be relevant to
your situation.
This icon refers you to related information
somewhere else in this book.
This icon refers you to other helpful
books or resources on a topic.
This icon indicates that something is
included on the accompanying CD-ROM.
B. Nonprofit Basics
The term “nonprofit” is often used loosely to
describe all kinds of groups that are bound together
by a desire to achieve a mission, rather than to
make a profit. By itself, the term “nonprofit” does
not indicate any specific type of legal structure.
If a nonprofit group incorporates, it is a nonprofit
corporation; if not, it is an unincorporated nonprofit
association. For example, a group of people interested
in keeping a local park litter-free would likely be
called a nonprofit, as would a group of soccer dads
who sell candy bars to fund their children’s trips to
soccer tournaments around the state. Both groups
could be called “nonprofits” because both are
mission-driven, not profit-driven—but they could
have different legal structures. If the park group
never did anything to create a formal structure, it
would technically be considered an unincorporated
nonprofit association. If the soccer dads filed inco-
rporation papers with the state, the group would be
a nonprofit corporation.
1. Nonprofit Corporations
A nonprofit corporation is an organization that has
a mission to serve the public interest and has filed
incorporation papers with the state. Because the
corporation works for the public good, it receives
exemptions from state and federal taxes it would
otherwise have to pay—which means that these
groups are, to a certain extent, publicly subsidized.
The mission-driven nature of nonprofits sets them
apart from traditional private businesses, but they’re
not part of the government, either. (In fact, they are
sometimes called nongovernmental organizations
or NGOs.) Nonprofits occupy a unique position
between the public and private worlds and share
some characteristics of each. In exchange for being
exempt from many of the taxes that normally apply
to private businesses, nonprofits must dedicate
themselves to the public interest and govern them-
selves according to certain rules designed to ensure
accountability.
To ensure that nonprofit corporations are, in fact,
working for the public good—and earning their tax
breaks—state laws require them to establish certain
organizational structures. A nonprofit corporation
must have a board of directors (sometimes called a
board of trustees), which is responsible for keeping
the organization on track, working toward its stated
nonprofit mission. Other state rules impose legal
duties on the board—for example, the duty to act
with care and the duty to be loyal to the organiza-
tion—and ensure that the board does not stand to
gain personally from the nonprofit’s activities. (These
duties are discussed in more detail in Chapter 4.)
a. Corporations in General
To create any type of corporation, nonprofit or
for-profit, you must file paperwork with the state
government—usually the secretary of state’s office.
The document you must file with the state to create
a corporation is typically called “articles of incor-
poration.” Once you file this document, you have
“incorporated” and created a separate legal entity:
your corporation.
I/ 4 STARTING & BUILDING A NONPROFIT
In the simplest terms, a corporation—whether
nonprofit or for-profit—is a type of business struc-
ture. Other types of business structures include sole
proprietorships, partnerships, and limited liability
companies (LLCs). Some states also recognize
associations: groups of individuals who work togeth-
er for some common goal but haven’t taken steps to
create a specific legal entity. (Chapter 1 explains the
pros and cons of structuring your nonprofit as an
unincorporated association.)
The main differences between the various
business structures lie in how they handle two
important issues: personal liability and taxation.
• Personal liability. Some business structures (such as corporations) protect their owners
from personal liability, while others (such as
sole proprietorships) do not. If the business
structure limits its owners’ personal liability,
the owners’ personal assets will be protected
if the business is sued or otherwise finds itself
in debt. If the business structure does not
limit its owners’ liability, the owners’ personal
assets—such as houses, cars, bank accounts,
and so on—can be taken to satisfy business
debts or a lawsuit judgment. Many nonprofits
choose to incorporate primarily to receive this
liability protection.
• Taxation. In some business structures (such as partnerships), business profits are taxed
as if they are simply the personal income of
the business owners. This is known as “pass-
through” taxation—the profits “pass through”
the business to the owners, who report the
income on their own personal tax returns.
Other business entities (such as corporations)
pay and report their own taxes, separate from
the owners’ personal incomes. The business
files its own tax return, as if it were a per-
son. (In fact, you may hear people refer to
a corporation as a separate “legal person”;
legally, the corporation is a distinct entity that
exists separately from its owners.) Nonprofit
corporations are separate tax entities but have
different—and more favorable—tax rules than
for-profit corporations.
b. Forming a Nonprofit
The steps you must take to form a nonprofit cor-
poration are similar to the procedures for starting a
regular corporation, but a bit more involved. Starting
a nonprofit corporation is something like getting a
commercial driver’s license: The process for getting
a commercial driver’s license is very similar to that
for getting a regular driver’s license, and the same
agency grants both licenses, but you must satisfy
a few extra rules to gain the additional privileges
and responsibilities that accompany the commercial
driver’s license. Likewise, creating a nonprofit
corporation is very similar to creating a for-profit
corporation: To do either, you must apply to the
same agency and follow a similar process—but to
create a nonprofit corporation, you must satisfy a
few extra rules.
Corporation Rules Vary by State
All corporations—nonprofit and for-profit alike—are creatures of state law. Although state laws that govern corporations are, for the most part, similar throughout the nation, there are important differences. For example, states vary on the minimum number of directors required for nonprofit boards, as well as other eligibility rules for directors. And corporate tax laws can vary significantly from state to state.
In addition, corporations created in one state are not automatically qualified to do business in others. If you create your nonprofit corporation in Wisconsin, for example, it is technically a “Wisconsin corporation.” Other states will view it as a “foreign corporation” and will generally require you to file paper- work and pay a fee before allowing you to do business within their borders.
If you do not plan to engage in nonprofit activities in other states, then incorporating in your home state alone is probably sufficient, at least in your early days. If, on the other hand, you expect the scope of your activities or ser- vices to extend into other states, you should investigate the requirements for operating as a nonprofit corporation in those other states.
DOING GOOD AND DOING IT WELL I/ 5
2. Tax-Exempt Status
Whether or not you chose to incorporate, you
may be eligible for another benefit as a nonprofit
organization: tax-exempt status from the federal
government. There are several types of federal tax-
exempt status, but the most favorable is known
as “501(c)(3)” status. This moniker refers to the
specific section of the IRS tax code that not only ex-
empts certain nonprofits from having to pay federal
income taxes, but also makes contributions to these
organizations tax-deductible to the donor. Other
sections of the federal tax code (such as 501(c)(4) or
501(c)(6)) also offer exemptions from income taxes
for nonprofits, but do not allow donors to deduct
their contributions. In this way, 501(c)(3) status
confers especially favorable tax treatment to orga-
nizations that qualify: Tax deductibility is often a
crucial factor in attracting donations.
As you can imagine, not just any old group can
obtain 501(c)(3) tax treatment. Only groups created
for specific exempt purposes—religious, charitable,
scientific, educational, or literary purposes that
benefit the public—are eligible. Groups that haven’t
incorporated (often called “unincorporated associa-
tions”) can still be eligible for 501(c)(3) status as
long as they meet all other requirements. Groups
that don’t qualify for 501(c)(3) status might be
eligible for other types of tax-exempt status—for
example, social clubs are eligible under section
501(c)(7), and trade associations are eligible under
section 501(c)(6).
To obtain 501(c)(3) status, an organization must
file an application with the IRS and be approved.
The organization must submit additional documents
with the application, such as its articles of incorpora-
tion and bylaws, which must show that the entity is,
in fact, dedicated to one or more of the specific non-
Characteristics of Various Business Entities Entity Type Description Liability Taxation
Corporation
For-profit Legal entity with one or more owners, which has filed incor- poration papers with the state. Owners (shareholders) of for-profit corporations can reap corporate profits.
Owners/directors are protected from personal liability.
For-profit corporation: Prof- its are taxed as corporate income at corporate tax rates.
Nonprofit Legal entity with one or more directors, which has filed incor- poration papers with the state. Directors of nonprofit corporations may not reap corporate profits; profits must stay in the nonprofit corporation.
Nonprofit corporation: May obtain various types of federal and state tax-exempt status, including 501(c)(3) status. If tax exemptions are not obtained, profits are taxed as corporate income.
LLC Legal entity with one or more owners working toward a profit, which has filed LLC papers with the state.
Owners protected from personal liability.
Profits pass through to the owners and are taxed as personal income (unless the owners elect otherwise).
Partnership Legal entity with two or more owners working toward a profit.
Owners can be subject to personal liability.
Profits pass through to the owners and are taxed as personal income.
Sole proprietorship Legal entity with one owner work- ing toward a profit.
Owner can be subject to personal liability.
Profits pass through to owner and are taxed as personal income.
I/ 6 STARTING & BUILDING A NONPROFIT
profit purposes outlined above. (Chapter 1, Section
C, covers these steps in more detail.)
In most states, a nonprofit that obtains an
exemption from federal taxes automatically obtains
an exemption from state taxes as well, so “tax-
exempt” generally means exempt from both federal
and state taxes. Unless stated otherwise, throughout
this book, the term “tax-exempt” refers to federal tax
exemption.
Recommended reading on obtaining 501(c)(3) status. For a detailed discussion of the process of applying for and obtaining 501(c)(3)
status, including step-by-step instructions for filling
out the necessary forms, see How to Form a Non- profit Corporation, by Anthony Mancuso (Nolo).
C. Running a Nonprofit
Many experienced business owners and managers
are surprised to find that running a nonprofit is
quite different from running a traditional profit-
driven business. Assuming you’re an entrepreneurial
type, you will probably figure things out quickly—
but you should understand up front that running a
nonprofit involves different approaches, judgments,
and working styles than running a for-profit business.
1. Importance of the Nonprofit’s Mission
The legal distinction between a for-profit and a
nonprofit corporation hinges on the purpose of the
corporation’s existence: The purpose of a for-profit
business is to earn a profit, while a nonprofit exists
to further a mission in the public interest. Beyond
this legal role, a nonprofit’s mission also drives many
of the day-to-day operations of the nonprofit.
Because a nonprofit’s purpose is to pursue a
mission independent of any profit motive, success
is measured differently than it is in a for-profit busi-
ness. A business is considered a success if it makes a
profit—and a failure if it doesn’t. A nonprofit, on the
other hand, is judged by whether it is accomplishing
its mission. As you can imagine, success or failure
in these terms is not always easy to measure—you
can’t come up with an answer by running a simple
profit/loss analysis, for example.
Of course, just because nonprofits are mission-
driven doesn’t mean they can ignore financial
concerns. In reality, a nonprofit won’t be judged
purely on how well it’s achieving its mission without
figuring financial health into the equation. If a non-
profit has achieved success in pursuing its mission—
say, in raising literacy rates in a particular city
district—but has no money in the bank or financial
prospects for the future, it can’t be called an
unqualified success. Even though many nonprofits
are supported by volunteer staff and may be quite
adept at making the best use of scarce resources,
no organization can run on fumes forever. Because
almost every nonprofit faces a delicate balancing act
between financing itself and achieving its mission,
defining and measuring “success” in the nonprofit
sector can be a challenge.
2. Collaborative Management
For-profit businesses typically place a significant
amount of decision-making authority in a few top-
level positions—president, CEO, director, and so
on—from which leaders exercise control with little
input or interference from others. Nonprofits, on the
other hand, are required by law to have a board of
directors that oversees operations; as a result, they
are typically run in a more collaborative manner.
Board members cannot make unilateral decisions
but must vote as a board to approve or nix various
proposals for action. If a nonprofit has an executive
director, he or she is chosen by and accountable to
the board—not an autonomous decision maker, like
the head of a private company. For many people
who are used to the relative freedom of running a
for-profit business, dealing with the collaborative
management style of a nonprofit can pose a new
challenge.
3. Finding and Keeping Qualified Staff
Finding people to work for your nonprofit is likely
to be one of the biggest challenges you’ll face—
particularly in the early days, when your entire
organization will probably be on short rations.
Many start-up nonprofits lack the resources they
need to attract talented, experienced staff people
DOING GOOD AND DOING IT WELL I/ 7
who want to make a good living, often measured in
competitive salaries and benefits.
Another nearly inescapable reality of the nonprofit
sector is that there are never enough volunteers to
do everything the nonprofit needs (or wants) to do.
You may think that you won’t have trouble finding
folks to help because your nonprofit mission is so
important or you live in a progressive community
where everyone likes to pitch in. Unfortunately,
people lead incredibly busy lives these days and guard
their free time jealously. Much of the volunteer work
people do is for well-established organizations
and causes with well-defined volunteer needs that
can be carried out easily, with little direction. New
nonprofits, on the other hand, rarely have needs
that are so clear-cut—you may be figuring out your
needs through trial and error, which can put too
much responsibility on the casual volunteer. Finding
volunteers and staff people is not impossible, as
Chapter 5 explains; you’ll just need to be ready for
the unique challenges of finding and developing a
nonprofit workforce.
4. Raising Money
Nonprofit organizations don’t typically earn their
money by selling a product or service, like for-profit
businesses do. Instead, nonprofits are supported
by grants from public and private foundations, in-
dividual contributions, and/or membership fees. As
compared to for-profit selling, nonprofit fundraising
can be much more complicated and political.
Nonprofit fundraising certainly requires market-
ing and sales skills, however. You must be able to
convince potential funders that your nonprofit is the
best or most compelling organization to which they
can contribute their hard-earned dollars. If you hate
selling and have convinced yourself that nonprofit
fundraising will be different, think again.
Fundraising can be difficult and time-consuming;
as a result, most nonprofits are perennially under-
funded. Also, because a nonprofit is bound to a
public interest mission and overseen by a board of
directors, it doesn’t have as much flexibility —or as
many options—as a for-profit business would when
trying to get out of financial trouble or turn around
a cash shortage. In short, nonprofit fundraising isn’t
for everyone; it requires lots of energy, enthusiasm,
and creativity—and the ability to work on a shoe-
string budget.
Chapter 6 is dedicated to fundraising. Refer to Chapter 6 for an overview of fundraising
methods and specifics on how to create a fundraising
plan. For detailed information on fundraising, see
Effective Fundraising for Nonprofits, by Ilona Bray (Nolo).
Much like starting a typical, for-profit business,
starting a nonprofit requires ingenuity, passion, and
an entrepreneurial spirit. But nonprofit ventures
offer unique rewards that many people find more
compelling than the lure of financial gains in the
for-profit world. For many socially minded entre-
preneurs, starting a nonprofit is an ideal way to
maintain a commitment to causes they care about
while pursuing a career at the same time. This
book describes the nonprofit organizational model
that makes this possible and outlines all the steps
and tasks involved in setting one up. When you’re
finished reading, you’ll have a clear understanding
of what it takes to run a successful nonprofit, and
you’ll be ready to pour your efforts into the impor-
tant work ahead of you.
■
C H A P T E R
1 Chapter 1
Naming and Structuring Your Nonprofit
A. Choose a Name for Your Nonprofit ........................................................................ 1/2
1. Avoid Trademark Conflicts ................................................................................. 1/2
2. Consider Domain Name Availability ................................................................ 1/3
3. Name Requirements for Nonprofit Corporations ......................................... 1/4
B. Should You Incorporate? ........................................................................................... 1/5
1. Liability Issues ....................................................................................................... 1/6
2. Tax Exemptions .................................................................................................... 1/11
3. Financial Accountability .................................................................................... 1/12
4. Other Considerations ........................................................................................ 1/13
5. Incorporation Paperwork and Fees ................................................................. 1/14
C. Do You Want Tax-Exempt Status? ........................................................................... 1/15
1. Tax-Exempt Status in General ........................................................................... 1/16
2. 501(c)(3) Tax-Exempt Status ............................................................................... 1/18
3. Unrelated Business Income Tax ...................................................................... 1/22
4. State and Other Tax Exemptions ...................................................................... 1/22
5. How Important Is Tax Exemption to Your Organization? ........................... 1/22
D. Should You Have Voting Members? ...................................................................... 1/24
1. Why You Probably Don’t Want Voting Members ......................................... 1/24
2. Practicalities of Having Voting Members ....................................................... 1/25
1/ 2 STARTING & BUILDING A NONPROFIT
T his chapter explains nonprofit structures in
detail and outlines some factors to consider
when deciding how best to organize your
specific group. It also explains some of the basic
decisions you’ll have to make at the outset, including
what to call your group, whether to formally incor-
porate, and whether to apply for tax-exempt status
from the government. Here, you’ll find information
on:
• how to choose a name for your nonprofit
(Section A)
• how to decide whether incorporation makes
sense for your group (Section B)
• the different types of tax exemptions available
to nonprofits, and factors to consider in decid-
ing whether to apply for them (Section C), and
• how bringing formal members into your non-
profit will affect its operations (Section D).
A. Choose a Name for Your Nonprofit
Once you decide to organize a nonprofit, you’ll have
to figure out what to call your group. This process
is a bit more involved than simply picking a name
that sounds good. Of course, you’ll want to come
up with a name that describes your nonprofit’s pur-
pose or work, one that the public will understand
and remember. But you’ll also need to make sure
that your name is not already being used by another
business or group, either as a trademark or as a
domain name. You’ll also have to choose a name
that complies with your state’s legal requirements.
1. Avoid Trademark Conflicts
If your name is already being used by another non-
profit or business, trademark laws (and a closely
related area of law that prohibits unfair competition)
may prevent you from using it. A trademark (some-
times simply called a “mark”) is any word, phrase,
logo, or other device used to identify products or
services in the marketplace. The ins and outs of
trademark law are beyond the scope of this book,
but this section will quickly review key rules and list
some resources you can use to find out whether the
name you want to use is available.
Nolo has resources on name and trademark issues. For in-depth information on trade- marks (including the legal criteria that determine
whether you are infringing on—that is, unfairly
using—another business’s mark, and the process
of name searches and registration), the best source
of information is Trademark: Legal Care for Your Business & Product Name, by Stephen Elias (Nolo). You can also find lots of free information on trade-
marks and other business name issues on Nolo’s
website, at www.nolo.com.
Generally speaking, when a business or nonprofit
owns a trademark, it can prevent anyone else from
using it in a way that is likely to confuse consumers.
If you “infringe” someone else’s trademark, the
trademark owner can take you to court to try to stop
you from using it and even sue you for monetary
damages.
Although owners can register trademarks with the
U.S. Patent and Trademark Office, you don’t have
to register to create an enforceable trademark. You
are the trademark owner if you are the first to use a
name in connection with a business, trade, product,
service, or activity. Because use of a name, rather
than formal registration, creates trademark owner-
ship, lots of trademarks cannot be found in any
local, state, or federal databases. To avoid potential
trademark fights later on, you’ll have to do some
research to find out whether anyone else is already
using a name that’s identical or similar to the one
you want to use.
The potential for name conflicts has grown with the rise of the Internet. In the pre-Web world, small, local businesses and nonprofits didn’t
have to worry too much about trademark conflicts
as long as no one in their area was using a similar
name. Today, however, the Web has created a global
marketplace, in which physical location is almost
irrelevant. Particularly if you plan to put your non-
profit online, you’ll have to worry not only about
trademarks used online, but also about names
used almost anywhere the Web reaches—which, of
course, is just about everywhere.
NAMING AND STRUCTURING YOUR NONPROFIT 1/ 3
The good news is that trademark conflicts are
far less common among nonprofits than they are in
the for-profit world. One legal test for determining
whether similar names are likely to cause consumer
confusion is whether the entities using the names
actually compete with each other. The less the entities
compete, the less likely a court is to find a trademark
violation. Because most nonprofits aren’t heavily
engaged in sales or other commerce, the risk of com-
petition is significantly less than it is for commercial
businesses.
Nonetheless, you don’t want to make the mistake
of choosing a well-established trademark for the
name of your nonprofit or for any of its programs,
services, or products. This is particularly true if
you plan to conduct any business activities, such as
retail sales. (See Chapter 6 for the rules regarding
nonprofits conducting business-type activities and
earning unrelated business income.) To find out
whether the name you want is already in use, check
some or all of the following resources:
• The Web. Start with the Internet, which is huge, fast, and free. By using search engines
like Google or Yahoo!, you can quickly de-
termine whether (and how) a specific term is
in use. You should also check to see whether
the name you want is being used as a domain
name, which may present a trademark conflict.
Go to the Network Solutions website, at www
.networksolutions.com, and search for variations
of the name you want to use.
• Phone directories. Don’t overlook the humble phone book as a valuable source of local
name information. If you find that someone is
using the name you want in your local area,
there’s no reason to waste time and money
searching further—instead, start brainstorming
to come up with another name for your group.
• Industry sources. Trade publications and business directories can be great sources of
name information. You can also call local
trade associations and chambers of commerce
to ask whether they provide lists or directories
of businesses in your area.
• Federal trademark database. If you use a trademark that’s registered in this federal
database, you can be sued for “willful infringe-
ment”—a legal violation that can carry hefty
monetary penalties. To start your federal
trademark search, go to the free trademark
database of the U.S. Patent and Trademark
Office (PTO), at www.uspto.gov. Or, you can
visit your local Patent and Trademark Deposi-
tory Library (PTDL)—there’s at least one in
every state—and use its research materials.
You can also use any large public library or
a special business and government library,
which should carry the federal trademark
register, a publication that lists all federal trade
and service marks arranged by categories. For
more information on trademark searches, see
Trademark: Legal Care for Your Business &
Product Name, by Stephen Elias (Nolo).
• State trademark registries. Contact the Secretary of State’s office in your state (see
Appendix B) to find out which government
agency is in charge of trademark registries.
Ask that agency for information on how to
conduct a search, or you can hire a trademark
search firm to do the work for you.
• County fictitious name databases. Many counties maintain a database of fictitious busi-
ness names (FBNs) that have been registered
there. An FBN is a business name that does
not include the legal name of the entity that
owns it—for example, if a nonprofit named
Nurses for the Homeless, Inc. ran a clinic
called Healthy Horizons, the clinic name
“Healthy Horizons” would be an FBN that
probably has to be registered with the state
or county. Even if you won’t be using an FBN
yourself, it’s a good idea to check the FBNs
used by other businesses in your county or
state to see whether the name you want is
already in use.
2. Consider Domain Name Availability
If there’s any chance at all that you’ll want to set up
a website (see Chapter 9 for information on how to
do it), you should make sure that the name you want
to use—or some logical abbreviation or acronym—is
available as a domain name. Your domain name is
1/ 4 STARTING & BUILDING A NONPROFIT
part of the address visitors will use to access your
site, such as akitarescue.org or cleanourcreeks.org.
Because your domain name is the main part of
your website’s address, you will need to choose a
domain name that is not already owned or being
used by someone else. You will also need to decide
on the appropriate suffix for your domain name—
most nonprofits use “.org” instead of “.com” to
indicate that they have a noncommercial purpose.
Governmental entities use “.gov,” while educational
entities use “.edu.”
Clearly, it will be easier for your supporters to find
you if your domain name and nonprofit name are
identical. To be in the happy position of using your
nonprofit name as your domain name, you’ll need to
choose a name that isn’t already being used, which
can be tricky these days—it seems that virtually
every word and phrase has already been registered
as a .com or .org address. To find out whether a
name is available, go to an online registrar such as
Network Solutions (www.networksolutions.com).
You can enter the domain name you want and find
out immediately whether it’s available. If the name
you choose for your nonprofit is being used by
another group or business as a domain name, you
will not only have to choose a different domain
name for your group, but you may also face claims
of trademark violation.
EXAMPLE: A new nonprofit peace group wants to name itself Families for Peace, and checks
to see if familiesforpeace.org is available. They
find it is already taken by a group called The
Peace Initiative.
Not only will the new group be unable to
register the domain name familiesforpeace.org,
but they might get into trademark trouble by
choosing Families for Peace as the name of
their nonprofit. By using the familiesforpeace.
org domain name, the other group (The Peace
Initiative) owns some level of trademark rights
to the phrase and may be able to prevent the
new group from calling itself by that name,
even if the new group uses a totally different
domain name. The new group would be wise
to choose a different nonprofit name altogether—
preferably one that also can be used as its
domain name.
Even if a domain name is available, trademark
law may prevent you from using it if the name is
already being used by another entity. For example,
say there’s an animal protection organization in
Maine called “Rural Pet Rescue,” which doesn’t
have a website. If a different animal rights group in
Colorado sees that ruralpetrescue.org is available, it
should not automatically assume that it can safely
register and use that domain name. If it did, the
Colorado group would be courting a trademark
infringement lawsuit from the original Rural Pet
Rescue in Maine, which may have been using the
name for years. In short, domain name availability is
no indicator of whether a name is safe to use under
trademark law.
If your nonprofit name is on the long side, you
might want to adapt it for your domain name.
Consider any obvious abbreviations that the public
would likely use. For example, a nonprofit called
New York Arts Alliance might try nyartsalliance.
org. Similarly, the Shawnee Independent Business
Alliance might consider shawneeiba.org.
3. Name Requirements for Nonprofit Corporations
You will need to be concerned about trademark
conflicts and domain name availability whether
you incorporate your nonprofit or not. However, if
you decide to incorporate, you will have a couple
of additional issues to contend with. First, you’ll
need to choose a name that’s not already in use
by another business or nonprofit. Second, you’ll
have to follow your state’s rules regarding nonprofit
corporate names. If you don’t follow these rules in
choosing your corporate name, your state’s corpo-
rate filing office may not approve your name—and
may reject your articles of incorporation. (See
Section B5, below.)
a. Avoid Corporate Name Conflicts
Your state’s corporate filing office—often the
Secretary of State’s office—will reject your name if it
NAMING AND STRUCTURING YOUR NONPROFIT 1/ 5
is already in use by another corporation (nonprofit
or for-profit) or is confusingly similar to the name
of another corporation in your state. Some states
will also check your proposed name against other
business databases, such as listings of state limited
liability corporations or limited partnerships. If your
proposed name is already in use, you’ll be out of
luck.
To save time and headaches, do some research
before you file your articles of incorporation to
find out whether your proposed name is available.
You can usually call or write the state filing office
to check on name availability; many states also
allow you to check names online. Ask your state’s
filing office about its search procedures, or check
your state filing office’s website (listed by state in
Appendix B).
Once you find an available name, reserve it if you
can. Most states allow you to reserve a corporate
name for a specified period of time, sometimes for a
small fee. Reserving a name is a good idea because
it prevents someone else from taking your name
before you have a chance to file your articles. For
more information on selecting and reserving a cor-
porate name, including a sample name reservation
letter, see How to Form a Nonprofit Corporation, by
Anthony Mancuso (Nolo).
b. Other Name Requirements
Many states require nonprofit corporations to use
certain words in their corporate name—and/or
to avoid other words. For example, you may have
to use the word “corporation” or the abbreviation
“inc.” in your corporate name, or avoid using words
that falsely imply a particular business structure or
affiliation, such as “bank,” “trust,” “cooperative,”
“federal,” or “insurance.” Of course, if your nonprofit
really is a cooperative or trust, you may be able to
use these words in your corporate name—check
with your state’s filing office to make sure.
If you plan to apply for tax-exempt status (see
Section C, below), you should also avoid any words
implying that your nonprofit might not be eligible
for a tax exemption. For example, if you used the
words “trade association” or “political action group,”
you might not sound like the kind of charitable
organization that is entitled to avoid paying federal
taxes. This is not a requirement of state or federal
law—instead, it is a commonsense precaution that
will prevent possible problems down the road, when
you apply for your tax exemption.
B. Should You Incorporate?
You don’t necessarily have to incorporate your group
to accomplish your nonprofit goals. (The same goes
for obtaining 501(c)(3) or other tax-exempt status,
which is covered in Section C, below.) Many small
groups operate perfectly well without incorporating
and happily remain what’s sometimes referred to as
an unincorporated association. In fact, many groups
decide to incorporate only when faced with some
pressing reason to do so—for example, because the
group won’t be eligible for a grant unless it incorpo-
rates.
When you incorporate as a nonprofit (by filing
papers with your state’s filing office—see Section
B5, below), you create a separate legal entity that
pays its own taxes and protects the people who
run it and work for it from personal liability. If an
organization does not incorporate, its legal status is
fuzzier. As discussed below, unincorporated groups
are treated differently from state to state—some
states treat them like corporations in some respects;
others don’t.
You don’t have to incorporate to obtain tax- exempt status. Unincorporated associations can apply for and obtain 501(c)(3) status (and other
types of tax-exempt status as well). Keep this in
mind if you are considering applying for a grant
that is available only to groups that have 501(c)(3)
or other tax-exempt status—it’s not necessary to
incorporate to get 501(c)(3) status and be eligible
for the grant. Still, it’s often a good idea to incor-
porate, anyway. A group that plans to seek federal
tax-exempt status will likely benefit from the more
formal corporate structure.
In the absence of a clear need to incorporate, the
members of a nonprofit group may wonder whether
incorporating makes any sense at all. Some may
think it’s the right thing to do based on a vague
1/ 6 STARTING & BUILDING A NONPROFIT
notion that it will protect board members from
personal liability or because it sounds more official.
Others may not want to incorporate, fearing the
dreaded corporate paperwork or simply feeling that
incorporating is an unnecessary expense of time,
money, and other resources. While there may be
some truth in each of these notions, it’s important
to get past these generalities and consider specific
reasons why your particular group will or won’t
benefit from incorporating.
Broadly speaking, the main reason most nonprofits
incorporate is to protect those who work for the
organization from personal liability. In addition to
limited liability, other considerations may be impor-
tant to your nonprofit, such as whether your group
plans to obtain federal tax-exempt status, whether
it plans to handle large sums of money, whether it
seeks to gain credibility by incorporating, or how
unincorporated associations are treated in your state.
The sections below look at each of these factors in
more detail.
Are You Sure You Want to Incorporate?
As discussed in this chapter, incorporating
allows you to take advantage of sometimes
favorable corporate tax treatment and protec-
tion from personal liability. But some groups
won’t realize many benefits by incorporating;
for them, there’s no reason to spend the time
and money required to incorporate. If your
liability risks are minimal to nonexistent, and
if incorporating doesn’t make any additional
tax advantages available to your group, it often
makes more sense to keep things simple and
operate as an unincorporated group until
growth or other changes warrant a more formal
organizational structure.
1. Liability Issues
One of the most compelling reasons to incorporate
a group is to protect directors, officers, and staff
from personal liability. If the nonprofit corporation
loses an expensive lawsuit or finds itself in debt,
creditors typically won’t be able to get at the assets
of the people who run the nonprofit. Only the assets
of the corporation itself will be vulnerable, not the
personal assets of the board and staff.
If your nonprofit is lucky enough to have sizeable
assets, losing them to debt would of course be dev-
astating. But a more common and serious problem
occurs when creditors go after board members or
staffers with deep pockets, instead of targeting the
nonprofit itself (which may be cash- and asset-poor).
If the group is not incorporated, the people running
the organization might find themselves personally
liable for the nonprofit’s debts. This possibility
creates a pretty powerful incentive for many non-
profits to incorporate. But, as discussed below, other
laws might protect your members from liability even
if you don’t incorporate, and your group’s actual
liability risks may be quite low. In short, not every
nonprofit has to incorporate to adequately protect its
members from liability.
Corporate protection from personal liability is not absolute. In some unusual circum- stances, individuals may be held personally liable
for corporate debts. Often called “piercing the
corporate veil,” this individual liability is usually
reserved for cases of extreme mismanagement
or self-dealing. In these situations, the corporate
structure may not shield an individual who commits
improper, unethical, or criminal activities. (Liability
is covered in greater detail in Chapter 7; you’ll find
information about the duties of nonprofit directors
in Chapter 4.)
So, how worried should you be about liability
issues? The answer will largely depend on what
your activities and potential risks will be, and
whether other sources of protection offer enough
of a shield to make incorporation unnecessary. (For
information on assessing risks and risk management
strategies, see Chapter 7.)
Incorporating won’t shield the nonprofit’s assets. Forming a corporation limits only personal liability—that is, the liability of those who
work for the nonprofit. If a successful lawsuit is filed
NAMING AND STRUCTURING YOUR NONPROFIT 1/ 7
against a nonprofit corporation, the nonprofit’s staff
and volunteers may not have to pay a penny, but
the assets of the nonprofit itself can be wiped out.
Taking risk management seriously—by evaluating
your activities, making any necessary changes to
minimize risk, and purchasing needed insurance—
will help you keep your nonprofit out of financial
and legal trouble. (Risk management and insurance
are covered in more detail in Chapter 7.)
a. Assess Your Risks
Start your risk assessment by reviewing your
expected activities. If your group will regularly
engage in activities that involve physical or financial
risk (including any plans to solicit large amounts of
money), incorporating may be the wisest choice.
(Or consider changing your activities—see “Other
Risk Management Strategies,” below.) For example, a
bicycling team, a children’s gym, an environmental
organization that plans to clean up hazardous waste,
or an independent business alliance that holds large
conventions would be well advised to incorporate.
On the other hand, if you anticipate very little
risk, you may reasonably conclude that avoiding
personal liability doesn’t justify the time and
expense of incorporating. For example, a neighbor-
hood association, a slam poetry group, a gathering
of French-language enthusiasts, or a group that wants
to improve a rose garden at a local park might
not face much liability risk during their activities.
If there’s little or no risk of injury and everyone
reasonably agrees that a lawsuit would be extremely
unlikely, operating as an informal, unincorporated
group may be an entirely sensible path to take.
Lots of groups will fall somewhere in between,
with activities that could pose a small to moderate
amount of risk—say, a weekend soccer league or
a group that periodically holds food drives for the
homeless. Before jumping into incorporating, groups
like this should consider some other sources of
protection from liability exposure, discussed below.
Other Risk Management Strategies
As discussed in more detail in Chapter 7, there
are many different ways that groups of all types
and sizes can minimize their liability risks.
Be sure to consider these simple, effective
strategies:
• Adapt your activities. If your group identifies a specific activity that exposes
the group and its members to risk, con-
sider changing that activity or eliminat-
ing it altogether.
• Use signed waivers. When appropriate, get participants to sign waivers releasing
the group from liability.
• Find an umbrella group. If an umbrella group exists for your type of organization,
operating under it can help minimize
your liability exposure. For example,
sports teams typically play in leagues
or enter tournaments sponsored by
umbrella groups, which often allow and
may require every participant to sign up
for the group’s insurance plan.
Whatever your true risks are, make sure your volunteers, staff, board members, and others are comfortable with your organizational structure. If you find that potential directors, employees, or
volunteers are reluctant to work for the organization
without the protection of the corporate structure,
you’ve got a problem on your hands. If you feel their
worries are unwarranted—for example, every player
on your softball team is covered by comprehensive
insurance provided by the American Softball Asso-
ciation—you might try to address their concerns and
convince them they are not facing as much risk as
they think. On the other hand, their fears may be a
sign that it’s time to incorporate your nonprofit.
1/ 8 STARTING & BUILDING A NONPROFIT
b. Insurance
For groups whose principal volunteers and staffers
face low (but not entirely negligible) liability risk,
basic liability insurance might offer adequate protec-
tion, making incorporating unnecessary. A simple,
reasonably priced policy can shield members or
workers of a group from a wide range of liability
risks, from typical trip-and-fall claims to cases of
mismanagement or fraud.
Take, for example, the food drive group men-
tioned earlier. If someone was injured by a falling
box of canned goods and sued the organization,
there’s a good chance that neither the organization
nor its individual members would be liable in the
first place. But even if a lawsuit was successful,
liability insurance coverage would probably pro-
tect individual group members from having to pay
medical bills or legal damages, even if the group
was not incorporated. As discussed in Chapter 7,
it’s a good idea for any group to consider at least
some basic insurance—but it’s especially smart for
those that don’t have the protection of the corporate
structure.
c. State Laws Protecting Members of Unincorporated Associations
Some states have enacted laws providing at least
some limited liability to people involved with
unincorporated groups. Depending on the state,
this protection may cover paid and/or volunteer
workers; other specifics also vary from state to state.
In addition, some states have adopted the Uniform
Unincorporated Nonprofit Association Act (UUNAA),
which, among other things, limits the liability of
members and functionaries of unincorporated
associations for personal injury (tort) and contract
lawsuits. (See “What’s in the Uniform Unincorpo-
rated Nonprofit Association Act?,” below, for more
information on the Act’s provisions and the states
that have adopted it.)
Other states have no laws at all regarding the
liability of those associated with unincorporated
groups. Even though you probably won’t be on the
losing end of a lawsuit, it’s nevertheless important to
recognize that these states offer no personal liability
protection to the people who work for unincorpo-
rated associations. (But the federal law does—see
Subsection d, below.)
d. The Federal Volunteer Protection Act
In addition to the variety of state laws that pro-
tect the people who work for nonprofits, federal
law provides some basic protections to volunteers
who work for nonprofit groups, whether or not
they incorporate. The Volunteer Protection Act
(VPA) of 1997 provides limited immunity to unpaid
volunteers—including directors, officers, and
trustees—for any injuries or damages they cause in
the course of their volunteer activities. (42 U.S.C.
§§ 14501 and following.) The group must either have
federal 501(c)(3) tax-exempt status or be operated
“for public benefit and operated primarily for chari-
table, civic, educational, religious, welfare, or health
purposes” to qualify for this protection. (42 U.S.C.
§ 14505(4).) The group does not have to be incorpo-
rated or possess any tax-exempt status to meet the
second definition.
Because the VPA is a federal law, it provides what
amounts to a mandatory minimum level of protection
for nonprofit volunteers in all 50 states. In states that
have no law governing volunteers’ liability, the VPA
will apply. In states that provide even more protec-
tion to volunteers, state law trumps the VPA. (For
more information on the VPA and liability issues in
general, see Chapter 7.)
The Volunteer Protection Act does not prevent lawsuits against nonprofit organi- zations. The VPA protects only the volunteers who work for a nonprofit, not the nonprofit group itself.
Similarly, the VPA does not prevent a nonprofit
from suing a volunteer for damages; it just shields
volunteers from lawsuits by third parties. But, as
mentioned earlier, nonprofits themselves usually
aren’t sued because they so often have minimal
assets. Much more often, it’s a volunteer with a
fat bank account who faces a lawsuit. This is the
situation that the VPA protects against.
NAMING AND STRUCTURING YOUR NONPROFIT 1/ 9
What’s in the Uniform Unincorporated Nonprofit Association Act?
2. It provides limited liability for members and functionaries of the groups for per-
sonal injury (tort) and contract claims.
3. It gives groups the right to sue and be sued as associations.
4. It creates a procedure for disposing of the property of inactive associations.
5. It allows an agent of the association (such as the activities coordinator, the
president, or just a simple member) to be
designated for service of process—the
designated person then has the authority
to receive legal papers on the group’s
behalf.
The states that have adopted the UUNAA as
this book went to press include:
Alabama
Arkansas
Colorado
Delaware
District of Columbia
Hawaii
Idaho
Texas
West Virginia
Wisconsin, and
Wyoming
For more information on the UUNAA,
including the full text of the law and any recent
state adoptions, visit the National Conference
of Commissioners on Uniform State Laws on-
line at www.nccusl.org.
In 1992, the National Conference of Commis-
sioners on Uniform State Laws drafted the
Uniform Unincorporated Nonprofit Association
Act (UUNAA). The Act was an attempt to
encourage involvement in small community
groups and other organizations that aim to
benefit the public but don’t want to establish
a formal corporate structure. Recognizing that
unincorporated groups do much good for the
public but can be hampered by their vague legal
status, the Conference created the UUNAA as
a model law for states to adopt; so far, 11 have
done so.
Under the UUNAA, unincorporated non-
profits are given the legal status of a separate
entity for purposes of liability. This means that
people who work for an unincorporated non-
profit won’t be held liable for the actions of
the nonprofit or other people working for it
merely by virtue of their involvement with the
group. The UUNAA definition of unincorpo-
rated nonprofit associations is broad: “[Two] or
more members joined by mutual consent for a
common, nonprofit purpose.” Members may
be individuals, corporations, other associations,
or governmental agencies. Both volunteer and
paid workers are protected.
The UUNAA gives five benefits to unincorpo-
rated nonprofits:
1. It gives the associations the legal capacity to receive, hold, and transfer real and
personal property.
1/ 1 0 STARTING & BUILDING A NONPROFIT
Balancing Liability Considerations
Once you’ve assessed your risks and looked at
the various ways to protect your group and its
people from liability, you’ll be in a much better
position to decide whether incorporation makes
sense in your situation. Consider the following
example.
EXAMPLE: The New Mexico Cactus Lovers (NMCL) is a group of about 25 people
who get together every other month or
so to view and photograph various cactus
plants. They post the pictures and other
informative material at a small website.
Keeping the group organized and planning
its activities falls to a group of five people
who call themselves the steering commit-
tee. The folks on the steering committee
plan outings, notify members of the time
and place for each outing, and coordinate
getting the cactus photos and information
from members to post at the website,
among other basic tasks.
At the last outing, one member slipped
and fell into a prickly pear. She wasn’t hurt
too badly and has no intention of suing,
but it got NMCL’s steering committee
thinking about their liability risks. Even
though people could get hurt during their
outings, the steering committee concludes
that the chances of a successful lawsuit
against the group or its members are small.
Because all of the members are friends
and outings are not open to the public,
there’s a low likelihood of a member suing
in the first place. Still, a lawsuit is possible
and could be expensive to defend, even if it
was ultimately unsuccessful. The commit-
tee isn’t worried about the group’s assets,
which don’t typically exceed $1,000 at any
given time; what concerns them are the
assets of the group’s individual members.
They do a quick search of laws online
and learn that New Mexico has not adopt-
ed the Uniform Unincorporated Nonprofit
Association Act. However, they see that
New Mexico’s laws do provide some other
protections for unincorporated associations
and their members. They find New Mexico’s
Corporations statute, Unincorporated
Associations chapter, which states in
Section 53-10-6B: “Any money judgment
obtained against an unincorporated asso-
ciation shall bind only the joint or common
property of the association.” They plan to
ask a lawyer about this but surmise that it
means individual members can’t be held
personally liable for judgments against the
group.
Continuing their research, the steering
committee reads about and discusses
the Volunteer Protection Act. They note
that the VPA applies only to volunteers of
501(c)(3) tax-exempt nonprofits, or those
operated “for public benefit and operated
primarily for charitable, civic, educational,
religious, welfare, or health purposes.”
After some discussion, they agree that
they’ll want to keep the primary focus on
the Cactus Lovers’ educational website and
other informative activities (as opposed to
purely recreational purposes), so that their
group will be covered by the VPA.
After discussing their likely risks and the
existing sources of protection available to
NMCL and its members, the steering com-
mittee decides that the risks to the group’s
members are minimal, so incorporating
doesn’t appear to be essential at this point.
They plan to look into a general liability
insurance policy for the group to protect
against accidents that might happen during
their outings. They also agree to revisit the
issue if their group grows significantly or
starts to engage in new activities.
To see how taking on new activities will
affect your liability risks—and in turn the
need to incorporate—consider some different
NAMING AND STRUCTURING YOUR NONPROFIT 1/ 1 1
2. Tax Exemptions
Generally speaking, there are two ways that a
nonprofit can enjoy exemptions from federal or
state taxes. As discussed in more depth in Section
C, below, a nonprofit that meets federal and state
requirements can:
• avoid paying federal and state taxes on
income, and
• for charitable nonprofits (those that qualify
under section 501(c)(3)), offer tax-deductibility
to donors for the value of their contributions.
These benefits can be quite valuable, but your
group doesn’t have to incorporate to get them. Your
group’s eligibility for any sort of tax exemption
will depend on your nonprofit’s activities—not on
whether or not it is incorporated.
If it meets all other requirements, an unincor-
porated association can obtain tax-exempt status
from the IRS (including exemption from taxes and
tax deductions for contributors), as long as the
group has a written organizational document, often
called articles of association. Many states allow
unincorporated groups to file articles of association
with a state office (usually the Secretary of State),
possibilities for the New Mexico Cactus Lovers.
The chart below shows how the group’s need to
incorporate might change as its activities grow.
Low Need to Incorporate Borderline Need to Incorporate High Need to Incorporate
NMCL’s loose group of cac-
tus enthusiasts visits public
lands to take photographs of
interesting cactus specimens,
which they post at a website.
Everyone who participates in
the park outings signs a liability
release form each year.
NMCL posts notices in local
calendars and other media
inviting the public to join in the
park outings. Participants must
make their own travel arrange-
ments and sign a waiver releas-
ing NMCL from liability.
Two to four trips are offered
each month to the public and
to NMCL’s 100 or so members.
NMCL offers transportation
to those who want it. Release
forms are required. Trips
venture into areas with hazards
such as steep rocks, rattle-
snakes, and extreme tempera-
tures.
These are just general guidelines, but they show
that increasing levels of risk will make incorpo-
ration look more and more attractive.
in much the same way as corporations file articles
of incorporation. (See Section B5, below, for more
information on articles of incorporation.)
Follow IRS rules when filing articles of incor- poration or association. If you plan to apply for tax-exempt status, your organizational document
must pass IRS muster. For corporations, the IRS says
that articles of incorporation must be date-stamped
by the state in order to be valid. For unincorporated
associations, the articles of association must be
signed by two or more people and must be dated.
Further, if you plan to apply for 501(c)(3) tax-exempt
status—as opposed to tax exemption under other
IRS provisions, such as 501(c)(4) or 501(c)(6)—your
organizational document must include specific
language regarding your tax-exempt purpose and a
limitation on political activities, among other things.
This applies to associations and corporations alike.
If you file your state organizational paperwork with-
out knowing exactly what will be required if you
decide to apply for tax-exempt status, you could
create a lot of unnecessary trouble for yourself
down the road.
1/ 1 2 STARTING & BUILDING A NONPROFIT
Even though you don’t have to incorporate in
order to pursue tax-exempt status, it can still be a
good idea. Adopting the formal corporate structure
will force you to be more organized and approach
important tasks—like defining your mission, clari-
fying roles within the organization, and managing
your finances—more seriously. These tasks are espe-
cially important for groups that plan to seek federal
tax-exempt status, because these groups will be
legally required to stay true to their mission, keep
good records, and carefully manage their finances.
In short, you will be in a stronger position to obtain
tax-exempt status if you incorporate your group,
because incorporation forces you to impose and
maintain a higher degree of organization.
On the flip side, remember that incorporation
alone doesn’t automatically make you eligible for
the tax-exempt status you want. Your ability to
obtain federal tax-exempt status will depend on
your nonprofit’s activities, which may or may not fall
within a specific tax-exempt category. For example,
a bridge-playing group probably wouldn’t be eligible
for 501(c)(3) status, which is generally reserved for
charitable nonprofits. (See Section C, below.) If the
bridge group incorporated to obtain 501(c)(3) status,
it would be out of luck (unless it overhauled its
activities substantially).
As for state income taxes, each state follows its
own rules as to granting exemptions to nonprofit
groups. State laws differ, so you should check
yours to see whether your unincorporated group
will be eligible for a state tax exemption. If not,
incorporating might be your best option. State rules
for income tax exemptions are covered in Section C,
below.
If you plan to incorporate, do it before apply- ing for federal tax-exempt status. You should apply for tax-exempt status only after you finalize
your business structure. If you decide to incorporate after obtaining tax-exempt status, the IRS will re- quire you to go through the tax-exempt application
process all over again. By incorporating, you will
have created a business entity separate from your
prior association—and that new entity will need its
own tax exemption.
3. Financial Accountability
While nothing prevents an unincorporated associa-
tion from having well-developed and well-organized
financial systems, sometimes the additional formality
of the corporate structure helps promote sound
financial management. Because a corporation is
legally required to fill certain board and officer
positions (and each position has important legal
duties), the people working for a nonprofit corpora-
tion often have a clearer sense of accountability and
how important it is to manage funds with care. In
an unincorporated group that doesn’t have these
built-in legal responsibilities, it’s not uncommon
for financial systems to be messy or nonexistent.
In short, if membership dues, fundraising events,
private contributions, or other sources bring in even
a few hundred dollars per year to the nonprofit,
your group might benefit from the greater financial
accountability that comes with incorporation.
Incorporating can also help you show outsiders
that your group is a serious endeavor—and that they
should support it financially. Potential contributors
often want to see financial systems and account-
ability in place before they commit any funds to a
group. In particular, foundations and other large
grant providers may not consider giving financial
support to unincorporated groups, precisely because
the formality of the corporate structure provides
additional assurance that the money will be man-
aged in a professional manner. So, when it comes to
attracting and securing contributions, incorporating
may be a practical necessity.
Do you really want to start a for-profit busi- ness? Even though you may feel certain that you want to pursue your goals with a nonprofit, be
open to the possibility that your ideas may be better
served by starting a for-profit business. You can be
as socially progressive with your business as you
and your partners want but will not be bound by the
special tax and other rules that govern nonprofits.
Many foundations give money only to non- profit corporations with 501(c)(3) status. If your potential funding sources don’t give money
NAMING AND STRUCTURING YOUR NONPROFIT 1/ 1 3
to groups without 501(c)(3) status, you’ll obviously
want to obtain that exemption. Section C, below,
offers detailed information on what groups are
eligible for this type of tax-exempt status, as well
as other kinds of federal tax-exempt status. For
line-by-line instructions on filling out the 501(c)(3)
application, read Nolo’s How to Form a Nonprofit Corporation, by Anthony Mancuso. If you’re not eligible under 501(c)(3), you’ll find some alternatives
in Section C, below.
On the other hand, if your group collects a few
bucks from its members every other month to cover
photocopying expenses, or holds a yearly bake sale
to help cover the cost of a trip to the Grand Canyon,
incorporating may well be more costly and compli-
cated than it’s worth. Unless there are other reasons
to incorporate—liability issues, for example—it often
doesn’t make sense for small groups with minimal
funds to take on the formality and complexity of the
corporate structure.
Incorporating may enhance your group’s credibility. Many people are just more inclined to respect an organization that has gone to
the trouble to incorporate, whether or not it truly
deserves that respect. Of course, credibility and
reputation are important for any nonprofit, and
you’ll build them by running your organization well.
But if credibility is a particular concern for your
group, you might want to consider incorporating
sooner than later to establish your bona fides early
on.
4. Other Considerations
Besides the big issue of liability and consider-
ations related to taxes and financial management,
other factors may affect whether or not you should
incorporate. Here are a few to consider.
a. Likely Duration
Generally speaking, incorporating is more appro-
priate for groups that expect to have a lifespan
of at least a few years. If your group is short-term
in nature—for example, you banded together
to prevent a big box store from moving into the
neighborhood—it probably doesn’t make sense to
incorporate. If the issue will likely be resolved one
way or the other fairly quickly, precious time and
energy could be better spent on the campaign, not
on building and maintaining the corporation. But if
your group sticks together after the initial battle and
redefines its mission as creating and maintaining
appropriately sized neighborhood shopping areas, it
might be a good idea to form a corporation.
Look at your organization’s goals and evaluate
whether you will be able to meet them relatively
quickly, or whether they will require an ongoing,
long-term effort. Unless you expect to be pursuing
your mission for quite a while, incorporating may be
more trouble than it’s worth.
EXAMPLE: A group of neighbors frustrated with the litter at a neglected local park decides
to band together for a Clean Up Our Park
Weekend. They organize an event to clean up a
lake and a forested area in the park. They take
risk management seriously and plan to have
all participants sign a release from liability.
Beyond that, they don’t worry about forming
any organizational structure.
The weekend clean-up event is a huge
success, drawing dozens of participants from
the surrounding neighborhoods. The Clean
Up Our Park organizers decide that lots more
work could be done at the park if they held
similar events regularly throughout the year.
They develop new goals, including restoring
natural vegetation and aquatic life to the lake,
eliminating diseased trees, and improving park
trails. With their new mission, they realize that
they will need contributions and grants, as well
as cooperation from the city and the parks de-
partment. Because their planned activities will
keep them busy for at least the next two years,
they decide that a more formal organization is
in order. They make plans to form a nonprofit
corporation and seek tax-exempt status.
1/ 1 4 STARTING & BUILDING A NONPROFIT
b. Overlap With Similar Groups
Before starting your own nonprofit (whether incor-
porated or not), you should find out if any other
nonprofit in your area is working towards the same
goals. You should certainly figure this out before
you incorporate and establish your nonprofit more
permanently.
Politically speaking, it’s important not to in-
vade another nonprofit’s territory—at least without
communicating first and having good reason to go
ahead with your own nonprofit. You may well find
that the best way to pursue your goals is by joining
forces with the other nonprofit, rather than starting
your own and spending time and energy on the in-
corporation process and other legal and tax issues.
The other group may have already made valuable
progress in terms of raising money and awareness,
forging alliances, and so on.
Instead of incorporating your group, you might:
• study the list of nonprofits already active in
the same area and join their efforts as a volun-
teer, board member, or employee
• identify existing groups in your area that are
compatible with your ideas and meet with
them to explore creating a special project or
initiative, or
• explore the list of national organizations in
your area of interest and find out whether a
local chapter is needed in your geographic
area.
EXAMPLE: After the successful Clean Up Our Park Weekend, the organizers decide that lots
more work at the park could be done if they
organized similar events regularly throughout
the year. They discuss incorporating the group
in order to minimize ongoing liability risks and
to develop a strong organizational framework
to handle more money and activities.
One of the members suggests that they
first do some research to find out whether any
other local or regional groups are doing similar
work. Sure enough, a quick search of the Web
turns up Neighbors Helping Parks, a 501(c)(3)
nonprofit in their state that is dedicated to
mobilizing neighbors and local businesses
to help improve and maintain neglected city
parks. Neighbors Helping Parks is set up to
work with local groups just like the Clean Up
Our Park folks, and provides insurance, train-
ing, and other resources to the local groups.
Even better, Neighbors Helping Parks has a
simple application process local groups can
use to request and receive funds to use in their
efforts.
The Clean Up Our Park organizers agree
that it makes much more sense to work with
Neighbors Helping Parks rather than incorpo-
rate on their own and reinvent the wheel.
5. Incorporation Paperwork and Fees
To create a corporation—whether nonprofit or for-
profit—you must file formal paperwork with the
state and pay a filing fee. You will also need to un-
dertake some additional formalities, such as drafting
bylaws. And you’ll have to keep up with various cor-
porate requirements, including regularly convening
meetings of the board of directors, keeping minutes
of board meetings, filing annual reports, possibly
filing tax returns, and more. Although these tasks
aren’t overly burdensome, they do make incorporat-
ing your nonprofit more costly and time-consuming
than simply operating as an unincorporated group.
Get step-by-step instructions for creating your articles, drafting your bylaws, completing your federal 501(c)(3) application, and much more. This chapter provides only a brief overview of the
paperwork requirements associated with forming a
nonprofit corporation. For detailed instructions on
completing all of the necessary forms—and all of
the information you’ll need to make sure that your
paperwork complies with your state’s rules—see
How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).
a. File Articles of Incorporation
Your corporation’s legal existence doesn’t begin
until your state’s corporate filing office (usually an
NAMING AND STRUCTURING YOUR NONPROFIT 1/ 1 5
agency within the Secretary of State’s office) accepts
your articles of incorporation. The articles simply list
basic descriptive information about the corporation,
such as the corporation’s name and address, the
names of the initial directors, and the corporation’s
purpose. Most states provide downloadable, fill-in-
the-blanks articles forms, so you don’t have to draft
yours from scratch. To get information and a copy of
your state’s form, contact your state’s corporate filing
office or visit its website (you’ll find contact informa-
tion in Appendix B).
If you are planning to apply for federal 501(c)(3) tax-exempt status, your articles must include specific language that satisfies the IRS’s requirements. For example, you should specify a tax-exempt purpose that meets the IRS’s
criteria and state that your nonprofit’s assets will
be used for tax-exempt purposes upon dissolution.
For detailed information on these requirements and
sample language you can use in your articles, see
How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).
State filing fees range from less than $50 to
several hundred dollars. While these fees are usually
not prohibitively expensive, attorneys’ fees may be if
you hire a lawyer for help. With hourly rates ranging
from $75 to $300 or more, a lawyer’s bill can easily
reach into the thousands of dollars. It’s not uncom-
mon for lawyers to offer a package of incorporation
services for a flat fee, ranging from $2,000 to $5,000
for a simple corporation.
b. Draft Corporate Bylaws
While the articles of incorporation legally “create”
your nonprofit corporation, its bylaws outline basic
rules for the corporation’s internal operations. By-
laws generally contain standard provisions that
set forth the rules for board meetings, elections,
compensation, nominating procedures, and officer
positions, among other things. Many states regulate
these issues, so you’ll want to make sure that your
bylaws reflect your state’s requirements.
You can either draft your own bylaws, using a
resource such as How to Form a Nonprofit Corpora-
tion, by Anthony Mancuso (Nolo), or hire a lawyer
to put them together for you.
C. Do You Want Tax-Exempt Status?
As you’re undoubtedly aware, many nonprofits
don’t have to pay taxes on much of their income. If
a nonprofit is eligible and has obtained the proper
tax-exempt status from the IRS and the state, income
derived from business activities that are related to
the nonprofit’s mission will not be taxable as income
to the group. In addition, if a charitable nonprofit
qualifies under section 501(c)(3) of the IRS code,
contributors to the group can claim a federal tax
deduction for the value of their donations.
For many organizations, obtaining tax-exempt
status is a top priority. It’s easy to understand why—
after all, who wouldn’t want to get out of paying
taxes? Well, slow down for just a second. There are
several reasons why it may not be worth your while
to apply for tax-exempt status:
• Unless your organization brings in taxable
income, obtaining a tax exemption won’t do
you much good. For example, if your animal
welfare group is supported solely by contribu-
tions and grants, then you don’t have income
tax issues to worry about, because contri-
butions and grants aren’t taxable. It doesn’t
make sense to jump through hoops to get tax-
exempt status if you won’t owe any taxes in
the first place.
• Some income-producing activities will be tax-
able even if you obtain tax-exempt status. If
you raise money through a business activity
that’s not related to your nonprofit mission,
you owe taxes on that income regardless of
your tax-exempt status. This is usually re-
ferred to as “unrelated business income tax,”
sometimes abbreviated as UBIT. So if your
only income comes from an unrelated business
activity, obtaining tax-exempt status won’t
save you a dime—you’ll still owe taxes on that
income. (See Chapter 6 for more on UBIT.)
• Your donors may not be looking for a tax
deduction. Although contributors often expect
to be able to deduct their donations, that
isn’t always the case. For example, a group
1/ 1 6 STARTING & BUILDING A NONPROFIT
organized to restore a small local rose garden
might well conclude that potential contributors
won’t care whether their donations are tax
deductible or not, making 501(c)(3) status
unnecessary.
• Not every nonprofit is eligible for 501(c)(3)
status. Only nonprofits organized to conduct
certain activities qualify for 501(c)(3) treat-
ment. You may find that certain aspects of
your nonprofit must be changed in order to
qualify for 501(c)(3) status, or that you’re
simply not eligible at all.
There are many types of tax-exempt status. Many groups mistakenly think 501(c)(3) is the only type of tax-exempt status. 501(c)(3) status is
certainly the most coveted, because it gives the most
favorable tax treatment: It not only offers exemption
from income taxes but also allows donors to claim
their contributions as tax deductions. But there are
plenty of other types of federal tax-exempt status
that also offer exemption from income taxes. What
these other types don’t offer is a tax deduction for donors.
This section explains the various types of tax-
exempt status the IRS offers and how this status
can impact a nonprofit’s various tax obligations.
Understanding what taxes can or can’t be avoided
by obtaining tax-exempt status will help you figure
out which kind of exemption—if any—looks best
for you.
1. Tax-Exempt Status in General
If a nonprofit is “tax exempt,” that generally means
one or both of the following:
• Tax exemption for the nonprofit itself, so
that it does not have to pay taxes on income.
Broadly speaking, the main effect of federal
tax-exempt status is to relieve the nonprofit
of the obligation to pay federal income taxes
(and usually state taxes, and possibly other
taxes like sales or property tax). This rule
applies to all nonprofits that have obtained
any IRS tax-exempt status.
• Tax deductibility for donors, so that they
can deduct contributions they make to your
nonprofit. If a nonprofit has 501(c)(3) status,
contributors can claim a tax deduction for any
donations they make to the nonprofit. The
IRS will grant 501(c)(3) status only to organiza-
tions pursuing a short list of specific goals, as
discussed below.
As used in this book, the term “tax-exempt”
generally refers to the basic exemption from income
tax given to all tax-exempt nonprofits. To refer
specifically to the special exemption enjoyed by
501(c)(3) groups, this book uses terms like “tax
deductibility for contributors” or “501(c)(3) tax-
exempt status.”
This section takes a closer look at the first
definition: the general exemption from income
taxes that all tax-exempt nonprofits enjoy. Tax
deductibility for contributors is covered in Section
C2, below.
a. What Taxes Does Tax-Exempt Status Avoid?
Lots of folks have misguided notions about what it
means to be tax-exempt, largely because they don’t
have a clear understanding of what income is tax-
able for a nonprofit in the first place.
Broadly speaking, the IRS classifies a nonprofit’s
income as either contributions or gross receipts.
You generally won’t have to pay taxes on contribu-
tions, whether or not you have tax-exempt status.
Contributions include payments to the nonprofit
that were made with nothing expected in return,
such as donations from individuals, grants, or some
membership fees (though membership fees can get
sticky; see “Classifying Membership Fees,” below).
If your only source of income is contributions, then
getting tax-exempt status won’t make any differ-
ence to your tax bill—although it may make a huge
difference in your eligibility for certain grants.
Many funding sources will give money only to groups with 501(c)(3) status. If your poten- tial funders restrict their grants to 501(c)(3) groups,
obtaining this status may be a practical necessity.
NAMING AND STRUCTURING YOUR NONPROFIT 1/ 1 7
It can be tough to figure out whether member-
ship fees should be categorized as contributions
or as gross receipts. Very generally speaking,
a membership fee will be considered a non-
taxable contribution if the basic purpose of
the fee is to provide general support for the
organization. This is true even if the nonprofit
does in fact provide services, admissions to
events, merchandise, or other things of value
to its members, as long as these things are just
incidental benefits. Remember, contributions
are not taxable, whether or not your group has
obtained tax-exempt status.
But if the nonprofit solicits membership
fees primarily as a way to sell admissions, mer-
chandise, services, or other things of value to
members of the general public who don’t have
any common interest other than wanting the
admissions, merchandise, or services, then the
IRS will consider the membership fees to be
gross receipts. This means that they are taxable
if you don’t have tax-exempt status. They may
well be taxable even if you do have tax-exempt
status, if the IRS deems the fees unrelated to
your nonprofit purposes.
The tax rules regarding membership fees
can get a lot more complicated than this. If, for
instance, a nonprofit offers a subscription to its
monthly newsletter to people who join and pay
a membership fee, it will need to grapple with
awfully nitpicky IRS rules about whether that
membership fee is a contribution (money given
without expectation of something in return), or
gross receipts (payment in exchange for some-
thing of value). For detailed information on how
membership fees should be classified, you may
want to consult a nonprofit-savvy accountant or
lawyer.
As you can see, the only type of taxation that
depends on your tax-exempt status is tax on
business income that’s substantially related to
your nonprofit purposes. Contributions and
grants are never taxable, and business income
that’s not substantially related to your nonprofit
purposes is always taxable, whether you have
tax-exempt status or not.
Classifying Membership Fees
Type of Income Without Tax-Exempt Status With Tax-Exempt Status
contributions (donations, grants, and so on.)
not taxable not taxable
income from a business activity substantially related to the nonprofit’s exempt purposes
taxable not taxable
income from a business activity not substantially related to exempt purposes
taxable taxable
1/ 1 8 STARTING & BUILDING A NONPROFIT
Gross receipts, on the other hand, may be tax-
able; these include payments made to the nonprofit
in exchange for something of value. Think of gross
receipts as income from business-type activities,
in which the payer expects something specific in
return for the payment: admission to an event,
merchandise, access to the nonprofit’s facilities, and
so on. If something is expected in return for the
payment, it will likely be classified as gross receipts.
If you don’t have tax-exempt status, then all gross
receipts are taxable. But with tax-exempt status, a
big chunk of gross receipts may be exempt from
taxation, depending on whether it was earned from:
• a business activity substantially related to the
nonprofit’s exempt purposes, or
• a business activity not substantially related to
exempt purposes.
With tax-exempt status, you will escape paying
taxes on income earned from the first category:
business activities that are substantially related to
your exempt purposes. For example, if your tax-
exempt nonprofit is devoted to educating the public
about how to use technology for social activism,
any money you charge for seminars and classes on
that subject will not be taxable, because the classes
are intrinsically tied to your nonprofit purpose.
But if your group also operates an Internet café as
a moneymaking enterprise, that activity probably
won’t be considered substantially related to your
exempt purposes, and you will owe taxes on that
income.
b. IRS Tax-Exempt Categories
The IRS offers tax-exempt status to a wide range
of organizations: charitable groups, civic leagues,
trade associations, social clubs, fraternal societ-
ies, title holding corporations, teachers’ retirement
fund associations, black lung benefit trusts, veterans
organizations, and cemetery companies, to name
just a few. Each tax exemption is authorized under a
particular section of the IRS code. Recreational and
social groups can obtain tax-exempt status under
section 501(c)(7); fraternal societies are eligible for
exemption under 501(c)(10); childcare organizations
are eligible under 501(k); and so on.
Each tax-exempt category has its own require-
ments and taxation rules. Broadly speaking, however,
the essential tax rule for all these categories is much
the same: Tax-exempt organizations do not have to
pay tax on income earned from activities substan-
tially related to their nonprofit purposes. In other
words, as long as a nonprofit has applied for and
been granted tax-exempt status, it can raise money,
tax-free, from its business activities, as long as the
activities are substantially related to the group’s
nonprofit purpose. (Certain categories—such as
501(c)(3) groups—have additional benefits as well.)
The following chart is from IRS Publication
557, Tax-Exempt Status for Your Organization. You can get a copy of the entire publication, as well
as other helpful information and publications, by
calling 800-TAX-FORM, visiting your local IRS office,
or going to the IRS website, at www.irs.gov.
2. 501(c)(3) Tax-Exempt Status
What sets 501(c)(3) status apart from the other types
is that it not only exempts an organization from
having to pay federal income taxes but also allows
donors to deduct contributions to the organization
on their personal tax returns. Clearly, being able to
offer your contributors a tax deduction for their gifts
can be a big help in attracting funds for your orga-
nization.
a. IRS Criteria
A group is eligible for tax-exempt status under
Section 501(c)(3) only if its primary activity is
pursuing one or more of the following purposes:
• charitable
• religious
• educational
• scientific
• literary
• testing for public safety
• fostering national or international amateur
sports competition, and
• prevention of cruelty to children or animals.
This fundamental requirement is known as the
“organizational test.” If your nonprofit’s primary
activities include any purposes that aren’t on this
NAMING AND STRUCTURING YOUR NONPROFIT 1/ 1 9
Organization Reference Chart (excerpted from IRS Publication 557, Tax-Exempt Status for Your Organization)
1/ 2 0 STARTING & BUILDING A NONPROFIT
NAMING AND STRUCTURING YOUR NONPROFIT 1/ 2 1
list, then you will not meet the organizational test
and won’t be able to obtain 501(c)(3) status. Put
another way, if you pursue activities that are not on
the list, they cannot make up a substantial part of
your nonprofit’s work.
Your nonprofit may engage in more than one of
the exempt activities listed above—for instance, it
can pursue both charitable and educational activities.
But if your nonprofit pursues any nonexempt
purposes as a primary activity—social, recreational,
or business activities, for example—then it would
not be eligible for tax-exempt status, even if it also
pursues exempt purposes.
Perhaps you find yourself asking, “What if our
nonprofit only occasionally dabbles in social or
recreational activities? Does that mean we aren’t
eligible for 501(c)(3) status?” The good news is that
it’s okay for a nonprofit to engage in nonexempt
activities—as long as they are insubstantial. An
occasional social or recreational event is probably
fine, as long as your nonprofit’s primary activities
continue to be related to exempt purposes.
If you expect that nonexempt activities like social
and recreational events will be more than an insub-
stantial part of your nonprofit’s work, you should
consider pursuing a different type of tax-exempt
status. Alternatives include:
• A 501(c)(4) organization—civic leagues, social
welfare organizations, and local associations
of employees. These groups are allowed
to engage in more social and recreational
activities than 501(c)(3) groups but cannot
have social/recreational activities as their
primary purpose.
• A 501(c)(7) organization—social and fraternal
clubs. These groups may engage primarily in
social activities.
If you intend to apply for 501(c)(3) tax-exempt
status, you should take the time before you incor-
porate to find out whether your nonprofit will be
eligible. If it’s not eligible, you may decide not to
incorporate after all, or you might want to change
aspects of your organization to make it eligible. If it
is eligible, you’ll need to include specific language
in your articles of incorporation that states your
nonprofit purposes and limits them to allowable
501(c)(3) activities.
Applying for 501(c)(3) status. To seek 501(c)(3) status, you must file IRS Form 1023,
Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. You can get a copy of this form, instructions for filling it
out, and helpful IRS publications (such as Publica-
tion 557, Tax-Exempt Status for Your Organization) by calling 800-TAX-FORM, visiting your local IRS
office, or going to the IRS website, at www.irs.gov.
Be forewarned, however, that the IRS estimates it
will take the average person more than four hours
to learn about the form—and another eight hours
to fill it in and return it to the IRS! For detailed, line-
by-line instructions that will make filing out a federal
501(c)(3) application much easier (and quicker), see
How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo). Mancuso’s book provides informa-
tion on state—as well as federal—tax exemptions.
b. Creating a Separate Fund
If your organization is not eligible for 501(c)(3)
status but is eligible under a different category, you
may still be able to set things up so that you can
offer tax deductions to contributors. Some nonprofits
set up a separate fund to receive money exclusively
for allowable 501(c)(3) purposes (religious, chari-
table, scientific, literary, or educational purposes;
fostering national or international amateur sports
competition; or the prevention of cruelty to children
or animals). If it’s done right, this fund can obtain
501(c)(3) status and all the benefits that flow from it.
Of course, the money in this separate fund must
actually be used only for those purposes—in other
words, you can’t set up a 501(c)(3) educational fund
and use that money for your backgammon club’s
operating expenses. But you could use that money
for an educational website on the history of back-
gammon or similar educational pursuits. Some non-
profits find that this is a good way to finance certain
activities that would be eligible for 501(c)(3) status,
even if the organization overall is not eligible.
Because setting up a separate fund requires
specialized knowledge of nonprofit tax laws and IRS
rules, you should consult an attorney if you’re con-
sidering this strategy.
1/ 2 2 STARTING & BUILDING A NONPROFIT
3. Unrelated Business Income Tax
One type of income that’s always taxable—whether
your nonprofit has tax-exempt status or not—is
income from a regularly operated business activ-
ity that is not substantially related to your nonprofit
purposes. The shorthand for this is “unrelated
business income,” and it is subject to income tax
(unrelated business income tax, or UBIT) just as if
you were a for-profit business. For nonprofit cor-
porations, corporate tax rates will apply. For un-
incorporated associations, the way the group will
be taxed depends on the laws of your state. (The
discussion below assumes that your group is incor-
porated.)
If your gross receipts from an unrelated business
activity exceed $1,000, you’ll have to file IRS Form
990-T to report and pay tax on that income. If you
bring in less than $1,000, you don’t have to file the
form. (For more information on filing requirements,
see Chapter 11.)
If the business activity is not regular—say, an
occasional rummage sale or silent auction—then it is
not subject to UBIT. Other types of income that are
not taxable as unrelated business income include:
• volunteer operations—income from a business
activity in which substantially all the work is
performed without pay (such as a volunteer
bake sale)
• activities for the convenience of members—in-
come from a business activity that is primarily
for the convenience of its members, students,
patients, officers, or employees (such as a
school cafeteria), and
• sales of donated merchandise—income from
a business activity that consists of selling
merchandise that the organization received as
gifts or contributions (such as thrift shops).
Many other types of income are also exempted
from UBIT; these include dividends, interest,
royalties, certain rental income, certain income from
research activities, and gains or losses from the
disposition of property.
For more detailed information on the unrelated
business income tax rule, be sure to read IRS
Publication 598, Tax on Unrelated Business Income
of Exempt Organizations.
4. State and Other Tax Exemptions
Most states exempt a nonprofit from state income
taxes if it has obtained federal 501(c)(3) status.
In these states, the state exemption should apply
whether the group is incorporated or not, though it’s
wise to check with your state to be sure. Depending
on the state, the exemption may be automatic, or the
group may have to submit paperwork showing that
the federal exemption has been granted. Some states
exempt a nonprofit from state income taxes regard-
less of whether it has received 501(c)(3) federal tax-
exempt status. In other states, a nonprofit must go
through a separate process to determine whether it
will be exempt from state income taxes, even if it
has already obtained federal tax-exempt status.
Similarly, the rules vary as to whether a nonprofit
will be subject to other state or local taxes, such
as sales tax or property tax. Some states and local
governments may grant an automatic exemption
if you have obtained 501(c)(3) status; others may
require you to jump through some hoops.
Appendix B offers state-by-state contact informa-
tion for nonprofit corporation filing offices. Contact
your state’s office for information about exemptions
from state income tax for nonprofits. For other
types of taxes, such as state sales tax, contact your
state and local tax authorities (state contacts listed
in Appendixes D and E) to find out how they treat
nonprofits.
5. How Important Is Tax Exemption to Your Organization?
Now that you have some basic tax information,
give some thought to how important it really is
for your nonprofit to be tax-exempt or to offer tax
deductibility to donors. Ask yourself the following
two questions:
1. Will your organization bring in enough taxable income to make avoiding taxes a real concern? If your organization doesn’t bring in any income from
business activities, it won’t owe taxes in the first
place. And if the income is from a business activity
that’s not related to your nonprofit purposes, then
that income is taxable with or without tax-exempt
status. If, on the other hand, you have (or plan to
NAMING AND STRUCTURING YOUR NONPROFIT 1/ 2 3
have) a business activity that’s related to your non-
profit purposes, tax-exempt status can save you real
money. In this case, obtaining some type of tax-
exempt status should be near the top of your “to do”
list.
2. Will you need 501(c)(3) status to be eligible for grants or to attract contributions? While some organizations depend on sizable contributions and
major grants, plenty of others do just fine with
individual contributions in the $10 to $50 range.
If eligibility for grants isn’t an issue, and if your
organization doesn’t plan to go after the big bucks,
you may find that your group does just fine raising
money from folks who don’t care about deducting
their small donation come tax time. But if your
organization’s activities depend on obtaining at least
some large contributions or grants from foundations
or other sources, having 501(c)(3) status is crucial.
People or organizations asked to provide $100 or
more will usually want to know (or will assume)
that their contributions will be tax-deductible. And
grant criteria often include having 501(c)(3) status.
Put bluntly, without 501(c)(3) status, your chances
of attracting large-scale financial support will be
significantly hampered.
EXAMPLE: The New Mexico Cactus Lovers (NMCL) has grown into a group with approxi-
mately 100 members. The group incorporated
last year in order to limit its liability and create
a more formal organization. It now has a board
of directors, plus three paid staffers who main-
tain the group’s website and organize and lead
hiking trips. It hasn’t yet obtained tax-exempt
status but is considering doing so.
When it was a young organization with 25
or so members, the only real money the group
handled was $20 contributions from each
member, which went towards the costs of its
website, gas money for hiking trips, and other
minor operating expenses. Its only income was
from nontaxable contributions (given by donors
who didn’t expect anything of value in return),
so there wasn’t any point in obtaining tax-
exempt status. Even when NMCL engaged in
unrelated business activities to earn money, the
activities weren’t regular enough to qualify the
proceeds as unrelated business income. If the
activities ever had become more regular, taxes
would have been due on that money anyway,
even if the group had tax-exempt status.
Now, however, the group earns money
from several sources, some of which are
currently taxable but would not be if NMCL
obtained tax-exempt status. Besides a $75
annual membership fee, NMCL charges fees
for its hiking day trips. The trips are held fairly
regularly, usually every other week. In addition,
the group operates a small store from its office
where it sells cactus plants to the public. It
also has self-published two books on desert
ecosystems, which bring in revenues of roughly
$4,000 annually.
Currently, all participants must provide
their own transportation to the hiking day trips,
but NMCL wants to raise money for a vehicle so
it can offer transportation to those who want it.
They also want to expand the website and add
more scientific articles about desert ecosystems.
They plan to apply for grants for these larger
funding needs.
At a recent board meeting, the directors
agree that it is time to seek tax-exempt status.
While their membership fees would probably
count as nontaxable contributions (because
they are used for general operating expenses),
the fees for the trips might very well qualify as
gross receipts from a business activity which
would be taxable without tax-exempt status.
Because the trips are substantially related to
NMCL’s mission of educating the public about
cactus plants and desert ecosystems, the
income they generate would be tax-exempt
if the group obtained tax-exempt status. In
addition, obtaining 501(c)(3) status will help
the group meet eligibility requirements for
grant money.
Using the above example, consider the increas-
ing need to obtain tax-exempt status as the NMCL
becomes involved in new activities and starts to
bring in income that would otherwise be taxable.
1/ 2 4 STARTING & BUILDING A NONPROFIT
Low need to obtain tax-exempt status
Borderline need to obtain tax-exempt status
High need to obtain tax-exempt status
The New Mexico Cactus Lovers
(NMCL) has about 20 members
who pitch in $25 a year for the
group’s website, gas and travel
expenses for hiking trips, and
T-shirts.
NMCL has about 50 members
who contribute $45 per year to
the group’s general fund. Those
who participate also pay $25 for
each trip, which are organized
every month or so. The group
also earns income from occa-
sional fundraising events such
as cactus sales, art auctions, and
concerts, some of which are
unrelated to NMCL’s mission.
NMCL wants to solicit grant
money to expand its website
and to offer educational hiking
trips to the public. The group
organizes hiking day trips every
other week and charges fees to
participants. NMCL also sells
cactus plants and publishes two
books on desert ecosystems
in New Mexico, which bring in
about $4,000 a year.
Need help preparing bylaws and articles? For step-by-step instructions on drafting
bylaws and articles, including detailed information
on membership provisions, see How to Form a Non- profit Corporation, by Anthony Mancuso (Nolo).
Often, a nonprofit with voting members will be
called a “membership” nonprofit, and a nonprofit
with no voting members is called a “nonmember-
ship” nonprofit (or sometimes a “directorship” non-
profit, reflecting the fact that only the directors have
the right to vote). However, this distinction can be
confusing, because most states allow nonprofits to
have nonvoting members. Instead of framing the
question as whether to adopt a membership or non-
membership structure, you may find it clearer to
consider whether you want your members to have
voting rights in nonprofit affairs.
1. Why You Probably Don’t Want Voting Members
If your members have voting rights, they can have
a major say in steering your nonprofit. If they don’t,
then only the board will have voting rights—and
the legal power to guide the nonprofit. In practice,
involving all members in corporate affairs is too
burdensome for many small nonprofits. To keep
D. Should You Have Voting Members?
If you incorporate your nonprofit, you’ll need to
decide another issue: whether to allow people to
join your nonprofit as members with voting rights in
nonprofit affairs. (This is sometimes referred to as
choosing a membership or nonmembership structure,
as described below.) Generally speaking, state laws
give legal voting rights to members of nonprofit
corporations, allowing members to participate along
with directors in corporate decision making. Among
other rights, voting members of a nonprofit corpo-
ration have legal rights to elect board members, to
approve or reject changes to the nonprofit’s articles
or bylaws, and to vote for a merger or dissolution of
the nonprofit.
Voting rights and other membership specifics
should be detailed in your nonprofit’s bylaws. If
your bylaws don’t address the issue (or you have no
bylaws at all), the laws of your state will apply as a
default. Some states ask you to specify a member-
ship or nonmembership structure in the standard
articles of incorporation. If your state’s standard
articles ask you to choose a membership structure,
make sure that your articles are consistent with your
bylaws, which will undoubtedly cover the issue at
more length.
NAMING AND STRUCTURING YOUR NONPROFIT 1/ 2 5
things simple and avoid the hassles involved in
allowing members to vote—convening and giving
notice of meetings, especially—most nonprofits
choose not to give members voting rights. Even
though these participants may not have the right
to vote, they can be treated much like voting
members—for example, they can receive benefits
like a newsletter or reduced admission to events.
If a nonprofit does not want voting members,
it can opt not to have members at all. Or, in most
states, it can set up a special class of members
with no voting rights. If the nonprofit doesn’t have
members or if no members are given voting rights,
only the board of directors has the power to vote.
However, bear in mind that state laws and pro-
cesses governing membership rights vary consider-
ably, so proceed with caution if you want to allow
people to become members but don’t want to give
them voting rights. Restricting voting rights from
some members doesn’t mean that those members
have no rights at all under your state’s laws. For
example, state laws typically establish rules for
expelling members, which will generally apply to
nonvoting members and voting members alike.
2. Practicalities of Having Voting Members
If you do choose to have legal, voting members,
you’ll need to be ready for the administrative
burdens of managing membership. These include
maintaining membership lists and processes for
joining the nonprofit, which may or may not involve
paying dues. Thankfully, most of these practical
details are up to the nonprofit and not set in law.
What are legally mandated, however, are the proce-
dures you’ll need to follow whenever a matter is up
for a vote. You’ll need to provide adequate notice
to all voting members before the vote is held and
follow careful rules of order during discussions and
the vote itself.
The board president is in charge of running meet-
ings, so he or she will need to have decent skills in
order to oversee well-organized meetings and votes
involving a general membership. (See Chapter 4 for
information on running meetings effectively and
using formal meeting procedures such as Robert’s
Rules of Order.)
The following checklist is included as a form
in Appendix F and, in digital version, on the
CD that accompanies this book.
1/ 2 6 STARTING & BUILDING A NONPROFIT
Checklist: Naming and Structuring Your Nonprofit
Do some research before choosing a name for your nonprofit. Be sure to choose a name that
does not infringe on anyone else’s trademark
rights. Also consider domain name availability
when picking your nonprofit name.
Don’t jump into incorporating—and assuming the responsibilities of nonprofit corporate
management—without considering whether
it’s really necessary to incorporate. Consider
whether incorporating will reduce your
liability risks, offer tax benefits, or help estab-
lish your nonprofit’s credibility or financial
accountability.
Understand the different types of federal tax exemptions available to nonprofits, and
decide whether tax-exempt status will be a
benefit to your nonprofit. If you plan to apply
for grants, find out whether 501(c)(3) status is
required for the grants you’ll seek.
If you decide that you will pursue tax-exempt status now or in the future, decide which type
of status you plan to seek, and make sure you
set your nonprofit up so it will be eligible for
that type of exemption.
Decide whether your nonprofit will have members with voting rights or whether you
want only directors to be able to vote in
corporate affairs.
■
C H A P T E R
1 Chapter 2
Developing Your Strategic Plan
A. Components of a Strategic Plan ............................................................................... 2/3
1. Keep It Simple ....................................................................................................... 2/3
2. Choose a Time Frame .......................................................................................... 2/4
B. Decide Who Will Participate .................................................................................... 2/4
C. Develop Your Mission Statement ............................................................................ 2/5
1. What Is a Mission? ................................................................................................ 2/5
2. A Clear Mission Is Critical .................................................................................. 2/5
3. Defining Your Mission ......................................................................................... 2/7
D. Outline Specific Goals, Objectives, and Activities ............................................. 2/10
E. Assess Your Resources ............................................................................................. 2/12
F. Identify Strategies ..................................................................................................... 2/13
G. Edit and Finalize Your Plan ...................................................................................... 2/14
2 / 2 STARTING & BUILDING A NONPROFIT
O nce you and your cohorts have committed
to your idea for a nonprofit, it’s time to
sit down and create a strategic plan—the
working document that will chart your nonprofit’s
course through the coming years. A strategic plan
identifies your nonprofit’s goals for a certain time
period (generally one to five years, as described
below) and outlines how you will achieve them.
While your nonprofit will undoubtedly engage in
other planning for specific activities, think of the
strategic plan as the “master plan” for your organiza-
tion.
Translating your hopes and dreams into concrete
plans is an essential undertaking for lots of reasons.
First and foremost, making specific plans will help
you get beyond your idealistic visions to focus on
exactly what your group hopes to accomplish—and
what you can realistically expect to get done, based
on your available resources. Drafting a plan trans-
forms abstract ideas into specific “to do” items,
which is a critical step in setting your nonprofit’s
wheels into motion.
Your planning process may redefine your basic nonprofit idea. As your group works on its strategic plan, you may come up with some
new ideas or challenges you hadn’t yet considered.
For example, a group dedicated to preventing teen
pregnancy may decide to branch out into AIDS edu-
cation. Or, it may learn that a local church will loudly
boycott any organization that offers explicit sex
education for teens. While unexpected options or
obstacles can make your collective heads spin, don’t
panic. Opening your mind to broader opportunities
—even if you decide in the end not to embrace
them—is always a positive learning experience. And
if your planning process reveals such a substantial
flaw in your idea that you decide not to start the
nonprofit after all, your strategic planning has done
its job: helping you realistically assess whether—and
to what extent—you can achieve your goals.
Having a clear strategic plan in place will also
serve you well when you seek to raise money and/
or build community support. People may be mildly
interested in your mission and goals, but their main
question will always be, “What does your nonprofit
do?” If you can’t clearly describe your planned
activities—for example, teaching adult literacy class-
es, researching endangered fox habitat, or running
an after-school music program—it will be hard to
win the hearts and minds of potential supporters.
Strategic planning doesn’t mean coming up with
a 100-page manifesto exploring every aspect of your
nonprofit’s operations; you just need to nail down
some key basics about what your nonprofit actually
plans to do. The extent of the planning process
will vary from one nonprofit to the next. In a tiny
organization with a highly focused goal, members
may be able to hammer out a perfectly adequate
one- or two-page plan during a couple of hour-long
meetings. A bigger operation with a large budget
will likely need to devote a number of meetings to
the process and produce a more detailed plan.
This chapter will help groups of all sizes prepare
a solid and functional strategic plan that defines
your mission; outlines your goals, objectives, and
activities; assesses your resources; and identifies
strategies. Unless your fledgling nonprofit is starting
out with an enormous budget or plans high-profile
activities from the get-go, there’s no need for your
strategic planning process to be a complicated affair
involving outside consultants, board retreats, or
review protocols. The information in this chapter
will help you come up with a basic plan that will
work for your nonprofit, without spending all of
your time and energy on the planning process.
Strategic planning is an ongoing process. While strategic planning is a crucial start-up task, it’s also important for existing organizations
to revisit existing plans every year or so to make
any necessary amendments. As your organization
grows and brings in more money, people, and
other resources, your goals, budgets, and programs
may change—and the strategic planning process
will necessarily become more complex. The basic
approaches to, and elements of, strategic planning
that you’ll learn in this chapter will give you a solid
foundation for your future planning efforts.
DEVELOPING YOUR STRATEGIC PLAN 2 / 3
Starting a Nonprofit: Why Do Something Like That?
Randolph Belle is the Director of Information
at the East Bay Nonprofit Center in Oakland,
California. Over the past decade he has coun-
seled hundreds of nonprofits in all stages of
development, from initial planning to maturity
and expansion. He offers the following advice
for nonprofit start-ups working their way
through the idea stage:
“When people come to me with the pro-
nouncement, ‘I’d like to start a nonprofit,’ my
first question is ‘Why?’ Sometimes the response
is silence, which is not a good sign. For those
who dare answer, ‘Because I care deeply about
…’ whatever issue, I’m compelled to introduce
them to some harsh realities of the world of
nonprofits. The truth is, whether your nonprofit
will succeed and find support will depend not
so much on the fact that you care about your
mission, but on whether you’ve tackled the
fundamentals in developing your purpose,
planning your organization, and building your
community.
“In developing its purpose, a fledgling
nonprofit needs to craft a position of value,
understanding that any nonprofit does only
one of two things: increases human potential
or decreases human suffering. It’s important
to find the words that explain what it is that
you hope to change, not just what activities
you plan to do. Your goal is to create a solid,
unduplicated program, addressing a pressing
community need.”
A. Components of a Strategic Plan
Your start-up strategic plan should consist of four
sections, none longer than a few pages. It should
include:
• a mission statement
• an outline of goals, objectives, and activities
• an assessment of current resources, and
• a strategic analysis.
Planning your fundraising activities. All new nonprofits will need to take some time to
hammer out a plan for raising money. These details
will be covered not in your strategic plan but in a
separate fundraising plan, as described in Chapter 6.
1. Keep It Simple
You’ll want to keep your strategic plan short and
sweet—a big-picture overview of what your non-
profit will accomplish, not a detailed blueprint
showing how you will carry out each and every area
of operations. In other words, your strategic plan
should specifically outline what you’ll do, without
going into great detail about how you’ll do it. Leave
the specifics—such as how often you’ll hold board
meetings, how you’ll approach potential donors,
or how many staff members you plan to hire—for
another day. Including too many operational details
is sure to bog down the strategic planning process
and divert your attention away from the big picture,
which should be your focus now.
EXAMPLE: Robots Care is a nonprofit dedicated to helping disabled people live independently
with the help of robotic technology. The group
pursues two main activities: developing new
robotic technology to provide home care for
people with disabilities, and donating finished
robots to disabled people who meet certain
criteria (its “robot rescue” program).
The strategic plan of Robots Care includes
information about its two program areas: tech-
nology research and development, and the
robot rescue program. The plan includes details
such as the type of new technology that is the
focus of development efforts, what robotic
products it plans to develop each year, who
will qualify for a free robot, the group’s plan
for training its clients about using the robots,
and how it plans to publicize its programs
to reach potential donees. Other operational
details—such as where the group will purchase
equipment and supplies, who will work at the
laboratory, what questions will be included on
the application for a free robot, and how the
group will deal with donated robots that turn
2 / 4 STARTING & BUILDING A NONPROFIT
out to be defective—are left out of the plan.
These details are addressed separately, as part
of developing the programs themselves.
2. Choose a Time Frame
While some established nonprofits plan five years
in advance, most nonprofits plan for one to three
years into the future. When creating a strategic plan
for the first time, choosing a period of one or two
years usually works well. Planning for more than
a year or two is often a waste of time, because
new nonprofits rarely find that their first years go
according to plan. Instead, plan for your first year
(or possibly two), and then compare your plan to
what actually happened as your first year winds
to a close. Once you hit years two and three, your
plans will likely become more realistic, and you
can consider extending your strategic plan for three
years or so into the future.
Randolph Belle—Director of Information, East Bay Nonprofit Center, Oakland, California
Write, write, and keep writing. A plan isn’t a
plan until it’s in writing. If it doesn’t pencil out
on paper, you probably have more work to do.
I’ve found that when you write, you come up with
answers to questions that haven’t been asked yet.
B. Decide Who Will Participate
Whether you’ve already incorporated and chosen
board members or you’re still just a loose group of
organizers, you’ll need to decide who will play a
part in the strategic planning process. If your group
consists of one committed, passionate person (you),
then now is the time to think about bringing in
other interested people.
For small nonprofits with up to six or seven orga-
nizers or board members, it usually makes sense for
everyone to participate. Once ten or more people
are involved, however, it can be quite unwieldy and
inefficient to include everyone. In this case, it’s often
more effective to assign parts of the planning pro-
cess to smaller committees that can more efficiently
tackle specific issues or tasks and then present their
results to the full group for comment and approval.
A new nonprofit’s first strategic planning efforts
might feel a bit awkward. The people involved
probably don’t have defined roles at this early stage.
The group may not have incorporated yet, or it
may have just the statutory minimum number of
board members, with plans to add more in the near
future. When a loose group of initial organizers
tackles the nonprofit’s first strategic plan, they may
not know who else will join the board once they
incorporate—or even whether they will serve on it
themselves.
Building your board is covered in Chapter 4. Chapter 4 explains how to recruit the
right people for your board and covers common
questions such as how large your board should be,
how often it should meet, and how to run effective
board meetings.
No matter where you are in your group’s develop-
ment, however, the initial planning process will be
valuable. If your group hasn’t yet incorporated or
chosen its full slate of formal board members, don’t
worry—just keep in mind that your strategic plan
will have to be acceptable to the board that is even-
tually selected. Because the folks who participate
in the strategic planning will likely end up on the
group’s board after it incorporates, this usually isn’t
a problem.
Besides organizers or board members, you may
also want to include others in your strategic plan-
ning efforts. Potential funders and other supporters
are particularly helpful strategic planning partici-
pants, at least in some limited way. Their input can
help your group fine-tune its activities and goals to
keep these supporters interested and willing to help.
Of course, you shouldn’t design your programs sole-
ly to please potential supporters, but keeping the
lines of communication open and developing good
relationships with your natural allies will make your
job easier once you begin fundraising and trying to
develop community support.
Similarly, if your group will depend on a specific
grant or other donation—for example, a local school
DEVELOPING YOUR STRATEGIC PLAN 2 / 5
has offered you free office space, or you plan to
launch your group with a donation promised by a
local bank—be sure to keep those key supporters
involved every step of the way. The more you will
rely on their support, the more you will need to
make sure that they approve of your plans.
If you’re one of the few new nonprofits that
have already hired an executive director at this
early stage, then be sure to include him or her in
your strategic planning process. Similarly, if you’ve
hired any professionals such as fundraisers or
management consultants, they should be included—
they can often contribute valuable information and
perspectives to your strategic plan. Some nonprofits
even hire experts specifically for the planning
process. For example, you can hire a strategic
planning consultant who is trained specifically to
help nonprofits work through the tasks involved
in creating a strategic plan. As mentioned earlier,
however, most start-up nonprofits won’t need, want,
or be able to afford to hire outside consultants.
At the end of the day, it’s the board of directors
(or the people in charge of an unincorporated group)
that will need to approve the strategic plan, no
matter who generates it—committees, consultants,
or anyone else. While it’s useful to include a diverse
range of voices in the process, you don’t want to in-
clude so many that the nonprofit’s essential direction
gets lost in a cacophony of different viewpoints and
ideas.
C. Develop Your Mission Statement
Every nonprofit needs a mission statement: a clear
description of the reason the nonprofit exists. Your
mission statement should be the first section of
your strategic plan and will set the stage for all that
follows. Because all nonprofits are mission-driven,
you must take care to define your mission clearly.
If the group is unclear about its mission, it can
easily drift off course. Straying from the mission is
an obvious problem for practical reasons, because
it can lead to wasted energy, inefficient use of time
and resources, and failure to reach your goals. It
can also result in losing your status as a nonprofit
corporation under state law or losing tax-exempt
status under federal and state law.
Some people who start nonprofits believe that
they already know exactly what needs to be done
and that it won’t take more than a few minutes to
come up with a mission statement. Think again—
drafting your mission statement deserves more care
and attention. While you shouldn’t agonize over
your statement, it’s important to put some careful
thought into articulating the mission that will guide
your organization for years to come.
1. What Is a Mission?
Essentially, your mission is your broad goal—your
reason for being. Why did you start your organization?
The short answer to this question will likely be a
good first stab at your mission statement.
Here are some clear, concise expressions of non-
profit missions:
• “To create a youth choir for the disabled
children of El Paso, Texas.”
• “To stop a Wal-Mart from moving into
Corrales.”
• “To provide veterinary services to the pets of
homeless people in Atlanta.”
• “To stop the filling of Johnson Bay and restore
its watershed to its natural condition.”
Your organization will also undoubtedly have
many tactical goals, such as organizing events, rais-
ing money, finding volunteers, and more. Although
these activities should all be designed to further
your mission, they aren’t part of your mission per se
and should not be included in your statement.
2. A Clear Mission Is Critical
While it may not be difficult to define many
aspects of your mission, it’s not a task that should
be approached lightly. Remember, all the activities
you’ll engage in for at least the next few years
should flow from your stated mission. Also, crucial
questions of scope and purpose that will almost
surely come up in the future will often be answered
by revisiting your mission statement.
This section takes a closer look at the benefits of
having a well-defined mission.
2 / 6 STARTING & BUILDING A NONPROFIT
a. A Well-Defined Mission Focuses Your Organization
Taking care to define a clear mission statement will
ensure that all of the decision makers in your orga-
nization have a role in deciding exactly what your
mission should be. You may think your mission is
obvious. Once you try writing it out, however, you
will probably find that there are unresolved questions
or issues that have to be addressed. For example,
will your choir for disabled youth include children
who are physically disabled, developmentally dis-
abled, or both? If you’re fighting to keep Wal-Mart
out of your town, what about Home Depot or Ikea?
Will your organization to stop bay fill also conduct
educational programs about the many valuable
ecological attributes of wetlands?
EXAMPLE: A group comes together to form Youth Music, inspired by their desire to promote
music education in a specific school district.
What should Youth Music do if a group of
parents approaches them asking for help sup-
porting or implementing art programs? At least
some Youth Music board members may have
sympathy for these parents and may be tempt-
ed to assist their cause, especially because it’s
so similar to the group’s original purpose.
If the music organization hasn’t taken the
time to define its mission carefully, these board
members may find themselves in conflict with
other parents who believe that focusing solely
on music programs makes more sense. But if
Youth Music has clearly defined for itself the
mission of “promoting music education in the
Cibola County school district,” then it would be
easy for it to decide the issue—absent a formal
mission change, visual art education is beyond
the organization’s scope.
When in doubt, start with a narrow mission. Rather than bite off more than you can chew, start your nonprofit with a more tightly defined
mission. Later, when you have a few successes
under your belt, you can consider whether it makes
sense to broaden the mission.
Your mission statement doesn’t have to be written
in stone. It’s fairly common for an organization to
broaden or redefine its mission as circumstances
change. For example, if a group working to prevent
bay fill is offered a major grant to do community
education on the value of maintaining healthy wet-
lands, it might wisely decide to expand its mission
statement to include bay-related environmental
education. But even if particular circumstances
don’t cause you to change your mission statement,
it makes sense to formally revisit it every few years.
Situations change, organizations grow and evolve,
and you may find that your group has begun to take
on new challenges that call for a careful reexamina-
tion of its mission and goals.
Whether your mission evolves or stays the same,
it must be defined—and understood—by the people
involved in the organization. This will give you a
point of reference to use not only in planning your
activities, but also in resolving disagreements about
your group’s scope. Your mission statement is at the
heart of your enterprise, so any ambiguity or flaws
in it will almost certainly result in a less effective
organization.
b. A Well-Defined Mission Can Attract People and Resources
Besides helping to focus your organization internally,
a clear mission provides another crucial benefit: It
can attract people and resources to your cause. Your
mission statement can and should clearly commu-
nicate to outsiders what your nonprofit is all about.
The more compelling your mission statement, the
better you’ll be able to appeal to like-minded folks
and get them on board. This doesn’t mean you
should pander to potential funders or the public .
On the contrary, trying to create a trendy program is
almost sure to fail, as popular tastes change quickly.
But a clear, compelling mission statement plays the
important public relations role of explaining exactly
what your nonprofit does—which will help you
communicate your purpose and goals to those who
may wish to get involved in your work.
When you speak to people about the nonprofit—
whether they are potential funders, reporters,
government officials, or anyone else—you should
DEVELOPING YOUR STRATEGIC PLAN 2 / 7
be able to state your mission in just a few simple
sentences.
EXAMPLE: Wild Horizons is a nonprofit created to bring children from poor urban
neighborhoods in Wisconsin to national forests
and wilderness areas. In the very early days
of the nonprofit, before the board of directors
sat down to carefully define the group’s mis-
sion, they weren’t effectively communicating
the purpose of their nonprofit to others. Many
people mistakenly believed the main focus of
Wild Horizons was to teach the children out-
door survival skills, when in fact the goal was
simply to introduce kids from often troubled
urban neighborhoods to the great outdoors as a
healthy point of reference.
The volunteers that Wild Horizons tended to
attract were almost exclusively outdoor adven-
ture enthusiasts eager to teach the kids skills
like rock climbing, long-distance backpacking,
and river kayaking. But Wild Horizons also
wanted to attract social workers, outdoor
educators, and counselors who understood
the issues of at-risk youth—and these folks
were conspicuously absent. While camping
and backpacking trips were part of the plan,
the Wild Horizons directors really wanted the
group to focus on the special needs of at-risk
youth, not on the outdoor skills themselves.
They realized that they needed to do a bet-
ter job of communicating that their group had
a social work focus so that they’d attract the
people with the crucial youth-counseling skills
they lacked.
Once it realized the problem, the board
decided to draft a clear mission statement. They
prepared by surveying people in the field for
input on how Wild Horizons could best meet
the needs of the at-risk youth they wanted to
help. After receiving and considering that input,
they drafted the following mission statement:
“Wild Horizons is dedicated to introducing
children from low-income urban neighbor-
hoods in the state of Wisconsin to national
parks, forests, and wilderness areas. Our
primary goal is to address the issues of at-
risk youth through outdoor education and
wilderness experiences, led by experienced
counselors. Our activities will encourage per-
sonal growth and broaden the experiences of
Wisconsin’s at-risk urban children by providing
them the opportunity to spend time in beauti-
ful, natural, nonurban environments.”
c. A Well-Defined Mission Can Help You Get 501(c)(3) Status
When drafting your mission statement, remember
that your mission will be of crucial importance if
you decide to apply for 501(c)(3) or another type of
tax-exempt status. As discussed in Chapter 1, the IRS
has criteria for each type of tax-exempt status, and it
will look closely at your nonprofit’s mission to make
sure that you meet the requirements.
To obtain 501(c)(3) status, your nonprofit’s
mission must be charitable, religious, educational,
scientific, literary, testing for public safety, fostering
national or international amateur sports competition,
or prevention of cruelty to children or animals.
Other types of status have different criteria. If you
intend to apply for tax-exempt status, you should
make sure that your mission statement meets the
eligibility requirements of the type of status you
plan to obtain.
Need details on IRS criteria? For detailed information on the criteria for each type of
tax-exempt status, see IRS Publication 557, Tax- Exempt Status for Your Organization.
3. Defining Your Mission
How you come up with your mission statement
will depend on the circumstances of your organi-
zation. A group of concerned citizens whose goal
is to prevent a huge mega-store from moving into
their neighborhood will probably not have to spend
much time developing the finer points of their mis-
sion—which is fairly well defined from the start. By
contrast, a nonprofit group designed to educate the
public on the relationship between the mass media
2 / 8 STARTING & BUILDING A NONPROFIT
and big business surely needs to define a tighter
focus. Its mission statement writing process will
be much more involved, and it may take weeks of
meetings, drafts, and revisions to arrive at a state-
ment that everyone can support.
Although there are no hard-and-fast rules for
writing mission statements, here are some tips that
will help make the process as effective and efficient
as possible.
a. Bring In Multiple Perspectives
Start the process by bringing in a diverse range
of voices. The more input you obtain from the
community you intend to serve, as well as from your
board, staff, and volunteers, the easier it will be to
create an organization that will enjoy a broad base
of support.
Depending on your organization’s location,
purpose, and scope, you might consult experts
in the field, representatives of potential funding
organizations, or members of the general public.
You could invite them to an informal meeting, talk
to them individually by phone, ask them to fill out a
survey, or use another method of gathering informa-
tion. Ask them what needs or concerns they have
regarding your general area of interest. Of course,
only your group’s decision makers will decide exactly
what the mission statement says in the end, but
you should make a real effort to obtain informed
input so that you don’t define your mission in a
vacuum—and, therefore, miss important opportuni-
ties to further your goals and better serve the issue
or community that your group hopes to address.
EXAMPLE: Before drafting their mission statement, the board members of Wild
Horizons created a brief survey that they
emailed to about 50 people selected from their
contact list. The survey recipients included
social workers who work with at-risk youth,
teachers and counselors from local schools,
nature guides from area parks and forests, and
outdoor education professionals. The survey
asked for input on what goals and activities
would best serve low-income urban kids and
what other related needs were not being met.
About half of the survey recipients filled
out and returned the survey, giving the Wild
Horizons’ board members valuable perspectives
and ideas. This input helped the board refine
the group’s mission and draft a statement that
reflected a balance between the group’s two
primary activities: outdoor activities and coun-
seling.
b. Allow Enough Time
Give yourselves enough time to consider various
options and perspectives, write an initial draft, allow
all key participants to review it, and incorporate any
necessary changes. As mentioned, some organizations
with a potentially broad mission or lots of people
to satisfy may need significant time and several re-
writes to arrive at a statement that really works. But
even if your organization is small and your goals
seem straightforward, be sure to set aside at least a
few days to come up with your final mission state-
ment.
c. Be Open to New Ideas
Everyone involved in defining the mission should
keep their minds open to new ideas, different
interpretations, and fresh perspectives. This is par-
ticularly true for the group’s founders. Sometimes
those who have invested the most time and energy
planning the organization have the hardest time
considering new or different possibilities. Some may
simply have tunnel vision; others may be blinded by
ego. But whatever the reason, if some participants
resist an open and creative writing process, the final
statement won’t be as thorough and as carefully
considered as it could be.
To head off any possible resistance at the pass,
urge everyone involved to agree at the outset that all
ideas will be encouraged and discussed. One way
to help set this tone is to set aside your first meeting
exclusively for brainstorming, with no hard-and-fast
decisions to be made until a later time. Asking one
person to lead the meeting and write down ideas on
a big board for the group to consider is a good way
to conduct a brainstorming session.
DEVELOPING YOUR STRATEGIC PLAN 2 / 9
Human Rights Campaign Our Mission Statement
As America’s largest gay and lesbian
organization, the Human Rights
Campaign provides a national voice on
gay and lesbian issues. The Human Rights
Campaign effectively lobbies Congress;
mobilizes grassroots action in diverse
communities; invests strategically to elect a
fair-minded Congress; and increases public
understanding through innovative education
and communication strategies.
HRC is a bipartisan organization that
works to advance equality based on sexual
orientation and gender expression and
identity, to ensure that gay, lesbian, bisexual
and transgender Americans can be open,
honest and safe at home, at work and in the
community.
Michael Reese Health Trust Mission
The Michael Reese Health Trust seeks to
improve the health of people in Chicago’s
metropolitan communities through effective
grantmaking in health care, health educa-
tion, and health research. The Trust will
focus a portion of its funding on Jewish
institutions and issues to fulfill the 110-year
legacy of Michael Reese Hospital, founded
and supported primarily by the Jewish
community. The Trust, in fulfilling its Jewish
responsibilities to participate in the arena of
general community needs and problem solv-
ing, will strive to serve the health care needs
of vulnerable and underserved Chicagoans
of all races and ethnic origins.
NativeWeb Mission Statement
NativeWeb is an international, nonprofit,
educational organization dedicated to using
telecommunications including computer
technology and the Internet to disseminate
information from and about indigenous
nations, peoples, and organizations around
the world; to foster communication between
native and non-native peoples; to conduct
research involving indigenous peoples’
usage of technology and the Internet; and to
provide resources, mentoring, and services
to facilitate indigenous peoples’ use of this
technology.
Progressive Technology Project Mission
The Progressive Technology Project (PTP)
seeks to raise the scope and scale of tech-
nology resources available to grassroots
community organizing groups working for
environmental, economic, and social justice.
PTP provides training, technical assistance
and grants to develop the capacity of grass-
roots organizing groups through the use of
information technology.
Sample Mission Statements
2 / 1 0 STARTING & BUILDING A NONPROFIT
Brainstorming helps generate good ideas— and eliminate bad ones. Turning the idea faucet on full strength at the beginning of any plan-
ning process is a great way to get good ideas to flow.
Just as important, it allows ideas that won’t work to
surface and be dismissed early in the process, so
your later meetings can be devoted exclusively to
refining your best proposals.
d. Write Only As Much As You Need
The best mission statements are short and state
the obvious. For example, the mission statement
of a medical clinic in a low-income area might be,
“To help the sick recover and to keep the healthy
well.” If the need that your nonprofit will serve will
be clear to funders, volunteers, and others—for
example, providing emergency health care for
homeless people—a sentence or two may be all
you need. If the purpose or role of your nonprofit
isn’t so readily apparent—for example, studying
migrating patterns of desert toads—you will
probably want to say more.
For example, you might want to explain how your
toad research nonprofit will attempt to fund studies
that will add to existing information about the toad’s
mating behavior, food sources, and natural enemies
so that a comprehensive habitat protection and
species restoration program can be designed. Your
mission statement’s length and detail will depend on
the circumstances of your nonprofit, but always try
to keep it as brief as possible, given the complexity
of your group’s purpose.
D. Outline Specific Goals, Objectives, and Activities
In addition to stating a well-defined mission, your
strategic plan should outline more specifically what
your nonprofit plans to do. In this section, you’ll
refine the broad, overarching goals contained in
your mission statement into more specific goals and
objectives, which should go a long way towards
defining your activities and program areas.
With only a broad, “big picture” mission statement
to guide you, your nonprofit wouldn’t have much of
a road map to follow and would almost surely get
sidetracked or lost on its way to accomplishing its
mission. Identifying more specific goals helps break
down your broad mission into individual elements,
which you can then pursue with even more specific
planning, as discussed below. For example, if your
broad mission is to create economic opportunities
for teenagers in a certain city or district, you might
have specific goals of publicizing job opportunities
for teens, mentoring teens in career development,
and nurturing teens’ leadership and entrepreneurial
skills.
Getting even more specific, you can identify
objectives, which are closely related and similar
to goals but more concrete and measurable. For
example, if the above nonprofit’s goal was to mentor
teens in career development, an objective might be
to implement a mentoring program in a certain city
or district, by a certain time. It’s often hard to judge
whether a nonprofit has successfully accomplished
a broad mission or even a narrow goal but much
easier to determine whether it has achieved a well-
defined, concrete objective.
Some nonprofits go a step further and outline
planned activities and programs separately from
objectives. This step may be unnecessary if you find
that your list of objectives offers a complete picture
of the activities you plan to undertake. If you decide
to list activities separately, they should flow fairly
naturally from your list of objectives.
Tailor your planning approach to best suit your needs and mindset. For example, some nonprofits use the goals, objectives, and
activities categories, while others use a different
breakdown—“strategic vision” or “program goals,”
for example. The purpose of this section is not to
force you into rigid planning categories, but to help
you understand how the planning process can break
down into useful components. If creating separate
subsections for goals, objectives, and activities
works for you, great. But if you prefer to merge
these categories or create your own divisions, that’s
fine, too.
DEVELOPING YOUR STRATEGIC PLAN 2 / 1 1
When describing objectives, activities, or program
areas, it can be tricky to figure out how much detail
to include. You want to be detailed enough to give
a full picture of the activity, but not so specific
that you get mired in logistical details. One good
approach is to describe the activity in your strategic
plan in as much depth as you would give to an
Mission Statement Goals Objectives/Activities/Programs
To create economic opportu-
nities for teenagers in Sparks,
Nevada.
To publicize job opportunities
for teens.
To mentor teens in career
development
To nurture select teens who
demonstrate leadership or
entrepreneurial skills.
Create and maintain an online jobs
database by July, 2006.
Establish a mentoring program with
local business owners and teens by
November, 2006.
Hold a Teen Leader weekend retreat
in July, 2007.
To provide veterinary care for
the pets of homeless people.
To provide annual, free
preventative vaccinations for
cats and dogs.
To offer free emergency
care for cats and dogs in life-
threatening situations.
To offer free spaying and
neutering for cats and dogs.
Hold quarterly vaccination clinics
beginning January 2006.
Finalize agreement with local
emergency veterinarian by January
2006.
Finalize agreement with local
veterinarian by January, 2006.
To help disabled people live
independently with the help
of robotic technology.
To research and develop new
robotic technologies to help
disabled people.
To provide free robots to low-
income disabled people.
Equip and open research and
development laboratory by August,
2006.
Launch the Robot Rescue program by
March, 2007.
interested outsider—for example, a prospective
funder or a newspaper reporter—but not as much
detail as you would provide to the staffers who will
be running the activities.
For examples of the distinctions between mission,
goals, and objectives (including activities and
programs), see the chart below.
2 / 1 2 STARTING & BUILDING A NONPROFIT
EXAMPLE: Wild Horizons outlines its list of goals, objectives, and activities for the next
year, as follows:
Goals Objectives Activities
• Encourage personal growth
of at-risk youth in selected
cities and neighborhoods
in Wisconsin through
outdoor education and
wilderness experiences.
• Organize and lead
wilderness trips for at-risk
youth.
• Provide resources for at-
risk youth to encourage
them to enjoy wilderness
experiences on their own.
• A total of five day trips to Nicolet
National Forest, each trip taking
45 students from one of five target
schools.
• Two overnight camping trips to
Nicolet National Forest, each trip
taking a mix of 30 students from all
five target schools. Camping trips
will include canoeing or a similar
activity.
• Publish a two-page map and guide
to national parks and forests in
Wisconsin, tailored to at-risk youth.
• Fundraising dinner and silent
auction.
Strategic planning can be circular. Because so many aspects of a strategic plan are
interrelated, you may have to go back and make
changes to earlier sections as you go through the
process. For example, you may find it necessary to
slightly broaden your mission statement once you
start outlining planned activities and realize that
a key program doesn’t quite fit within your initial
statement. Similarly, you may find it awkward to
develop a list of goals or activities without first
assessing your resources or drafting a budget. In
my opinion, it makes sense to start by focusing on
what you reasonably hope to do—to let your dreams and aspirations motivate you and inspire you to be
resourceful, to do more with less. Although you
may need to scale back your list of plans after you
assess your limited resources (discussed in the next
section) or draft your budget (discussed in the next
chapter), at least you’ll have these plans simmering
on the back burner, ready to go when you have the
means to achieve them.
E. Assess Your Resources
Now it’s time to take a look at the resources your
nonprofit has at its disposal to help get its activities
rolling. If you’re like most nonprofits, you won’t
have lots of cash on hand to pay for all of the great
things in your plan. But a fact that many new
nonprofits overlook in their worry about funds is
that money is only one of many types of resources
that will be essential to your enterprise—and it may
not even be the most important one. For example,
even if your nonprofit lacks cold, hard cash, it may
possess other key assets, such as volunteers com-
mitted to the cause, people with expertise in a
given field, a network of community relationships, a
positive reputation, or access to influential people.
In this section of your strategic plan, you should
include an assessment of all of your resources,
including money, people, expertise, skills, and other
intangibles, that are currently available to your non-
profit. Your goal here isn’t to detail your fundraising
DEVELOPING YOUR STRATEGIC PLAN 2 / 1 3
plan—no matter how much it may be on your
mind—but simply to develop a realistic understand-
ing of the assets you have in hand. Because it forces
you to look honestly at the resources available to
implement your planned activities, assessing your
current resources might feel like taking a cold show-
er. But doing so is essential so that you can evaluate
your nonprofit’s current position and identify strate-
gies for pursuing your goals, which are covered in
the next section.
When assessing resources, lots of folks mistakenly
think only in terms of money. As is true in other
areas of life, money can be a great help in getting
things done, but it’s also true that other assets—such
as skills and experience—can translate into getting
your mission accomplished. A troop of energetic,
committed volunteers can be just as valuable—
sometimes even more so—than cash in the bank
or an expensive computer system. A famous board
member may not only add luster to your group but
also play a key role in attracting funds by hosting
fundraisers or making other appearances. In short,
don’t underestimate the value of your group’s less-
tangible assets.
Below is a list of things you’ll want to consider
when assessing your nonprofit’s resources. The list is
divided into “hard” assets like cash and equipment
and people assets. You’ll find categories that are
often used in common nonprofit activities, but you
may not need to use all of them—what you have
on hand will obviously depend on your specific
situation.
• Cash & equipment resources
• Cash
• Office space
• Computer equipment & printers
• Paper & printer ink
• Office supplies
• Desks, file cabinets, and other office furniture
• Vehicles, especially trucks
• Chairs and tables (for seminars & events)
• Public address equipment: microphone,
microphone stand, amplifier, and so on
• Photo and video equipment
• Presentation equipment: slide projector, over-
head projector, video projector, and so on
• People resources
• Interested volunteers
• Skills or expertise of key people
• Miscellaneous contacts: bankers, government
regulators, business people, and so on
• Access to private or institutional funding
sources
• Contacts in the media for publicity
• Celebrity or famous supporters
• Volunteers with technical skills: graphic
design, website building, computer networking
skills, and so on
• Political allies: city council members, the
mayor, state representatives, officials at
government agencies, and so on
• Service sponsors: printers, caterers, transport
services, and so on
• Board members who are famous, experts
in their fields, or highly visible or otherwise
enjoy a good reputation
Of course, the above list merely suggests possibil-
ities to point you in the right direction when making
your own lists. Just remember to think broadly—you
probably already possess several resources that you
had never considered as such.
Budgeting is covered in Chapter 3, and fund- raising in Chapter 6. The budgeting chapter explains how to estimate income and expenses
for your planned activities. When you do your first
budget, you’ll likely see that your available resources
won’t be adequate to accomplish your planned
activities as outlined in your strategic plan. This is
where fundraising comes in, which is covered in
detail in Chapter 6.
F. Identify Strategies
With goals, objectives, and activities identified and
your current resources assessed, you’re ready to
do some true strategic thinking. In the realm of
strategic planning, “strategies” are practical ideas
about how to make the best use of your resources to
achieve your goals.
A common approach to strategic thinking is
called a “SWOT” analysis—an acronym for strengths,
weaknesses, opportunities, and threats.
2 / 1 4 STARTING & BUILDING A NONPROFIT
• Strengths are positive assets within your
organization. Examples might include a highly
respected board member, a talented group of
volunteers, or ownership of valuable intellec-
tual property such as a book or software.
• Weaknesses are negative aspects within your
organization. Examples might include a short-
age of volunteers or outdated technology.
• Opportunities are positive elements outside
your organization. Examples might include a
high demand for your services or availability
of a grant in your topic area.
• Threats are negative elements outside your
organization. Examples might include a
competing nonprofit or the demise of a major
funder.
The key to doing a SWOT analysis is to identify
these elements accurately, and then think about
ways to maximize the positive and minimize
the negative elements. Brainstorm about ways to
use your strengths to take advantage of existing
opportunities and to overcome threats you’ve iden-
tified. Also focus on how you will minimize your
weaknesses to make your group less vulnerable to
threats. This process of assessment and analysis is
the essence of strategic thinking and will help you
chart a realistic course for success.
A SWOT analysis is sometimes called other
things, such as a “situational assessment” or an
“environmental analysis,” but they all use the same
basic approach.
EXAMPLE: In doing a SWOT analysis, Wild Horizons outlines the following strengths,
weaknesses, opportunities, and threats:
Strengths • Experienced board members and staff
• Unique program in the state
• Close ties with administrators at target
schools
Weaknesses • Lack of reputation or recognition by the
public or target community
• Lack of fundraising experience
• Lack of computer experience or database
skills
Opportunities • Openness by school districts to try
innovative programs to help at-risk youth
• Large number of granting institutions
with at-risk youth as a funding priority
• Increased awareness and media coverage
of outdoor education and its benefits
Threats • Risk of personal injury claims
• Competition with other groups for fund-
ing
• Resistance from parents and families
Looking over its list, the board members
identify various strategies to best take
advantage of their strengths and opportunities
and to minimize the weaknesses and threats
faced by Wild Horizons. For example, the
board plans to leverage its close ties with
school administrators to remedy its lack of
recognition in the community. Similarly, it will
take advantage of the large number of funding
institutions with a focus on the issues of at-risk
youth to minimize its weakness in fundraising
experience.
G. Edit and Finalize Your Plan
Once you’ve drafted your mission statement; out-
lined your goals, objectives, and activities; assessed
your resources; and identified strategies; you’ve
completed all the essential elements of your initial
strategic plan. All that’s left to do is to put it together
into a final document.
Let your plan sit for a day or two before beginning
a final review. Putting it down for a couple days will
allow the planners to clear their brains and look at
it with fresh perspectives. It’s a good idea at this
point to establish a firm deadline for incorporating
any final edits, to keep everyone in “wrap-up” mode
and prevent endless rounds of tinkering with the
work you’ve already done. Of course, if people feel
strongly that major changes should be made, sub-
stantial rewriting may be unavoidable. By the time
you’ve reached this point, however, all the planners
should be more or less on the same page.
DEVELOPING YOUR STRATEGIC PLAN 2 / 1 5
Get community input. It’s not a bad idea to have someone you trust from your commu-
nity look over a near-final draft of your plan and
make edits or suggestions. It’s all too common for
the people working most closely in the planning
process to develop mild cases tunnel vision and
group-think, which sometimes results in the group
overlooking issues, opportunities, or flaws in the
strategic plan. Having an outsider look it over helps
avoid this risk—and helps forge ties with the com-
munity as well.
Once your final edits have been incorporated,
you may be finished. Or, if you plan to submit the
strategic plan to potential funders, you may want
to spiff it up and package it into a professional
document. Desktop publishing software is so
reasonably priced and easy to use that you shouldn’t
have any trouble creating an attractive document,
perhaps with photos, illustrations, graphs, and the
like. (You’ll find more on producing professional
fundraising materials in Chapter 6.) Package
the information as necessary for your intended
purposes—an internal working document can
be much less formal than a package you send to
potential major donors.
Checklist: Developing Your Strategic Plan
Decide who will participate in the strategic planning process—typically the founders
of an unincorporated group or the board of
directors of an incorporated nonprofit. Con-
sider others who might have valuable input,
including community activists or professionals
in your field.
Draft a concise and compelling mission state- ment describing your nonprofit’s overarching
goals.
Outline your nonprofit’s specific goals, objectives, planned activities, and program
areas.
Assess your nonprofit’s current and potential resources—including both tangible items,
such as cash and computer equipment, and
intangibles, such as expertise and community
support.
Identify strategies and practical ideas for how your nonprofit will best use its resources to
achieve its goals. Use a “SWOT” analysis, in
which you evaluate your nonprofit’s strengths,
weaknesses, opportunities, and threats.
Have someone you trust from your community look over your plan and make edits or sugges-
tions.
Edit your plan and assemble its various sections into a final document.
■
C H A P T E R
1 Chapter 3
Developing Your Initial Budget
A. .Set Up Your Budget ................................................................................................... 3/3
1. Distinguishing Programs From Administration .............................................. 3/3
2. Restricted Versus Unrestricted Income ........................................................... 3/3
3. Program Versus Administrative Expenses ........................................................ 3/4
B. Estimate Income .......................................................................................................... 3/4
C. Estimate Expenses ....................................................................................................... 3/5
1. Regular Expenses .................................................................................................. 3/5
2. Capital Expenses ................................................................................................... 3/7
3. Start-Up Costs ....................................................................................................... 3/7
D. Assemble Your Budget ............................................................................................... 3/8
3/ 2 STARTING & BUILDING A NONPROFIT
T he term “budget” strikes fear in the hearts of
many, evoking images of counting pennies,
tightening belts, and generating complicated
spreadsheets filled with endless columns of numbers.
But developing a budget doesn’t have to be scary—
and coming up with a reasonable estimate of your
expected expenses and anticipated funds will help
you start your nonprofit on stable financial ground.
Budgeting is the process of estimating how much
money you’ll need to pursue your goals and carry
out planned activities, and how much money you
expect to collect from fundraising, events, sales, and
so on. You’ll need to draft an initial budget early
in your start-up days to get a clear sense of what
specific activities will cost and to help you deter-
mine how much money you’ll need to keep your
group afloat.
At its most basic level, a budget is simply a list of:
• estimated income, including how much you
think you’ll reap in grants, contributions,
activity fees, sales, and so on, and
• estimated expenses, including what you
expect to spend on day-to-day expenses like
postage and office supplies; capital expenses
like computers and office furniture; and start-
up expenses.
Once you tally up your expected income and
expenses, you’ll be able to see whether your non-
profit will have enough money to cover all of your
future activities, or whether you’ll have to scale back
your plans and/or figure out a way to bring in more
money to make the numbers work.
It’s easiest to draft an initial budget after creating
your strategic plan. With a strategic plan in place
that outlines your activities in detail, making
estimates for components of those activities should
be pretty straightforward. If, like some nonprofits,
you are already engaged in activities and haven’t
yet created a strategic plan, you might want to
draft a budget right away, to keep you on track
financially until you do write a strategic plan. Once
your strategic plan is in place and your activities are
more carefully defined, you can amend your budget
accordingly.
You don’t need any special financial software to
draft a budget, although many accounting programs
offer budgeting features. If you plan to purchase
accounting software such as QuickBooks or MYOB
to manage your nonprofit’s finances down the road,
you might consider using it for your budgeting
process as well. Otherwise, you can draft a budget
using simple spreadsheet software such as Microsoft
Excel. All you need is the ability to create rows and
columns into which you can enter your figures.
This chapter explains how to draft a budget,
including the following components:
• estimated income, including both restricted
and unrestricted income (see Section A2,
below, for more on this distinction)
• estimated program and administrative
expenses, divided into categories that will
work for accounting and tax preparation
purposes
• estimated capital expenses, for long-term
assets like computers or vehicles, and
• estimated start-up costs.
For information on managing and tracking money once it comes into your nonprofit, see Chapter 11. That chapter discusses basic book- keeping and accounting principles, including how
to generate financial reports that will help you track
the financial health of your nonprofit.
Don’t put off preparing your first budget. Many fledgling nonprofits tend to procras- tinate when it comes to budgeting, often because
they are intimidated by the process or afraid of the
financial realities it will reveal. In fact, budgeting is
not difficult—it simply involves breaking down your
activities into individual components, then making
estimates of what each component will cost. Bud-
geting is an essential step in getting a handle on the
financial resources you’ll need to make your group
successful. Remember the saying, “Knowledge is
power.” Understanding exactly how the numbers
break down will allow you to make informed deci-
sions that will help you keep your core programs up
and running.
A blank budget is included. A blank budget is included as a form in Appendix F and, in
digital version, on the CD that accompanies this
book.
DEVELOPING YOUR INITIAL BUDGET 3/ 3
A. Set Up Your Budget
Your goals in budgeting are to ensure (1) that the
nonprofit is in the black overall, and (2) that each
individual program has adequate funding to keep
running. To achieve both goals in one budget, you
should set the budget up to track both overall funds
and funds for specific programs.
One good way to accomplish this is to create a
separate vertical column for each program, plus a
column that you call “Administration” to capture all
of the income and expenses that are not directly tied
to a specific program. Use the horizontal rows for
specific types of income and expenses, and enter the
amounts you expect to bring in or spend for each
program in that program’s column. At the bottom,
create a total row to record the overall expenses and
income for each program area. The sample budgets
throughout this chapter use this basic structure.
Before you can begin entering your figures,
however, you’ll need to know how to allocate your
income and expenses between programs and admin-
istration.
1. Distinguishing Programs From Administration
Your budget should tell you, at a glance, how much
of your income and expenses are attributable to each
of your programs—and how much is attributable to
general nonprofit administration. It’s important to
divide your budget this way for several reasons:
• You need to know what your individual pro-
grams will cost and how much of your overall
budget is dedicated to those programs. To
make informed decisions about funding, you
need to have a clear sense of how much each
of your activities and programs costs and how
much money it’s bringing in. Allocating your
income and expenses by program will let you
see how each program is doing financially—
and make any adjustments necessary to keep
important projects up and running.
• You won’t be able to make precise overall
estimates unless you look at each program and
activity separately. Instead of guessing how
many total dollars you expect to bring in and
spend, you should make separate estimates for
each of your planned program areas and for
general administration. Making separate esti-
mates will help you generate a more accurate
overall result.
• Many funders want to see a high proportion of
a nonprofit’s funds go towards programs—and
a low proportion towards administration.
Grant-giving organizations in particular want
to know that you will spend their money on
tangible good works, not on staples and rent.
Although this may seem a bit arbitrary (after
all, you can’t carry out your mission without
some basics like office supplies and a phone),
it is a fact of nonprofit life. You won’t know
how your funds and expenses divide between
programs and administration—and you won’t
be able to provide these funders with the
information they demand—unless you make
this distinction in your budget.
2. Restricted Versus Unrestricted Income
To decide whether income should be allocated to
programs or administration, you need to know
whether that income is restricted or unrestricted.
Restricted income is money that may be used only
for particular purposes specified by the donor.
For example, some funding groups and individual
donors make contributions on the condition that the
funds be used only for a specific program—this is
restricted income. If there are no conditions on how
you can use the funds, the money is unrestricted
and may be used for any legitimate expense of your
nonprofit.
Accounting rules for nonprofits require you to
track restricted income carefully, to make sure that
it was spent only on the project(s) specified by
the donor. Although this requirement applies only
to actual contributions (and not to the anticipated
contributions that you’ll be using to prepare your
budget), it’s still a good idea to note whether any
of your income is likely to be restricted. That way,
you’ll have a better sense of how much money will
be available to allocate as you wish—and how much
will have to remain attached to particular programs.
3/ 4 STARTING & BUILDING A NONPROFIT
When you draft your budget, list any restricted
income you expect to receive in the column for the
program for which it was earmarked. You should
also mark these funds in some way—with an
asterisk, for example—to remind everyone that they
are restricted.
Donations from individual contributors are usually
unrestricted. Even if your nonprofit has one high-
profile flagship program, do not automatically
consider regular contributions attached to that
program for accounting purposes. However, if you
solicit contributions for a particular purpose (for
example, to aid the victims of a particular disaster),
the resulting donations should be considered
restricted income.
3. Program Versus Administrative Expenses
Your budget must also distinguish between program
expenses and administrative expenses. Administra-
tive expenses (roughly equivalent to “fixed costs” or
“overhead” in the for-profit world) are costs associ-
ated with keeping your nonprofit running, such as
office rent or telephone service. Administrative costs
exist independently of any activities or programs
your nonprofit conducts. Small nonprofits that begin
in a supporter’s living room and are headquartered
in another volunteer’s garage may have very few
administrative costs. On the other hand, if you plan
to rent office space, hire a part-time coordinator,
have a separate phone line, or operate a dedicated
vehicle for your nonprofit, you will have fixed costs
to consider.
Program costs (much like “variable costs” in
the for-profit realm) are associated with specific
program activities, such as the price of textbooks
purchased for your literacy program or salaries for
the nurses who staff your homeless health clinic.
Program Cost or Administrative Cost?
Dividing expenses between programs and
administration is often more of an art than a
science. Sometimes, you’ll just need to use
your best judgment to decide how to attribute
an expense. For example, office rent is usually
attributed to general nonprofit administration,
but you could also spread the expense of office
rent across a nonprofit’s program areas. You
could divide the cost of rent evenly among all
of your programs or allocate rent costs based
on the overall percentage of the nonprofit’s
resources devoted to each program.
As you make these distinctions, remember
that the way you divide your expenses may
have important consequences when your
nonprofit applies for grants or institutional
funding. Some funders will provide funds only
for program budgets, not administration (or,
less commonly, vice versa). Other funders may
limit the types of program expenses that they’ll
fund—they’ll only fund educational activities,
for example. And many grantors keep a careful
eye on your ratio of program to administrative
costs. Grantors may turn down your funding
requests if your budgets show that you are
spending too much money to keep your non-
profit afloat—and not enough on worthwhile
programs.
B. Estimate Income
To begin, you’ll have to budget expected income:
how much money you plan to bring in from various
sources. As discussed in more detail in Chapter 6,
nonprofits typically earn income from membership
fees, individual contributions, grants, and special
events. Create rows in your budget for each type of
income you expect.
Here’s a simple approach to follow:
• Start by attributing all expected unrestricted
income to nonprofit administration, not to any
specific program.
DEVELOPING YOUR INITIAL BUDGET 3/ 5
• Then attribute any anticipated restricted in-
come to the specific program or programs as
specified by the donor. Put an asterisk by any
restricted income so you can easily identify it.
To illustrate this process, let’s look at a nonprofit
dedicated to supporting AIDS patients. The chart
shown below shows a nonprofit with two program
areas: a meals-on-wheels program and an AIDS
education program. The nonprofit expects restricted
income for these programs, so it enters those amounts
in the appropriate program column and puts an
asterisk by the income as an additional reminder that
the income will be restricted. Otherwise, it enters all
expected income in the “Administration” column.
For simplicity’s sake, many nonprofits assume that
all projected income reflected in their initial budgets
will be unrestricted unless they have good reason
to believe otherwise. Once you’ve been in operation
for a while, you’ll be better able to estimate how
much restricted income you’ll receive—and to in-
clude that information in your budgets. But for your
initial budget, you can decide for yourselves whether
to make this distinction.
EXAMPLE: Wild Horizons’ list of its income estimates for its first year is shown below. It
does not expect any restricted income, so all
estimates are entered into the “Administration”
column.
C. Estimate Expenses
Once you’ve estimated your income, you’ll have to
figure out how much your nonprofit plans to spend.
You’ll need to divide these expenses into basic
categories: regular (day-to-day) expenses, capital
expenses, and start-up expenses. These divisions
will help you prepare your tax returns and balance
your books, as explained in Chapter 11. In addition,
you’ll need to allocate each of your expenses either
to an individual program or to administration.
1. Regular Expenses
A nonprofit’s regular or day-to-day expenses include
costs for anything that you will use in a year or less,
such as salaries, rent, utilities, postage, and office
Nonprofit for Aids Patients Estimated Income
Meals-on-Wheels Program AIDS Education Administration Total INCOME
Individual contributions $8,000 $8,000
Institutional donations * $5,000 *$5,000 3,000 13,000
Foundation grants * 2,000 3,000 5,000
Special event revenues 3,500 3,500
Total income $7,000 $5,000 $17,500 $29,500
* Restricted funds.
Wild Horizons’ Estimated Income
Day Trips (5) Overnight Trips (2)
Publishing (Map & Guide)
Administration (Unrestricted) Total
INCOME Individual contributions $2,000 $2,000
Community sponsorships 2,500 2,500
Grants/Institutional donors 5,000 5,000
Special events revenues 2,500 2,500
Total income $0 $0 $0 $12,000 $12,000
3/ 6 STARTING & BUILDING A NONPROFIT
supplies. (In contrast, capital expenses like com-
puters last longer than a year; they are discussed
next.) Most nonprofits will spend a good part of the
budgeting process coming up with figures for these
regular expenditures.
List specific types of expenses in each row. To
make your budget as clear as possible, it’s a good
idea to organize your regular expenses into two
groups: one set of rows for program-related regular
costs, and another set of rows for regular costs spent
on administration (or fixed costs). In the program
costs group, create a row each for all the specific
things you’ll purchase for your programs. And in
the fixed costs group, create a row each for typical
fixed costs such as rent, salaries, office supplies, and
postage. Then enter your estimates for each type
of expense. Remember to enter the amounts in the
appropriate column; program costs go in a program
column, and fixed costs go in the “Administration”
column. It’s also a good idea to throw in a little
extra (10% or so) for administrative costs, to cover
miscellaneous expenses that you can’t predict.
EXAMPLE: A list of Wild Horizons’ estimated regular costs for its programs and administra-
tion is shown below
Your budget should track your strategic plan. The purpose of your budget is to cost out the specific programs you identified in your strategic
plan. If you haven’t already outlined your programs,
you should do so before starting the budgeting
process. See Chapter 2 for detailed information on
developing a strategic plan.
Wild Horizons’ Estimated Regular Costs
Day Trips (5)
Overnight Trips (2)
Publishing (Map & Guide)
Administration (Unrestricted) Total
REGULAR EXPENSES
Program costs
Food $1,125 $600 $1,725
Transportation—gas 250 100 350
Transportation—van rental 375 300 675
Insurance 125 150 275
Day use/campground fees 50 50 100
Equipment rental 0 200 200
Printing $500 500
Program Costs Subtotal $1,925 $1,400 $500 $0 $3,825
Fixed costs
Office rent $1,800 $1,800
Salaries 600 600
Utilities 600 600
Telephone service 600 600
Office supplies 600 600
Postage 300 300
Website hosting 120 120
Fundraising costs 600 600
Liability Insurance 1,200 1,200
Professional services (accountant, etc.) 600 600
Miscellaneous 600 600
Fixed Costs Subtotal $0 $0 $0 $7,620 $7,620
DEVELOPING YOUR INITIAL BUDGET 3/ 7
Keep fixed costs low. Like many small busi- nesses, too many nonprofits spend too much,
too soon. Rather than committing yourself to high
overhead, do everything you can to keep expenses
low, allowing increases only when your successful
fundraising justifies spending more. For example,
few nonprofits really need to rent office space in a
prominent building. Instead, operating from a low-
cost warehouse district, an older office building, or
even your garage may work just fine. Not only will
this help your bottom line, but it will also impress
funders, who like to see organizations operate
frugally and are more likely to give money to organi-
zations that stretch their dollars.
2. Capital Expenses
In financial terms, “capital assets” (sometimes
referred to simply as “assets”) are items that have
a useful life of more than one year. Common
examples include vehicles, computers, and furnish-
ings. The expenses associated with purchasing these
assets are called capital expenses and are subject
to different tax treatment than regular, day-to-day
expenses. Even if your nonprofit is tax-exempt, it
should conform to standard accounting rules and list
capital expenses separately.
Another reason to count capital expenses sepa-
rately is that they are typically large and often put
an otherwise balanced budget in the red. Including
these large, sporadic expenses in your fixed or pro-
gram costs might result in a somewhat misleading
picture of your regular costs in those categories. List-
ing capital expenses separately helps clearly identify
these large expenses and facilitates the process of
planning fundraising efforts. For more details on the
treatment of capital expenses, see Chapter 11.
EXAMPLE: A list of Wild Horizons’ estimates for capital expenses is shown below.
3. Start-Up Costs
Start-up costs include expenses for things you’ll
need to buy in order to get your nonprofit up and
running. Estimating them is simple: Just list them
and add them up. Include items like incorporation
fees, application fees for federal tax-exempt status,
initial office supplies, and anything else you’ll have
to pay for before your group can open its doors for
business.
Capital expenses may look like start-up costs. When doing your initial budgeting, you may find yourself wondering whether the computer or
furniture you need for your nonprofit’s launch really
belongs in the capital expense or the start-up cost
category. According to rules known as “generally
accepted accounting principles” (or GAAP), any
expenses for assets should be allocated to the
capital expenses category, even if they’re neces-
sary to start your nonprofit. (GAAP rules are further
discussed in Chapter 11.)
EXAMPLE: Wild Horizons makes a list of the start-up expenses they expect to pay before
they begin their first major fundraising drive.
The list is shown below.
Wild Horizons’ Estimates for Capital Expenses
Day Trips (5)
Overnight Trips (2)
Publishing (Map & Guide)
Administration (Unrestricted) Total
CAPITAL EXPENSES Camping equipment $750 $750
Computer equipment $500 500
Telephone/fax equipment 250 250
Office furniture 150 150
Capital Expense Subtotal $1,925 $1,400 $500 $0 $3,825
3/ 8 STARTING & BUILDING A NONPROFIT
D. Assemble Your Budget
Once you’ve estimated all of your income and costs,
your final task is to compile them into one master
budget. This budget will allow you to see whether
your nonprofit will be able to carry out all the
programs and activities you want to tackle. If your
budget shows that your expenses will exceed your
income, you’ll need either to scale back your plans
or to figure out how you’ll make up the shortfall.
If you decide you must make cuts, do so only
after giving careful thought to your priorities and
what you can reasonably put on the back burner.
For example, if you really need a part-time paid
staffer to coordinate volunteers but have no crucial
need for an office, it might make sense for everyone
to keep working from their homes (or set up shop
in someone’s garage) and cut your budget for office
space, freeing up some money to pay for the staffer.
In other words, think before you cut.
EXAMPLE: Wild Horizons puts together all their various estimates into an initial budget, as
shown on the next page.
Reviewing its initial budget, the board of
directors immediately sees that it faces a short-
fall of $1,755. While this is certainly a concern,
the board is relieved to see that the difference
is not so huge as to require radical cutbacks in
its planned activities. The board plans to re-
view its program and administrative budgets to
see where expenses can be cut back or covered
by noncash donations. For example, it hopes to
cut the cost of purchasing food for the trips by
finding food sponsors willing to donate food.
Wild Horizons’ List of Start-Up Expenses
Day Trips (5)
Overnight Trips (2)
Publishing (Map & Guide)
Administration (Unrestricted) Total
Start-up Costs Printing—brochures, etc. $300 $300
Website creation 250 250
Telephone set-up 75 75
State fees (incorporation, etc.) 35 35
Start-Up Costs Subtotal $0 $0 $0 $660 $660
If necessary, it will find ways to raise more
funds—however, the board starts by trying to
cut expenses, because it doesn’t want to raise
its income estimates without some solid basis
for expecting additional funds.
Be realistic when comparing resources to planned activities. If your estimated income won’t support your planned activities, don’t ignore
the problem. If you proceed without sufficient
resources, you run the risk that your nonprofit won’t
be able to follow through with its announced plans.
As you can imagine, this could very well result in a
loss of credibility and respect in the community—
and doom your nonprofit’s future. It’s much better
to scale back your activities and build a strong
reputation for success than to overextend your-
selves and fail.
Raising the additional money or other resources
you need to accomplish your plans is another
option. Of course, you’ll need to be realistic when
considering whether you can acquire more money
or resources. Rather than simply upping the income
estimates listed in your plan to match your needs,
raise your estimates only if you have some realistic
basis for doing so. And remember that bringing in
more resources often comes at a cost. For example,
if you decide to add an extra fundraiser to your
plans to bring in an extra $5,000, be sure you’ll
have enough resources to pull off that event. Even
if the venue, food, and drinks for the fundraiser are
donated, you shouldn’t overlook the commitment of
time that events always require.
DEVELOPING YOUR INITIAL BUDGET 3/ 9
Wild Horizons Initial Budget Day Trips
(5) Overnight Trips (2)
Publishing (Map & Guide)
Administration (Unrestricted) Total
INCOME Individual contributions $2,000 $2,000 Community sponsorships 2,500 2,500 Grants/Institutional donors 5,000 5,000 Special events revenues 2,500 2,500
TOTAL INCOME $0 $0 $0 $12,000 $12,000
REGULAR EXPENSES Program costs Food $1,125 $600 $1,725 Transportation—gas 250 100 350 Transportation—van rental 375 300 675 Insurance 125 150 275 Day use/campground fees 50 50 100 Equipment rental 0 200 200 Printing $500 500
Program Costs Subtotal $1,925 $1,400 $500 $0 $3,825
FIXED COSTS Office rent $1,800 $1,800 Salaries 600 600 Utilities 600 600 Telephone service 600 600 Office supplies 600 600 Postage 300 300 Website hosting 120 120 Fundraising costs 600 600 Liability Insurance 1,200 1,200 Professional services (accountant, etc.) 600 600 Miscellaneous 600 600
Fixed Costs Subtotal $0 $0 $0 $7,620 $7,620
CAPITAL EXPENSES Camping equipment $750 $750 Computer equipment $500 500 Telephone/fax equipment 250 250 Office furniture 150 150
Capital Expenses Subtotal $750 $0 $900 $1,650
START-UP COSTS Printing—brochures, etc. $300 $300 Website creation 250 250 Telephone set-up 75 75 State fees (incorporation, etc.) 35 35
Start-up Costs Subtotal $0 $0 $0 $660 $660
TOTAL EXPENSES $1,925 $2,150 $500 $9,180 $13,755
NET ANNUAL REVENUES ($1,755)
3/ 1 0 STARTING & BUILDING A NONPROFIT
Adjusting Program Budgets
Separating your program expenses from admin-
istrative expenses allows you to see whether
individual programs have enough funds to
survive and, if not, to make adjustments. Consider
the following example of a nonprofit to support
AIDS patients.
Meals-on-Wheels Program
AIDS Education Program Administration Total
INCOME
Individual contributions $8,000 $8,000
Institutional donations $5,000* $5,000* 3,000 13,000
Foundation grants 2,000* 3,000 5,000
Special event revenues 3,500 3,500
TOTAL INCOME $7,000 $5,000 $17,500 $29,500
REGULAR EXPENSES
Program costs
Food 3,000 3,000
Gas 1,000 1,000
Insurance 1,000 1,000
Fixed costs
Office rent 4,000 4,000
Office supplies 2,000 2,000
Postage 750 750
Printing 500 2,000 500 3,000
Salaries 2,000 2,300 1,750 6,050
Telephone service 2,000 2,000
Website hosting 1,500 1,500
CAPITAL EXPENSES
Computer equipment 750 750
Telephone/fax equipment 250 250
START-UP COSTS
Website creation/setup 1,000 1,500 2,500
Total Expenses $7,500 $6,300 $14,000 $27,800
NET REVENUES ($500) ($1,300) $3,500 $1,700
As you can see, the budget shows an overall
surplus of $1,700, but the program budgets are
short of funds. The good news is that there’s
enough unrestricted income in the administration
category to allocate to the programs to make up
the deficits. By reallocating $500 to the Meals-
on-Wheels program and $1,300 to the AIDS
Education program, those programs will break
even—and there will still be a $1,700 surplus,
allocated to the Administration category.
DEVELOPING YOUR INITIAL BUDGET 3/ 1 1
Stretch your existing resources. Instead of forging ahead and hoping you’ll be able to
raise the funds and corral the resources you’re lack-
ing, a less risky way to proceed is to figure out how
to stretch the resources you already have. In other
words, focus on making your existing resources go
farther rather than on expanding those resources.
The following checklist is included as a form
in Appendix F and, in digital version, on the
CD that accompanies this book.
Checklist: Developing Your Initial Budget
Tackle your initial budget early in the life of your nonprofit—ideally, right after you finish
your strategic plan.
Set up your budget to list expenses for indi- vidual programs and expenses for ongoing
administration in separate columns.
If you expect some income to be restricted to certain programs, track it in your budget.
Otherwise, put all income in your administra-
tion column.
List your estimated expenses in three cat- egories: (1) day-to-day expenses, (2) capital
expenses, and (3) start-up expenses.
If you need to buy assets to get your nonprofit started, such as a computer or office furniture,
list them as capital expenses, not as start-up
expenses.
If your budget shows that you’ll be short on funds, focus on stretching existing resources
rather than increasing estimates of income.
■
C H A P T E R
1 Chapter 4
Your Board of Directors
A. What Makes a Good Board ....................................................................................... 4/3
1. Passion and Commitment .................................................................................. 4/3
2. Willingness to Help Raise Money ..................................................................... 4/5
3. Connection to Many Communities .................................................................. 4/5
4. Diverse Viewpoints .............................................................................................. 4/6
B. The Board’s Duties and Tasks ................................................................................... 4/6
1. Board Members’ Legal Duties ............................................................................ 4/6
2. Board Roles Versus Staff Roles ........................................................................... 4/7
3. Typical Board Activities ........................................................................................ 4/8
4. Board Meetings ..................................................................................................... 4/8
5. Board Officers ....................................................................................................... 4/8
C. Board Policies and Procedures ................................................................................. 4/9
1. Number of Directors ............................................................................................ 4/9
2. Terms and Term Limits ....................................................................................... 4/10
3. Board Member Responsibilities ...................................................................... 4/11
4. Performance Practices and Removal Policies ................................................ 4/11
5. Creating a Board Guidebook ........................................................................... 4/12
D. Recruiting Board Members ..................................................................................... 4/13
1. Evaluate Your Needs .......................................................................................... 4/13
2. Make Sure Recruiters Understand Board Members’ Responsibilities ..... 4/14
3. Educate Prospects and Incoming Board Members ...................................... 4/14
4. Elect Officers ....................................................................................................... 4/16
4/ 2 STARTING & BUILDING A NONPROFIT
E. Holding Effective Board Meetings ......................................................................... 4/16
1. Meet Regularly .................................................................................................... 4/16
2. Invite Staff and Outsiders When Appropriate .............................................. 4/16
3. Give Notice of Meetings ................................................................................... 4/17
4. Draft a Solid Agenda .......................................................................................... 4/17
5. Start on Time ....................................................................................................... 4/19
6. Understand Decision-Making Methods ........................................................ 4/19
7. Deal With Problem Board Members .............................................................. 4/19
F. The Role of Committees ......................................................................................... 4/20
YOUR BOARD OF DIRECTORS 4/ 3
O ne of the fundamental tasks facing the
founders of any nonprofit is choosing a
board of directors to oversee the organiza-
tion. The board plays an essential legal and practical
role in any nonprofit, even if others (such as an
executive director, paid staff, and/or volunteers)
handle the organization’s everyday affairs.
Nonprofits receive favorable tax treatment and
other benefits precisely because they are created to
serve the public interest. And, as you’ll remember,
the nonprofit’s board must shoulder the legal duty to
keep the organization true to its public service mis-
sion, so that it continues to deserve its tax-favored
status. (This “public trust” role explains why non-
profit directors are sometimes called trustees.)
The board’s role of setting policies and maintain-
ing the nonprofit’s overall direction serves more
than just a legal function. By defining the mission
of the nonprofit, establishing priorities, crafting
strategies, and ensuring that plans and programs are
implemented, a good board serves an immensely
practical role as well. Without a committed board
to tackle these tasks, a nonprofit can all too quickly
run adrift, without clear goals or any specific plans
to achieve them. True, an executive director can
and should provide day-to-day management and
decision-making skills, but the board has the legal
duty and authority to set policy.
Another area in which board members are typi-
cally involved is fundraising efforts. You should be
able to count on your board members to spread the
word about your good work, use their connections
to gain access to potential donors, actively partici-
pate in fundraising campaigns, and—when financial-
ly feasible—make their own donations. As discussed
later in this chapter, there are many ways that board
members can participate in fundraising. Whether a
board member is more comfortable planning behind
the scenes or asking for money directly, there should
be a way for the whole board to get involved.
Nonprofit board members often go beyond the
traditional directorial tasks of setting policy and
defining a nonprofit’s goals. Especially in small
all-volunteer nonprofits (and even in those with a
small paid staff), board members often roll up their
sleeves and do much of the nonprofit’s actual work,
be it feeding the hungry, helping the unemployed,
or cleaning the forests. In other words, it’s not un-
common for board members to go beyond nonprofit
planning and steering and get involved in the actual
execution of the nonprofit’s objectives.
Think of your board as the heart of your non-
profit. At the legal level, your organization can’t live
without one, and, practically, your group’s mission,
key strategies, and policies all flow from the board’s
decisions and leadership. This chapter will help you
select and manage a board that will steer your non-
profit in the right direction. It covers:
• qualities to look for in your board members
(Section A)
• the board’s legal duties and activities (Section
B)
• how to create policies and develop procedures
for your board (Section C)
• how to recruit board members (Section D)
• how to hold effective board meetings (Section
E), and
• the role of board committees (Section F).
A. What Makes a Good Board
Most great boards share some common traits and
qualities that enable them to lead their groups
creatively and effectively. The members of an ideal
board of directors:
• share a passion for and commitment to the
nonprofit’s mission
• are willing to roll up their sleeves when
necessary to help with the practical work of
the nonprofit
• have strong ties to their communities
• are diverse—in age, gender, race, religion,
occupation, skills, and background, and
• are willing to support efforts to raise money.
The sections that follow look at these various
qualities in a bit more detail.
1. Passion and Commitment
The very best prospects for your nonprofit’s board
will be people who share a passion for, and com-
mitment to, the nonprofit’s mission. No matter what
name recognition or professional credentials particu-
lar people may have to offer, they will not be assets
4/ 4 STARTING & BUILDING A NONPROFIT
to your nonprofit’s board unless they care enough
about what you do to involve themselves actively in
helping you pursue your goals. If yours is a small
nonprofit that doesn’t have the resources to hire staff
or pay for outside services, it’s even more important
that board members be committed to the cause and
willing to contribute their time to get nonprofit tasks
done.
Unfortunately, the best prospects in terms of
professional achievement and influence in the
community are often the very people who have the
least amount of time to help. Finding people who
are both professionally accomplished and willing to
pull an oar isn’t easy. Here are some brief tips on the
types of people who might make good recruits. (For
strategies that will help you attract and approach
people to serve on your board, see Section D,
below.)
• Recently retired people. People who have recently retired often have fresh skills, good
contacts, and time. And, just as important,
they are often looking for ways to stay active
in the world beyond playing golf or mah jong.
• Businesspeople in related fields. For instance, if your nonprofit aims to feed the homeless,
you should consider not just community
leaders and social activists, but also restaurant
and grocery store owners. Similarly, a group
wanting to provide sports opportunities for
the disabled might contact owners of local
sports equipment stores or architects who
design recreational facilities for the physically
impaired.
• Local media people. Reporters, editors, and others from local media—newspapers, televi-
sion and radio stations, and others—are good
candidates because they’re typically both
well informed and well connected. Reporters
often cover certain beats that may make them
particularly well suited for your board—for
example, a local reporter who covers energy
markets might be a good addition to your
energy conservation nonprofit. (However,
keep in mind that in some cases the opposite
might be true—reporters might not want to
put their journalistic objectivity in question by
becoming involved in issues they routinely
cover, particularly in controversial fields.)
• Professors, scholars, and researchers. Anyone who studies issues in your nonprofit’s subject
area is a natural candidate for your board.
For a nonprofit dedicated to promoting urban
green space, for example, an urban planning
professor (or landscape architecture professor,
among others) would be a natural. College
professors also tend to have flexible schedules,
so they may be more likely to have time to
serve.
• New moms or dads. Working professionals who take a year or more off to raise a young
child may be looking for ways to stay involved
in the world. Sometimes, serving on a board
for a cause they care about is an ideal way to
stay active.
On the flip side, here’s a short list of tactics to
avoid when recruiting members to your board:
• Don’t appease busy prospects by downplay- ing a board member’s duties. It’s easy to see how this can come back to haunt you. Make
it clear up front that an active, engaged board
is vital to your organization and that board
members will be expected to participate.
• Don’t approach your “dream” prospects until your nonprofit is up and running. The folks you’d most like to have on board probably
won’t be swimming in extra time. Rather than
inviting the busiest prospects right away, focus
instead on building a small board of committed,
lower-profile members and achieving a success
or two to make you more attractive to other
potential board members. Once you move
a few hills with your initial board, it will be
easier to line up the types of heavier hitters
who can help you move mountains.
• Don’t invite a high-profile board member solely based on his or her name. All board members must have a sincere commitment to
your mission and be willing to actively partici-
pate in running the nonprofit. If a high-profile
board member doesn’t share that commitment
or willingness to work, you can count on
resentment and bitterness from the rest of your
board.
YOUR BOARD OF DIRECTORS 4/ 5
2. Willingness to Help Raise Money
The most successful nonprofits have boards that are
willing and able to help with fundraising efforts. Of
course, most board members are likely to be driven
by an interest in the nonprofit’s main cause—not
by an interest in raising money. But no matter what
your nonprofit’s core mission and priorities are, it
will have to generate some income in order to sur-
vive. As the leaders of the nonprofit, board members
are in a particularly strong position to promote it to
potential funders. It’s important to find people who
understand the importance of their fundraising role
and are willing to lend a hand.
There are lots of different ways for board mem-
bers to be involved in fundraising. Board members
who aren’t comfortable directly soliciting funds
can be involved in organizing events or developing
membership drives. Other board members might be
natural networkers or salespeople who would excel
at contacting potential donors and actively soliciting
contributions. And all board members should expect
to help generate ideas for raising money, identify
good donor prospects, and otherwise develop fund-
raising strategies.
In addition to helping raise funds from others,
board members should also be willing to support
your nonprofit financially. Some board members
might not be able to contribute more than $50 per
year; others might comfortably give $5,000. More
important than how much money board members
give is their willingness to demonstrate some level
of financial commitment to the organization. Out-
side funding sources will want to see this level of
faith and commitment from the board; its absence
will be taken as a sign that all is not well within the
organization. In addition, contributions from board
members are often a godsend in a nonprofit’s early
start-up days, when you will need cash up front for
incorporation fees, a phone line, or other expenses
before your fundraising machine is up and running.
Some nonprofits require board members to
donate a certain amount each year; others suggest a
contribution amount and leave it up to the individual
members to decide how much to give. Your
nonprofit will have to decide for itself what, if any,
contribution requirements you’ll impose on board
members. Keep in mind that there may be excellent
potential board members who don’t have a lot of
cash but more than make up for it with valuable
skills or connections in the community.
Don’t require contributions that your pro- spective board members can’t afford. Don’t make the mistake of overlooking or alienating
potential board members with more to offer in
expertise and connections than in cold, hard cash.
While some nonprofits require board members to
contribute financially, such a requirement might be
a turn-off to those with limited funds. Remember
that access to influential people, management
expertise, and cachet in your field or community
may be even more crucial than money in your early
start-up days—and will certainly lead to a broad
base of financial contributors down the road.
In short, a committed board member with a fat
Rolodex can be at least as valuable to your fledgling
nonprofit as one with a fat wallet.
No matter how your nonprofit chooses to handle
this issue, you must let prospective board members
know what, if any, financial commitment will be
expected of them before they agree to serve on the
board. (Section C, below, discusses how to define
and communicate board members’ responsibilities.)
For more information on fundraising, see
Chapter 6.
3. Connection to Many Communities
Many nonprofits are started by groups of people
who think a lot alike—they might even look a lot
alike in terms of skin color, age, class, or gender.
This isn’t a problem in itself; it’s often just the natu-
ral way that people come together to promote an
issue they care about. But when you choose your
board, you should consider who isn’t at the table
and whose voices aren’t included in your start-up
group. There may be people of other races, ages, or
communities who care deeply about your issue and
whose perspectives could greatly strengthen your
board—and, by extension, your organization.
4/ 6 STARTING & BUILDING A NONPROFIT
Going out of your way to build diversity in your
board is not just an exercise in political correctness.
Rather, by incorporating a range of viewpoints on
your board, your group will be more likely to truly
serve the public interest—not just a small slice of it.
The goal is not simply to have a diverse board, but
to translate the perspectives of your diverse board
into a nonprofit that offers services broadly.
In addition, having a diverse board will help you
forge ties to a wider range of the community and
broaden your base of support. When you build your
board inclusively, you increase the board’s natural
networking power.
EXAMPLE: Inga and Steven are the initial incorporators of Peace Through Understanding,
a nonprofit dedicated to promoting peace by
educating the American public about other
cultures worldwide. In putting together a list
of prospective board members, they have
included religious leaders from local churches,
synagogues, mosques, and other places of
worship. Also on their list are university pro-
fessors who teach about international issues
and activists from several local antiwar groups.
But then, thinking more broadly, Inga suggests
some activists from the sizable gay and lesbian
community in the area, who have been in the
forefront in the fight against hate crimes.
Besides diversity, it’s important that the people
you choose have strong ties to the communities
you’re trying to reach. Remember, it’s not enough to
have a diverse board—you ultimately want to reach
diverse communities through that board. To achieve
this, you should choose people who are connected
to—and influential in—their communities. Examples
include prominent businesspeople and others who
are successful in their fields, community activists,
politicians, religious leaders, and noted academics.
4. Diverse Viewpoints
In addition to having board members who are
connected to diverse communities, you want at least
some board members who represent different points
of view. While you obviously don’t want a board
member who is hostile to your overall mission, it
can be extremely advantageous to include people
who have independent or unusual perspectives.
For instance, a nonprofit dedicated to improving
opportunities for minorities in newspaper journalism
should try to include representatives from differ-
ent aspects of the newspaper industry on its board.
A diverse board would include not just newspaper
editors and reporters, but also photographers, copy
editors, circulation managers, and publishers, all of
whom will typically have different perspectives and
concerns than editors and reporters. Again, your
ultimate goal is always to serve the public, which is
usually best achieved with an open-minded board
that engages in healthy debate.
B. The Board’s Duties and Tasks
Clearly, the nonprofit’s board plays an important
legal, leadership, fundraising, and ideological role.
But how, exactly, does a board translate these broad
responsibilities into everyday actions and decisions?
How should a board function, day to day and
meeting to meeting? And what legal duties must
board members observe as they handle the non-
profit’s business? This section answers these impor-
tant questions by explaining the legal duties—and
practical tasks—board members must take on.
1. Board Members’ Legal Duties
New or prospective board members often are
concerned about what the law requires of them in
their board roles. Here’s the deal: Under state laws,
members of the board of directors have two main
duties to a nonprofit corporation: the duty of care
and the duty of loyalty.
Board members won’t be personally liable for mistakes. Don’t let directors lose sleep worrying about violating these duties and being
sued personally. As discussed in more detail in
Chapter 7, directors are rarely held personally liable
for errors committed in steering the nonprofit,
unless the acts (or failures to act) were fraudulent
or extremely careless. In addition, most states have
laws protecting directors from personal liability,
YOUR BOARD OF DIRECTORS 4/ 7
and a federal law protects volunteers as well. (See
Chapter 7 for more on liability issues.)
a. Duty of Care
The duty of care requires board members to act
with reasonable care in making decisions and taking
actions on the nonprofit’s behalf. Board members
can go a long way towards fulfilling this duty simply
by being informed. Board members should always
look into any relevant and important information
that’s available before making a decision or taking
action. Before voting to approve a new program
area, for example, board members should have a
clear understanding of important issues like what
the program will cost, whether there is money in
the budget to pay for it, and whether it involves any
activity that might expose the nonprofit to risk.
A common (if slightly legalistic) definition of
“reasonable care” is the level of care that an ordinarily
prudent person in the same circumstances would
reasonably believe is appropriate. A more basic
formulation is that directors will satisfy the duty of
care if they act rationally and in good faith.
b. Duty of Loyalty
The duty of loyalty—sometimes called a “fiduciary
duty”—requires board members to always put the
interests of the nonprofit ahead of their personal
interests. This duty is often expressed in other ways,
too: as a rule against self-dealing or against conflicts
of interest. With some subtle differences (explained
below), all of these rules require much the same
thing: Board members must always make decisions
that are in the best interests of the nonprofit.
Examples of self-dealing might include a
director voting for the nonprofit to rent an office
in a building that the director owns or to make a
purchase from a company owned by the director. In
both cases, the director stands to realize a personal
financial gain from the nonprofit transaction. A
conflict of interest might exist if a director sits on
the boards of two nonprofits that pursue the same
funding sources. Even though the director does
not stand to personally gain, the dual directorships
raise a potential violation of the director’s duty of
loyalty to each group. In cases such as these, state
laws generally require that the director disclose
all the relevant facts about the potential conflict
(including any personal interest the director has in
a transaction) and that only noninterested directors
participate in the vote. If these two requirements
are met, then the conflict will have been avoided (in
legalese, the conflict will have been “discharged”).
2. Board Roles Versus Staff Roles
Generally speaking, the board is not in charge of
the day-to-day affairs of the nonprofit. Taking care
of the many details involved in running the organi-
zation is the responsibility of the nonprofit’s staff,
including the executive director, paid workers, and
volunteers.
Of course, many nonprofits—especially new and
small ones—are run almost entirely by the board
and other volunteers. Plenty of micro-nonprofits
operate this way, which can make the distinction
between the board role and the staff role quite con-
fusing. The key is that the same person may some-
times play a board member’s role, and sometimes
an activist or volunteer staff role. Board members
should be clear on this: Although they may take
care of all the nonprofit’s day-to-day details, they are
not doing so in their capacity as board members.
For example, if a board member dons galoshes
to help with a Clean Up the Wetlands day, helps
stuff envelopes, picks up chairs for an event, or
teaches a seminar, the member is wearing a “staff
hat”—not a “board hat.” When a board member is
discussing whether certain programs fit into the
nonprofit’s overall mission, on the other hand, that
member is wearing a “board hat.” Keeping this
distinction in mind will help you understand the
board/staff relationship and the breakdown of roles
that is so important to a nonprofit’s effective func-
tioning. Clearly recognizing these different roles is
especially essential when a nonprofit has paid staff,
so that board members refrain from interfering in
day-to-day staff duties. Nothing irritates competent
nonprofit staffers more than having board members
meddle where they’re not wanted (or needed).
4/ 8 STARTING & BUILDING A NONPROFIT
3. Typical Board Activities
The types of activities that nonprofit boards typically
handle tend to break down into the following
categories:
• defining the organization’s mission and
ensuring that the nonprofit stays on course
• outlining the nonprofit’s main programs
designed to accomplish its mission, usually on
an annual basis
• establishing and managing financial systems
by developing budgets, monitoring finances,
and implementing accounting controls
• leading and helping with fundraising efforts
• dealing with internal board management, such
as electing officers and finding new board
members to replace outgoing ones
• establishing and overseeing committees to
handle special issues, such as membership,
special events, or fundraising
• hiring and managing an executive director (if
the nonprofit plans to have one), and
• helping promote the nonprofit and its
activities to the public.
Keep in mind that the tasks and scope of work
outlined above will change somewhat as the non-
profit grows and hires paid staff. Generally, the
more paid staff you have, the less board members
will be involved in day-to-day tasks.
Nonprofit boards typically create committees to
focus on specific areas or complicated issues. Once
the committee makes progress, these issues are
brought back to the board as a whole for approval
or other guidance. Sometimes a subgroup of the
board sits as an “executive committee,” which can
convene and act with the full authority of the board.
As with other types of committees, an executive
committee can be particularly useful when a non-
profit has a large board, making it logistically diffi-
cult to meet often. But executive committees should
be used judiciously, not as a regular substitute for
full board involvement. Committees are discussed
below in Section F.
4. Board Meetings
The main way the board functions is by meeting to
discuss issues and make decisions about how to get
things done. These decisions are passed on to the
nonprofit’s staff (if there is one). Boards generally
have regular meetings—monthly, bimonthly, or
quarterly—and call special meetings if issues arise
that need immediate attention.
Keeping board meetings efficient and focused is
an important issue for all nonprofits (and just about
every other type of business, for that matter). This
means that the board should develop a clear sense
of priorities, including what to cover at meetings and
what to leave for others to handle. While the board
has a legal duty to set policy and keep the nonprofit
on course, there’s little legal guidance about what
specific matters the board must address. As a practi-
cal matter, board meetings should not get mired in
the minutiae of nonprofit operations. (As discussed
in Section F, below, specific tasks are often managed
by committees, which often include nonboard
members, leaving the board to focus on higher-level
steering issues.)
Save valuable meeting time for important issues. Although day-to-day details may ultimately end up on board members’ plates, they
shouldn’t become a main topic at your board meet-
ings. If a board member will be in charge of buying
office supplies or designing letterhead, that doesn’t
make discussions of the pros and cons of various
types of paperclips or letterhead font sizes appro-
priate subjects for lengthy board discussion.
5. Board Officers
The people who head boards of directors are
referred to in the law as officers—typically
president, vice president, secretary, and treasurer.
Having leaders in place obviously helps the
board function more effectively by designating
responsibilities to specific people, which helps
ensure that things actually get done. In practice,
board officers often also serve as a principal point
of contact between the board and staff. For example,
in organizations with paid staff, the president
usually works closely with the executive director
and other key workers to make sure staff and board
are on the same page.
YOUR BOARD OF DIRECTORS 4/ 9
While board officers legally lead or govern the
board, which in turn governs the nonprofit, board
officers themselves do not run the nonprofit as a
whole. This is a subtle but crucial distinction. The
officers are in charge of keeping the board function-
ing smoothly so that it can consider issues and make
decisions, which are then passed to the staff to
execute. The executive director, who is hired by the
board, is in charge of running the nonprofit, which
typically includes hiring and firing other staff.
Officer duties are spelled out in the nonprofit’s
bylaws and generally are pretty similar from one
nonprofit to the next. Typical officer positions and
duties are:
• President. The president’s main duty is to preside over meetings, including drafting the
agenda beforehand. The president is usually
also in charge of appointing committees and
generally making sure that board projects
are proceeding as planned. Many nonprofits
also require the president to compose an
annual report to be presented at the nonprofit’s
yearly meeting, although the executive director
often handles this task in larger organizations.
In smaller nonprofits that rely entirely or
primarily on volunteers, the president usually
has the authority to sign contracts and checks
(a responsibility often shared with the
treasurer).
• Vice President. Of all the officer positions, the vice president generally has the fewest
specific formal responsibilities. By custom, the
vice president is expected to help the president
with various tasks, fill in for the president as
necessary, and generally put a shoulder to
the wheel when important work needs to be
done. Legally, if the president needs to vacate
office, the vice president assumes that role
until the next officer elections.
• Secretary. A nonprofit’s secretary keeps min- utes of board meetings and manages the
nonprofit’s records, such as articles of incor-
poration, bylaws, and other official documents
(these tasks may be delegated to staff in larger
groups). Under the terms of the nonprofit’s
bylaws, the secretary usually has the legal
duty to give notice of meetings and file any
state-required paperwork.
• Treasurer. The treasurer is generally responsi- ble for keeping track of the nonprofit’s funds,
including maintaining the books, handling
bank transactions, and preparing any financial
reports that may be necessary. The treasurer
often shares check-signing authority with the
president. In larger groups, the treasurer’s
duties may be delegated. (Bear in mind that
failing to pay required payroll and other taxes
may subject the treasurer to personal liability
—see Chapter 7 on liability issues for your
nonprofit and its board, staff, and volunteers.)
C. Board Policies and Procedures
Nonprofits have wide legal latitude to decide for
themselves how big their boards will be, how long
board members’ terms will last, and how often the
board will meet. Obviously, you should nail these
details down before recruiting people to serve.
Some of these issues should be addressed in your
bylaws, others in separate policies, and some in
both. This section explains what specifics you’ll
need to define and where they should be set forth.
1. Number of Directors
There’s no simple formula for calculating how many
members should be on a nonprofit’s board. Some
groups function well with as few as five members;
others with as many as 25. Generally, you need
enough members to ensure the nonprofit’s mission
is carried out, but not so many that members feel
superfluous. But in figuring out how to apply this
rule, all sorts of factors come into play. For example,
a nonprofit that has a small budget or operates in a
limited geographical area shouldn’t necessarily have
a small board. In fact, the opposite is often true—a
small nonprofit that can’t afford paid staff may have
to rely on committed board volunteers to carry out
its basic programs. There may also be political rea-
sons to have a slightly larger board. For example, if
your nonprofit is established to build a hiking and
biking trail that will run through a dozen communi-
ties in two counties, you might want your board to
4/ 1 0 STARTING & BUILDING A NONPROFIT
be large enough to accommodate a representative
from most of the affected neighborhoods.
Once the organization grows and brings in more
money, you may be able to bring in paid staff to
take over many of these duties, which will reduce
the need for board members to volunteer their
time and allow the board to function well with
fewer members. Of course, the more programs and
services a nonprofit offers, the more policy making,
budgeting, fundraising, staffing, and other issue-
wrangling the board will have to tackle.
In deciding how large your board should be, keep
in mind that most state laws establish a minimum
number of board members, usually one or three.
And, in practice, you should have an odd number of
members to avoid tie votes. It’s also best to establish
a size range rather than a firm number of members,
as directors tend to come and go. If you’re committed
to having five, nine, or 17 members, for instance, it
can seem like a never-ending task to keep the board
at full strength. A range of five to nine members
seems to work well for many smaller nonprofits;
slightly larger ones might use a range of nine to 15;
if you have a good reason for a bigger board, you
could adopt a range of 17 to 25.
State laws generally require you to list the num-
ber of directors in both the articles of incorporation
and the bylaws.
For detailed information on drafting articles
of incorporation and bylaws, be sure to
read Anthony Mancuso’s How to Form a Nonprofit Corporation (Nolo.)
2. Terms and Term Limits
Every board should adopt a set term for board
membership—two or three years is a common term
length—and should consider a limit on the number
of consecutive terms a member can serve. Putting a
time limit on board terms has several benefits. First,
it helps members focus on the need to get things
done in a certain time frame. Second, it creates an
incentive for the members to do their jobs conscien-
tiously, knowing that they’ll have to face an election
or appointment process to stay on the board once
their term is up. Third, it gives busy board members
who might otherwise be reluctant to serve—or
possibly be tempted to resign early—a clear under-
standing of the length of their commitment. Finally,
it offers a clean path to remove troublesome board
members eventually, without the unpleasantness
of purging them from office in the middle of their
term. Although midterm removal might still be
necessary in extreme circumstances, most board
member problems aren’t quite that severe. When a
board member is ineffective, inert, absent, or just
garden-variety difficult, it’s often easiest to simply
wait out his or her term and let the elections take
care of the problem.
You may also want to limit how many consecutive
terms board members can serve. Term limits
ensure that a board will periodically have new
members and fresh energy. They also allow you to
gently remove long-time members who have lost
effectiveness because of declining interest, health
problems, or other personal issues. But term limits
are a double-edged sword. Limiting consecutive
terms means that even your best board members
will have to step down at some point, which can
seriously impact the momentum of the board’s work.
If you do impose term limits and lose a valuable
board member, you can try to keep that person
involved by appointing him or her to one or more
committees that don’t require board membership.
And, like most nonprofits that impose consecutive
term limits, you can allow the member to run again
after having been off the board for at least one year.
But if you don’t want your most valuable board
members to be forced off the board by term limits,
then simply don’t use them. After all, in our busy
world, the real problem is finding and keeping good
board members, not getting rid of them.
Any term limits you adopt should be spelled out
in your bylaws. You may also want to summarize
this information and include it in your board guide-
book, described in Section C5, below.
Create staggered board terms. It’s a good idea to stagger your board terms so that
everyone’s term doesn’t expire at the same time.
This will help you ensure board member continuity
—and avoid having to round up an entire slate of
new members when elections roll around. To create
YOUR BOARD OF DIRECTORS 4/ 1 1
staggered terms, simply establish different term
lengths for your initial board. For example, for a
five-person board, you could appoint three mem-
bers for two-year terms, and two members for one-
year terms. All subsequent elections would be for
terms of two years, and every year some (but not all)
of your board’s seats would be up for election.
3. Board Member Responsibilities
Just as employers often use job descriptions to out-
line exactly what will be expected of an employee,
nonprofits should take care to define the tasks
and responsibilities of their board members. The
previous section outlined the general types of
activities that are common to most boards, including
defining policy, creating financial systems, and
managing the executive director or other staff.
But these broad responsibilities should be broken
down into more specific tasks that board members
will be expected to tackle. Outlining these tasks as
specifically as possible creates accountability and
lets everyone know what is expected of them—
thereby improving the chances that the board’s work
will actually get done.
It’s a good idea to put these job descriptions
into a written document and include them in a
board guidebook, discussed in Section C5, below.
4. Performance Practices and Removal Policies
Virtually every nonprofit has to deal with problem
board members from time to time, such as members
who regularly miss meetings or who simply aren’t
contributing sufficient time, energy, or, in some
cases, money to the organization. Having perfor-
mance expectations and removal policies in place
before these potential problems arise makes it a
whole lot easier to solve them.
Failing to attend meetings is one of the most
common problems that arise with board members;
thankfully, it’s also an easy one to measure and cor-
rect. All nonprofits should have a policy stating that
attendance at board meetings is mandatory (absent
a compelling reason to be absent). Some may decide
to implement tougher standards—for example, that
two unexcused absences per year constitutes resig-
nation from the board.
Other board-related performance issues are more
subjective and, therefore, trickier to measure and
enforce. For instance, what (if anything) should
you do about a board member who shows up at
every meeting but rarely participates in discussions
or other activities? The best answer is probably
nothing, beyond thinking about ways to help the
person become more engaged. If those efforts go
nowhere, the member should not be appointed or
recommended for election to another term.
Fortunately, in addition to formal policies and
penalties, there are informal ways to keep your
board members in line and, hopefully, steer way-
ward members back on track. Some ideas include:
• In a meeting agenda, include a discussion of
how everyone can be more effective. This is
a good way to focus on performance without
singling anyone out. It’s not a bad idea to do
this regularly—say, once a year.
• Organize a board retreat day. It can be hard
to get busy people together for a day or
weekend. But because events like this help
build morale, fight burnout, and reenergize
members, it’s worth the time and effort every
year or two.
• Ask experienced board members to mentor
new ones. When new members join the
board, assign an experienced and willing
board member to work with each one for a
couple months. Encourage the new member
to actively use the mentor as a resource. This
works well as a preemptive practice to help
avoid problems in the first place.
Performance and review policies are generally not
included in a nonprofit’s bylaws, which shouldn’t
contain such detailed, practical information. The
process for removing a director, on the other hand,
should be covered in your bylaws, to help avoid
further conflict and confusion during what is sure
to be a difficult time. The main issues you’ll need to
address are what type of vote will be required—for
instance, a majority, two-thirds, or unanimous vote
of other board members—and whether directors can
be removed without cause.
4/ 1 2 STARTING & BUILDING A NONPROFIT
Each state has legal rules for removing a non-
profit board member from office. Some states give
the nonprofit complete discretion to determine the
procedure for removing a director; others set certain
standards—for example, some states do not allow
nonprofits to remove a member without cause. Be
sure that the policy you adopt for removing board
members meets any requirements imposed by your
state. Laws governing nonprofits (including rules
for removing board members) are generally found
in the corporations code of your state’s statutes.
(Chapter 12 offers a brief overview of how to do
legal research online.)
For more information about legal research
both online and off, a thorough reference is
Nolo’s Legal Research: How to Find & Understand the Law, by Stephen R. Elias and Susan Levinkind. For specific citations to nonprofit codes in each
state, see How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).
In addition, you may want to summarize the
review and removal policy in a board guidebook
(see below).
5. Creating a Board Guidebook
It’s a great idea for every nonprofit to have a guide-
book that contains important reference information
for board members. A nonprofit board guidebook
might include:
• a legal basics section, including the articles of
incorporation and bylaws of the nonprofit
• a board affairs section, with concise informa-
tion about board member duties, review and
removal policies, and other rules for board
members
• a directory section, listing the names and
contact information of board members, staff,
and volunteers
• a committees section, with descriptions and
membership rosters of committees
• a programs section, with detailed information
about current programs (plus the current
strategic plan, if you have one), and
• a background section, providing basic
information about the organization’s mission
and history.
Besides giving you an opportunity to present
information in a more user-friendly way, a board
guidebook also allows you to cover information in
more detail than you would want to include in your
articles or bylaws.
Deciding Where to Record Your Rules
It can be tough to figure out whether certain
rules, policies, or other information should
be included in a board member’s guidebook
or in your nonprofit’s official bylaws. One
way to handle this question is to include your
bylaws in the handbook. But because even
conscientious people don’t always read the
often stilted language of legal documents, it
makes sense to repeat important information
and rules in plain English. For example, rules
regarding term limits definitely belong in
the bylaws, because they’re essential to the
nonprofit’s legal operation. But they should
also be included in the “Board Affairs” section
of your board guidebook; that section’s
purpose is to inform directors about key issues,
including election rules.
As a general rule, you should put detailed
housekeeping-type information in a board
handbook, not your bylaws. There’s a practical
reason for this—any changes you want to make
to your bylaws must be done by formal board
vote at a meeting for which proper notice is
given and a quorum achieved. By contrast,
rules that aren’t included in the bylaws can
be adopted and changed much less formally.
Information about the length or locations of
meetings, committee lists, job descriptions,
or personnel policies are best kept out of the
bylaws. The time and expense of amending by-
laws isn’t prohibitive, but there’s no reason to
make extra work for your board.
YOUR BOARD OF DIRECTORS 4/ 1 3
D. Recruiting Board Members
You will probably have to appoint your nonprofit’s
very first board members as part of the process of
incorporating in your state. Nonprofit corporations
(and for-profit ones, too) are created at the state
level, most commonly by filing papers known as
articles of incorporation with the secretary of state’s
office. Those articles generally ask for the names of
the nonprofit’s initial board of directors. If your state
requires a minimum number of directors (many do
and three is a common minimum), you’ll need to
name at least that many in your articles. (For in-
depth information about drafting and filing articles
and bylaws, consult Anthony Mancuso’s How to
Form a Nonprofit Corporation, published by Nolo.)
In practice, fledgling nonprofits often consist
of a few people who have come together over a
particular cause or issue. Once the group is ready to
incorporate, part or all of this core group may opt
to be named in the articles of incorporation as the
initial board. Often, the group will dispense with
formalities such as nominating candidates or voting;
those willing to volunteer for a board position are
appointed to serve. Sometimes, only some of the
core group will choose to be on the board. This
might be the case if the core group is large, or if the
group simply (and sensibly) wants to think carefully
about the board’s composition and size once they’re
up and running.
In established nonprofits, appointing board mem-
bers is generally a more formal process. Often, a
nominating committee of existing board members
evaluates the current board situation and its needs,
gathers names of prospective new members, and
recommends candidates to the full board, which
then votes on whether to elect the new member(s).
(In nonprofits that give members the legal right to
elect directors, the members vote, rather than the
board. See Chapter 1, Section D, for more on this
issue.)
While the board-building process you use will
depend on your nonprofit’s situation, all nonprofits
need to know how to recruit excellent board
members. If your nonprofit is young and has just
one or a small number of committed people, you
obviously aren’t in a position to use a nomination
committee or a highly structured process to
recruit new members to your board. However, you
shouldn’t let this prevent you from taking a careful
and methodical approach to the board-building
process—your efforts will pay off in the long run.
Whether new board members are chosen by a
formal five-person nominating committee or by two
newbie incorporators meeting at a coffee shop, the
following guidelines will help you focus on your
ultimate goal: building an effective board.
1. Evaluate Your Needs
The board’s function is to serve the nonprofit, not
the other way around. That’s why it doesn’t make
sense to recruit a slew of interesting, inspiring,
or well-connected people to your board unless
your nonprofit needs what they have to offer. For
instance, if you already have one or two board
members with good accounting skills, it probably
doesn’t make sense to appoint another board
member with similar talents, even if you know
an excellent candidate who would agree to serve.
Better to inventory the other expertise you’ll need,
such as media relations or fundraising experience,
and look for board members who can help with
these needs.
Besides seeking board members with specific
skills, it’s also important to find members who
are well known, respected, or influential in your
core communities. Having successful activists,
professionals, or other reputable people on your
board will lend credibility to your group—which is
particularly essential in your early days, before your
group has made a name for itself. If you can re-
cruit influential people who also have helpful skills,
you’ve hit the jackpot.
With this advice in mind, start your board-
building not with a list of prospects, but with an
evaluation of your current situation and needs.
Focus on any skills or strengths that prospective or
current board members lack. Once you’ve outlined
the missing pieces that would be valuable to your
group, then you can focus on generating a list of
prospects that would fill those gaps.
4/ 1 4 STARTING & BUILDING A NONPROFIT
Useful Skills for Board Members
While the specific skills your board will need
depend on your nonprofit’s purpose, there are
some skills that are valuable to just about every
nonprofit. These include:
• Fundraising and grant writing. No surprise here; people who know how to
raise money are major assets for non-
profits.
• Accounting and bookkeeping. You’ll want to look for a few board members
who have some financial expertise; if a
board member has experience manag-
ing nonprofit finances, so much the
better.
• Employee and volunteer management. Keeping a staff motivated and efficient
doesn’t happen by itself—skilled
managers are key.
• Public speaking. Having an effective speaker on your board will open up
opportunities to promote your group
and its work.
• Media relations. A board member who knows how to get coverage in news-
papers, radio, television, and other
media will help enormously in building
recognition and credibility for your
group.
• Graphic design and production. Putting together media kits, brochures, and
other materials will help your nonprofit
get the word out about its work.
2. Make Sure Recruiters Understand Board Members’ Responsibilities
Everyone involved in the recruitment process must
understand exactly what board members will be
expected to do. For example, is a board member
expected to attend a half-dozen meetings a year to
help with policy and fundraising, or do you want
worker bees who will take on much of the day-to-
day work of your organization? It’s important to nail
down these expectations early in the process, before
any board prospects are considered. It goes with-
out saying that if the recruiters don’t have a clear
understanding of what new members will actually
be doing on the board, they won’t be in a good
position to choose people with the right skills and
experience. Not only is this likely to waste time, but
it also risks signing up people who can’t meet your
real expectations.
As described in Section B, above, most nonprofit
boards have fairly similar realms of responsibility,
including defining policy, managing finances, and
working with an executive director. While these
categories are common, each nonprofit will also
have its own unique list of board responsibilities.
Make sure that everyone on your recruiting team
knows—and can communicate—what you expect
from your board members.
Don’t alienate your prospects. Before a recruiter approaches a prospective board
member, make sure that your current board or core
group approves of the choice. Even if you’re only
planning a preliminary discussion, it’s much better
to wait and make sure that everyone agrees on the
prospect than to jump right in and extend offers you
might later have to rescind.
3. Educate Prospects and Incoming Board Members
Once someone has expressed a willingness to
consider joining the board, the recruiter(s) should
make sure the prospect knows everything he or
she needs to know to make an informed decision.
This includes not only basic information about the
nonprofit and its activities, but also what will be
expected of board members. For example, if you
expect each board member to make a significant
financial contribution, it’s best to make this clear up
front. Otherwise, board members might quit in a
huff when they learn how much you expect them to
fork over.
YOUR BOARD OF DIRECTORS 4/ 1 5
Create a Board Candidate FAQ
One way to tell prospective board members what
you expect is to create a “board candidate FAQ”
that communicates all of the important facts in a
simple, one-page, question-and-answer format.
Here is an example of the types of questions
that might be included in an FAQ for prospective
board members for a homeless assistance non-
profit.
What is Welcome Home? Welcome Home is a 501(c)(3) nonprofit dedicated
to serving the needs of the homeless in the
greater Oakland area. We offer meals and shelter
to those in need and educate the public on the
social issues related to homelessness.
As a board member of Welcome Home, what will I be responsible for? As a member of the Welcome Home board of
directors, you will help define policy and guide
the nonprofit so that it stays true to its mission
and achieves its goals effectively. You will be
expected to attend and participate in monthly
board meetings. You may have additional
responsibilities if you join committees or
become active in certain areas.
It is expected, though not required, that you
will occasionally participate in events as a vol-
unteer. In addition, it is expected, though not
required, that you will contribute financially to
the nonprofit in an amount that is comfortable
for you.
How long will I serve on the board? Board members serve a two-year term.
As a board member of Welcome Home, are there any legal issues I need to worry about? Under state law, board members are expected
to use reasonable care when making decisions
or taking actions (called a “duty of care”). In
addition, state law establishes a duty of loyalty on
board members, which means that you must al-
ways act in the best interests of Welcome Home.
In general, board members are not personally
liable for their work on the board. You won’t face
personal liability unless you act fraudulently or
with gross negligence.
You should give incoming board members copies
of your articles of incorporation and bylaws, as well
as any other materials you have developed to guide
the board. (See Section C, above.) You may also
want to assign an experienced board member to
mentor the new member.
In addition, new board members should go
through some sort of orientation process that pro-
vides information about the organization’s policies
and procedures. The length, complexity, and format
of the orientation will vary from one nonprofit to
the next, depending on the organization’s size,
activities, history, and other factors. A simple orien-
tation—say, an hour or so of presentations by the
nonprofit’s founders, current board members (if you
have them), president, executive director, committee
chairs, or some combination of these folks—will
work fine for most new nonprofits. If your non-
profit is larger and more complex, you may want
to divide your orientation sessions into a series of
presentations, perhaps over a couple days.
Common topics to cover in an orientation include:
• the nonprofit’s mission and goals
• the organization’s history
• financial assessment and overview
• current and planned programs
• responsibilities of board members
• responsibilities of the executive director and
staff, and
• committee assignments.
Besides offering an orientation program, you
might also want to hold some type of informal get-
4/ 1 6 STARTING & BUILDING A NONPROFIT
together, to allow new board members to get to
know each other in a more relaxed social environ-
ment. For example, the entire board could go out
for lunch as a group, attend an event related to the
nonprofit’s mission, or have a potluck at a board
member’s home.
4. Elect Officers
When you establish your initial board, you’ll need
to elect officers. Most nonprofits choose a president,
vice president, secretary, and treasurer (as described
in Section B5, above). Officers are chosen and voted
in by board members. Often, this is the first item of
business at the first board meeting, with the founder
temporarily taking the lead and asking for nomina-
tions for president. Once elected, the new president
takes over the rest of the meeting and asks for
nominations for the other officer positions, which
are then voted on in turn.
Particularly in new nonprofits, the officer “election”
process may be less formal. For example, someone
may suggest that the nonprofit founder should serve
as president, and a quick show of hands confirms
the decision. In some cases, there may not be any-
one who is eager to serve as president, and some-
one will have to be drafted by the rest of the board.
Elections may be a more competitive affair,
with two or more board members fighting for the
presidency. This isn’t common with new nonprofits.
If it does occur, however, it’s important to conduct
a fair election process. After board members are
nominated, you should conduct a vote with written
ballots and have several board members count the
votes.
E. Holding Effective Board Meetings
Meetings that are unproductive, disorganized, bor-
ing, contentious, or poorly attended will seriously
undermine the effectiveness of your board—and,
by extension, the nonprofit as a whole. Despite this
obvious fact, thousands of truly awful board meet-
ings are held every day, leaving tens of thousands
of board members shifting in their seats and wonder-
ing, “How did I get stuck with this job?” There’s no
better way to drain the energy from a nonprofit than
to let this go on. While it may not be possible to
make your board meetings as entertaining as a good
Broadway show, you certainly can maximize their
effectiveness by following some simple rules.
1. Meet Regularly
Adopting a regular meeting schedule is a good
way to build momentum for the board’s activities.
If meetings are held at random or infrequently, it
will be hard for members to stay focused on what’s
going on and push business forward. Depending
on your agenda, it’s often best to meet monthly, or
at least quarterly. If issues come up between board
meetings that require immediate attention, you
can call a “special” meeting, which simply means a
meeting in addition to the board’s regular meeting
schedule. (Procedures for special meetings should
be included in your bylaws.)
Keep meetings short. Your board will need to decide for itself how often and how long
to meet, in order to maximize the board’s efficiency
and productivity. Very generally speaking, meetings
of about two hours are optimum; no meeting should
last longer than three hours. As long as agendas are
planned carefully and time limits are set in advance
for each item, the president should be able to keep
the meeting on schedule.
2. Invite Staff and Outsiders When Appropriate
It’s perfectly appropriate, and often a good idea, to
invite people other than board members to attend
meetings. If, for example, you plan to evaluate the
progress of a certain program, then you may want to
invite the staffer who runs that program to speak at
your board meeting. Similarly, it often makes sense
to invite the executive director, who is usually in-
volved in many aspects of the nonprofit’s operations.
Some nonprofits invite the executive director as a
YOUR BOARD OF DIRECTORS 4/ 1 7
matter of course, whether or not a specific agenda
item requires his or her input.
You should also feel free to invite guests from
outside the organization to attend board meet-
ings from time to time. This is a great way to forge
connections to your community and bring new
perspectives to the board. For example, your non-
profit dedicated to keeping an urban river clean
could invite a prominent local architect who is in-
volved in eco-friendly loft developments along the
river. Opening your board meetings to guests in
this way lets the board and your guests learn about
each other, stay on top of developments in areas of
mutual interest, and figure out how to support each
other’s work.
3. Give Notice of Meetings
If you want members (or others) to attend board
meetings, you’ll have to tell them when and where
the meetings will be held. For regular meetings,
it’s best to do this well in advance—for example,
you might want to set all the meeting dates for the
following year at the annual meeting. For special
meetings (those that are held in between regular
meetings), most nonprofit bylaws require seven or
10 days’ notice (although this can be shortened or
waived altogether if all board members consent).
The secretary is usually responsible for giving
notice of meetings, although the vice president or
a designated staff member sometimes takes on the
job. Phone calls are the most common way to give
notice of special or changed meetings, but many
organizations use email. Although a voice message
doesn’t meet the written notice requirements set out
in many nonprofit bylaws, it should work out fine as
long as no one objects. But when a special meeting
is called to discuss and vote on a contentious issue,
you’ll want to closely follow the rules set out in your
bylaws.
In today’s busy world, even if your board meet-
ing has been set well in advance, it’s a good idea to
make a follow-up call or send a reminder email a
week or a few days before the meeting. You should
also send board members a copy of your agenda
(discussed next), if possible.
Give board members the previous minutes a week before the meeting. Because most meetings begin by approving the minutes of the
previous meeting, giving board members a chance
to review the minutes in advance is a good way to
save time at the meeting. Providing the previous
minutes ahead of time also reminds board members
of any tasks they promised to do before the next
meeting. Assuming the minutes have a section out-
lining action items (they should), this reminder will
give board members a chance to take care of any-
thing they may have forgotten about.
4. Draft a Solid Agenda
If there’s one key to a successful board meeting, it’s
the meeting agenda. Typically, the president drafts
the agenda (and makes sure members stick to it
during the meeting). A meeting agenda outlines the
topics to be covered at the meeting and sets time
limits for the discussion of each. Without an agenda,
it’s all too easy for a meeting to devolve into unpro-
ductive chit-chat—or to be commandeered by one
person who’s eager to take advantage of a captive
audience.
When drafting a meeting agenda, it may be a
good idea to ask other board members if they have
any items they’d like to add. If your board is email-
friendly, you can do this via email a week before the
meeting. Another approach is to ask for additional
agenda items at the beginning of the meeting, but
this can backfire. If too many people want to add
agenda items, or if the suggested items are just ill
considered, it can be awkward to nix them in front
of the assembled board. A better approach is to
make clear that items must be added in advance
absent some urgent reason to consider an issue right
away.
4/ 1 8 STARTING & BUILDING A NONPROFIT
Rules of Order for Meetings
The first time you participate in a board meet-
ing with rules of order, you might feel a little
awkward, perhaps even silly. But as arcane
as they may seem, rules of order (sometimes
called “parliamentary procedures”) serve an
important purpose: They provide procedures
for raising issues to be discussed and making
decisions about them. Rules cover how to
make motions, second motions, refer motions
to committee, call for votes, and so on.
While there are a few different systems out
there, the Cadillac version is Robert’s Rules
of Order. Believe it or not, these rules—for
“smooth, orderly and fairly conducted meet-
ings”—were first written in the late 1800s by
General Henry M. Robert and continue to be
used today by boards of all types, for-profit
and nonprofit alike. With sections like “Sec-
ondary Motions as an Underlying Concept,”
“Conditions That May Impede Renewal at a
Later Session,” and “Taking Up Business Out
of Its Proper Order,” it’s clear that General
Roberts had more than a passing interest in all
things orderly.
While rules of order can be fairly technical,
the good news is that most nonprofits don’t
follow them to the letter. Board members
should at least be familiar with the rules so that
they understand what is going on at any given
point in a board’s proceedings. A quick search
of Amazon will yield several titles besides
the official Robert’s Rules; some are “plain-
English” versions that may offer a livelier read.
Most agendas include some or all of these items:
• Welcome and introductions. The president calls the meeting to order and introduces any
guests. If you will allow any last-minute ad-
ditions to the agenda, now is the time to ask
whether anyone has agenda items to add. If
they do, set a time limit for each item, with
any further discussion postponed to a subse-
quent meeting. The opening of the meeting is
also a good time to remind everyone that the
president will enforce the time limits.
• Guest speakers. If any guests will make pre- sentations, it’s a good idea—though certainly
not a hard-and-fast rule—to schedule them
near the beginning of the meeting, as a cour-
tesy to the speaker.
• Approval of previous meeting minutes. Members typically vote to formally approve
the minutes from the previous meeting, which
then become part of the corporate records. If
any board member has corrections or additions
to the minutes, they’ll be added before
approval. The secretary should distribute the
minutes a week or so before the meeting, so
members have time to review them and note
any changes.
Limit corrections to the minutes. Most board members never read the minutes of previous
meetings. But a few do so obsessively and insist on
raising a laundry list of inconsequential suggestions
that waste everyone else’s time. If this becomes a
recurring problem, the president could announce
that the minutes should be corrected only if they
contain obvious errors or omissions. To take this a
step further, the president could explain this rule
to the offending member one on one, emphasizing
that meeting time is valuable and that corrections
should therefore be limited to truly important
issues.
• Committee reports. If your board has active committees that have met since the last board
meeting, each committee will typically sum-
marize any progress made on their projects.
(If routine, these reports are often best sub-
mitted in a short written memo.) If any com-
mittee is involved in a major or controversial
project, you may want to schedule a special
slot for that report. Otherwise, reports should
be quick and efficient summaries of commit-
tee work. If these reports threaten to take up
too much time, schedule them towards the
end of the meeting, when people want to
leave and are likely to be less chatty.
YOUR BOARD OF DIRECTORS 4/ 1 9
• Budget/finance committee report. You may want to address this item separately because
budget and money issues are so important for
many nonprofits. Depending on your board’s
size and committee structure, you may want
to have a detailed discussion of finances with
the whole board, or a budget/finance com-
mittee may present a report to the group. You
don’t have to schedule this separately from the
other committees, but it is an option.
• New business. The president introduces any new business and gives the floor to whoever
will speak in detail about it. Once new busi-
ness items are discussed, a specific person or
committee is often put in charge of following up
and reporting on progress at the next meeting.
• Review new action items. It’s good practice to do a quick recap of action items that board
or key staff have committed to during the
course of the meeting. Board members should
recount which (if any) tasks they’ve agreed
to do, such as phone calls to make, letters to
write, and so on. The secretary should outline
these commitments in the minutes, preferably
in a separate section called “Action Items.”
• Adjourn meeting. If you haven’t already scheduled all of your meetings for the year,
you should set the time and place for the next
meeting before calling the meeting to a close.
5. Start on Time
All board members should understand that meetings
will start on time, every time. Waiting for latecomers
only reinforces their behavior and wastes the time
of those who arrive on schedule. If certain board
members habitually show up after the meeting has
begun, the president may want to privately but
explicitly ask them to be more punctual.
6. Understand Decision-Making Methods
The most common way that boards make decisions
is by taking a vote. Most nonprofits use majority rule
for most matters, although some require a two-thirds
majority or even a higher plurality for certain unusu-
al issues, such as amending the articles or removing
a board member. Your voting rules should be in-
cluded in your bylaws. (Anthony Mancuso’s How to
Form a Nonprofit Corporation (Nolo) offers in-depth
information about voting, quorums, and other rules
that you should spell out in the bylaws.)
Because close, contentious votes often produce
lingering resentment, it can be a mistake for the
president and other leaders to allow a vote on
an important item if there is strong disagreement
among board members, or between board mem-
bers and senior staff. When this is the case, other
decision-making methods can often help break the
impasse. Techniques that are often used to avoid a
divisive vote include:
• Refer an issue to a committee. This way, the committee can grapple with the vexing
issues and look for ways to find compromise.
The committee can then present the issue at
the next board meeting, perhaps with a new
recommendation.
• Schedule a discussion and straw vote. A straw vote is a nonbinding vote, taken to
gauge the support on both sides of an issue.
When debating controversial issues, the presi-
dent may call a straw vote just so everyone
can see who is on each side. Knowing where
things stand can help leaders steer the dis-
cussion towards compromise and resolution
before a final vote is taken.
• Build consensus. Sometimes, it’s best for a board to discuss an issue until consensus is
reached. Purely applied, this model requires
everyone to be in agreement for a decision to
be made. Making decisions by consensus can
be quite time-consuming; it’s often wise to
follow this approach only when the issue real-
ly is divisive, and you need the entire board’s
support for the resolution.
7. Deal With Problem Board Members
Troublesome people come in all shapes and sizes,
and some of them may, despite your best efforts,
find their way on to your board. Common types
of problem board members include those who are
argumentative, bullying, rude, or just prone to talk-
ing too much. Sometimes a board member who
has worked collegially and productively in the past
4/ 2 0 STARTING & BUILDING A NONPROFIT
suddenly encounters a personal problem (such as
a crumbling marriage or substance abuse) that im-
pairs his or her ability to contribute to the board’s
activities.
Whatever the underlying reason, it’s important
not to ignore a problem board member. Difficult as
it may be (and it usually is), you must confront the
issue quickly in order to save the rest of the board
from foundering. Again, there’s no one-size-fits-all
solution. Gentle coaxing might work best for some,
while a “candor without guilt” type of confrontation
may be the only way to get through to others.
Depending on how serious the problem is—and,
sometimes, on how important the individual is to
the organization—the president should try to fig-
ure out what approach seems most likely to resolve
the situation. If diplomatic suggestions or stronger
admonishments don’t work, the person should be
dropped from the board as soon as possible. If the
next election is too far away, and the board member
is seriously impeding the nonprofit’s work, removal
may be in order. (See Section C4, above, on board
member removal procedures.)
F. The Role of Committees
Especially for larger boards, an effective way to
break down the board’s governance duties is to
subdivide board members into committees. Some
may be permanent (sometimes called “standing”)
committees to handle ongoing issues such as
finance, program development, membership, or
the like. Other issues that come up can be handled
by creating a special (sometimes called “ad hoc”)
committee. Don’t worry about what they’re called;
just keep in mind that nonprofits typically use both
kinds of committees to handle regular needs and
new issues as they arise.
Committees help maximize the board’s productiv-
ity in several ways:
• They make it easier for boards to handle complex issues. The smaller committee can research and break down complex issues and
present its findings to the board, which can
then move forward to making decisions.
• They match board members with particular expertise to appropriate areas. Forming a
committee is a great way to assign specific
responsibilities to the people best able to
handle them.
• They can engage with an issue more deeply and consistently than the board as a whole could. The finance committee, for instance, can and should maintain thorough and ongo-
ing management of the nonprofit’s finances
between meetings, so that the whole board
can deal with this key concern (based on the
reports of the finance committee) at board
meetings.
• They help divide the board’s workload. Having separate committees is a simple way
to distribute responsibility for the many tasks
boards typically need to tackle.
• They can attract and involve newcomers. In some nonprofits, specialized committees often
include people who aren’t on the board of
directors. For example, a nonprofit that pro-
motes physical fitness for diabetic children
might have a doctor on one of its program
committees to help design fitness activities.
That doctor might be happy to be involved in
this way but not interested in taking on the
additional responsibilities and time commit-
ments required to serve on the board.
• They serve as a training ground for new board officers. Chairing or just being involved in a committee is a good way for inexperienced
board members to increase their involvement,
develop confidence, and learn leadership
skills. These people often move on to board
leadership or officer roles.
Don’t set up unnecessary committees. Before you establish a committee, ask what
the committee will do that the board can’t do just as
well. If you have a good answer, set up a committee
and get the ball rolling. If not, don’t bother setting
up a committee that will have to meet and generate
projects simply to justify its existence.
The following checklist is included as a form
in Appendix F and, in digital version, on the
CD that accompanies this book.
YOUR BOARD OF DIRECTORS 4/ 2 1
Checklist: Your Board of Directors
Aim to build a board of directors made up of individuals who are committed to your
mission and connected to a wide range of
communities.
Understand the legal duties of care and loyalty that board members owe to the nonprofit.
If board members will also help with the day- to-day tasks of the nonprofit, as either paid
staff or unpaid volunteers, make sure every-
one understands the distinction between
their “board” roles and their “staff/volunteer”
roles.
Define board specifics in your bylaws, includ- ing the number of board members you will
have, any term lengths and/or term limits
applicable, and the responsibilities of the
board members and officers.
Establish performance expectations and removal policies for board members. In-
clude these in a board guidebook. Deal with
problem board members when necessary.
Educate board prospects and incoming board members about board responsibilities as well
as your organization’s mission and activities.
Hold regular, efficient, focused board meet- ings. Draft solid meeting agendas and stick to
them. Give advance notice of meetings, and
start meetings on time.
Create board committees to focus on specific tasks and activities when necessary. These
committees may contain both board members
and other, nonboard, members who are part
of your nonprofit (for example, staff or volun-
teers).
■
A. Developing a Management Strategy ....................................................................... 5/2
1. The More Activities, the More Staff and Structure You Need ..................... 5/3
2. Provide Clear Direction ....................................................................................... 5/5
3. Issues With Founders .......................................................................................... 5/5
B. Hiring an Executive Director .................................................................................... 5/7
1. Are You Ready for an Executive Director? ....................................................... 5/7
2. The Executive Director’s Role ............................................................................. 5/8
3. Hiring Criteria ...................................................................................................... 5/8
4. Developing a Review Procedure ....................................................................... 5/9
C. Hiring and Managing Staff and Volunteers ......................................................... 5/10
1. Determine What Tasks Need to Be Done ...................................................... 5/10
2. Create Positions and Job Descriptions ........................................................... 5/10
3. Develop Staff Hierarchies ................................................................................. 5/13
4. Create Review Procedures ................................................................................ 5/13
5. Create a Staff/Volunteer Handbook ................................................................ 5/13
6. Orient New Workers .......................................................................................... 5/14
D. Employees and Independent Contractors ........................................................... 5/14
1. Laws and Taxes ................................................................................................... 5/14
2. IRS Criteria ........................................................................................................... 5/15
E. Required Paperwork, Filings, and Taxes ............................................................... 5/17
1. Rules for Employers .......................................................................................... 5/17
2. Rules When Hiring ICs ...................................................................................... 5/18
C H A P T E R
1 Chapter 5
Your Workforce: Staff and Volunteers
5/ 2 STARTING & BUILDING A NONPROFIT
T his chapter will help you understand how to
hire and manage your nonprofit’s workers,
including paid staff and volunteers. As dis-
cussed in Chapter 4, the board of directors has the
legal and institutional responsibility to implement
the nonprofit’s policies and make sure that it is
working towards its mission. However, the board
should not be responsible for the day-to-day opera-
tions of the organization—those duties should fall to
the nonprofit’s staff and volunteers.
In nonprofits with a paid staff, the bridge between
the board and the staff/volunteers is traditionally the
executive director, a senior-level staff member who
is hired by the board to oversee the staff’s work. In
small, all-volunteer nonprofits, the board president
often plays this role. The executive director (or who-
ever is filling that role) is responsible for evaluating
the nonprofit’s needs; creating a management struc-
ture; and recruiting and managing staff, volunteers,
and contractors—all with an eye to efficiently car-
rying out the mission and policies set by the board.
The executive director sits at the top of the manage-
ment hierarchy, with authority over all managers and
staff, whether paid or volunteer.
In real life, however, many nonprofits operate
with far less formality. Lots of small nonprofits
have no staff other than the board members, who
don “staff” hats and take care of the nonprofit’s
day-to-day affairs themselves. Even if there are a
few volunteers or part-time staffers, many young
nonprofits don’t bother with the position of executive
director or a rigid management hierarchy. Typically,
an executive director position is created when
the paid staff grows to about three to five people,
necessitating the imposition of at least some degree
of managerial structure.
This chapter explains how to hire and manage
the people who work for your nonprofit, whether
you’re a small, grassroots collective or a larger, staff-
run operation. Here, you’ll find information on:
• developing a management strategy (Section A)
• hiring an executive director (Section B)
• hiring and managing staff and volunteers
(Section C)
• deciding whether to hire employees or
independent contractors (Section D), and
• complying with paperwork and tax require-
ments for employers (Section E).
A. Developing a Management Strategy
“Management” is a fairly vague word, and one that
is used to describe a vast array of decisions and
actions. When I use the term “management” in this
book, I’m referring to the practice of assessing,
organizing, and leveraging your nonprofit’s avail-
able resources in the most efficient and useful way
to reach your goals. It follows that a good manager
is one who gets the most out of staff, money, and
other assets—without overtaxing the nonprofit’s
resources or stretching them too thin.
The key to coming up with a good management
plan is to use an approach that will work for your
situation right now, not where you hope to be some
time in the future. Perhaps you dream of someday
having a well-funded nonprofit with 150 employees.
It’s fine to think big, but you should start by manag-
ing your existing staff well. If you currently rely on
a handful of dedicated volunteers and one half-time
employee, you won’t need the formal hierarchy
of departments and lines of authority that a larger
group might require. Your tiny nonprofit can prob-
ably operate just fine if one or two board members
are responsible for giving day-to-day direction to
the volunteers and paid assistant—and the rest of
the board stays out of the way. Of course, if your
organization already has several paid workers and a
large cadre of volunteers, you’ll need a more formal
management structure right from the start.
This section explains some issues to consider
when deciding what type of management strategy
will work best for your nonprofit.
Randolph Belle—Director of Information, East Bay Nonprofit Center, Oakland, California
I like to impress the value of team building. If you
get one person on your team you can get ten. Ten
carefully selected people can accomplish a great
deal in the way of the diverse, specialized skills
critical to running a nonprofit. I also suggest col-
laboration for brand-new groups. If incorporation
isn’t a “must,” working with or under the umbrel-
la of another established nonprofit will allow you
to test the waters without the full burden of run-
ning your own incorporated organization.
YOUR WORKFORCE: STAFF AND VOLUNTEERS 5/ 3
1. The More Activities, the More Staff and Structure You Need
The main difference between managing a large op-
eration and managing a small one is in the level of
formal structure imposed on staff and volunteers.
The more activities a nonprofit undertakes, the more
staff (both paid and volunteer) it will need and the
more structure will be necessary to keep the staff
working efficiently. In other words, the type and
number of programs and services you plan to pro-
vide will largely determine how much staff you’ll
need, which in turn will suggest an appropriate
management structure and strategy.
For example, if your nonprofit’s main activity
consists of running one prestigious conference each
year on landscaping and water conservation, your
staff needs would be far smaller than a group that
runs a walk-in health clinic for homeless people.
Providing health care on a daily basis would surely
require full-time staff (say, ten or more volunteers
and paid workers), which would also necessitate a
fairly formal management structure, with clear lines
of reporting and responsibility. The water conserva-
tion group, on the other hand, might require only a
part-time office helper and a few volunteers (except
during conference week) and, therefore, might not
need much of a management hierarchy.
As Chapter 2 explains, outlining programs and
services is part of drafting your nonprofit’s strategic
plan. If you’ve already tackled the strategic planning
process, you should have a pretty good idea of how
extensive your year’s activities will be—and how
many people it will take to get them done. (Hiring
paid staff and volunteers is covered in more detail in
Section C, below.)
Main Street Reborn: A Small Nonprofit Run by Its Board
Main Street Reborn is a (fictional) nonprofit dedi- cated to preserving historical main street districts in Florida’s small towns. Main Street Reborn was founded by two people, Melissa and Vincent, who were concerned about decaying town centers throughout Florida. Melissa and Vincent soon found three other interested people— Spencer, Jill, and Damon—and incorporated as a nonprofit, with all five sitting on the initial board.
After a couple of strategic planning meetings, the board decided to pursue the following activi- ties: 1) compiling historical information about chosen main street districts; 2) educating the public through published materials and media relations efforts; and 3) helping building owners get their properties listed on the state historical property registry and research available rehabili- tation grants.
The board discussed how to structure things in order to accomplish their list of tasks. They de- cided that the board could handle their activities for the time being, making paid staff unnecessary. Each board member took on certain tasks: Jill was in charge of doing historical research; Vincent created brochures and fact sheets based on the research; Melissa wrote press releases and
letters to the editor to get media exposure; Spencer and Damon focused on the state his- torical property registration process and grant research. They each expected to contribute approximately ten hours of work per month.
Because each board member would essen- tially be self-managing, the group decided to have monthly meetings to report on their prog- ress and revisit their priorities and goals. They also decided to look for a part-time volunteer with an interest in historical preservation to help with administrative tasks. They agreed that if the workload exceeded their expectations, they’d either curtail some activities or look into raising enough money to hire a part-time staff person.
After a year of operations, the workload more or less matched the expectations of all the board members. Except for a few times when Spencer and Damon had more than one historical property registration application to work on at the same time, none of the tasks were too burdensome for the board members to handle. The board decided to look for an additional volunteer or two to help with the historical property registration applica- tions but to keep its overall minimal management structure for the next year.
5/ 4 STARTING & BUILDING A NONPROFIT
Domestic Comfort Foundation: A Medium-to-Large Nonprofit Run by an Executive Director
Domestic Comfort Foundation is a (fictional)
nonprofit dedicated to providing financial
support to families of military personnel away
on active duty. The nonprofit started as a group
of military families who met on an informal basis
for a couple years, then decided to organize a
nonprofit foundation to raise money for military
families in need. When the group incorporated,
seven people sat on Domestic Comfort’s first
board, and it fell to them to figure out how to
manage the nonprofit’s work.
The initial board saw that their Aid to Families
program would involve several components:
developing program criteria and procedures,
publicizing the program, soliciting applications,
reviewing applications, accepting or rejecting the
applications, and fulfillment (generating checks
and sending them to the families). The board
also decided that the program should include
sending care packages to the military personnel
of families whose applications are accepted. This
would involve purchasing and packaging the
items for the care packages and shipping them.
Finally, they knew that fundraising would be a
major ongoing activity.
The initial board decided that board members
should focus primarily on fundraising efforts,
while a few volunteers and paid staffers handled
the tasks involved in the Aid to Families program.
The board figured that three paid, part-time staff
and five regular volunteers would be sufficient.
Because board members would be engaged in
fundraising efforts, they decided to hire an exec-
utive director to manage the staff and volunteers.
After a few months of fundraising, Domestic
Comfort had enough funds to hire staff. The
group started by hiring an executive director,
Sara, who in turn hired three part-time paid
employees and recruited five volunteers.
In Domestic Comfort’s first year of operation,
Sara directly managed all of the staff and volun-
teers in running the Aid to Families program. At
board meetings, Sara reported to the board on
every aspect of the program’s operation.
In its second year, Domestic Comfort was
deluged with applications to the Aid to Families
program. The board decided that it was time for
the nonprofit to grow, hire more staff, and raise
more money in order to meet the needs of the
community it wanted to serve. They approved
a new budget and charged Sara with recruiting
enough staff to increase the number of accepted
applications by 30%. Sara promoted the three
current part-time employees to full-time staffers,
hired five additional part-time paid staff, and
recruited eight more volunteers.
To handle this many staff and volunteers,
Sara created a more complex management
structure: She divided the workers into a market-
ing division, an application processing division,
a fulfillment division, a care packages division,
and a fundraising division, each with one per-
son in charge. With this new structure in place,
Sara interacted with the division heads instead
of managing all workers directly. Division heads
were sometimes invited to board meetings to
report more detailed information than Sara could
readily provide. Creating an additional manage-
ment layer added a bit more complexity, but it
also allowed the nonprofit to run much more
efficiently.
YOUR WORKFORCE: STAFF AND VOLUNTEERS 5/ 5
2. Provide Clear Direction
Nonprofits typically owe their existence to the
passion and commitment of a small number of
people. Sometimes—especially when the people
running the nonprofit don’t have much experience
in managing others—the founders fail to appreciate
that the volunteers and paid staff they bring on
board may not share the founders’ sense of mission.
Although your nonprofit will tend to attract staff
and volunteers who are genuinely interested in
your goals, this does not necessarily mean that they
will be as self-motivated (or, in some instances, as
maniacally committed) as the people who got the
nonprofit started.
What this means, practically speaking, is that you
may have to find two (or three) volunteer staffers to
do the same work that one super-committed, mis-
sion-consumed founder might accomplish. Because
newcomers probably won’t be as far along on the
learning curve, you also will need to provide appro-
priate training and guidance to staff and volunteers
alike. In other words, directors will have to actually
direct. As enthusiastic and energetic as new staff or
volunteers may be, they shouldn’t have to figure out
what their jobs are or what you expect them to do.
On the flip side, don’t create an environment
where you don’t make good use of the inspiration
and initiative of those who do want to get more
involved. If you sense that someone wants an active
role in the organization, be open to it. Make sure
everyone knows that ideas, insights, and sugges-
tions about the way things are or should work are
welcome. The last thing you want to do is shut out
those who can be the most valuable to your orga-
nization: motivated, creative people who want to
take an active role in building your organization and
working towards its mission.
3. Issues With Founders
A big issue that commonly plagues newer nonprofits
is the close relationship between the nonprofit
and its founders. In an extreme case, a nonprofit
becomes so closely identified with its founders
that it might not be able to exist without them. In
a nonprofit’s earliest start-up days, this may be un-
avoidable and shouldn’t cause too much concern.
But before long, the nonprofit must begin to develop
an independent identity. Certainly this separation
process must begin before the nonprofit loses key
founders and risks a loss of momentum—or outright
failure.
One practical way to cope with over-reliance on
a founder is to distribute management duties so that
others are clearly responsible for important opera-
tions. Founders tend to be on the nonprofit’s board,
so part of the solution is to make sure that the board
is diverse, balanced, and regularly infused with new
blood. (Building your board is covered in Chapter
4.) Especially if the nonprofit relies primarily on its
board members to manage the group, make sure
that the founders don’t monopolize too many key
responsibilities. If the nonprofit has an executive
director or other nonboard managers, don’t require
them to report exclusively to nonprofit founders. Do
your best to evenly disperse management power
across the board and make sure everyone—including
the founders—honors this division of power.
Erika Harding—Core Group member, erda Gardens and Learning Center, Inc., in Albuquerque, New Mexico
Marie Nord founded erda Gardens as a commu-
nity organization and a functioning farm. While
a small group of people were involved with the
farm along with Marie, it was pretty much a one-
woman show—Marie was not only the founder
but also the farmer. After her sudden death we
were left without any structure, any man- or
woman-power, and without much hope. We held
a half-memorial, half-business meeting and a
“core group” of volunteers emerged. This group
was made up of people who had been with the
farm for years but who played only minor roles or
no role at all while Marie was alive.
The group has evolved, and we have all
shouldered tremendous responsibilities. Now we
remain an all-volunteer organization, with the
exception of our farmer and a few apprentices.
We have created a much stronger structure and
5/ 6 STARTING & BUILDING A NONPROFIT
identity as an organization and have developed
ties with many members of the community. People
used to know Marie, now they know the farm. We
document everything, and we are slowly building
an organization in which none of us is essential.
I think Marie would be very proud.
Another potential problem arises when a founder
insists on trying to control everything, even when
the nonprofit has adequate staff or volunteers. Some-
times dubbed “founderitis,” this condition can be
difficult to treat, because staff and even other board
members tend to feel deferential to the founder and
are reluctant to criticize a founder’s management
style. But it’s important for a nonprofit’s staff—
particularly if an executive director is on board—to
be able to do their jobs without the founder’s
constant meddling.
Painful as it may be, a founderitis problem must
be confronted, usually by other board members.
The best way to address a problem founder will
depend on the founder’s personality—some might
need gentle handling while others will need a kick
in the pants. In most cases, you’ll want to start by
having a rational conversation with the founder,
pointing out the problem behavior and explaining
the importance of distributing power and responsi-
bilities throughout the organization. It always helps
to recognize the founder’s good intentions and to
avoid an accusatory tone.
Tips for Founders: Diagnosing and Curing Your Founderitis
All you founders out there, listen up. Take a good
look at the way you interact with your nonprofit,
including the other board members and any
staff and volunteers. Do you have a clear sense
of where your job ends and another position
begins? Do you feel that the nonprofit could run
okay without you for a month or two? Do you
give staff or volunteers space to do their jobs
without interference? If you answer “no” to any
of the above questions, you may have a touch (or
maybe even a raging case) of founderitis.
If you find yourself afflicted, here are some
tips for clearing it up:
• Educate yourself on your proper role. Reading books like this one is a good way
to learn the distinctions between different
roles at a nonprofit. Knowing the bound-
aries between roles is a first step toward
observing them.
• Let others do their jobs without inter- ference. While you undoubtedly have a wealth of good ideas, don’t drown the
staff and volunteers in your brainstorms
instead of letting them work independently.
If you have a management position over
certain workers, constantly peppering
them with your ideas about how they
could do their jobs better is sure to be
an annoyance. Unless an issue is truly
pressing or glaring, save your critiques
for official performance reviews. If you
don’t have a management role, then keep
your ideas to yourself or pass them to
the person who does have management
authority—and let that manager decide
what to do with your suggestion. • Embrace situations in which you aren’t
the boss. For example, if you’re helping as a volunteer during an event—say, a Clean
Up the Beach Day—be sure to let the
person who’s running the event actually
be in charge. By making it clear to the
event coordinator that you’re willing and
eager to take direction, you’ll help build
trust and respect between you and staff,
and in turn help nurture a healthy and
efficient staff hierarchy.
YOUR WORKFORCE: STAFF AND VOLUNTEERS 5/ 7
Seek Sustainability
Mona Lisa Wallace, Esq. is a California attorney who has played a key role in several success- ful nonprofit and socially responsible startups. She is the executive director of the East Bay Nonprofit Center, providing management support for Bay Area nonprofits. She offers the following advice on how to maintain balance during your start-up days.
Nonprofit leaders are driven by a focus on their mission. Often profoundly more person- ally committed than for-profit entrepreneurs, many nonprofit founders make exceptional sacrifices financially, temporally, and spiritually. Of course, saving the planet, sheltering the needy, and empowering the disenfranchised are noble justifications for working long hours, skipping workouts, and missing meals. But burnout, family conflict, substance abuse, and social isolation are real risks that can creep up unnoticed during periods of intense work. It’s essential to protect your nonprofit’s sustain- ability by protecting its key resource: you.
Learning to prioritize and compartmentalize can help you retain balance in your work and personal life. I suggest starting by making four lists:
1. Important now: For example, finish pro- posal by tomorrow’s deadline.
2. Important later: For example, relocate to a larger office.
3. Less important now: For example, repair the copier.
4. Less important later: For example, pay parking tickets (just kidding).
Also, practice putting your work away peri- odically. One helpful visualization is to picture empty cubbyholes where you can stash the incomplete brochure, the proposal deadline, or whatever else is foremost on your four lists. With your tasks cleared off your mental plate, you can take off your manager hat and just be yourself for a while. Take mental and physical time for yourself, your family, and loved ones so you can continue your good work long into the future.
B. Hiring an Executive Director
One of the board’s primary tasks is to hire and
manage the organization’s chief executive, common-
ly called the executive director. While the board’s
role is to establish and guide the organization’s over-
all direction, the executive director is in charge of
carrying out the programs and other plans outlined
by the board.
1. Are You Ready for an Executive Director?
In a nonprofit’s early days, the president or another
board member often fills the role of an executive
director. Many new nonprofits don’t have the cash
to pay an executive director’s salary; others simply
aren’t ready for the responsibility of hiring and man-
aging an executive director. And many fear—often
justifiably—that hiring senior staff may disempower
the president or other volunteer leaders. Even when
nonprofits can afford paid staff, they may be better
served by hiring an office manager rather than an
executive director.
David Kaseman—Cofounder, Santa Fe Alliance, a New Mexico 501(c)(3) nonprofit dedicated to promoting independent business and community
The Santa Fe Alliance has grown dramatically in
the first 18 months of its existence, due primarily
to dedicated volunteers and a very clear mission/
vision statement. It is our belief that as soon
as you hire an executive director, you take the
chance of losing some—or maybe even a lot—of
your momentum. In most nonprofits I have been
associated with, everyone looks to the executive
director for everything. Unless you have a very
experienced person in this role who can keep vol-
unteer momentum going, your nonprofit becomes
very vulnerable. You take the chance of losing
the efforts of many dedicated volunteers working
feverishly towards your vision, for the efforts of
one.
So take your time developing your core group
of volunteers to make sure they’ll stay involved
when you do add an executive director. Also,
make sure the new executive director has strong
5/ 8 STARTING & BUILDING A NONPROFIT
abilities and experience in the areas of leader-
ship. Do not expect a miracle from any executive
director. Any executive director is just one person
with the ability to do only a certain amount of
work. Your executive director should focus on
being a leader and stay out of the trenches.
Good luck, now go change the world!
A good rule of thumb is that if you have no paid
staff, you don’t need an executive director. Even if
you have one or two office workers or volunteers,
bringing in an executive director to manage them
may be excessive; a board member may be able to
do the job just fine. But as the number of paid staff-
ers increases—say, to three or more—it is probably
time to consider hiring an executive director. This
is especially true if the staffers are involved in tasks
beyond office management, such as executing the
nonprofit’s programs and services.
Hiring an executive director can be traumatic. When an executive director is hired, the president and any other board members who had
been managing staff and calling the shots day to
day will have to pull back from daily management
and restrict themselves to their board roles. This
can sometimes be a touchy and territorial issue, but
it’s important to resolve it right away. Having the
president or other board members stepping on the
executive director’s toes is a very common source of
friction and conflict. Savvy nonprofiteurs will take
steps, in advance, to avoid it.
2. The Executive Director’s Role
Before hiring an executive director, you need to
understand what this position is all about. Chapter
4 discusses the role of the board—specifically, that
once senior staff is on board, it’s not the board’s job
to oversee the day-to-day affairs of the nonprofit.
Instead, this is the domain of the executive director.
Once the board has established plans and policies
for the nonprofit, it’s the executive director’s job to
implement them—to put the “execute” in “executive
director.”
The specifics of an executive director’s job will
vary quite a bit from one nonprofit to the next. In
a large, complex nonprofit, the executive director
may manage several departments with dozens of
people on staff; in a fledgling nonprofit, the director
might be in charge of overseeing a simple program
or two without any permanent employees. And in
a nonprofit’s early days, it might not even have an
executive director at all.
While there’s enormous diversity in what non-
profit executive directors do, their work generally
falls into the following categories:
• implementing the board’s plans and policies
• managing programs, activities, and general
operations
• hiring and supervising staff
• monitoring and managing finances and ac-
counting
• reporting information about the organization’s
activities to the board
• advising the board on policy and program
issues
• assisting committees with program and fiscal
policy development
• serving as a liaison between staff and the
board, and
• communicating with the nonprofit’s constitu-
ency.
3. Hiring Criteria
Whether your nonprofit is large or small, the execu-
tive director’s job is extremely important. This person
generally plays a high-profile role in the inner
workings of your organization and often becomes
its public face as well. And, because the executive
director is in charge of hiring staff, he or she will
have an enormous impact on the overall character
and quality of the organization. With this in mind,
the board should be careful to choose an executive
director who not only is qualified for the job, but
also reflects its shared values and goals. Because
most young nonprofits can’t offer a salary that’s
anywhere near what a similar job in a for-profit
organization would command, finding a skilled and
dedicated executive director can be a real challenge.
Board members (often, a hiring committee)
should begin the process of looking for an executive
director by drafting a job description that outlines
YOUR WORKFORCE: STAFF AND VOLUNTEERS 5/ 9
what they expect from their chief executive. While
some of the director’s responsibilities will likely be
broad, the job description shouldn’t speak entirely
in generalities. Important tasks should be defined
in detail, so applicants will know exactly what the
job requires. For instance, if the board expects the
executive director to attend all public hearings held
by a city planning agency and issue press releases
on the agency’s decisions, say so in the job descrip-
tion—don’t just list “public relations activities.”
Besides outlining basic job responsibilities, the
board should also make a list of any specific skills,
experience, or qualifications they want to see in
an executive director. For instance, an educational
nonprofit might want its executive director to have
teaching experience. A nonprofit dedicated to pro-
moting green space in urban centers might want
someone who has a degree in urban planning and
at least three years’ experience in the field.
The board should also at least discuss the more
subjective traits that they desire in their executive
director. Do you want an out-front cheerleader or
a more thoughtful, policy type? Although these
“softer” qualifications may be harder to define or
to agree upon, it’s a good idea to get them on the
table for discussion before interviewing candidates.
The more groundwork the board lays before seeking
prospects, the easier the evaluation process will be.
4. Developing a Review Procedure
Every nonprofit should have some type of process
in place to review the performance of the executive
director, generally on an annual basis. The incom-
ing executive director should be informed about
the evaluation process upon taking office—what it
involves, when it will occur, and who will do it—
which means that the board should come up with a
process ahead of time.
Because the executive director reports to the
board as a whole, all members of the board are
typically involved in the process of evaluation.
Often, a personnel committee will spearhead
the process. A common system is for each board
member to fill out a survey evaluating the executive
director’s performance. An evaluation committee or
one board member then compiles the surveys and
goes over the results in a review meeting with the
executive director. The outcome of the review will
typically depend on the substance of the evaluation.
For example, a salary raise might be in order if you
can afford it and the executive director is going
well beyond the call of duty. On the other hand, an
executive director who is having trouble with his or
her job might benefit from a list of areas that need
improvement and a detailed discussion of what it
will take to get back on track.
Should the Executive Director Sit on the Board?
It is generally not considered a good idea for an
executive director to be a voting member of the
board of directors. Perhaps the primary reason for
this is that the board is responsible for managing
and evaluating the executive director, so having
the executive director on the board creates a
conflict of interest. In addition, you risk serious
tension if the executive director votes against
other board members. Particularly if the board
votes on a tightly divided, contentious issue, an
executive director with board voting power faces
a lose-lose situation no matter how he or she
votes and is likely to strain relations with the other
board members who voted differently.
In addition, some state laws limit how
many staffers may sit on a nonprofit board.
In California, for example, at least half of a
nonprofit’s board must be made up of people
who are neither paid staff (including the
executive director, which is a staff position)
nor family members of paid staff. (California
Corporations Code § 5227.)
Some nonprofits allow the executive director
to attend all board meetings as if he or she were
a board member but do not give the executive
director voting rights. This is sometimes called
serving on the board ex officio—legal speak for
“nonvoting.”
5/ 1 0 STARTING & BUILDING A NONPROFIT
Don’t make promises you’re not prepared to keep. When you develop your review process, try to leave your options open. Don’t guarantee
that a good review will lead to a raise or promotion,
unless you are ready, willing, and able to follow
through. If your director gets a great performance
evaluation and asks for that promised raise, you’ll
have to give it—even if your nonprofit is struggling
financially—or risk a lawsuit for breach of contract.
The better course of action is to simply state that
you will review the director’s performance annually,
without going into detail about what rewards might
follow.
C. Hiring and Managing Staff and Volunteers
Whether the people who work for your non-
profit are paid staffers or volunteers, the executive
director (or whoever else fills this supervisory role)
must hire and manage them with care. Obviously,
it’s important to hire only those people who can
achieve the goals set for them. (Again, this pre-
sumes that goals have been set for workers before
you start the hiring process—as discussed in more
detail below.) These workers will also need ongoing
management to make sure they’re doing a good job
and dealing with any obstacles along the way.
Many nonprofits start off with all-volunteer help,
including board members. Dedicated volunteers
who are willing to carry out tedious but essential
tasks are often critical to a nonprofit’s survival in its
early days, when budgets don’t allow for paid staff.
When a young nonprofit is able to afford paid staff,
it’s undoubtedly an exciting day—even if just a few
part-timers are brought on board to stuff envelopes
or help with office work.
This section outlines a simple, systematic approach
to recruiting people to work for your nonprofit. The
focus of this approach is on creating clearly defined
positions and organizing them into an efficient struc-
ture. Remember, once pay comes into the picture,
the board usually hires an executive director or top
manager, who in turn hires staff, sometimes with the
advice and consent of a few key board members.
1. Determine What Tasks Need to Be Done
The first step in recruiting volunteers or hiring staff
is to clearly define what needs to be done. Do you
need help answering phones? Keeping databases
current? Organizing events? Planning the year’s work
schedule? Raising funds? The clearer the executive
director or other manager is about what needs to be
done, the easier it will be for workers to meet these
expectations.
When outlining tasks, focus on those that really
help accomplish the goals and objectives outlined
by the board. The task list should be realistic and
achievable based on the resources available, not
a massive laundry list that includes every activity
ever contemplated by the nonprofit. If the executive
director feels that the board is asking for too much,
too soon, or for some other reason finds the list get-
ting out of control, he or she may need to consult
the board and explain that its plans are unrealistic
based on the resources at hand.
2. Create Positions and Job Descriptions
With a solid and realistic task list in hand, the
next step is to group tasks together for each staff
or volunteer position. Certain activities will fall to-
gether naturally. For instance, the tasks of answering
phones, updating membership databases, managing
office supplies, and doing very basic bookkeep-
ing might combine well into one position. Hiring
and managing volunteers might similarly fall into
a distinct task set. Handling event details—such
as setting up and breaking down events and sign-
ing in event participants—is another set of tasks
commonly handled by the same person or people.
Once tasks are grouped together, you can create
job positions to handle those areas. The office tasks
mentioned above, for instance, could go to an office
manager. Tasks such as hiring and managing volun-
teers might well be headed by a volunteer coordina-
tor. Event assistance (set-up, break-down, participant
sign-in, and so on) might not warrant a permanent,
specific position, but could be handled by one or
more “event specialist” volunteers. Obviously, how
you define specific positions for your group will
YOUR WORKFORCE: STAFF AND VOLUNTEERS 5/ 1 1
depend on many different factors, including budget-
ing considerations.
It’s also a great idea to write out a formal job
description for each permanent position. Creating a
job description for each position not only will help
in the hiring process but will also be valuable when
it’s time to review the worker’s performance. Fortu-
nately, writing job descriptions should be easy if you
have created the position from a task-based to-do
list; the job description can simply restate the list in
slightly more polished form.
Another good reason to have formal, written
job descriptions relates to liability issues. If a staff
member or volunteer accidentally injures someone
or otherwise causes damage, it can sometimes be
unclear whether the accident happened while the
worker was doing nonprofit business. A formal job
description will indicate which activities are, in fact,
part of the worker’s duties. If the accident occurred
outside the scope of the worker’s job, then the
nonprofit generally won’t be liable for the accident.
(Chapter 7 covers liability issues in detail.)
Hire and Manage Your Volunteers Carefully
For many nonprofits, building a staff starts with recruiting volunteers. Thankfully for organi- zations all over the country, Americans are a charitable bunch. According to a U.S. Depart- ment of Labor survey, 63.8 million people—or 28.8 percent of the population—spent a median of 52 hours doing volunteer work between September 2002 and September 2003. (“Volun- teering in the United States, 2003,” U.S. Bureau of Labor Statistics, December 2003.)
Don’t make the mistake of thinking that you can be cavalier about recruiting and managing volunteers just because you’re not paying them any wages. All staff—paid or not—have the potential to expose the nonprofit to liability, so it’s essential that you hire only competent, responsible people. Liability issues aside, some volunteers may represent your organization to the public, putting your nonprofit’s reputation at stake. You’ll certainly want to recruit only those volunteers who demonstrate good judgment and people skills to be your public face.
For your day-to-day success, you’ll want to recruit capable, hardworking volunteers to get
the work done. Although it’s not realistic to
demand as much time or expertise from an un-
paid volunteer as you would from a paid staffer,
they certainly must be competent to do the
work. It may be difficult to turn away eager but
inappropriate volunteers, but you should just
say no if they don’t offer the skills or experience
you need. Remember, volunteers never really
come free; the costs of managing them—and
fixing their mistakes, if necessary—can really add
up. Getting rid of a troublesome volunteer will
almost surely take more time and cause more
headaches than never hiring him or her in the
first place. The good news is that developing even a small
volunteer workforce offers nonprofits a great opportunity to develop effective management habits. Especially if the board members of a new nonprofit have little or no management experi- ence, this is a good way to learn basic skills such as creating clear job descriptions, interviewing prospects, and monitoring performance. When it’s time to hire paid staffers, this experience will be invaluable.
5/ 1 2 STARTING & BUILDING A NONPROFIT
Personal Issues ... er, I Mean Personnel Issues in a Small Nonprofit
Giovanna Rossi is the Executive Director of
NARAL Pro-Choice New Mexico (www.pro-
choicenewmexico.org) and knows first-hand the
challenges of hiring staffers for a small nonprofit.
She offers the following perspective and advice
on how to rise to the challenge.
If you’ve mastered the art of dating, you’re
well on your way to understanding the personnel
puzzle. Finding and hiring qualified staffers that
fit well with your organization is surprisingly
similar to the dating game: You identify your needs
and then attempt to find someone qualified and
able to meet them. Of course, neither hiring staff
nor dating is easy. Here are my answers for the
questions that will likely haunt you at night as
you tackle the staffing game.
When is it right for me to enter into a relation- ship with someone?
You’ll know you’re ready when you can’t
imagine spending another 14 hours alone in
that office. However, you should never rush
into something just because you’re desperate
(that’s so unattractive). A good interview process
should include a minimum of two meetings and
a written exercise—not just a writing sample, but
an exercise directly related to the position you’re
filling and your organization’s work.
Why is it so difficult to find someone who fits what I’m looking for?
By the very nature of being a small organization,
staff must be multitalented (able to write a
research report and set up their own email
account), flexible (as in, “Yes, I know we said
we’d do that today, but one of our big donors just
called and wants to have lunch”), and have
compatible personalities (you don’t want five
introverts in the same office together).
Now that the timing is right, how do I know if he/she is “the one”?
Trial and error is the best policy; put her/him
on a three-month probation period, with clear
measurable goals and a weekly reporting system
so you can evaluate as you go.
What if it doesn’t work out? While it’s disappointing and can throw you
off track for a little while, don’t be too rattled.
Minimize the negative impact and get right back
into the game by hiring a temp or going through
the file of resumes that made it to the second
interview but did not get picked the first time.
When it’s a good fit, how do we develop a last- ing relationship?
If you demonstrate your willingness to
commit by offering positive feedback, more
responsibility, and leadership opportunities, you
will find she/he will rise to the challenge. And
be sure to complete the six-month and one-year
evaluations on time—do not put this off.
Why not avoid the pain and go it alone? Well, that would just be plain stupid.
Carefully selecting a staff person, and cultivating
and managing that relationship so that it’s mutu-
ally beneficial, is perhaps the most challenging
part of running a small nonprofit organization.
But the payoff is huge: Having quality staffers is
a major asset to your organization. Remember,
love at first sight is very rare; it can take several
attempts to find what you’re looking for.
YOUR WORKFORCE: STAFF AND VOLUNTEERS 5/ 1 3
3. Develop Staff Hierarchies
Progressive-minded folks sometimes look at staff
hierarchies as undemocratic or somehow oppressive.
Without getting into a treatise on the virtues or evils
of various types of power structures, suffice it to
say that a little structure goes a long way towards
ensuring the efficient operation of any organization.
That’s not to say that it’s necessary to create a multi-
layered, command-and-control reporting system. If
your nonprofit will have five or more regular staffers
(either paid or volunteer), however, it’s important
to take the time to designate clear lines of authority
and accountability. In small groups, this often means
that everyone reports to the executive director (or
the board president, in all-volunteer groups). As
the organization grows, you’ll probably want to add
a second layer of managerial accountability—for
example, to require the volunteers who run your
Canoes in the Creek program to report to the pro-
gram director, not directly to the executive director.
4. Create Review Procedures
As discussed in Section B, above, your nonprofit
should have an evaluation procedure in place before
hiring anyone. That way, new employees and key
volunteers know what to expect from the very first
day. The review procedure needn’t be complex; it
might simply identify who will participate in re-
views, when they will occur, and the criteria by
which staff and volunteers will be measured.
5. Create a Staff/Volunteer Handbook
Like the board guidebook discussed in Chapter 4,
a handbook for staff and volunteers serves a vital
role. A handbook gives everyone ready access to
important information about their jobs. Even more
important, creating a staff and volunteer handbook
is a powerful way to minimize the risks posed by
any paid or volunteer staffer that works for your
nonprofit. As discussed in more detail in Chapter 7,
a nonprofit’s potential risk of a liability or contract
lawsuit go way up as soon as you hire even one
employee or volunteer. Not only can that worker
potentially harm someone and expose the nonprofit
to a lawsuit, but he or she also could sue the non-
profit for a host of discrimination, wrongful termina-
tion, or other claims.
Creating a guidebook that outlines clear policies
for employees and volunteers will go a long way
towards minimizing these risks. To create a hand-
book, the executive director or top manager will
have to spend some time coming up with a set of
rules for workers to follow and procedures the non-
profit will use in dealing with workers. Facing and
answering these questions will help ensure that your
employment practices are sound. And compiling
these policies in a guidebook promotes positive staff
relations by demonstrating your nonprofit’s com-
mitment to fair treatment for all workers, according
to the same set of rules. By offering clearly stated
expectations and procedures for treating workers
consistently, a handbook provides a powerful deter-
rent to future workplace trouble.
A staff/volunteer handbook might start with the
nonprofit’s mission and history, then outline the
policies and procedures that apply to the staff and
volunteers. Your handbook can be much like the
ones typically used in for-profit companies, except
that yours will also specifically address volunteers.
Employee handbooks typically include information
on:
• hiring
• hours and flex time
• sick and vacation leave
• parental leave
• employee benefits
• performance review procedures
• workplace behavior
• health and safety
• employee privacy
• conflicts of interest
• discrimination and harassment
• grievance procedures, and
• termination.
Resources for creating your staff/volunteer handbook. While the details of creating a staff/volunteer handbook are beyond the scope of
this book, all nonprofits with any paid or volunteer
workers would be wise to take this task seriously. An
5/ 1 4 STARTING & BUILDING A NONPROFIT
excellent guide is Nolo’s Create Your Own Employee Handbook, by Lisa Guerin and Amy DelPo. This book walks you step by step through creating an
employee handbook, explaining the issues and
offering sample language you can modify to fit your
workplace. Creating Your Employee Handbook, by Leyna Bernstein (Jossey-Bass), is a do-it-yourself
guide designed especially for nonprofits.
Lots of new nonprofits find the prospect of creat-
ing a staff/volunteer handbook too overwhelming
in their harried early days. While this is under-
standable, it’s a good idea to tackle the task earlier
than later. Of course, it will be easier to create a
handbook before the staff grows large and complex.
Also, remember that while the articles of incorpo-
ration and bylaws cover basic personnel issues for
the board of directors, they typically don’t address
detailed staff management issues. It’s simply unwise
to have more than a few workers without a written
policy manual.
6. Orient New Workers
When staffers or volunteers come on board, it’s
important to take some time to introduce them to
your world. For efficiency’s sake, it’s a great idea
to create a standard orientation process—it could
be a video shown in a conference room, a short
meeting at a local café, a walk-through of the non-
profit’s office, or a get-together at a board member’s
house—to explain the ins and outs of working for
the nonprofit. If and when you have several workers
coming on board at once, you can save time by
orienting them as a group.
While all new workers should receive basic infor-
mation about the nonprofit’s mission and activities,
you’ll want to provide a more extensive orientation
for higher-level positions. For example, the board
may want to spend a significant amount of time with
the executive director—say, a series of meetings
over a few days—to make sure he or she really
understands what the nonprofit is about and how
the board wants it to be run. This might include
discussing the nonprofit’s history and any past prob-
lems that the board does not want to see repeated.
For regular staffers or volunteers, on the other hand,
this much information would be overkill. The point
here is to keep those whom you are orienting in
mind when deciding what information to include in
your orientation sessions.
A good starting point is to provide each new
worker with a copy of your staff/volunteer hand-
book. Beyond that, the type of orientation may well
depend on how many staffers or volunteers are
involved. If you’re starting out with just a handful
of staff or volunteers, perhaps a couple hours of
orientation followed by lunch might work. (Keep in
mind that it generally makes sense to have separate
orientation sessions for paid staff and volunteers.)
As your staff grows, you may want to have new
workers attend presentations by the executive direc-
tor and possibly others. Pairing new staffers with
experienced ones for a mentorship period is also a
good way to bring newcomers into the group.
D. Employees and Independent Contractors
There are two different types of paid workers: em-
ployees and independent contractors (ICs). Different
legal and tax rules apply to each, so it’s essential
that you understand the difference between the two.
If your workers fit the description of employees,
you’ll be subject to a number of state and federal
laws that must be strictly observed and taxes that
must be paid. If, on the other hand, your workers
can be characterized as ICs, you’ll be spared
many—but not all—of these requirements.
1. Laws and Taxes
The law puts all paid workers, whether at for-profit
or nonprofit firms, into one of two categories:
employees or independent contractors. (Unpaid
workers fall into another category, “volunteers,”
whose status is less firmly established in law. See
“Rules for Volunteers,” below, for an overview.) In
some situations, you may have some flexibility to
place paid workers in one category or the other. For
the most part, however, the law decides for you.
YOUR WORKFORCE: STAFF AND VOLUNTEERS 5/ 1 5
Rules for Volunteers
In the eyes of the law, volunteers are neither
fish nor fowl—they’re not employees or inde-
pendent contractors. This murky legal status
can be treacherous—if a worker is determined
to be an employee and not actually a volunteer,
a whole host of workplace laws (minimum
wage laws, overtime laws, and workers’ com-
pensation coverage, for example) and various
taxes may apply to that worker.
Courts that have considered whether a worker
is truly a volunteer have used an “economic
reality” test. This test considers factors such
as to what degree the worker is dependent on
the employer, and whether the worker had any
reasonable expectation of being compensated
for their work, either at the time they began
working or in the future.
While volunteers can be reimbursed for
out-of-pocket expenses and can even receive
“nominal” benefits, they cannot retain their
status as volunteers if they depend on this
compensation as a basic necessity. If a court
finds that a worker is dependent on food,
lodging, reimbursements for miscellaneous
expenses, or other compensation, a court may
determine that the worker is not truly a volun-
teer but rather an employee. This is definitely
a situation you want to avoid, at the risk of
having to pay back wages, taxes, and penalties.
Workers that qualify as true volunteers will
not be subject to many laws and taxes that
apply to employees. However, volunteers may
be protected by some laws, such as federal
or state workplace safety regulations. Some
states extend federal Occupational Safety and
Health Administration (OSHA) regulations to
volunteers, and others protect volunteers with
their own safety laws. In addition, some states
protect volunteers from workplace discrimi-
nation and/or impose other requirements on
those who employ volunteers. To find out your
state’s requirements, contact your state labor
department.
In a nutshell, an employee is someone who works
for you, on your site, with your tools and equipment,
and according to your rules and procedures. ICs,
on the other hand, are in business for themselves;
they work on their own time with their own tools
and often perform services for a number of different
clients.
This distinction is very important because anyone
who hires an employee (again, whether you’re a
nonprofit or for-profit company) is subject to a num-
ber of taxes, such as payroll tax and unemployment
tax, plus many state and federal legal requirements
governing pay, hours worked, time off, and so on.
By contrast, when you hire an IC, you have fewer
rules to follow and taxes to pay. If you treat a work-
er that the law clearly regards as an employee as an
independent contractor, you risk subjecting yourself
to a huge back-tax bill, plus interest and other state
and federal penalties.
2. IRS Criteria
To stay out of trouble with the IRS, you should
understand how it decides whether a worker is an
employee or an IC. Keep in mind, however, that
your state may have its own rules about classifying
workers, which might be stricter than or otherwise
different from the IRS rules. Because state penalties
can be at least as harsh as those imposed by the
IRS, make sure you also understand the rules in
your state. An experienced accountant should be
able to help you with this. Or contact your state’s
agency in charge of worker status rules—generally
your state’s labor (or unemployment) agency or tax
department.
The IRS has some guidelines it uses to decide
whether a particular worker should be treated as an
employee or an IC. As a general rule, the IRS says
a worker is an employee if you have the right to
control how the work gets done. The IRS considers
a worker to be an employee when he or she:
• works only for you and not for any other non-
profit or business
• works on your premises
• uses your tools and equipment
• follows work hours set by you
5/ 1 6 STARTING & BUILDING A NONPROFIT
• follows your instructions on how to complete
a job
• receives reimbursement for expenses incurred
in doing a job
• can be fired at any time, with or without good
cause
• supervises any of your other workers, or
• receives any employee benefits, such as holi-
day pay, vacation time, or health insurance.
On the flip side, the IRS says your worker should
probably be considered an independent contractor
if you “have the right to control or direct only the
result of the work done … and not the means and
methods of accomplishing the result.” (IRS Publica-
tion 15-A, Employer’s Supplemental Tax Guide.) The
IRS considers workers to be independent contractors
when they:
• work for a number of different nonprofits,
businesses, or clients
• are incorporated as an independent business
• have their own office, studio, garage, or other
permanent place to work
• use their own equipment and tools
• set their own hours
• use their own judgment as to how best to
complete a job
• don’t get reimbursed for expenses incurred in
doing a job, and
• advertise their services to the public.
If a worker you hire displays some characteristics
of both categories, it can hard to figure out how that
worker should be classified. Ultimately, you’ll need
to consider the factors outlined above, weigh them
against each other, and possibly get expert advice to
decide whether a worker should be classified as an
employee or as an independent contractor.
EXAMPLE: Debbie does a lot of freelance writing and editing for a nonprofit health care
foundation, The Health Trust. She works quite
a bit for The Health Trust, editing about six
big projects per year, but also does four or five
jobs per year for other nonprofits and for-profit
businesses. Debbie always works at home,
receives minimal instructions as to how to do
her work, and does her writing and editing
according to her own schedule. Debbie can
probably be categorized as an independent
contractor.
Another worker, Sascha, holds the title of
Editorial Writer at The Health Trust. He works
pretty much exclusively for the nonprofit,
though occasionally he takes on an outside
project, such as writing an article for a health
care magazine. Sascha works from home a
couple of days per week but has a desk and
computer at The Health Trust’s office. He works
closely with the editorial staff at The Health
Trust and has some management responsibility
over a couple of editorial assistants. The gov-
ernment is likely to see Sascha as an employee.
It would be risky to try to treat him as an inde-
pendent contractor.
In borderline situations, it’s safer to treat a worker
as an employee than to risk the penalties that may
result if the IRS or your state decides you’ve misclas-
sified an employee as an IC. The IRS and most states
tend to disfavor independent contractor status—
they’d much rather see borderline workers treated as
employees, so that the employer can withhold taxes
from their paychecks, than as ICs who are respon-
sible for reporting and paying their own taxes.
The IRS offers more information online and in
printed guides about how to distinguish employees
from independent contractors. Publication 15-A,
Employer’s Supplemental Tax Guide, offers more
specific information on classifying workers as
employees or ICs. IRS Publication 1779, Independent
Contractor or Employee, is a short fact sheet with
useful tips. Another source of information is the IRS
internal training manual, “Independent Contractor or
Employee?” While this guide is not legally binding,
it’s a useful window into how auditors determine
worker status. All these guides can be downloaded
from the IRS website at www.irs.gov (look in the
Small Business/Self-Employed section).
If you still can’t decide how one of your workers
should be classified, there are a few ways you can pro-
ceed. One is to consult a lawyer or an accountant
who understands business tax laws. Another option
is to go straight to the horse’s mouth and ask the
IRS or your state agency to tell you how it would
classify a certain worker. The IRS will classify your
YOUR WORKFORCE: STAFF AND VOLUNTEERS 5/ 1 7
worker for you if you file Form SS-8, “Determination
of Employee Work Status,” to request a formal ruling
on a worker’s status. You can get this form from
an IRS office or from its website, at www.irs.gov.
(Don’t be surprised if the IRS says your worker is an
employee!)
For a state determination, contact your state
employment or other agency that governs worker
classification and find out what procedure it uses.
Like the IRS, it’s common for state agencies to classify
workers as employees rather than independent con-
tractors. You’ll have to decide for yourself whether
to leave the determination up to these agencies or
decide how to classify your workers on your own.
E. Required Paperwork, Filings, and Taxes
When hiring any workers—employees or independent
contractors—you’ll need to deal with some bureau-
cratic tasks. As described below, you’ll have more
work to do when hiring employees than ICs, but
hiring independent contractors does trigger a require-
ment or two as well. This section outlines some tasks
to anticipate when hiring either type of worker.
1. Rules for Employers
A raft of legal and tax requirements kick in when
you hire your first employee. Most of these apply to
all employers, whether nonprofit or for-profit. Not
only will you have to pay a number of employment
taxes, but you’ll also need to register with several
government agencies, buy certain types of required
insurance, and comply with various federal and state
laws, such as those requiring you to keep a smoke-
free workplace and to post certain notices at your
nonprofit’s premises.
While the details of the many laws that apply to
employers are beyond the scope of this book, the
major requirements are listed below. If your needs
can’t be met by hiring an independent contractor
and you must hire an employee, you’ll need to
consult additional resources to make sure you com-
ply with the many state and federal laws governing
employers. (Some excellent sources of information
are listed below.)
In general, nonprofits with one or more employ-
ees are required to do the following:
• Comply with state and federal wage and hours
laws. The federal Fair Labor Standards Act
establishes a federal minimum wage (currently
$5.15 per hour) and rules for paying over-
time. Many states also have their own wage
and hour laws, and some impose a higher
minimum wage (or more generous overtime
rules) than the federal government.
• Obtain workers’ compensation insurance and
follow rules on notifying employees of their
right to workers’ compensation benefits. You
may typically purchase this insurance from a
state fund or from a private workers’ compen-
sation insurance company.
• Comply with state and federal job safety laws,
administered by the federal Occupational
Safety & Health Administration (OSHA) and
the agency in your state that governs work-
place safety. Among other things, these laws
require you to file an illness and injury pre-
vention plan, report work-related injuries and
illnesses that result in lost work time, and
keep a log of all work-related injuries and ill-
nesses. For more information about OSHA
regulations, visit the OSHA website at www.
osha.gov, or contact OSHA at U.S. Depart-
ment of Labor, Occupational Safety & Health
Administration, Office of Public Affairs, Room
N3647, 200 Constitution Avenue, Washington,
DC 20210, 202-693-1999.
• Withhold federal income taxes and FICA taxes
(Social Security and Medicare taxes) from
employees’ paychecks and periodically report
and send these withheld taxes to the IRS.
• Report wages and withholding to each
employee and to the IRS with Form W-2.
• Pay the employer’s portion of Social Security
and Medicare tax for each employee, based
on the employee’s wages.
• Withhold state income taxes from employees’
paychecks and periodically deposit them with
your state income tax agency.
• Pay federal unemployment taxes. It’s the
sole responsibility of the employer to pay
the Federal Unemployment Tax (FUTA)
5/ 1 8 STARTING & BUILDING A NONPROFIT
directly to the IRS; you may not deduct it
from employees’ paychecks. You must report
FUTA taxes paid annually on IRS Form 940,
Employer’s Annual Federal Unemployment
Tax Return.
• Pay state unemployment taxes (not in all
states). Most states require employers to pay
unemployment taxes, which go into a state
unemployment insurance fund. Generally,
you can take a credit against your FUTA tax
for amounts you paid into state unemploy-
ment funds. A list of state unemployment tax
agencies is available in IRS Publication 926,
Household Employer’s Tax Guide, available
from the IRS’s website at www.irs.gov.
If you’re overwhelmed by this list, you may want
to consider whether you can meet your needs with
a combination of paid independent contractors and
volunteers. At the very least, you shouldn’t jump into
hiring employees without having a very good reason
to do so.
Additional resources on hiring employees. Nolo publishes several books and other re-
sources on hiring employees. Everyday Employment Law, by Lisa Guerin and Amy DelPo, is an excellent introduction to the rules employers need to know,
including rules on overtime, workplace policies, and
antidiscrimination laws. For in-depth information
on laws affecting employers, see The Employer’s Legal Handbook, by Fred Steingold. For a guide to steering clear of legal problems with your employees,
check out Dealing With Problem Employees, by Amy DelPo and Lisa Guerin.
2. Rules When Hiring ICs
While hiring independent contractors is generally
much simpler than hiring employees (and avoids
several taxes), it does trigger some legal require-
ments. One of the main rules is that if you pay any
independent contractor more than $600 in a year,
you need to report those payments on Form 1099,
which you must send to the worker and the IRS.
If the IC is doing business as a corporation, you
don’t have to file a 1099 (unless the IC has formed a
medical corporation).
When hiring an IC, be sure to get basic informa-
tion for your records, both for reporting purposes
and to have as documentation in case of an audit.
At a minimum, make sure you get the IC’s business
name, address, and federal taxpayer ID number.
The easiest way to obtain this is to have the IC fill
out and sign IRS form W-9, Request for Taxpayer
Identification Number. You’ll keep this form in
your files; you don’t have to submit it to the IRS.
ICs that operate as sole proprietorships without any
employees may simply use their Social Security
number as their taxpayer ID. Other ICs will have
obtained an employer identification number (EIN)
from the IRS for their business. Either one is fine.
If you can’t or don’t obtain the IC’s taxpayer ID
number, you may need to withhold payments from
the IC and deposit them to the IRS. Called “backup
withholding,” this is required if you do not have
the IC’s taxpayer ID number and you pay the IC
$600 or more during the year. For more information
on backup withholding, see the instructions for
IRS Form 945, Annual Return of Withheld Federal
Income Tax.
Put your IC agreements in writing. While it may not be legally required, it’s always a
good idea to use a written contract when you hire
an IC. Besides helping to avert garden-variety con-
flicts over the terms of the job, having a contract
in place will also help you prove that the worker is
an independent contractor, not an employee. By
stating in your agreement that the worker is an inde-
pendent contractor, you are establishing an intent
to create an independent contractor relationship.
This may turn out to be helpful evidence in the case
of an audit. If all other evidence demonstrates that
the worker is an employee, however, that’s how
the IRS and your state will probably classify him
or her. Remember, the only true test of a worker’s
status is how the worker is actually treated. If you
treat workers as employees—require them to work
on site, define their hours, closely supervise their
work, and so on—merely calling them independent
contractors in your contracts won’t magically change
their status.
YOUR WORKFORCE: STAFF AND VOLUNTEERS 5/ 1 9
More resources on independent contractors. For detailed information about hiring inde-
pendent contractors and sample IC contracts, see
Working With Independent Contractors, by Stephen
Checklist: Your Workforce: Staff and Volunteers
Decide what type of management strategy will work best for your nonprofit. In general,
the more activities and workers you have, the
more structure you’ll need to manage them.
Outline the tasks that need to be done, group them into logical sets, and create staff posi-
tions.
Write out a job description for each position.
Outline a hierarchy of positions within the organization, indicating who reports to
whom.
Create policies for performance reviews.
Create a user-friendly handbook for your staff and volunteers containing information about
the nonprofit and all important workplace
policies.
Orient new workers soon after hiring them.
Familiarize yourself with the legal differences between employees and independent con-
tractors. Don’t avoid the obligations of having
employees by misclassifying your workers as
independent contractors.
Make sure you’re ready to take care of all the legal, bureaucratic, and tax requirements that
apply to employers before you hire your first employee.
■
Fishman (Nolo). Also check out Nolo’s website
at www.nolo.com for free information and other
resources on hiring independent contractors.
C H A P T E R
1 Chapter 6
Fundraising
A. The Golden Rules of Successful Fundraising ....................................................... 6/3
1. Relationships Are Everything ............................................................................ 6/3
2. Target the Best Potential Donors ....................................................................... 6/3
3. Build a Compelling and Detailed Case ............................................................ 6/4
4. Put Your Board of Directors to Work ................................................................ 6/4
5. Focus on the Big Picture ...................................................................................... 6/5
B. Your Fundraising Plan ................................................................................................ 6/5
C. Define Your Fundraising Targets and Budget ........................................................ 6/6
1. Fundraising Targets .............................................................................................. 6/6
2. Fundraising Budget .............................................................................................. 6/7
D. Find Prospective Donors ........................................................................................... 6/8
1. Start With Your Closest Contacts ...................................................................... 6/8
2. Use Networking Techniques .............................................................................. 6/9
3. Keep Your Lists Organized and Updated ....................................................... 6/10
E. Define Your Fundraising Campaign ...................................................................... 6/11
1. Membership Drives ............................................................................................ 6/12
2. Fund Drives .......................................................................................................... 6/13
3. Capital Campaigns ............................................................................................. 6/14
4. Planned Giving .................................................................................................... 6/14
F. Fundraising Tools ...................................................................................................... 6/14
1. Asking for a Gift by Phone, by Email, or in Person ....................................... 6/15
2. Direct Mail ........................................................................................................... 6/19
3. Special Events ...................................................................................................... 6/22
4. Sell Products or Services ................................................................................... 6/22
6/ 2 STARTING & BUILDING A NONPROFIT
G. Funding From Grants ................................................................................................ 6/25
1. Researching Available Grants ........................................................................... 6/25
2. Writing Grant Proposals .................................................................................... 6/26
3. Corporate Sponsorships ................................................................................... 6/27
H. The Law of Fundraising ............................................................................................ 6/28
1. Disclosures to Donors ....................................................................................... 6/28
2. Charitable Solicitation Registration and Reporting ..................................... 6/29
I. Working With Professional Fundraisers ............................................................... 6/30
FUNDRAISING 6/ 3
O nce you’ve developed your strategic plan
and initial budget, and brought in some
people to get your organization up and
running (with the help of the previous chapters),
it’s time to figure out how to raise the funds you
will need to reach your goals. This chapter will help
even the least-experienced fundraiser understand
how to approach the fundraising process, from
overall strategies to specific methods for bringing in
money. Even if you’ve already thought about how
and where your organization will get funding—or,
better yet, you’ve already lined up donors who are
willing to provide the necessary start-up money—
this chapter will help you turn your preliminary
ideas into a solid fundraising plan for your organiza-
tion.
Want detailed information on fundraising strategies? This chapter provides the basic information you’ll need to know about fundraising
as you get your nonprofit off the ground. Once
you’re ready to kick your fundraising machine into
gear, however, you will want more detailed informa-
tion on fundraising strategies, methods, budgeting,
planning, and more. You’ll find everything you need
in Effective Fundraising for Nonprofits: Real-World Strategies That Work, by Ilona Bray (Nolo).
A. The Golden Rules of Successful Fundraising
Before you can begin drafting a fundraising plan,
you’ll need to know some fundamental fundraising
rules. Whether you’re trying to raise a few hundred
dollars or a few hundred thousand, following these
five tried-and-true strategies will help you stay
focused on your best prospects and improve your
chances of success.
1. Relationships Are Everything
Any professional fundraiser will tell you that the
most successful fundraising efforts are built upon
ongoing relationships with donors. Just as repeat
customers are crucial to the success of most small
businesses, committed supporters are essential to a
nonprofit’s success. The average American is asked
for money dozens, if not hundreds, of times per
year, to which he or she will almost always respond
“No.” As you well know, converting this “No” to a
“Yes” is not an easy task; even the most persuasive
canvasser or telemarketer probably won’t be able to
change your mind if you’re just not willing or ready
to donate. But once you donate to an organization
for the first time, your mindset has changed. All of
us are much more inclined to support an organiza-
tion we have come to know and trust.
Because these ongoing relationships are so impor-
tant, you should make every effort to build strong
connections with your first-time donors so they con-
tinue to support your organization in the future. A
prompt thank-you note is an obvious starting point
for building this relationship; other methods of rec-
ognizing and encouraging supporters will vary from
one organization to the next. But your fundamental
goal is always the same: to nurture a strong, posi-
tive relationship with your supporters, so they find
it a pleasure to support your group. If your support-
ers feel appreciated and believe the organization is
doing good work, they gain something, too—pride
and goodwill from contributing to your nonprofit’s
efforts (and perhaps a tax write-off as well).
Contributors can provide more than just money. Besides the valuable funding they provide, long-term contributors may offer many
other means of support for your organization,
including positive word of mouth, willingness to
volunteer, and networking opportunities with their
own contacts.
2. Target the Best Potential Donors
It’s important to focus your fundraising efforts on
your most likely supporters, not on the whole wide
world of people and groups who might possibly
contribute to your organization. Few nonprofits
have the resources to send out hundreds of direct
mail appeals or blanket the television or radio air-
waves with requests for support. Asking the right
people—and using the right appeal for the people
you approach—is key to cost-effective fundraising.
The best fundraising uses an “inside out” approach,
focusing on those closest to the organization first
6/ 4 STARTING & BUILDING A NONPROFIT
and then widening the scope to target additional
prospects. The board of directors and their close
contacts, for example, should be the first people you
solicit for funds, not the last. There may be great
prospects “out there,” some of whom might turn out
to be deeply committed and generous supporters,
but it makes more sense to begin spending your
limited fundraising resources on the contacts closest
to home.
Once you identify your targets, it’s also important
to spend some time figuring out what type of appeal
is most likely to resonate with them before you ask
them to donate. The better you understand the inter-
ests and motivations of your prospective donors—in-
dividuals, corporations, and foundations alike—the
better you’ll be able to tailor your fundraising ap-
peals to reach your target audience. (Finding pros-
pects is discussed in greater detail in Section D,
below.)
3. Build a Compelling and Detailed Case
When you ask potential donors for money, you
must have an absolutely compelling reason for why
they should support your organization. Why should
donors reach into their pockets and give your group
money they could spend on themselves or give to
thousands of other good causes? As countless failing
nonprofits have learned, just stating that your orga-
nization works for a worthwhile cause is unlikely
to result in a pledge of support. To get people to
donate now, it’s best to convey a pressing need, a
sense of urgency, and a specific program or project
for which their donations are needed.
EXAMPLE: FoodAid, a nonprofit dedicated to sending food to drought-stricken developing
countries, is creating a fundraising brochure.
The office manager drafts the following text:
“FoodAid’s mission is to provide food to
starving people in underdeveloped areas
stricken by drought. To carry out its mission,
FoodAid needs your support. Please consider a
tax-deductible donation of $50 to help us feed
the hungry.”
One board member (who happens to be
a marketing copywriter) suggests that the
brochure would be much more powerful if it
conveyed a sense of urgency and provided spe-
cifics. He rewrites the draft to read as follows:
“FoodAid is committed to providing food
shipments to starving people in underdeveloped
areas stricken by drought. Without our food
shipments, hundreds of children and adults will
starve to death each year. We are currently in
need of funds for a Spring 2005 food shipment
to Brazil’s drought-plagued Nordeste region,
which is home to one-third of Brazil’s popula-
tion. Your tax-deductible donation of $50 will
help us get the next shipment of food to those
who desperately need it.”
Many nonprofits have a variety of fundraising
drives in any given year, some tailored to meet
specific needs and some more general in nature.
No matter what type of campaign you’re planning,
it’s important to convey more than just your overall
mission to potential donors—they want to know
why you need money. By conveying a sense of
urgency in your appeal, you are more likely to
engage potential supporters and convince them to
help.
Randolph Belle—Director of Information, East Bay Nonprofit Center, Oakland, California
Fledgling nonprofits should test the merits and
effectiveness of their program early on—aim to
create a success story. It’s much easier to raise
money when you can point to specific things that
you’ve done and successes you’ve achieved, rather
than merely talking about what you have a mind
to do.
4. Put Your Board of Directors to Work
A nonprofit’s directors should be crucial players
in the fundraising process. By agreeing to join the
board, each member has made a commitment to
keep the organization on track, which includes
maintaining sound finances. At a minimum, board
members should help locate and contact prospective
donors in your community. This is especially
important for fledgling nonprofits that haven’t had
FUNDRAISING 6/ 5
the chance to develop relationships through their
accomplishments. When a nonprofit has a short
or nonexistent track record, its fundraising efforts
depend largely on its board members’ relationships
in the community. All board members must under-
stand this important role before they join the board
so they will be active in forging relationships with
key fundraising targets.
Board members can take different fundraising roles. While some board members will be better rainmakers than others, all should be
involved in some aspect of the fundraising process.
If a board member is very uncomfortable asking
people for money, he or she could focus on creating
fundraising materials or planning an event. No
matter how they choose to participate, all board
members should play a part in fundraising, whether
behind the scenes or leading the charge.
Board members also typically help with fund-
raising by donating their own money to the organi-
zation. While you never want to exclude talented
people from your board simply because they can’t
donate at a high level, board members should be
among the first to contribute their own money to
the nonprofit, in an amount they can afford. This
not only provides crucial start-up money in a non-
profit’s early days, but it also demonstrates to other
potential donors that the board members are strong-
ly committed to the organization.
In fact, foundations, government agencies, and
other institutional donors commonly ask how much
money the board contributes to the organization.
Ideally, all members of the board should contribute
at a level higher than your standard suggested con-
tribution. Of course, this may not always be possible,
but the closer you can get to this ideal, the better.
5. Focus on the Big Picture
Always develop your fundraising goals with the big
picture in mind, not just to meet your group’s imme-
diate needs. Fundraising is an ongoing process, not
a one-time event. The most effective fundraising plan
will consider factors beyond immediate expenses; it
will anticipate upcoming events or expected accom-
plishments and plan appropriate fundraising activities
to support and capitalize on those events. Your
fundraising efforts and your strategic plan should
dovetail neatly so that you raise enough donations
to fund your activities, and your activities, in turn,
create opportunities for future fundraising.
Also keep in mind that it’s easier to raise money
with an impressive success story under your belt.
For example, a fledgling nonprofit with minimal
funds might plan to accomplish some meaningful
(yet inexpensive) tasks early on so that it can point
to those accomplishments when embarking on its
first large-scale fundraising activity.
B. Your Fundraising Plan
Because successful fundraising involves a swarm
of large and small details (from deciding on
fundraising tools to determining who will design the
brochure and update the mailing list), it’s crucial to
establish a solid and clear fundraising plan: a priori-
tized list of tasks you’ll need to accomplish to fund
your activities successfully. The list below outlines
some basic steps you’ll have to take to develop a
fundraising plan. Of course, each organization is
different and your approach may differ somewhat,
but most nonprofits will need to tackle the following
tasks in one way or another:
1. Determine your needs and your fundraising budget. Before you can decide how to raise funds, you’ll need to decide how much you
must raise and how much you are willing and
able to spend to execute your fundraising
efforts.
2. Compile a detailed list of prospects. You’ll need to identify who should be at the center
of your fundraising efforts and who should
be lower-priority targets. Most nonprofits seek
funds from individuals, businesses (big and
small), foundations, government agencies
(local, state, and federal), and any other entities
that may be interested in funding their efforts.
3. Define your overall campaign. Decide how many and what type of fundraising “pushes”
you’ll hold each year. For instance, a nonprofit
may develop a plan to hold one membership
6/ 6 STARTING & BUILDING A NONPROFIT
drive, apply for three grants, and hold one
fundraising event, supplemented by two issue-
oriented special appeals each year.
4. Choose your fundraising tactics. Decide how you’ll reach your potential contributors—for
example, through direct mail, email, street
fairs, or door-to-door canvassing.
5. Research corporate and government funders and learn their applications processes. If you plan to apply for grants, you’ll need to learn
about the funding priorities of the grant-givers
and their rules and deadlines for applying for
funds.
6. Assign duties. Once your plan is well defined, you’ll need to delegate the various tasks to
your staff and volunteers.
7. Raise those funds! Planning only takes you so far—at some point, it’s time to roll up your
sleeves and get to work.
The rest of this chapter looks at each of these
tasks in greater detail.
Michael D. Hohner—Fundraising consultant and President of Hohner & Company, LLC in Oak Creek, Wisconsin
I have worked in the nonprofit field for more
than 30 years—the last ten as a fundraising
consultant—so I have worked with dozens and
dozens of nonprofits in education, health care,
social services, and the arts. To be successful in
fundraising, it’s important to start with a good
plan and to involve talented and connected
people in executing it.
Fundraising works best when it is mission-
driven. Make certain your staff, volunteers, and
donors all know and believe in your organiza-
tion’s mission. Then, you can’t fail.
C. Define Your Fundraising Targets and Budget
Start your fundraising plan by figuring out how
much money you need to raise and how much you
can spend on your fundraising efforts. The amount
of money you need will greatly influence the
strategies you use to raise it. Raising $5,000 to feed
the pets of homeless people will require a vastly
different approach from raising $5 million to build a
center to care for homeless people themselves.
Remember that you won’t pocket every penny
you raise—you’ll need a reasonable budget to carry
out your fundraising campaign. Printing costs, post-
age for mailings, and rental fees for special events
are a few typical fundraising costs you may face.
Unfortunately, you will probably have to pay at
least a portion of these costs up front, before you’ve
brought in your first dime of donations.
Randolph Belle—Director of Information, East Bay Nonprofit Center, Oakland, California
Remember to create a sound model for success.
Don’t base your initial budgeting and planning
on giving everything away for free. Draft a
budget by accounting for all anticipated expenses
and possible revenue; the difference is your
fundraising goal.
1. Fundraising Targets
Start your planning with the most basic question:
How much money are you trying to raise? Chapter 3
explained how to draft an initial budget, which should
give you a pretty good idea of how much money
you need to raise. If your budget includes an expect-
ed $5,000 in membership revenues, $10,000 in grants,
and $2,500 in special events, then a portion or all of
these amounts may be your fundraising target. How
much you’ll seek in any given fundraising campaign
will depend on how many and what types of cam-
paigns you plan to have each year.
For example, say your nonprofit has budgeted
an expected $3,500 in membership fees and $7,500
in sponsorships. If you plan to have two mem-
bership drives per year, you might set a target of
$2,000 for your first drive—more than half of the
total budget in order to jump-start the membership
income—and $1,500 for the second. Similarly, if you
plan four sponsorship solicitations per year, you
could set equal targets of $1,875 for each. If your
first fundraising campaign of the year included a
membership drive and a sponsorship solicitation, the
overall target for the campaign would be $3,875.
FUNDRAISING 6/ 7
How to define and execute your fundraising
campaigns is discussed later in this chapter.
The goal here is simply to come up with your
fundraising targets, which will depend largely on
your overall budget. Your budgeted income esti-
mates will be the foundation for your fundraising
targets.
Sometimes a nonprofit suddenly needs to raise
money for something specific that wasn’t included
in the budget, such as the cost of defending a law-
suit or the cost of a new computer to replace one
that was stolen. In this case, your fundraising goal is
defined for you: You’ll have to raise enough money
to cover your pressing financial need.
2. Fundraising Budget
Once you’ve estimated how much money you’ll need
for your start-up costs, programs, overhead, and
capital expenses, you’ll need to figure out another
piece of your budget puzzle: how much money you
can and should spend on your fundraising plan.
While creative planning can keep fundraising costs
low, most nonprofits will need to spend at least
some money in order to make money. This section
will help you assess your resources and come up
with an efficient and realistic fundraising budget.
a. Evaluate Your Resources
Most fledgling nonprofits don’t have the luxury of
simply deciding how much to spend on fundraising.
Rather, their fundraising budgets will be defined by
the cold, hard reality of their limited resources. For
example, if your nonprofit needs to raise $1,000 for
its 501(c)(3) application fee and a computer, you’re
in no position to launch a direct mail campaign that
could cost thousands of dollars to implement.
One way to keep costs down when developing
a fundraising budget is to recognize and use non-
monetary resources. When you have limited cash,
focus on the other resources available to you,
including nonmonetary resources and “in-kind”
donations such as a volunteer who can attract other
volunteers, a personal connection to a journalist, or
a supporter who owns a printing business and will
donate the production of your first brochure. Ideally,
this grassroots style of fundraising will allow you to
achieve some noteworthy results, attract more funds,
and put you in a better position to launch a bigger,
more expensive fundraising campaign the next time
around.
EXAMPLE: The Citizens for a Green Down- town (CGD) is a new nonprofit that needs
money to buy computers and printers for their
offices. The board of directors puts together
a fundraising plan and budget centered on a
direct mail campaign. No matter how conserva-
tive the board is with its estimates, the costs
of producing the direct mailing—including
graphic design, printing, postage, and fees for
mailing lists—are discouragingly high.
The board decides to change course and
puts together a list of resources they have or
are confident they could get to offset the cost
of the direct mailing. One board member knows
basic graphic design, so he volunteers to create
a simple brochure to use when approaching
prospective donors. Another board member,
who has a high-quality color photocopier at her
business, offers to copy and fold 100 brochures.
Several board members have close connec-
tions with the director of a downtown farmer’s
market, who might let them use a booth for
free for one month to promote the nonprofit
and solicit funds from shoppers. This would
allow CGD to reach the public without having
to send a mailing. One board member offers
to organize volunteers to staff the booth dur-
ing the market. While such exposure would
normally be cost-prohibitive, the group can pull
this one off without laying out any cash.
b. The Cost of Fundraising
You should do everything you can to keep your
fundraising costs low. It’s important for your budget,
and for public perception, that your fundraising
costs don’t eat up a huge chunk of the total amount
of money you raise. Although there is no legal rule,
your fundraising costs should be no more than
about 25% of your funds raised. This is especially
true if you plan to approach foundations, govern-
6/ 8 STARTING & BUILDING A NONPROFIT
ments, or other sophisticated major donors, who will
want to see that most of the money you raise goes
towards your nonprofit’s mission and not towards
more fundraising.
The cost-effectiveness of fundraising methods
varies greatly. Holding a special event is an expen-
sive way to raise money, as the cost of putting one
on can eat up 30, 40, or even 50% of the funds it
generates. At the other end of the spectrum, ask-
ing ten well-connected supporters to fire up their
Rolodexes and call likely contributors can bring in a
significant sum at almost no cost to the organization.
In the middle of the spectrum, a targeted direct mail
campaign to a carefully selected mailing list can be
cost-efficient if you can keep printing costs low.
When pricing proposed fundraising efforts,
be sure you account for all of the costs involved.
Obvious costs include postage, printing, paper,
packaging, telephone bills, and mailing lists. Other
costs you may not anticipate include fees for writers,
graphic designers, website developers, consultants,
and accountants.
Nonprofit Accounting Rules
Funders like to see a low percentage of
a nonprofit’s total budget dedicated to
fundraising efforts. As a result, many
nonprofits take advantage of flexible non-
profit accounting rules that allow certain
fundraising costs to be categorized as
public education costs. For instance, a non-
profit may assign some of its fundraising
costs to “education and outreach” because
fundraisers discuss issues with potential
donors and ask them for nonmonetary
help—to sign a petition, for example. Your
treasurer (and anyone else who’s helping
with the books) will need to know a wide
range of accounting rules to figure out how
best to categorize your expenses. Chapter
11 covers nonprofit accounting in greater
detail.
D. Find Prospective Donors
Even the most creative fundraising pitch won’t
raise a dime if nobody hears it. A key step in every
fundraising campaign is to build a list of names and
contact information for the individuals, businesses,
foundations, and organizations you will ask for
donations. While this sounds simple enough, many
new nonprofits don’t know where to start or how to
prioritize. This section discusses some simple ways
to develop lists of prospective donors.
A whole profession has grown around nonprofit
fundraising, including nonprofit consulting busi-
nesses that focus exclusively on developing pros-
pect lists. As you can imagine, these services don’t
usually come cheap. Similarly, renting mailing lists
from other groups has evolved into a profitable
industry of its own, one that can be prohibitively
expensive for new nonprofits. This section leaves
these topics for other resources to cover and, in-
stead, focuses on cost-effective, grassroots methods
of finding potential financial supporters.
Start with individual donors. Statistics consis- tently show that the vast majority—roughly
80%—of charitable dollars given in the United
States comes from regular individuals, not from wealthy corporations or foundations. This is good
news for new organizations with minimal contacts
or institutional clout, which often find it tough to
attract contributions from large organizations. Of
course, if you have such contacts, go ahead and
solicit the big guys. But never overlook the giving
power of individual donors—and take advantage of
their generosity by making your appeals to them a
priority in your fundraising plan.
1. Start With Your Closest Contacts
When developing your prospect lists, it’s best to
start with those closest to your organization and
branch out from there. Ideally, your board mem-
bers will have many contacts in the community and
will be able to provide most of the names for your
initial list. Staffers and volunteers are also likely to
know people interested in your cause, so be sure to
consult them when you gather names.
FUNDRAISING 6/ 9
The best board members are those with
contacts in the community. Your board
members should take an active role in hunting for
prospective donors by collecting contact informa-
tion, asking their contacts for additional names,
and otherwise shaking leads from the trees. Refer
to Chapter 4 for more information on how to build
a strong board with members who are both well
connected and willing to pitch in with fundraising
efforts.
One way to jump-start your quest for prospects is
to ask every board member, staff person, and volun-
teer to provide the names of ten people who might
be willing to donate to your organization. Start by
including anyone who would be likely to contribute
a minimum amount—perhaps $25 or $50. Later, you
can identify anyone on your list who might be will-
ing to make a larger contribution, put those names
on a separate list, and tailor a separate appeal to
these high-dollar prospects.
For example, once you’ve generated a list from
everyone’s ten contacts, you might notice that it
includes a few successful and prominent business
leaders who could likely afford at least a $500 gift.
If you send them a regular appeal letter, they may
donate $50. But if you create a separate appeal for
potential large donors asking for $500; $1,000; or
$2,500, you may find that they open their wallets
much wider.
While your most well connected sources might
be able to supply 50 good leads, others may be hard
pressed to come up with ten. If so, encourage them
to think broadly. Thinking creatively about who
might support your group is a good way to build
bridges to new communities that you might not have
considered otherwise.
For many fledgling nonprofits, asking initial
supporters to compile lists of people and businesses
to solicit will often generate enough prospects to get
you started. If you are short of prospects, it may be
a sign that you could use an extra member or two
on your board—preferably ones whose Rolodexes
are overflowing with names of potential supporters.
2. Use Networking Techniques
If you need more leads beyond those generated by
people close to your group, some simple networking
techniques may do the trick:
• Attend community events, particularly those related to your mission. Talk with people about your group and get contact information
from anyone who seems genuinely interested.
Bear in mind that many people may be
annoyed if your only follow-up is to ask them
for money. Instead, stay in touch with them
about other issues, invite them to a meeting,
or ask for their input on your strategic plan.
• Ask those who run other nonprofits in your area whether they know people who might be interested in your cause. Other groups often have valuable contacts or large member-
ships of proactive people. While they might
not freely hand over their membership lists,
they might be happy to allow you to make
a presentation at their next meeting, where
you could meet good contacts and possible
donors.
• Organize a small, informal get-together. You can easily arrange informal social events by
sending out an email invitation to your group
and encouraging people to forward the invita-
tion to others they think might be interested.
Set up coffee at a board member’s house or
a happy hour gathering at a local pub. It’s a
fun, inexpensive way to make new contacts
and introduce them to what your group does.
Many of these new contacts might turn out to
be great fundraising leads.
Need more information on networking and marketing? Chapter 9 explains how to get the word out about your nonprofit effectively and
inexpensively. Because fundraising depends on
having good contacts in the community, effective
networking and marketing will really boost your
fundraising efforts.
6/ 1 0 STARTING & BUILDING A NONPROFIT
3. Keep Your Lists Organized and Updated
It’s important to continually update and organize
your prospect lists as you pursue your fundraising
goals. When you execute a membership drive or a
phone-a-thon to raise funds, you must keep careful
records of whom you contacted, what methods you
used, and what results you achieved. Obvious items
to track are whether a prospect gave money (and, if
so, how much) and whether the prospect asked not
to be contacted again. You should also keep track
of more subjective information, such as whether the
prospect expressed interest in a certain program
area or offered to volunteer.
The best way to keep track of your prospects is
with database software such as FileMaker Pro or
Microsoft Access. Database software gives you a
high degree of control over your records by allow-
ing you to organize them in countless ways, without
having to reenter data each time you want a new
list. You can set up your database to select and
organize particular information on some or all of
your prospects to meet your immediate needs. For
example, you can generate:
• mailing labels for the whole group
• mailing labels for a subsection of the group—
for example, just those marked as “major
donor prospects”
• names, phone numbers, and comments about
personal interests for the whole group or a
subsection of the group, which your phone
solicitors can use when making their pitches
• names of any donors who have given more
than $100 in the past year
• names and phone numbers of prospects
interested in volunteering, and
• any other list based on items you ask the
program to track.
While database software for large, complex
operations can cost thousands of dollars, many
basic—yet powerful—programs are quite reasonably
priced, generally around $300. Once it’s set up,
database software is fairly easy to use—but setting it
up isn’t always easy. If no one at your nonprofit has
the necessary expertise, you can hire a consultant
to install and set up the database for you. If you
will be managing a lot of names, it makes sense to
invest some time and money into setting up a good
database at the outset; this will make your operation
much more efficient down the road.
The alternative to using true database software is
to keep track of prospects (and any other records,
for that matter) in basic spreadsheets, like those you
can create with Microsoft Excel. While spreadsheets
can help you organize your lists, their sorting and
grouping functions are more limited. You will
likely end up doing a fair amount of retyping or
cutting and pasting information every time you
need different information for a fundraising task.
Basic database software will automatically sort your
records much more efficiently.
For in-depth information on researching and developing prospective donors, check out Successful Fundraising, by Joan Flanagan (Contem- porary Books).
Michael D. Hohner—Fundraising consultant and President of Hohner & Company, LLC in Oak Creek, Wisconsin
Fundraising is never easy since thousands of
nonprofits pursue many of the same donors for
contributions. Beyond identifying the people who
could become potential donors to your organiza-
tion (individuals, corporations, foundations),
it’s essential to learn all you can about them.
Cultivate them by teaching them about your orga-
nization and involving them in some meaningful
way. Ask them for a specific dollar amount, and
then thank them profusely for their talents and
treasures.
FUNDRAISING 6/ 1 1
Know Your Prospective Donors
People give money to charitable causes for
numerous reasons. Some may share a passion
for your ideals or a commitment to your goals,
but others may have different motivations. A
local business owner may think donating to
your organization will generate good public
relations or free advertising that will increase
customers. Other donors may give because it
makes them feel important or proud. And, of
course, some donors contribute because they
want a tax write-off. Even the giving decisions
of foundation, government, and corporate
grant givers may be swayed by factors such as
internal politics and personal connections.
So how do you figure out what will make
your potential funders open their wallets?
With individual donors, it’s often a matter of
keeping your ears open and tuning into the
issues that drive them to give. With corpora-
tions and funding institutions, a bit of research
can yield valuable information. There are
countless resources, both online and in print,
that contain information on where foundations
give their money—even your local newspaper
might publish reports of grants given by local
corporations. Most foundations publish their
own reports or provide public information on
their priorities and interests.
Networking is another good way to gather
this kind of information. For example, ask a
program officer at a foundation to which you
are applying about the foundation’s interests
and criteria. Talk to other organizations that
have dealt with the funder you’re researching
—you can get useful information from others
who have gone down the path ahead of
you. The more you know about your potential
funders’ giving habits, the better you can tailor
your approach.
E. Define Your Fundraising Campaign
A coherent, coordinated approach to raising money
will always be more effective than a scattered series
of individual solicitations. Defining a fundraising
campaign means choosing an overall concept to
guide your specific fundraising activities. For example,
rather than having board members schedule ad
hoc lunch meetings with representatives of local
businesses that might contribute, coordinate such
meetings as part of an annual fund drive. Besides
yielding a more efficient fundraising machine, a
coordinated approach will help you avoid duplicat-
ing efforts and annoying potential donors by solicit-
ing them more than once.
Never ignore a fundraising opportunity. While it’s best to coordinate your fundraising efforts into one or more campaigns each year, don’t
fail to pursue leads just because they’re not part
of your overall fundraising plan. For example, if a
board member happens to talk with an officer of
a local bank who expresses interest in supporting
the organization, by all means jump at the opportu-
nity—don’t wait until the next fundraising drive to
pursue this lead.
One of the most common fundraising campaigns
is an annual membership drive and renewal program
that seeks dues-paying members. Some nonprofits
prefer not to have members and simply solicit
donations instead of membership fees. Other
types of fundraising campaigns include capital
campaigns (to pay for major expenses) and planned
giving programs (to encourage donors to include
an organization in their wills), although start-up
nonprofits rarely use such campaigns due to the
considerable time and expense they require.
Within any type of fundraising campaign, a
nonprofit can use several different fundraising
tools. For example, a nonprofit holding an annual
membership drive might use direct mail, telephone
solicitations, and special events to execute the
campaign. Fundraising tools are covered in Section
F, below; this section focuses on some common
types of fundraising campaigns.
6/ 1 2 STARTING & BUILDING A NONPROFIT
1. Membership Drives
You’ve probably been asked to become a member
of a nonprofit organization such as your neighbor-
hood association, a business trade group, the AAA
auto association, or an environmental group. Offer-
ing memberships in your group is a great way to
develop a relationship with your supporters—and
collecting membership dues is also a tried-and-true
way to bring in funds. However, it also implies that
you will offer benefits to members, which may not
be possible with your current resources.
a. Membership Benefits
When you ask people to join your group, you convey
a different message from when you simply ask them
for a donation. Asking people to join—as a member,
sponsor, supporter, or whatever you name it—im-
plies that your nonprofit will offer them something
in return. Offering some sort of benefit to attract
dues-paying members can be particularly useful for
smaller groups without a proven track record. As
you decide whether to have members, think about
what benefits you could offer members and how
you will involve them in your group’s activities.
The benefits and types of involvement that will
resonate with your members vary greatly from one
organization to the next. You could, for example,
offer something of value to your members, such as
a tote bag, a discount card for local restaurants, a
free email account, or a free newsletter subscription.
Or, you could offer members the opportunity to be
included in the strategic planning process each year
or invitations to members-only events. No matter
what type of incentive you offer, you should be
sensitive to the fact that members will expect to feel
included in your work; make sure your members
feel rewarded and inspired by their participation.
Pay attention to members’ comments. In addition to deciding what benefits and
involvement in your group you will offer members,
you should work out a system to solicit feedback
from members. Because they are interested in your
cause and familiar with your group, members can
offer valuable input on a variety of topics, from how
to reach additional supporters and tailor your solici-
tations to particular groups of donors, to what color
t-shirts make the most desirable membership gift.
Members will appreciate your interest in their con-
cerns, and you could gain some important insights
that will help you better appeal to your current and
potential supporters.
Of course, you’ll need adequate resources to
follow through with membership benefits. Some
people may not expect any benefits upon joining
and paying dues, but this usually applies to members
of large, well-established groups (such as the
ACLU, Planned Parenthood, or the National Rifle
Association), who join simply because of their desire
to support the cause. If you lack the resources to
offer membership benefits, you may decide it’s more
realistic simply to ask prospects for a donation to
your group, instead of asking them to “join.”
Can a Nonmembership Nonprofit Have a Membership Drive?
As discussed in Chapter 1, you have the right to
decide whether to give your group’s members
the right to vote in corporate affairs, such as
electing board members or amending bylaws.
A group whose participants have voting rights
is sometimes called a “membership” nonprofit,
while a group with nonvoting participants is
often called a “nonmembership” nonprofit.
These labels can be confusing, however,
because they imply that a nonprofit cannot
have members unless it gives them voting
rights. In fact, this is not true. A nonprofit may
have members that do not have the power to
vote as long as the nonprofit follows state rules
and includes specific language in its corporate
paperwork.
When discussing membership drives as a
fundraising tool, this chapter uses the term
“members” to refer to those who pay annual
dues and get some sort of benefit in return,
regardless of whether they have voting rights.
You’ll find more information on the legal issues
raised by membership in Chapter 1.
FUNDRAISING 6/ 1 3
b. Executing a Membership Drive
If your group chooses to solicit paid memberships,
be sure to get your ducks in a row before you
accept your first new member. Because successful
fundraising is based on ongoing relationships, it’s
easier to convince existing members to renew their
memberships than it is to sign new members up in
the first place. So, you should have your benefits
in place and be in a position to treat members well
from the get-go.
Make the benefits of membership clear. Most
prospective members of a new nonprofit
group will want to know what they get in return for
becoming a member. While the worthiness of your
group’s cause and its need for funds are, of course,
important, make sure that all of your solicitation
materials clearly outline the material benefits of
joining.
Most nonprofits that offer paid memberships have
at least one annual membership drive to attract new
members and renew expiring memberships. One
common approach is to decide which fundraising
tools you will use—mail, email, telephone calls,
door-to-door canvassers—and draft a schedule.
Most membership drives last for a period of two to
four weeks, during which the group uses its chosen
tools in a coordinated effort. Between membership
drives, the nonprofit can and should continue to
solicit memberships, just not as intensely as during
the drive.
Here are some tips that will help you execute
a membership drive effectively and affordably.
(Section F, below, offers more detail on specific
fundraising tools and how best to use them.)
• Create incentives to bring in new member- ships. For example, you could ask a local hotel to donate a suite for the weekend, which
you could offer to whoever signs up the most
new members.
• Hit the streets. Send volunteers armed with membership materials to places where they’re
likely to find your constituency. For instance,
a nonprofit that promotes organic farming
could set up a table outside a local food
co-op, where it would be seen by plenty of
health-conscious shoppers.
• Avoid costly mass mailings. While sending an inexpensive mailer to a list of close contacts
can be an effective way to drum up members,
don’t waste your money on expensive mailing
lists or elaborate direct mail campaigns to
people who aren’t familiar with your group.
The return on mass mailings rarely justifies
the cost.
• Make it easy for your members to renew. Allowing your members to renew their
memberships online is an increasingly com-
mon practice that is convenient and efficient for both members and nonprofits. For non-
wired members, mailing a notice that their
membership is about to expire (along with a
self-addressed, stamped envelope) is a simple,
inexpensive way to encourage renewals.
Watch your pennies. Overly enthusiastic or poorly planned membership drives can cost
a lot without generating much in the way of dona-
tions. Be thrifty: Don’t spend a small fortune on
promotional materials that will often be thrown
away—or that may turn off cost-conscious donors.
2. Fund Drives
Unlike a membership drive, a fund drive simply
seeks donations—not members who will pay dues.
A nonprofit can hold a fund drive whether or not it
solicits paid memberships. For example, one non-
profit may decide not to seek members and instead
raise funds through an annual fund drive, while
another nonprofit may hold an annual membership
drive and an annual fund drive six months apart.
If you do not offer membership benefits, it’s
especially important to build a strong case about
why you need donor support. This is even more
true when you’re asking your dues-paying members
for additional funds—you will truly need to justify
asking your members to dig into their pockets again.
As described earlier in this chapter, the strongest
6/ 1 4 STARTING & BUILDING A NONPROFIT
appeals are urgent and specific. Your fund drive
solicitation must make your organization’s needs
clear and explain how the funds will be used. It’s
also a good idea to mention how your group has
used any funds raised previously to further its
mission.
3. Capital Campaigns
A capital campaign is a fundraising drive to raise a
significant amount of money for a big project, such
as buying real estate or starting a new program.
The goal is a coordinated effort that will rally major
donors and other funding sources and bring in
significant income for a specific purpose.
Fledgling nonprofits typically do not launch
capital campaigns, because these campaigns depend
on an established base of major donors—not to
mention dedicated volunteers and staff. Because
large amounts of money are involved, it’s essential
that you have responsible managers to run the
campaign and handle the money raised. It’s common
to hire fundraising professionals for these types of
campaigns.
Recommended reading on capital campaigns. Preparing Your Capital Campaign, by Marilyn Bancel, et al. (Jossey-Bass), is a practical workbook
that shows how to organize a capital campaign and
walks readers through the process step by step.
Conducting a Successful Capital Campaign, by Kent E. Dove (Jossey-Bass), is a thorough (if lengthy)
guide to the process, and offers a resource section
with sample strategic plans and financial reports.
4. Planned Giving
Generally speaking, the term “planned giving” refers
to a strategy that seeks to merge the fundraising
interests of a nonprofit with the estate planning
interests of its donors. In a planned giving program
(also called a “gift planning” program), a nonprofit
asks its supporters to transfer assets to the non-
profit when they pass away, as an estate planning
technique.
While it may seem inappropriate to ask supporters
for their money upon their demise, planned giving
is a rapidly growing source of philanthropy—in
large part because of the financial benefits it offers to
donors. Depending on the types of assets and the
specifics of the transfer, planned giving arrangements
can offer donors a significant reduction, or even
elimination, of taxes on their estates, gifts, capital
gains, and income. Another benefit, of course, is
that donors get the satisfaction of giving significant
support to a cause they care about and leaving a
legacy in their name.
Creating and running a planned giving program
is not for beginners, however. In addition to offer-
ing information on how to name the nonprofit in a
will or real estate transfer, planned giving programs
typically help donors set up financial instruments
(such as trusts, gift annuities, and other tax-favored
funds). Creating and managing these funds requires
expertise that most new nonprofits lack. A planned
giving program is probably something to consider
a few years down the road, when you can afford to
hire a consultant to help your organization set it up.
F. Fundraising Tools
Once you’ve decided what type of fundraising
campaign (or campaigns) you plan to undertake,
you’ll need to choose the specific tools you’ll use
to bring in donations. If you want to conduct
an annual membership drive, for instance, how
exactly will you go about contacting your potential
members? If you need funds right away for a
pressing and unexpected emergency—say, to defend
a lawsuit or replace a stolen computer system—how
will you get them?
This section introduces the tools nonprofits
typically use to raise funds, from email to direct
mail to in-person appeals. As explained below, you
can use any one or a combination of these tools to
carry out whatever fundraising campaigns your non-
profit undertakes.
FUNDRAISING 6/ 1 5
Gifts Versus Pledges
Unlike a gift from a donor—for example, a $100
check during your annual fund drive—a pledge
is a promise to give a certain amount to your
group over a period of time. Soliciting pledges
is a great way to increase the amount of money
a donor gives you, as they’ll often be willing to
promise more over time than they would give
in one lump sum. For example, a donor might
not consider giving a gift any higher than $50
at one time but might be willing to pledge $10
per month for the next year, for a total gift of
$120. With this in mind, consider soliciting
pledges as well as outright gifts in all of your
fundraising efforts.
Pledges can be paid in installments either
by check or by credit card. For credit card
pledges, you’ll need to set up a credit card pro-
cessing system, which generally is paid for with
a percentage of your revenues (usually less
than 5%). This fee is often worth the conve-
nience for your donors and your nonprofit, as
you won’t need to send invoices or otherwise
track down each payment promised to you
by a donor. For the best deals on credit card
processing services, ask your bank and other
banks in your community. Also check online:
Search for “credit card processing” or “credit
card merchant services” and you’ll find plenty
of options.
1. Asking for a Gift by Phone, by Email, or in Person
Once you’ve identified your prospects and organized
them into appropriate categories as discussed earlier
(for example, separating regular donors from major
donors), you’ll need to develop an effective pitch
and train your staff and volunteers on how to deliver
it:
Here are some tips for making your solicitations
as effective as possible:
• Identify the best people in your organization to do the asking. Asking for money—especially
large amounts of it—takes confidence and the
right attitude. If certain staffers or volunteers
are shy or inarticulate, assign them to other
duties, such as managing mailing lists.
• Train your fundraisers and lead practice ses- sions. Your staff, volunteers, and board mem- bers need to learn how to request donations
in a straightforward, respectful way, without
fear of rejection. Training sessions that address
common fears and provide practice asking for
gifts will help your fundraisers improve their
delivery, anticipate common questions, and
refine their pitches.
• Ask for a specific amount. Asking for a specific dollar amount tends to steer the
discussion towards how much the donor can
give, as opposed to whether they’ll give. Of
course, this doesn’t guarantee a gift. But a
request like, “We’re hoping you could support
our work with a $50 (or $500, or $5,000)
donation” is always a better approach than,
“We’re hoping you’ll be able to support us.”
• The best fundraisers don’t just recite a script—they listen and respond. People rarely give money to someone who simply recites a
canned appeal, isn’t able to engage in a dis-
cussion about the nonprofit’s work, or can’t
provide meaningful answers to questions. One
way to ensure that your fundraising team can
speak about the nonprofit convincingly is to
make sure they understand and feel person-
ally committed to your organization’s mission.
Your fundraisers should be responsive and
able to think on their feet.
a. In-Person Appeals
Making a direct request for money in person is the
most basic—and one of the most effective—tools
of fundraising. I’m not talking about canvassing
door to door or soliciting donations from strangers;
rather, I mean approaching someone who is already
acquainted with someone in your organization and
might be interested in supporting your group.
One reason why in-person appeals tend to
be effective is that nonprofits use the technique
with people who are somehow connected to the
6/ 1 6 STARTING & BUILDING A NONPROFIT
group—business associates of the board president,
for example. These prospects are naturally more
likely to contribute than strangers you contact out of
the blue.
But in-person appeals tend to be effective for
another reason as well: If the right person makes the
pitch, there’s no more powerful way to convey your
group’s urgent needs and the emotion behind its
mission. Also, potential donors have a harder time
turning someone down face to face than they do
over the telephone.
In-person requests for money are particularly
appropriate when soliciting major donor prospects.
Those who are considering giving a major gift to
your group often have more questions and may
want to know more about your organization than
your regular donors. Taking the time to sit down
with them for lunch, coffee, or a meeting at their
office is a good way to give them the appropriate
personal attention and convince them that your
group is worthy of a large gift.
The nonprofit’s directors should be heavily
involved in setting up and carrying out in-person
solicitations. If your group has an executive director,
he or she should actively set up meetings and ask
for gifts. If, like most start-ups, you have a board of
directors but not an executive director, your board
members should set a strong example by cultivating
relationships with donors, particularly those likely to
make substantial contributions.
Printed materials can hinder an in-person appeal. It can often be helpful during an in-person solicitation to provide your prospective
donor with literature about your nonprofit, such as
a brochure outlining goals and planned activities or
(better yet) early accomplishments. But do not offer
your prospects a thick stack of information. Doing
so will encourage them to put off making a decision
until they can read through your lengthy materials.
Instead, limit the materials you give your potential
funders to simple, concise publications tailored to
their concerns.
b. Telephone Solicitations
Although the pervasiveness of telemarketing has
given telephone solicitations a bad reputation, call-
ing your prospects by phone and asking them for
money can be a very effective fundraising method.
Beware, however, that national do-not-call regula-
tions may affect your nonprofit, as discussed in “Do-
Not-Call Rules for Nonprofits,” below. Although you
must use caution regarding the do-not-call registry,
telephone appeals can be an efficient way to solicit
funds.
Unlike in-person appeals, which can be time-
consuming, you can call a large number of potential
donors within a short amount of time. And, un-
like direct mail, speaking with a prospect over the
phone creates a personal connection and allows a
fundraiser to respond to any questions or concerns
the prospect might have.
A good approach to fundraising via telephone is
to organize a group of people to get together at a
scheduled time to make calls from one or more lists
of prospects. For example, you could organize an
annual two-day phone drive: two evenings in a row
when trained volunteers spend three hours calling
prospects to ask for donations. At the end of the
second day, you can thank your volunteers with a
wrap-up party or night out.
Because your nonprofit probably does not have
enough telephone lines to accommodate more than
a few volunteer callers, you will need to figure out
where you can hold a phone drive. If all of your
volunteers have cell phones, you could ask them
to use their own phones. Or, you could ask an-
other nonprofit or business if your group could use
its office for your drive and spread volunteers out
among the telephones in different cubicles. You
should schedule your phone drive in the evening
after business hours (6:00 to 9:00pm, for example)
or on a weekend, so it won’t be hard to find some
empty office space.
Contests and incentives can be useful motiva-
tors for your volunteer telephone fundraisers. For
example, ask a fancy restaurant if it will donate a
dinner for two and give it as a prize to the person
who raises the most money that evening. Local
businesses are often happy to sponsor your efforts
FUNDRAISING 6/ 1 7
Do-Not-Call Rules for Nonprofits
In 2003, federal rules went into effect creating
a national do-not-call registry. In addition,
some states have their own do-not-call rules.
Generally speaking, both the state and federal
do-not-call rules establish lists of people who
have asked not to be called by telemarketers
and prohibit telemarketers from contacting
people on those lists.
The federal do-not-call rules do not apply to
tax-exempt nonprofits (as long as staff or volun-
teers make the calls), meaning that nonprofits
with any type of federal tax-exempt status (not
just 501(c)(3) groups) are free to do phone
solicitations without having to consult the do-
not-call registry. There are a couple of compli-
cations, however:
• State rules may have different exemptions
and may not have exceptions for tax- exempt nonprofits. In other words, some
states’ do-not-call rules may apply to
tax-exempt nonprofits just like for-profit
telemarketers.
• Any state do-not-call rules will apply
only to calls made within your state. Any
interstate calls (made from one state to
another) will be governed by the federal
do-not-call rules, which do not apply to
tax-exempt nonprofits. In other words,
if your state prohibits nonprofits from
calling people on the do-not-call list, this
prohibition will only apply to calls you
make within your state—any calls made
out of state will be governed by the more
lenient federal rule.
In addition, if a tax-exempt nonprofit uses
professional telephone solicitors, it will be sub-
ject to a few extra rules. Professional solicitors
must make certain disclosures about the non-
profit and the nature of the call, must not make
repeat calls to anyone who indicates they do
not want to receive calls, and must not misrep-
resent the charity’s mission or the purposes for
the contribution, among other rules.
Before you worry too much about digesting
all that law, consider this: Even if your nonprofit
does not have to comply with do-not-call rules,
it’s wise to comply with them anyway. People
who have taken the step of adding their names
to the do-not-call registry probably don’t want
any intrusive phone solicitations, whether from
nonprofits or for-profit telemarketers. Rather
than irritating them and alienating them from
your nonprofit, it’s better to take the time to
review the federal do-not-call registry (and any
registry in your state) and avoid calling anyone
whose name appears on the list.
Some nonprofits will skip reviewing the
registry, reasoning that they’re exempt from the
rules and so don’t have to worry about violating
the law. Here’s a tip if you decide to take this
course: If your callers reach people who say
they are on the do-not-call registry, the best
response is to apologize and promise not to call
them again (and, of course, to live up to that
promise). Don’t respond by saying, “Nonprofits
are exempt from ‘do not call’ rules.” This
defensive response is sure to turn off potential
supporters.
6/ 1 8 STARTING & BUILDING A NONPROFIT
by donating a small prize that doesn’t cost them
much—and these incentives can really light a fire
under your fundraising team.
Be sure to keep careful records of whom you
called, whom you reached, whom you couldn’t
reach (and whether you left a message), who gave
money and how much, who declined, and—most
important—who asked not to be called again.
Unless prospects specifically say that they’re not
interested in your organization, they may still be
willing to donate, just not over the telephone. Be
sure to respect their wishes and avoid annoying
them (and looking unprofessional) by calling after
they’ve asked you not to.
c. Email Appeals
It’s no wonder that email appeals are an increasingly
popular fundraising method: With one keystroke,
you can email an appeal for donations that reaches
your whole prospect list within seconds—with no
printing or postage costs. If you want to change
your wording or tailor different appeal pitches to
different lists, changing an email is far easier and
cheaper than revising print materials. And, you don’t
need to catch your prospects at home, as you do for
a telephone solicitation—they can read your email at
their convenience.
On the other hand, some people get so much
email these days that your solicitation may get bur-
ied in their inboxes or quickly deleted as junk email.
Even worse, recipients might get annoyed by what
they consider to be “spam”—or mass junk email—
and hold this against your organization.
All things considered, the potential benefits of
email fundraising outweigh the potential downsides,
as long as you do it right. Here are some tips for
using email effectively in your fundraising efforts:
• Include your group’s name in the subject line and in your email address. In your early days, identifying your organization as the sender
of an email might not convince a recipient to
read it. But, as you develop name recognition,
those receiving your fundraising email will be
more inclined to read it if they know it is from
your organization, rather than from someone
they don’t know trying to sell them something
they don’t want. Try to include your nonprofit
name, or an abbreviation of it, in the subject
line. Also send any fundraising email from an
address that contains your nonprofit’s domain
name—for example, janejohnson@savethe
whales.org (rather than janejohnson@yahoo
.com).
• Always include information about how recipi- ents can remove themselves from your email list. Offer clear instructions for those who want to unsubscribe, such as: “To remove
your name from this email list, please reply
with ‘Remove’ in the subject line or body of
the email.”
• Encourage people to forward the email. Asking recipients of your email to forward it
to others who might be interested is a great
way to spread the word about your group
and potentially gain more supporters. This is
especially effective if there’s urgency behind
your email message—for example, if a corpo-
ration promises to match any funds you raise
in the next two weeks. The more urgent the
message, the more inclined people will be to
pass it on.
• Include a link to your nonprofit’s website. As explained in Chapter 9, you should create
at least a simple website for your nonprofit
as soon as possible. Once your site is live,
include your website address in all your email
correspondence as a way to drive traffic to
the site. In many email programs, when you
type a full Web address including the “http://”
portion in the body of the email, it will auto-
matically create a link the recipient can click
on to go directly to your site. For example,
include http://www.wildhorizons.org (instead
of just www.wildhorizons.org) in your email
so that recipients will be able to simply click
on the link and go straight to your site.
• Keep recipients’ email addresses private by suppressing the names on the email list. Many people want to keep their email addresses private and don’t appreciate re-
ceiving an email to a large group that shows
everyone’s email address, including their own.
Depending on your email program, there
FUNDRAISING 6/ 1 9
are various ways to hide recipients’ email
addresses when you send an email to a group.
In Microsoft Entourage, for example, you can
create a group with all the names and email
addresses of your intended recipients, then
click a box that says “Don’t show addresses
when sending to group.” If you check this
box, none of the recipients’ names or email
addresses will be visible to other recipients.
Another way to hide recipients’ addresses is
to put each address in the “Bcc” address field
instead of the “To” or “Cc” address fields, so
everyone receives a “blind copy,” without any
names on it.
d. Door-to-Door Canvassing
Sending out a troop of volunteers to solicit door
to door can be a great way to build a base of sup-
port in a particular community. Unlike other types
of fundraising, door-to-door canvassing does not
start with a list of prospects; rather, it blankets an
entire area to build a list of interested people. Going
door to door is especially useful when your cause
is tied to a specific community, as would be true of
a group dedicated to replanting trees in a blighted
neighborhood or building a community center.
The main difference between door-to-door
canvassing and in-person appeals is that canvassing
involves contacting new people without introduction,
while in-person appeals should be reserved for
people with whom your organization already has
some connection. Of course, contacting people you
don’t know will usually result in a lower success
rate. But making a personal pitch to someone face
to face can be much more powerful than appealing
to someone over the telephone or through the mail.
For the best chance of success, the canvassers you
send out must be clear on your organization’s mis-
sion and enthusiastic enough to engage the people
they meet. Your canvassers’ energy is the key to a
successful door-to-door fundraising campaign.
When sending volunteers to request donations
door to door, you obviously need to be concerned
about their safety. Don’t send them into dangerous
neighborhoods, and don’t send them anywhere after
dark. Always team canvassers up in pairs or small
groups so that, even if they split up within a neigh-
borhood, they can meet up regularly to check on
each other. If possible, make sure each canvasser
carries a cell phone.
2. Direct Mail
People often perceive direct mail campaigns to
be complex and expensive, and they can be both.
However, direct mail campaigns can also be simple,
targeted mailings that are effective without costing
a fortune. Start-up nonprofits do not need to pay for
expensive mailing lists or produce high-end packages
of printed materials; they can, instead, minimize
costs by adopting a simple, thrifty approach.
Reduced Postage Rates for Nonprofits
Many nonprofits are eligible for reduced postage
rates when they send bulk mail. The U.S. Postal
Service calls this its “Nonprofit Standard Mail”
rate. To get the reduced rate, your organization
must meet the Postal Service’s eligibility require-
ments, submit an application, and receive an
authorization at the post office where you will
be taking your mailings. The mail you send must
also meet certain requirements. These rules are
described below.
Eligibility Only certain types of nonprofits are eligible for
reduced postage. These include agricultural,
educational, fraternal, labor, philanthropic,
religious, scientific, and veterans groups. Some
organizations are not eligible for reduced postage
rates even though they are nonprofits. These
include automobile clubs, business leagues,
chambers of commerce, citizens’ and civic improve-
ment associations, individuals, mutual insurance
6/ 2 0 STARTING & BUILDING A NONPROFIT
Reduced Postage Rates for Nonprofits (continued)
organizations, service clubs (for example, Rotary
or Lions clubs), social and hobby clubs, and rural
electric cooperatives and associations.
The rules for political groups are slightly com-
plicated; some are eligible (state and national
committees of political parties, for example) and
most are not. For detailed eligibility rules, see the
U.S. Postal Service’s Publication 417, Nonprofit Standard Mail Eligibility. (Information on how to get all publications and forms is at the end of this
section.)
Qualified Mailings The Postal Service and the IRS have strict guide-
lines on what types of mail can be sent using
the Nonprofit Standard Mail rate. Among other
requirements, the mail must:
• contain at least 200 addressed pieces or 50
pounds of addressed pieces
• be prepared according to postal standards
in the Domestic Mail Manual • include only your own organization’s
mail—you may not use nonprofit rates to
There is no requirement that a nonprofit have
501(c)(3) or other federal tax-exempt status in
order to be eligible for the Nonprofit Standard
Mail rate.
The Application Process To start the process, you must submit an applica-
tion form, PS Form 3624, Application to Mail at Nonprofit Standard Mail Rates, and supporting documents to the post office you will be mailing
from. The required supporting documents include:
• your organization’s “formative papers”—
its articles of incorporation, constitution,
or charter—and
• evidence of nonprofit status—either a tax
exemption letter from the IRS showing
501(c)(3) or other federal tax-exempt sta-
tus, or a financial statement from an inde-
pendent auditor such as a certified public
accountant.
Also, submit as many as possible of the follow-
ing documents along with your application:
• a list of activities that your organization
engaged in during the past 12 months
• a financial statement detailing your organi-
zation’s receipts and expenditures for the
past fiscal year, and your organization’s
budget for the current year, and
• other documents such as your organi-
zation’s bulletins, minutes of meetings,
brochures, and similar papers that show
how your organization operates.
send mail on behalf of any unauthorized
organizations or entities, nor “rent” your
nonprofit rate authorization to anyone
else
• not contain certain types of advertising
• be accompanied by an appropriately
signed postage statement certifying that
the mailing is eligible, and
• identify the authorized organization.
Details on these and other requirements are
outlined in Publication 417.
Where to Get Publications Information, publications, and application
forms are available for download at the Postal
Service’s website at www.usps.gov. Publication
417, Nonprofit Standard Mail Eligibility, outlines the eligibility rules, application procedures,
and other information about bulk mail rates for
nonprofits. The application form, PS Form 3624,
Application to Mail at Nonprofit Standard Mail Rates, is also available online, is included in Publication 417, and can be obtained at any post
office. Other helpful publications available at the
Postal Service’s website include Publication 353,
Designing Reply Mail, and Publication 28, Postal Addressing Standards.
In addition, the Postal Service’s Postal Explorer
website, at pe.usps.gov, offers additional pub-
lications, including the Domestic Mail Manual with extensive mailing information tailored for
businesses and nonprofits.
FUNDRAISING 6/ 2 1
a. Develop and Categorize Lists
The mailing list business is a profitable industry in
which businesses and nonprofits pay for (or “rent”)
access to databases of names, grouped according to
certain demographic characteristics. Instead of tak-
ing this expensive route, use the methods described
in Section D, above, to develop your own targeted
lists of prospective donors. Once you have a list of
names and have grouped them into categories, you
may wish to develop customized sets of printed
materials to send—for example, one package for
regular donors and another tailored to potential
major donors. While most materials, such as your
brochure and copies of any press your group has
received, can be the same for both groups, you
may want to include a different appeal letter and
response card (with checkboxes for suggested
donation amounts) for each list. (See Subsection b,
below.)
As with all fundraising tools, be sure to track
your direct mail appeals and update your mailing
lists with information about what was sent to
whom and with what result. When you send a
direct mail solicitation to a prospect, indicate that
in your prospect database. Also code the response
cards so that you know which mailing generated
the response. Develop a system that works for you
based on the information you want to track. For
example, you could put in small type in the corner
of a response card “GS05” or “MS05”—“G” for
general list or “M” for major donor list and “S05” for
a spring 2005 mailing.
b. Create Printed Materials
Creating the printed materials for your mailing can
be more affordable than you might expect. You
don’t need to produce a direct mail package like the
ones you get in your own mailbox, printed in full
color on heavy paper with special die-cut shapes
and other frills. Instead, focus on creating simple
layouts of text and graphics on standard-sized
pages. Many of your potential supporters may be
pleased to receive modest printed materials instead
of a slick, glossy package that obviously cost a lot of
money to produce.
If someone at your nonprofit wants to design your
materials in-house, relatively inexpensive software
(such as Adobe PageMaker, InDesign, or Microsoft
Publisher) can create professional-looking documents
on a modest computer system. Alternatively, a
professional graphic designer can be immensely
helpful, particularly if no one in your organization
has graphic design skills.
The trick to using a graphic designer affordably
is to do some of the work ahead of time. Sketching
out what you want, even in rough form, will make
the designer’s work easier and save you money. As
much as you can, define the materials you want to
produce, write some text for the designer to work
with, collect any photos or graphics you have that
might work well in the materials, and give the
designer ideas and direction rather than leaving
the designer to start from scratch. You should, of
course, remain open to your designer’s ideas—after
all, he or she has experience on how to best present
information. But, by providing your designer with
content and direction up front, you can save money
and have more input in the final product.
David Dabney, Principal of Red Rooster Creative, a graphic design firm in Santa Fe, New Mexico
Dealing with a commercial printer can be a
daunting task. The seemingly simple task of
getting a price quote often involves technical
jargon that can be intimidating to the
uninitiated—and with all the options available
it can be difficult to know if you’re getting a good
deal. While you may be able to save money by
dealing with the printer directly, it’s often wise to
let the designer handle this, even if you pay the
designer extra (15 percent is typical). Of course, if
you will rely on your designer to handle choosing
and working with the printer, you need to choose
a designer who has this experience. Be sure to
ask prospective designers specifically what their
experience is in working with printers if you
intend for them to handle this task.
For information on getting graphic design
services donated, see “Finding Volunteer
Designers” in Chapter 9, Section A2.
6/ 2 2 STARTING & BUILDING A NONPROFIT
c. Common Components of a Mailing
A fundraising mailing should include at least the
following components:
• a letter directly asking for donations and
explaining why the nonprofit needs and
deserves the support
• a brochure, flyer, or other piece of literature
describing the nonprofit and its work
• a copy of articles or other press coverage your
nonprofit has received (if any), and
• a response card on which donors write their
names, their contact information, and the
amount of their donations.
When drafting your materials—particularly the
letter asking for support—it’s smart to address the
issues that commonly concern potential donors.
For example, many people worry about how their
money will be used, so state specifically how you
will spend the money or point out that a high
percentage of donations goes directly toward
program costs.
3. Special Events
Holding a special event can be a fun way to raise
money and build name recognition for your non-
profit. A special event can also attract new supporters,
improve staff morale, and generally inject a dose of
energy into your nonprofit.
On the other hand, producing a special event
eats up lots of time and labor, which makes it one
of the least cost-effective methods of fundraising.
Depending on its size and complexity, a special
event can cost more than half of the total funds
raised. When compared to other fundraising methods
that often cost 10 to 25 percent of the total funds
raised, special events are just plain expensive.
Yet, it is possible that a special event could bring
in a larger amount of money than other fundraising
efforts—enough money to make it worth the cost
of putting the event together. For example, if a
fundraising dinner and concert brings in $50,000 at
a cost of $25,000, you’ll net $25,000, even though
your costs ate up 50% of the money raised. In
contrast, you may find it difficult to raise more than
$10,000 with other fundraising tools, even the most
cost-efficient ones. Given the ultimate net gain in
funds, it may be worth the time and effort you put
into your event.
If you do decide, after weighing all of the factors,
to hold a special event as a way of raising funds,
keep the following tips in mind:
• Informal events can be just as effective as fancy fundraising dinners. If you have a limited budget, consider holding an inexpen-
sive event like a group yard sale at a local
park or a karaoke marathon at a venue that
will donate the space for the night. Forget
about holding a black-tie gala, at least in your
early days.
• Piggyback on someone else’s event. It’s much easier to put up a booth at a local street fair
than to organize the street fair yourself. Find
out what events are scheduled in upcoming
months and see if there’s a way to involve
your nonprofit.
• Think creatively about how your event will generate cash. Selling tickets to the event is just one way to bring in funds. You could
also hold an auction or a raffle drawing and
ask local businesses or supporters to donate
the auction items or raffle prize. Or, you
could place contribution baskets on tables at
the event (under someone’s watchful eye, of
course) or distribute brochures and donation
envelopes. Selling food and drinks or other
items (such as t-shirts or mugs) could be
additional sources of revenue.
There are countless ways to use a special event
to raise funds. While some nonprofits may succeed
at hosting a formal, $200-a-plate dinner, most new
organizations will do better with a grassroots event,
like a dance party or an artists’ bazaar. With a real-
istic budget firmly in mind, let your imagination be
your guide.
4. Sell Products or Services
Many nonprofits bring in significant income by
selling products or services to their members or
the public. Prime examples include the Girl Scouts’
cookie sales and the Goodwill’s thrift stores, which
are major sources of funding—and the most visible
activity—of each group. While nationwide cookie
FUNDRAISING 6/ 2 3
sales or thrift shops are bigger operations than most
fledgling nonprofits would want to tackle, these
examples show that selling is a common and often
lucrative nonprofit fundraising activity.
While starting a sales operation requires many
practical considerations, any nonprofit considering a
business activity must also understand some impor-
tant legal and tax rules, discussed below.
a. Related Versus Unrelated Activities
The IRS distinguishes between income a nonprofit
earns from activities that are “substantially related”
to its mission and income it earns from activities that
are not. Money earned from substantially related
activities is generally not taxed and won’t subject
the nonprofit to undue IRS scrutiny. Income from
unrelated activities, however, will be subject to
income taxes—and may jeopardize the nonprofit’s
tax-exempt status.
To determine whether your business activity is
“substantially related” to your organization’s tax-
exempt purpose, the IRS considers whether the
activity “contributes importantly” to accomplishing
your mission. The IRS won’t find that an activity is
“substantially related” solely because it generates
income that helps you pursue your laudable work.
The business activity itself must be related to
the mission—for example, a nonprofit orchestra
for disabled people selling CDs of its concerts, a
scientific nonprofit selling its research reports, or
an archaeological nonprofit selling paid tours to
excavated sites would all qualify as substantially
related activities.
If your unrelated business activities start to eclipse
your related business activities and become the focal
point of the organization, you risk losing your tax-
exempt status altogether. Unfortunately, the IRS does
not offer a clear test to tell when you’re at risk of
losing your tax-exempt status, such as a maximum
percentage of time spent or amount of money
derived from unrelated activities. If your programs
are shrinking while your unrelated business activity
is going strong, you certainly have cause for concern.
In that case, you may want to pay a visit to a lawyer,
accountant, or nonprofit consultant.
The importance of this rule cannot be overstated:
While your nonprofit can freely engage in activities
that are substantially related to its mission, you must
approach any unrelated business activities with
caution, or you could put your tax-exempt nonprofit
status at risk.
b. Unrelated Business Income Tax (UBIT)
Despite a nonprofit’s tax-exempt status, revenue
from ongoing business activities that are not sub-
stantially related to its mission is subject to unrelated
business income tax (UBIT), unless an IRS exemption
applies. (Exemptions are discussed in Subsection c,
below.) UBIT is similar to regular income tax owed
by for-profit businesses; its special name reflects the
fact that a tax-exempt nonprofit does not normally
owe tax on income from its related activities.
A nonprofit’s income is subject to UBIT if the
income results from a “regularly” conducted “trade
or business” that is unrelated to the exempt purpose
of the organization. “Trade or business” means sell-
ing goods or services in order to generate income.
Unless you’re selling items below their market value,
the IRS will likely characterize any sales-generating
activity as a trade or business.
Whether a business is carried on “regularly”
depends on whether it is run like other similar busi-
nesses. If you publish and sell books, for example,
do you produce roughly as many titles each year
as other publishing companies, and do you have a
bookstore that’s open during business hours? If so,
the IRS would likely consider your business to be
carried on regularly. If, on the other hand, you have
only published two books in the past five years and
you sell them only at events, your publishing opera-
tion would likely not qualify as regular and, there-
fore, your bookselling income would not be taxable.
c. Exemptions From UBIT
Even if your income would be taxable under the
UBIT criteria described above, your activity or
income might fall under an IRS exemption. And, if
an exemption applies, you won’t have to pay UBIT.
First, any activity that results in an annual earned
income of less than $1,000 is tax-free: Even if the
6/ 2 4 STARTING & BUILDING A NONPROFIT
business activity was clearly outside of your mis-
sion, you are not required to file a tax return if your
income doesn’t reach the $1,000 threshold.
Second, the IRS has created UBIT exemptions for
income derived from unrelated business activities if
any of the following are true:
• Substantially all of the work of providing the
services or creating the products is done by
volunteers.
• The products or services are primarily for
the convenience of the group’s members,
students, patients, officers, or employees.
• The nonprofit accepts money from a company
that sponsors an educational, fundraising, or
other event and displays the company’s name
or logo in return—as long as the nonprofit
does not provide other advertising space for
the company or allow the company to use the
nonprofit’s logo in company periodicals.
• The nonprofit sells merchandise that was
donated to it.
• The nonprofit uses bingo games as fundraisers
—but only if bingo is legal in the nonprofit’s
area, and the games are not played in a hall
that’s also used for commercial bingo gaming.
• The nonprofit exchanges or rents its member-
ship list with another nonprofit.
• The nonprofit provides entertainment to
attract people to a fair or exposition that
promotes agriculture or education.
Third, in addition to exempting certain kinds of
activities from UBIT, IRS regulations also exempt
certain types of income from UBIT, including:
• dividends, interest, annuities, and other invest-
ment income
• royalties earned from allowing use of the
nonprofit’s trademark, trade name, copyright-
ed material, or other valuable rights (but not
personal appearances or services)
• income from research grants or contracts, and
• gains and losses from selling property.
Recommended reading on unrelated business income. The IRS has many more rules regard- ing taxation of nonprofit business activity income. If
you are considering pursuing any business activities
that are not substantially related to your nonprofit’s
mission, be sure to read IRS Publication 598, Tax on Unrelated Business Income of Exempt Organizations. This and other IRS publications are available online
at www.irs.gov or can be ordered by calling the IRS
at 800-829-3676. Consult an attorney if anything
remains unclear.
Paid advertising is considered unrelated business income. Many nonprofits make the mistake of assuming that all aspects of their news-
letters or websites—including paid ads—are related
to their mission. However, the IRS doesn’t see it that
way and may impose UBIT on money you earn by
selling ads. An easy way to avoid this is to forgo paid
ads entirely. To make up the lost income, you could
increase your subscription price or try to boost paid
circulation. Unlike advertising income, subscription
income from a newsletter about your nonprofit’s
activities would not be subject to UBIT, because
informing people about your work is substantially
related to your mission. For detailed information on
the financial aspects of running a newsletter, includ-
ing advertising sales and subscription income, see
Cheryl Woodard’s Starting & Running a Successful Magazine or Newsletter (Nolo). While this book does not address nonprofit UBIT, it does offer valu-
able information on the financial aspects of running
a publishing operation.
d. Sales Tax and Other State Requirements
If your nonprofit will sell goods to the public, the
federal government isn’t the only tax collector you
have to satisfy. You may also need to obtain a
seller’s permit from your state and pay state sales
tax. Nonprofits are not automatically exempt from
these types of general business requirements. While
nonprofits may be eligible for exemptions for certain
types of transactions, they must usually go through
an application process to obtain that exemption. Make sure you understand and comply with your
state’s rules before selling goods, or you risk being
charged back taxes and penalties.
Many states require nonprofits to obtain a seller’s
permit before they may begin selling goods. Later,
you determine whether any of your sales were
actually taxable under the state’s rules and calculate
FUNDRAISING 6/ 2 5
any taxes you owe the state. Typically, you’ll pay any
taxes you owe at the end of the year, but you may
have to pay taxes quarterly if your sales volume is
high. Even if you end up owing no tax at all, many
states require you to get a seller’s permit in order to
make the sales in the first place.
In most states, seller’s permits are required and
sales taxes due only for sales of tangible goods—
such as books, shirts, or coffee mugs—to the public.
Sales of services, such as counseling or educational
assistance, are often exempt from seller’s permit
requirements and from state sales taxes. However,
the rules vary widely from state to state, and each
state’s rules are riddled with exceptions. To find
out more about your state’s rules, contact your state
sales tax agency. (You’ll find contact information in
Appendix E.)
A few states—including Alaska, Delaware, Montana,
New Hampshire, and Oregon—don’t impose state
sales tax, and you may not need a permit for most
sales transactions in these states. Bear in mind, how-
ever, that cities or local governments in these states
may impose sales taxes, and certain transactions in
these states may be subject to something similar to
a sales tax, although they call it by a different name.
Again, the best way to find out all of the rules is to
contact your state tax agency.
To obtain a seller’s permit, contact your state
agency that governs sales taxes to find out about
the application process. (Contact information is
in Appendix E.) Typically, you’ll have to submit a
simple application form and perhaps pay a fee. Your
state agency should also have information on any
special rules for nonprofits, including how to apply
for any exemptions to which you may be entitled.
G. Funding From Grants
Besides asking individuals to contribute to your
organization, your group can raise funds by applying
for funding from foundations, government agencies,
private businesses, and other groups. Grants from
funding institutions are typically much larger
than donations from individuals—often totaling
hundreds, thousands, tens of thousands, or even
millions of dollars—so getting even just one or
two grants can make a huge difference in your non-
profit’s budget.
While grant money is of course attractive to any
nonprofit, you’ll have to meet the grantor’s eligibility
criteria to throw your hat in the ring. Most grants
are available only to nonprofits with 501(c)(3) status,
for example. In addition, the process of finding
and applying for grants takes some effort and
forethought. Thankfully, the basics of the process
are pretty easy to learn.
1. Researching Available Grants
Half the battle of getting a grant is finding one that
is available to your group for the activities that you
plan to pursue with the money. Grant givers provide
money for only those projects and activities that fall
within the givers’ funding priorities. For example,
one funder might give money for programs helping
disabled children; another funder might give money
for activities related to arts education. You need to
find grant givers with funding priorities that match
your mission and activities.
With so many funding institutions out there, the
process of researching grants can be intimidating.
A good place to start is by consulting resources
published by the Foundation Center, a nonprofit
dedicated to promoting philanthropy with resources
for grant givers and seekers. The Foundation Center
has several publications in print and online, with
tens of thousands of listings of foundations and
specific grants.
Many Foundation Center publications are quite
expensive—cover prices range from $100 to nearly
$1,000 for CD-ROMs—so consulting them at a public
library is usually the best option. The Foundation
Center’s online directories are more affordable
but can also usually be accessed for free at public
libraries. Check the Foundation Center’s Cooperating
Collections page at www.fdncenter.org/collections to
find a library near you that carries these resources.
• The Foundation Directory is published in
print and on CD-ROM. It offers information
on more than 10,000 grant givers, including
private grant-making foundations, community
foundations, operating foundations, and
corporate grant makers.
6/ 2 6 STARTING & BUILDING A NONPROFIT
• FC Search: The Foundation Center’s Database
on CD-ROM lists all known United States
grantmakers (more than 75,000) in a searchable
CD-ROM format.
• The Foundation Directory Online is accessible
online for monthly or annual subscription
fees, starting at approximately $20 per month
for the Basic version with access to 10,000
foundations. At the top end, the Platinum
version includes access to the full database
of more than 75,000 foundations for approxi-
mately $150 per month.
• The Foundation Center also publishes several
guides to grant givers and specific grants
within certain subject areas, such as arts and
culture, health, and education.
2. Writing Grant Proposals
When you find a foundation with funding priorities
that match your programs, the next step is to apply
for funding using that foundation’s guidelines. It’s
important to take careful note of the foundation’s
application procedures and deadlines and follow
them closely. Many foundations have an initial
application process where they ask for a preliminary
proposal or letter of inquiry as a first step. After
the letter of inquiry, the foundation may invite your
nonprofit to submit a full proposal—and often
will not accept any full proposals without such
an invitation. Don’t make the mistake of spending
valuable time and resources developing a proposal
until you understand the application guidelines and
know that your proposal will at least be accepted by
the foundation.
a. Preliminary Proposals
Preliminary proposals and inquiry letters typically
run two to four pages long and follow a format such
as the following.
Cover sheet. Include your group’s name, address, contact name, title, telephone and fax numbers,
email address, and website address.
Overview of your nonprofit and your funding request. Outline the basic facts about your group and the funds you are requesting. Include important
details such as your group’s mission, the amount
and purpose of funds being requested, a statement
of how your request matches the grant maker’s
funding priorities, your tax-exempt status, and a
proposed schedule for the grant and the programs it
would support.
Description of the program in need of support. Briefly but persuasively describe the nature of the
work you plan to do with the grant, focusing on the
community need it will address and whom it will
affect.
Financial information. While financial information sometimes isn’t necessary at the preliminary stage,
you may need to submit an operating budget and
possibly program budgets.
b. Full Proposals
When submitting a full proposal, you must follow
the instructions provided by the funder in its
call for grant applications or request for proposals
(RFP). Many groups offer a streamlined application
process using what’s sometimes called a “common
application form,” allowing nonprofits to save
time by using the same format for multiple grant
applications. Even if a foundation does use a
common application form, you need to be aware of
any additional requirements, such as deadlines or
preliminary application rules.
Most grant proposals are ten pages or less in
length, single spaced, and include the following
components.
Cover letter. Include a brief, positive letter from a board officer on the nonprofit’s letterhead, introduc-
ing the nonprofit and the proposal.
Cover sheet. As with a preliminary application, include a summary of important information about
the nonprofit and the request for funds.
Description of organization. Offer a brief summary of your nonprofit, including its mission
and goals, current programs and activities, and any
significant accomplishments. Also note how many
board members, staff, and volunteers your nonprofit
currently has.
Needs assessment. Describe the needs or issues facing your nonprofit, and how you plan to meet
these needs or resolve these issues. Also offer
FUNDRAISING 6/ 2 7
information on how this grant fits into your long-
term funding strategies.
Program goals and objectives. Outline specific ways your nonprofit plans to achieve your overall
goals, including the activities it plans to undertake
and a timeline. Also explain how you will measure
performance and evaluate whether your goals and
objectives have been achieved.
Financial information. Include a realistic and detailed budget, including the proposed grant and
any committed matching funds.
Conclusion. Wrap up your proposal with a concise and compelling summary.
Appendices and attachments. Include important documentation such as a copy of your 501(c)(3)
determination letter, corporate documents, and
financial reports. Also include lists of your board
members and staffers, and any letters of support
from the community. Finally, it’s always helpful to
include press clips showing positive mentions of
your group in local or national media.
The Foundation Center offers a wealth of information on how to write and assemble winning grant proposals. Besides offering authoritative databases of foundations and other
grant givers, the Foundation Center also has free
online tutorials on grant writing. Check out its
website at www.fndcenter.org.
3. Corporate Sponsorships
Besides applying to organizations with established
grant-giving programs, your nonprofit can also
raise funds from local businesses, banks, or other
institutions. Simply approaching these institutions
and asking them to sponsor the organization
can sometimes be enough to generate a large
contribution.
Unlike foundations or government sources,
corporate sponsors often get some sort of recogni-
tion in return for their contribution, which gives
them valuable exposure to desirable audiences. But
there are two important and potentially trouble-
some issues you’ll need to understand about offer-
ing recognition for corporate sponsors. One is that
giving recognition to sponsors might subject the
income from those sponsors to tax. As discussed in
Section F4, above, some nonprofit income may be
subject to unrelated business income tax (UBIT).
According to IRS rules related to sponsorships, if
you “acknowledge” your sponsors, the money they
give you will not be subject to tax. But if you pro-
vide your sponsors “advertising,” their contribution
may be subject to UBIT. The line between an ac-
knowledgment and advertisement is not that clear,
so you may want to consult an accountant or lawyer
to determine whether your plans for recognizing
sponsors will subject you to unrelated business
income tax.
Second, if a 501(c)(3) nonprofit offers sponsors
recognition that has commercial value (such as an
advertisement at your website or in your newsletter),
only a portion of the sponsor’s contribution will
be deductible by the sponsor. As discussed in
Section H, below, if you give something of value to
a contributor in exchange for any gift of more than
$75, you must:
• tell the donor that he or she can deduct
only the difference between the value of the
donation and the value of any gift premium
he or she received, and
• provide a good faith estimate of the fair
market value of anything given to the
contributor in exchange for the donation.
Refer to Section H, below, for detailed information
on deductibility and disclosure rules.
EXAMPLE: The Shawnee Independent Business Alliance develops a sponsorship program that
offers varying levels of sponsorship benefits to
businesses and institutions that contribute $500
or more to their group in any year. Their spon-
sorship guidelines provide that:
“All sponsors who contribute $500 or more
in a calendar year will be recognized as SIBA
Community Sponsors and receive the benefits
listed below for one year. The benefits for
varying levels of sponsorship are as follows:
6/ 2 8 STARTING & BUILDING A NONPROFIT
$500 * 150 x 75 pixel online ad at SIBA website home page.
• Print and verbal recognition at
every SIBA event.
• Mention in SIBA’s press releases to
the media.
$1,000 * Same as $500 level, but larger on- line ad (150 x 175 pixels).
$2,000 * Same as $1,000 level, plus Featured Sponsor popup at website for three
(3) months.
$5,000 * Same as $2,000 level, plus top banner ad (450 x 75 pixels) at SIBA
website.”
Because they plan to offer advertising-type
recognition for their sponsors, SIBA realizes
that their sponsorship income will probably be
subject to unrelated business income tax. They
are willing to accept this trade-off because so
many potential sponsors want advertising in
return for their contributions. The SIBA board
plans to ask its accountant to explain the tax
rules that will apply to this income and help
them set up their sponsorship program to mini-
mize taxes. It also prepares thank you cards
with the necessary disclosures regarding the
tax-deductibility of sponsorship funds.
H. The Law of Fundraising
Before your nonprofit starts asking for or accepting
contributions, you’ll need to have a clear under-
standing of the legal rules that govern charitable
donations. The IRS has several rules regarding the
information a 501(c)(3) nonprofit must provide to
donors, depending on the amount they contribute
and whether the nonprofit gives them any benefits
in exchange for their contribution. In addition, many
states require nonprofits to register with a state
agency before beginning any fundraising campaign.
This section introduces key fundraising rules and
offers guidance on how to comply.
1. Disclosures to Donors
Considering the favorable tax treatment bestowed on
501(c)(3) nonprofits and those who donate to them,
it’s no surprise that the IRS imposes requirements on
nonprofits that receive these benefits.
The disclosure rules discussed in this section apply only to nonprofits with 501(c)(3) tax- exempt status. If you haven’t applied for or received this status, you don’t need to worry about these
rules and can skip ahead to Section H2.
Nonprofits must disclose certain information to
contributors who give a “quid pro quo” contribution
of more than $75 (“quid pro quo” means the donor
receives something in return for his or her donation)
and additional information to contributors who give
$250 or more. The rules for each of these situations
are discussed below.
Need more information on disclosures and donations? The IRS has several publications on charitable contributions, including: Publication 526,
Charitable Contributions; Publication 561, Deter- mining the Value of Donated Property; Publication 1391, Deductibility of Payments Made to Charities Conducting Fund-Raising Events; and Publication 1771, Charitable Contributions—Substantiation and Disclosure Requirements. All are available free at the IRS’s website, www.irs.gov. You can also get
them by calling 1-800-TAX-FORM.
You may want to consult an accountant or lawyer familiar with nonprofit fundraising issues. Many of the rules regarding donor disclo- sures and charitable contributions are fairly straight-
forward. But, as with most things tax-related, some
rules can be harder to decipher. If you are planning
a major fundraising campaign, check with a profes-
sional to make sure you comply with all necessary
requirements.
a. Quid Pro Quo Contributions of More Than $75
If your nonprofit receives a contribution of more
than $75 and gives the donor goods or services in
FUNDRAISING 6/ 2 9
return (often called a “gift premium”), you must
provide the donor with a written disclosure state-
ment that includes two pieces of information:
• a statement that the donor can deduct only
the difference between the value of the
donation and the value of any gift premium
he or she received, and
• a good faith estimate of the fair market value
of any gift premium given to the contributor
in exchange for the donation. The nonprofit
may use any reasonable method to estimate
the fair market value of the premium, as long
as it does so in good faith.
You must disclose these two items, but you do
not have to take the additional step of calculating
the donor’s deduction.
EXAMPLE: A donor gives your nonprofit $100 and receives two tickets to the symphony worth
a total of $40 as a thank-you gift. Your non-
profit provides the following disclosure state-
ment to the donor:
Thank you so much for your generous
contribution of $100. Please note that only the
portion of your contribution that exceeds the
value of any gifts you receive is tax-deductible.
The estimated fair market value of your gift, two
symphony tickets, is $40 total.
You could add that, as a result, $60 is tax-
deductible, but you do not have to do so.
Under this rule, the disclosure must be provided
either when the nonprofit solicits a donation from
a contributor or when the contributor makes a
donation. If the nonprofit provides the statement
when it solicits the potential donor, it does not have
to provide the statement again when the donor
contributes.
There are some exceptions to the written disclo-
sure requirement. The most significant exception is
that no disclosure is required for gifts that qualify as
an “insubstantial benefit”; in these cases, the donor
can deduct the full amount of his or her contribution.
In 2004, the IRS defined “insubstantial benefit” as a
premium worth less than 2% of the contribution or
$82—whichever is less. (Check the IRS website at
www.irs.gov for the most recent information.)
EXAMPLE 1: Your nonprofit gives a coffee mug worth $5 to a donor who contributes $500.
Because the gift is worth only 1% of the dona-
tion, you are not required to provide a written
disclosure to the donor, because the gift is an
“insubstantial benefit.” The donor can deduct
the full $500 donation on his or her income tax
return.
EXAMPLE 2: Your nonprofit gives a tote bag worth $40 to the $500 donor. Because the tote
bag is worth 8% of the $500 donation, it does
not fall into the “insubstantial benefit” exception.
You must provide a disclosure stating that the
donor’s tax deduction is limited to the differ-
ence between the contribution and the value
of the goods received, and that the fair market
value of the tote bag is $40.
For more information on disclosure and
substantiation rules, see IRS Publication
1771, Charitable Contributions—Substantiation and Disclosure Requirements. You can get a free copy from the IRS by visiting www.irs.gov or by calling
1-800-TAX-FORM.
b. Contributions of $250 or More
Donors may deduct a charitable contribution of $250
or more only if they have a written acknowledg-
ment of the donation from the nonprofit. Although
it is the donor’s legal responsibility to ask for the
acknowledgment, a wise nonprofit will always
provide the necessary statement to its donors.
To help your donors comply with this rule,
include a written statement along with the prompt
thank-you note you should routinely provide to con-
tributors. The donor must obtain this acknowledg-
ment by the due date, including extensions, for filing
a tax return for the year in which he or she donated,
or by the date he or she actually filed the tax return,
whichever is earlier.
2. Charitable Solicitation Registration and Reporting
Most states have laws that govern nonprofit fund-
raising; these rules are generally known as “charitable
6/ 3 0 STARTING & BUILDING A NONPROFIT
solicitation regulations.” Most states require non-
profits to register with a state agency—usually the
state attorney general—before engaging in any
fundraising efforts. In addition, the nonprofit may
need to provide annual financial reports that may be
made available to the public.
While you may feel frustrated by yet another
paperwork requirement, these laws serve to protect
the public from scams involving phony charities.
In turn, the laws help reputable nonprofits because
they help ensure the public that charitable donations
are actually going toward good causes—not into the
wallets of con artists.
Registration requirements vary considerably from
state to state. Some require the nonprofit alone to
register; others require all paid professional fund-
raisers and solicitors to register as well. In addition,
states apply different rules to determine what con-
stitutes fundraising. In some states, you may not
be required to register if you are collecting only
small amounts of money; in others, simply having
a donation page on your website will trigger the
registration requirements. Fees vary by state, and
you may be required to post a bond. To find out
more about your state’s rules, contact the office
in your state that regulates charitable solicitations.
(You’ll find contact information in Appendix C.)
In an effort to streamline the registration process,
the National Association of Attorneys General and
the National Association of State Charities Officials
jointly developed a standardized registration form,
called the “Unified Registration Statement” (URS).
Of the 39 states (including the District of Columbia)
that require charitable solicitation registration, all
but four accept the URS in place of their own forms.
In Alaska, Arizona, Florida, and Utah, you must use
the state’s own form. Also, in some states that accept the URS, you may need to submit some additional
material.
You can download the URS in Portable Document
Format (PDF) at www.multistatefiling.org. This site
also offers extensive, up-to-date information about
charitable solicitation requirements by state, includ-
ing any supplementary forms that may be required
in addition to the URS. The chart below summarizes
these basic requirements.
Registration will not fulfill any annual report-
ing requirement your state may impose—and the
URS is usually not accepted for annual reporting.
For annual reporting requirements, check with the
agency that governs charitable solicitations in your
state. (See Appendix C for contact information for
your state’s agency.)
I. Working With Professional Fundraisers
The bigger your fundraising campaigns become, the
more you may need professional help. If necessary,
you can bring fundraising consultants in to answer
specific questions or to handle major components
of your campaign. In established nonprofits, consul-
tants might even run a fundraising campaign from
beginning to end.
Most fledgling nonprofits will use consultants
sparingly (if at all), however, because their fees can
add up quickly. Keeping a consultant’s work focused
in one area—for example, developing printed
materials or expanding your prospect list—is the
key to keeping your costs down. When you hire a
consultant or another type of fundraising expert,
make sure to define clear expectations and a precise
scope of work for the expert to handle.
While you should trust and feel comfortable with
any consultant you hire, this is especially important
with a fundraising expert. Be sure to check the
consultant’s references and work history, and talk to
past clients. Most states regulate professional fund-
raisers, so you may be able to obtain information
about the consultant from public resources, such as
state or local government agencies. Also, make sure
that none of a consultant’s past clients turned out to
be bogus charities. You certainly don’t want some-
one working for you who has been associated with
any questionable nonprofits in the past.
It’s always important to make sure that anyone
representing your nonprofit is responsible, reputable,
and ethical. This is particularly true when it comes
to people working with sensitive financial matters,
such as asking the public for money on your non-
profit’s behalf.
FUNDRAISING 6/ 3 1
State Requires Registration?
Accepts the URS Form?
Alabama Yes Yes
Alaska Yes No
Arizona Yes No
Arkansas Yes Yes, with supplemental information
California Yes Yes
Colorado Yes No
Connecticut Yes Yes
Delaware No
District of Columbia Yes Yes
Florida Yes No
Georgia Yes Yes, with supplemental information
Hawaii No
Idaho No
Illinois Yes Yes
Indiana No
Iowa No
Kansas Yes Yes
Kentucky Yes Yes
Louisiana Yes Yes
Maine Yes Yes
Maryland Yes Yes
Massachusetts Yes Yes
Michigan Yes Yes
Minnesota Yes Yes
Mississippi Yes Yes, with supplemental information
Missouri Yes Yes
State Requires Registration?
Accepts the URS Form?
Montana No
Nebraska Yes Yes
Nevada No
New Hampshire Yes Yes
New Jersey Yes Yes
New Mexico Yes Yes
New York Yes Yes
North Carolina Yes Yes
North Dakota Yes Yes, with supplemental information
Ohio Yes Yes
Oklahoma Yes Yes
Oregon Yes Yes
Pennsylvania Yes Yes
Rhode Island Yes Yes
South Carolina Yes Yes
South Dakota No
Tennessee Yes Yes, with supplemental information
Texas No
Utah Yes Yes
Vermont No
Virginia Yes Yes
Washington Yes Yes
West Virginia Yes Yes, with supplemental information
Wisconsin Yes Yes
Wyoming No
Source: Multi-State Filer Project.
6/ 3 2 STARTING & BUILDING A NONPROFIT
Checklist: Fundraising
Focus on relationships with ongoing contribu- tors. Relationships with supporters are the
lifeblood of any nonprofit group.
Fundraise from the inside out. Those closest to the nonprofit should be first on your
prospect lists. Ask all volunteers, staffers, and
board members to come up with ten or more
prospective donors, and you’ll be well on
your way to a solid donor base.
Use early accomplishments to strengthen your appeals for support. Potential donors will
be more inclined to give you money if they
see what you have accomplished.
Invest some time and money in an effective database program so you can keep careful
track of whom you have asked to donate,
who has given money, who asked not to
be contacted again, and other important
information.
If you choose to solicit paid memberships, your members will expect to feel included in
your group. Create ways to build a sense of
involvement among your members, which can
be a much more valuable benefit than a tote
bag or coffee mug.
Be thrifty. Don’t model your fundraising materials on the expensive methods used by
larger, well-established nonprofits. Keep your
materials simple to show your potential sup-
porters that you are counting your pennies.
Train your fundraising team. Make sure your telephone or in-person solicitors are comfort-
able talking about your nonprofit and that
they demonstrate enthusiasm for its mission.
Robotic script-readers do not reflect well on
your group and will not inspire the public to
contribute.
Be sure you understand the tax rules gov-
erning unrelated business income, which is
income you earn through activities not sub-
stantially related to your nonprofit mission.
Comply with substantiation and disclosure rules. Provide your donors with all necessary
notices, such as what portion of their dona-
tion is tax-deductible.
Your mother was right: Thank you notes do matter! Recognizing your supporters and
letting them know how much you appreciate
their support helps build strong relationships.
Thank you notes are powerful tools—use
them.
■
C H A P T E R
1 Chapter 7
Risk Management and Insurance
A. Common Legal Problems ........................................................................................... 7/2
1. Contract Disputes ................................................................................................. 7/2
2. Employment Claims ............................................................................................. 7/3
3. Personal Injury Lawsuits ..................................................................................... 7/6
B. Who Is at Risk? ............................................................................................................. 7/7
1. Liability for the Nonprofit ................................................................................... 7/8
2. Liability for Board Members ............................................................................... 7/8
3. Liability for Employees ....................................................................................... 7/10
4. Liability for Volunteers ...................................................................................... 7/10
C. Managing Your Nonprofit’s Risks .......................................................................... 7/12
1. Anticipate What Can Go Wrong ...................................................................... 7/13
2. Focus on Prevention .......................................................................................... 7/13
3. Obtain Appropriate Insurance ........................................................................ 7/15
4. Deal With Problems Effectively ........................................................................ 7/19
7/ 2 STARTING & BUILDING A NONPROFIT
A s discussed in Chapter 1, structuring your
nonprofit as a corporation serves to protect
the individuals who work on behalf of the
nonprofit—particularly its board members—from
personal liability for the nonprofit’s judgments or
debts. If the nonprofit corporation loses a lawsuit
or otherwise finds itself in debt, only the nonprofit
corporation—not the personal assets of its board
members—will be on the hook for those costs.
While an unincorporated nonprofit may not offer
as much protection against personal liability as
one that incorporates, a few state and federal laws
protect people who work for unincorporated asso-
ciations as well. Of course, lawsuits are no fun no
matter who ends up liable—board members, staff,
or the nonprofit itself—so it’s best to take steps to
avoid them whenever possible.
This chapter moves beyond incorporation to
focus on broader strategies that will help you
minimize the risk of a lawsuit against your nonprofit
or its people, whether or not your group is
incorporated. Section A outlines the most common
types of lawsuits you could face, including contract,
employment, and personal injury claims. Section B
explains who is at risk for certain types of claims,
including when your nonprofit may be liable for the
acts of those working on its behalf, and what laws
offer specific protection from liability.
With these risks laid out before you, Section C
explains how to manage and minimize them by
implementing simple strategies that can minimize
the chance that your nonprofit will be sued. Most
nonprofiteurs are familiar with insurance as a
risk management tool—and you should certainly
purchase appropriate coverage, as explained in
Section C. However, there are other, better strategies
that can help you avoid incurring liability in the
first place. The good news is that many of these
strategies can be remarkably easy, inexpensive, and
effective.
In our lawsuit-crazed society, it’s important to
treat risks seriously and take active steps to protect
your nonprofit and its people. The key is to use
these strategies as preventative medicine by imple-
menting them well before any legal issues arise for
your nonprofit.
Lawsuits can come from inside or outside your organization. Your liability risks don’t always come from the outside world, such as a
visitor suing your nonprofit for an injury incurred
at your office. Claims that originate within your
nonprofit—such as a staff member suing because of
a manager’s sexual harassment or a volunteer suing
over an injury at a special event—pose a significant
risk to your organization as well. The more people
who work or volunteer for your nonprofit, the
more risks you face. It’s essential to minimize the
potential for both internal and external problems
with risk management techniques.
See a lawyer if you’re facing a lawsuit. This chapter will help you understand legal
liability issues and how best to minimize your risks
in general. If you are threatened with a lawsuit, or
are already involved in one, you’ll need legal advice
that applies to your specific situation—and you’ll
probably want to hire a lawyer. Liability issues often
involve gray areas in the law that are best addressed
by someone who understands your specific facts
and has real-world experience in the field.
A. Common Legal Problems
To figure out how to minimize your risk of facing a
lawsuit, you’ll need some basic information on the
types of legal claims that could be brought against
your group. After all, you can’t avoid trouble unless
you know what it looks like. This section explains
the various types of legal claims that nonprofits (and
for-profits, too) face most often: contract disputes,
employment claims, and personal injury lawsuits.
1. Contract Disputes
One of the most common problems that could result
in a lawsuit against a nonprofit is a dispute over a
contract or agreement of some sort. As discussed in
Chapter 8, many everyday transactions—including
hiring contractors, purchasing equipment, and
renting commercial space—create legally binding
contracts, whether you sign a lengthy document or
RISK MANAGEMENT AND INSURANCE 7/ 3
just make an oral agreement that you execute with
a handshake. When a contract exists, one party can
sue the other for failing to hold up his or her end of
the deal (in legal terms, for “breaching” the contract).
If you are hit with a lawsuit based on a contract
claim, you can be forced to do what you promised
to do in the contract, and, in some cases, to pay
additional money damages. To show that your non-
profit is legally liable, the other party has to prove
that you had a valid contract and that you failed to
live up to your end of the bargain. The other party
must also prove exactly how it was harmed by your
actions—and set a dollar amount on its damages.
The best way to avoid contract disputes is to
consider all of the details carefully before you seal
the deal—and put the agreement in writing once
you come to terms. Anticipating and addressing any
potential points of confusion or conflict up front is
always better than ignoring something until it comes
back to haunt you later. (For more information on
what makes a contract binding and how to draft
solid contracts, see Chapter 8.)
2. Employment Claims
Having employees—as helpful and wonderful as
they may be—greatly increases your risk of being
sued. Employment-related claims, such as sexual
harassment, wrongful termination, discrimination,
and wage and hour disputes, make up a significant
portion of lawsuits against nonprofits (and for-profit
businesses, too).
To avoid employee lawsuits, all nonprofits need to
understand the employment laws that apply to them.
Then, they need to hire and fire carefully, train
thoroughly, supervise adequately, implement solid
personnel policies, maintain a safe working environ-
ment, and purchase appropriate insurance. (Section
C, below, describes these and other techniques for
reducing your risk of getting sued in greater detail.)
The topic of employment law has filled countless
books and is far beyond the scope of this chapter.
For a thorough discussion of employment law mat-
ters, including how to prevent employee lawsuits,
consult one or more of the books listed in “Nolo
Resources on Employment Issues,” below. For now,
I offer an introduction to the most common types of
employment-related suits and the workplace situa-
tions that might trigger them:
• Wrongful termination. Most employees are hired “at will,” which means that they can
either quit or be fired by the employer at any
time, for any reason that’s not illegal. In some
cases, however, firing an employee could leave
you vulnerable to a wrongful termination
lawsuit. An employer may not fire someone for
an illegal reason, such as because of his or her
race, gender, or other characteristic protected
by law (discussed in “Discrimination,”
below) or in retaliation for union organizing,
complaining about discrimination, or reporting
an employer’s wrongdoing to a government
agency (known as “whistleblowing”). Also,
if an employee has an employment contract,
he or she could argue that you need “good
cause” to fire—if you terminate one of these
employees without a solid, work-related
reason, you could be in legal trouble.
7/ 4 STARTING & BUILDING A NONPROFIT
Watch Out for Implied Contracts
It’s easy to figure out whether an employee has
a written employment contract; just check your
personnel files. However, an employment con-
tract doesn’t have to be in writing to be valid.
An employee can claim to have an oral contract
of employment—a spoken promise that he or
she would only be fired for certain reasons,
would have a job for a particular period of
time, or would be kept on as long as the non-
profit is doing well. To figure out whether this
type of contract exists, you’ll have to talk to the
people in your organization who do the hiring
and supervise the employees.
Even more difficult to pinpoint is an im-
plied employment contract—a contract that is
not written and was not stated explicitly but
was created by the statements and actions of
the parties. Typically, employees who claim
to have an implied contract point to various
documents and statements that led them to be-
lieve they would be fired only for good cause.
Statements by supervisors or managers, lan-
guage in an employee handbook, comments
in a performance evaluation, and much more
have been used to create evidence of an
implied contract. Not every state will allow an
employee to sue based on an implied employ-
ment contract, however. What’s more, there
are many steps you can take to avoid these
claims in the first place—including making very
clear, in your employee handbook and else-
where, that you reserve the right to fire at will.
For detailed information on implied contracts,
see Dealing With Problem Employees, by Amy DelPo and Lisa Guerin (Nolo).
• Sexual harassment. As you probably know, failing to prevent or to respond appropriately
to an employee’s claim of sexual harassment
can expose a nonprofit to liability. Sexual
harassment is unwelcome sexual conduct on
the job that creates an intimidating, hostile, or
offensive work environment for one or more
employees. One type of sexual harassment
is “quid pro quo” harassment (literally, “do
this for that”), in which a worker is asked to
comply with some sex-based request or face
a negative consequence. Even in the absence
of such demands, a sexual harassment claim
may be successful if the workplace is deemed
a “hostile environment” in which sexual
jokes, pictures, innuendoes, or comments are
allowed to persist.
• Discrimination. Federal law prohibits discrim- ination in employment based on race, gender,
national origin, religion, disability, or age. In
addition, state and local ordinances sometimes
protect other characteristics as well, such as
sexual orientation or marital status. If you
rely on any of these factors in making such
employment decisions as hiring, firing, pay,
job or shift assignments, promotions, or access
to training opportunities, you could be subject
to a discrimination lawsuit.
• Retaliation. It is also illegal for an employer to take a negative employment action (for
example, denying a promotion or giving a
bad performance review) against an employee
who has filed a harassment or discrimination
complaint or who has supported another
employee in making such a complaint—for
example, by serving as a witness. Doing this
could open you up to a retaliation claim in
addition to the original discrimination or
harassment claim.
• Wage and hour claims. Another area in which employers are often vulnerable to lawsuits
is wage and hour disputes. Employers can
be subject to wage and hour claims for such
things as misclassifying hourly workers as
salaried workers, failing to pay their workers
overtime, or improperly handling an employee’s
vacation time. Nonprofits are not generally
exempt from these rules. Because there are
complicated rules that determine which
workers—and which employers—are subject
to certain wage and hours laws, you may
want to consult a knowledgeable attorney for
specific questions.
RISK MANAGEMENT AND INSURANCE 7/ 5
• Defamation. If you make false, damaging statements about someone, you may be
subject to a defamation claim. In the employ-
ment context, defamation claims come up
most often in the context of references—for
example, another nonprofit calls to ask about
a job applicant who used to work for your
group. Some state laws protect employers
from defamation claims based on references.
Whether or not your state has such a law,
N
Nolo Resources on Employment Issues
Nolo’s website, www.nolo.com, offers free
information on employment and human
resources issues. In addition, Nolo publishes
numerous titles on employment law, covering a
wide range of topics from general books on the
basics of all employment laws to specific books
on employment-related topics such as how to
create your own employee handbook or conduct
performance appraisals. Check out the following
titles to help you with your employment law
questions.
• Everyday Employment Law: The Basics, by Lisa Guerin and Amy DelPo (Nolo). An
easy-to-use reference guide to employ-
ment law that combines legal information
with practical applications.
• The Employer’s Legal Handbook, by Fred S. Steingold (Nolo). A comprehensive
reference guide to a wide array of
employment laws.
• Federal Employment Laws: A Desk Reference, by Lisa Guerin and Amy DelPo (Nolo). A reference manual
that provides both the text of federal
employment laws and their plain-English
translations.
• Create Your Own Employee Handbook: A Legal & Practical Guide, by Lisa Guerin and Amy DelPo (Nolo). Guides you through
creating a readable, legally sound employee
handbook.
• The Performance Appraisal Handbook: Legal & Practical Rules for Managers, by Amy DelPo (Nolo). A practical guide that
will help anyone who supervises employ-
ees to conduct legally safe and effective
performance evaluations.
• Dealing With Problem Employees: A Legal Guide, by Amy DelPo and Lisa Guerin (Nolo). Offers techniques for reducing
problems in the workplace and dealing
with problems that arise.
• Workplace Investigations: A Step-by-Step Guide, by Lisa Guerin (Nolo). Provides everything you need to know to resolve
employee complaints legally and efficiently.
however, the best way to avoid these claims
is to always be scrupulously honest when
speaking about former employees—and to
follow strict procedures when providing
references (for example, put one person in
charge of providing references, and require
prospective employers to request a reference
in writing). These procedures are discussed in
detail in Dealing With Problem Employees, by
Amy DelPo and Lisa Guerin (Nolo).
7/ 6 STARTING & BUILDING A NONPROFIT
3. Personal Injury Lawsuits
Another type of lawsuit—not commonly filed
against nonprofits, but still potentially devastating—
is a personal injury claim (or, in legal speak, a
“tort”). Personal injury claims arise when someone
in or around your nonprofit gets injured, either
financially or personally, and the injury is not
related to a contract. Such claims can stem from a
physical injury, property damage, emotional distress,
or damage to a person’s reputation. In general, the
person who causes an injury is financially liable for
the damages suffered by the victim of the injury,
even if the wrongdoer didn’t mean to harm the
victim; both unintentional and intentional injuries
can result in liability.
For example, if one of your employees leaves an
extension cord in front of a doorway, where a visitor
trips on it and breaks an ankle, the visitor might file
a personal injury claim against the nonprofit seeking
compensation for medical bills, plus pain and suf-
fering. Or if your nonprofit’s website contains false
and damaging information about someone—say, an
article about the local art scene accuses a gallery
owner of fraudulent activity that turns out to be un-
true—the gallery owner might file a personal injury
claim against the nonprofit based on the damage to
his or her reputation.
While people file countless personal injury law-
suits each year, they don’t always win. An injured
person needs to prove certain things before a court
will find another person or entity responsible for
those injuries. At a minimum, the injured person
must prove that he or she did, in fact, suffer an
injury; that the person or organization being sued
acted “negligently” (that is, carelessly); and that
those negligent actions were a direct cause of the
injury.
This is, of course, a very brief summary of a
complex body of law—most law students spend an
entire year learning the ins and outs of personal
injury claims! While the world of potential personal
injury lawsuits may only be limited by the imagina-
tion of lawyers, however, you can protect yourself
with simple risk management strategies, as discussed
in Section C, below.
No More “Charitable Immunity”
A few decades ago, nonprofit organizations
enjoyed broad protection from liability under
a doctrine known as “charitable immunity.”
While the exact rules varied by state, chari-
table organizations were generally protected
(“immune”) from many types of lawsuits. Today,
most states have done away with charitable
immunity, leaving nonprofits vulnerable to
lawsuits of all types.
In a few states, however, some remnants of
charitable immunity remain and can protect
nonprofits from certain legal claims. According
to the Nonprofit Risk Management Center
in its publication State Liability Laws for Charitable Organizations and Volunteers, 4th edition (2001) (available through its website
at www.nonprofitrisk.org), the states that still
recognize some degree of charitable immunity
for nonprofits include Alabama, Arkansas,
Georgia, Maine, Maryland, New Jersey,
Virginia, Utah, and Wyoming.
Even in these states, however, the doctrine
may be significantly limited. In Maryland, for
instance, charitable immunity applies only
if the nonprofit’s assets are held in a trust
and the nonprofit has no liability insurance.
In Alabama, immunity applies only to claims
brought by beneficiaries of the nonprofit.
The bottom line is that charitable immunity
no longer provides much protection to
nonprofits or their workers. Other laws,
such as the federal Volunteer Protection Act
(discussed in Section B4, below), have been
enacted to shield those who work at nonprofits
from liability, but the nonprofits themselves
don’t enjoy the same protection. As a result,
it’s more important than ever to protect your
nonprofit’s assets using risk management
strategies (including insurance.)
RISK MANAGEMENT AND INSURANCE 7/ 7
Employees’ on-the-job injuries are covered by workers’ compensation. An employee who is injured on the job usually cannot sue the
employer or a coworker for his or her injuries.
Instead, on-the-job injuries are generally covered by
workers’ compensation insurance—workers generally
may not sue their employers for on-the-job injuries
but are entitled to receive benefits through the
workers’ compensation system. A handful of states
also have programs for state or private disability
insurance to help compensate injured employees.
Employers may be required to participate in such
programs; contact your state labor department for
more information on these requirements.
B. Who Is at Risk?
In addition to understanding the types of lawsuits
your nonprofit could face, you also need to know
who in your nonprofit could be held legally respon-
sible in those suits—board members, staff, volun-
teers, and/or the nonprofit itself. This question will
likely be raised by those working with your organi-
zation, who may be concerned about whether they
could be held personally liable for legal or financial
mishaps involving the nonprofit. For example, if
someone mismanages the nonprofit’s funds, resulting
in creditors suing for payment and the IRS imposing
fines, could individual board members or others be
held liable for the nonprofit’s debts?
Nonprofits need to be especially concerned about
personal liability, because people who sue always
aim for the “deepest pockets—in other words, the
entity or person with the most money. In the for-
profit world, the business itself, not its employees,
is usually the target of lawsuits, because it usually
has more money than the individuals who work for
it. In the nonprofit world, however, the nonprofit’s
workers may have significantly more assets than
the nonprofit itself, so someone filing a lawsuit may
set his or her sights on an affluent board member,
volunteer, or staff person.
The good news is that, in most cases, people
who work for nonprofits don’t have to worry about
personal liability, unless they act with extreme care-
lessness, recklessness, or bad intentions.
State Laws May Protect Participants in Unincorporated Associations
Board members, employees, and volunteers of nonprofits that have not incorporated may be protected by the Uniform Unincorporated Nonprofit Association Act (UUNAA)—a model law adopted in a handful of states. The general rule is that owners of unincorporated entities, such as partnerships and sole proprietorships, are personally liable for any debts or liabilities their businesses incur. The UUNAA changes this rule for unincorporated entities that are nonprofits, so that board members and others working for the nonprofits are not automatically liable for the nonprofit’s debts and liabilities just because they are associated with the non- profit.
The UUNAA does not protect a nonprofit’s workers from being sued directly, based on their own actions—instead, it prevents law- suits based solely on their association with the nonprofit. For example, say someone sued a nonprofit for injuries suffered when the stage collapsed at a benefit concert the nonprofit sponsored. That person would not be prevented from suing a board member who erected the stage, because the board member’s actions directly caused the injury. However, if an- other business sued a nonprofit for breach of contract, that business could not name every individual board member as a defendant in the lawsuit, just because they are associated with the nonprofit’s board. (Other laws, such as the Volunteer Protection Act, offer fuller protection, as discussed in Section B4, below).
The provisions of the UUNAA apply to both paid and volunteer workers, but only in the states that have adopted this model law. As of 2005, these states include Alabama, Arkansas, Colorado, Delaware, the District of Columbia, Hawaii, Idaho, Texas, West Virginia, Wisconsin, and Wyoming.
Chapter 1 discusses the UUNAA in greater detail, including provisions not related to liability issues. For even more information on the UUNAA and any recent state adoptions, visit the National Conference of Commissioners on Uniform State Laws online at www.nccusl.org.
7/ 8 STARTING & BUILDING A NONPROFIT
1. Liability for the Nonprofit
Whether incorporated or not, nonprofits generally
are legally responsible for the acts of their workers.
This is true of all employers, and nonprofits are no
exception.
An employer is usually liable for everything its
employees do within the course and scope of their
employment. This includes both things the employer
directly tells an employee to do (for example, a su-
pervisor asks a staffer to mop the hallway entrance,
where a visitor then slips and falls on the wet floor),
and things that the employee does independently,
without being told to do so, as long as it’s within the
scope of his or her work duties (for example, the
staffer’s duties include cleaning, and she mopped
the dirty hallway without being asked by her super-
visor). While it may seem unfair for employers to
take the fall for employees’ actions, the reasoning is
simply that the buck stops with the employer: Be-
cause the employee is working for the benefit of the
employer, it’s considered fair to hold the employer
responsible for any accidents that might occur in the
process. This rule gives employers a strong incentive
to hire carefully, train well, supervise appropriately,
and ensure that their employees don’t cause harm.
An employer is not liable, however, for actions
that fall outside the scope of an employee’s work
duties. If the activity in question is simply unrelated
to the worker’s job (say, an employee takes his or
her dog for a walk during lunch hour and the dog
bites someone), or if the employee recklessly or
even intentionally causes harm while at work (for
instance, an employee of a nonprofit nature center
flies into a rage and assaults a visitor), a judge would
likely decide that the employee, not the nonprofit,
should be responsible for the damages.
For more information on employers’ potential liabilities, see The Employer’s Legal Handbook, by Fred S. Steingold and Everyday Employment Law: The Basics, by Lisa Guerin and Amy DelPo (both published by Nolo).
Is a Nonprofit Liable for the Acts of Independent Contractors?
An independent contractor is someone who
works for you on a freelance basis, not as a
regular employee. (For more on this distinc-
tion, see Chapter 5.) If you hire an indepen-
dent contractor, someone may try to sue you
for an injury caused by the contractor’s work.
For example, if you hire a contractor to set up
lighting for a special event and a light falls from
the ceiling and injures someone, the injured
person might sue your nonprofit rather than
the contractor.
While employers are typically liable for the
acts of their employees, the rules about an em-
ployer’s liability for the acts of an independent
contractor are not as clear-cut. The answer will
depend heavily on the facts of the situation
and on the language of the contract between
your nonprofit and the contractor. If you are
sued and found liable, you may be able to sue
the independent contractor to reimburse you
for the damages you suffered—the money you
were forced to pay because of the contractor’s
mistakes.
For more information on liability for the
work of contractors you hire, see Working With Independent Contractors, by Stephen Fishman (Nolo).
2. Liability for Board Members
Board members won’t usually be personally liable
for a nonprofit’s legal or financial woes, as long as
they fulfill their duties to the nonprofit. As discussed
in Chapter 4, board members have a “fiduciary
duty” toward their nonprofit—a legal obligation to
act carefully and in the nonprofit’s best interests. To
fulfill this obligation, board members must act with
reasonable care and good faith in doing their work
and must avoid conflicts of interest—in particular,
situations where they stand to gain personally at
the expense of the nonprofit. A board member can
RISK MANAGEMENT AND INSURANCE 7/ 9
expose him or herself to personal liability by failing
to meet these responsibilities.
If, for instance, a board member chronically
misses meetings during which important financial
decisions are made, that member has failed to
act with reasonable care and could possibly be
held liable for any misuse of funds or other fiscal
mismanagement. Or, if a board member ignores
persistent rumors for months that the executive
director engages in lewd conduct toward some
employees, that board member could become
subject to personal liability if the employee files a
sexual harassment lawsuit against the nonprofit. A
board member might also face liability if he or she
engages in self-dealing (by pocketing earnings from
nonprofit-related services, for example).
As these examples illustrate, board members
can do much to protect themselves against liability
simply by doing a conscientious job. This typically
involves:
• Attending meetings. Missing meetings is one of the most common ways board members
fall short of their duty to act with reasonable
care. Missing a meeting or two per year is
sometimes unavoidable and generally will not
expose a board member to liability. But the
less involved a board member is, the greater
the possibility that he or she could be held
liable for the nonprofit’s woes.
• Staying informed. Board members should al- ways understand what the nonprofit is doing.
This means reading reports, paying attention
to the budget and other key financial issues,
and, where necessary, asking questions. If a
member is overwhelmed by the workload and
cannot stay on top of important matters, he or
she should let the other board members know
and find a solution—whether it means recruit-
ing additional board members, transferring
work to staff or volunteers, or stepping down
from the board.
• Keeping the nonprofit on track towards its mission. It’s the board’s job to make sure that the nonprofit is carrying out its stated mission.
The state grants the privileges of nonprofit
status—and the IRS gives tax exemptions—
based on the nonprofit’s stated mission. If
the organization strays from its mission, the
nonprofit could lose its federal tax-exempt
status, its state nonprofit status, or both. Obvi-
ously, this could be devastating to a nonprofit,
resulting not only in ineligibility for grants
and other funds but possibly a hefty tax bill,
as well. It’s the board’s responsibility to make
sure this does not happen.
• Understanding and complying with work- place laws. As mentioned in Section A2, above, lawsuits alleging wrongful termination,
harassment, or discrimination are a serious
risk to nonprofits. Board members typically
aren’t personally liable for these types of claims.
If, however, board members knowingly allow
these laws to be broken or personally violate
them, they could face personal liability. To
help avoid this, board members should make
sure that the nonprofit has solid policies in
place for employees and volunteers—ideally
with written handbooks. (For specifics on
preventing employee lawsuits, see Section C2,
below.)
• Making sure the nonprofit stays in compliance with local, state, and federal requirements. While the executive director or other staff
person is usually responsible for handling
important bureaucratic tasks such as filing
corporate reports, paying taxes, and comply-
ing with other regulations, the board should
exercise sufficient oversight to responsibly
conclude that the nonprofit is in compliance.
An out-of-touch board that fails to ensure that
bureaucratic requirements are met might face
liability down the road if the mismanagement
results in legal action or fines.
For detailed information on the bureaucratic tasks a nonprofit faces, see How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo). This title offers step-by-step instructions on
the state and federal paperwork involved in starting
and running a nonprofit.
Besides performing their duties responsibly, board
members can also protect themselves by purchasing
directors and officers (“D&O”) insurance. See
7/ 1 0 STARTING & BUILDING A NONPROFIT
Section C3e, below, for more information on this
type of coverage.
State or federal laws may also protect your board
members from liability. The federal Volunteer
Protection Act (VPA) shields board members who
are working for nonprofits on a volunteer (unpaid)
basis. See Section B4, below, for more information
on the VPA. If your nonprofit is not incorporated
and your state has adopted the UUNAA, board
members cannot automatically be held liable for the
actions of the nonprofit just because they run and/or
work for it. See “State Laws May Protect Participants
in Unincorporated Associations,” above, for more on
the UUNAA.
3. Liability for Employees
In rare cases, employees of a nonprofit can be held
personally liable for injuries they cause, but this
doesn’t happen very often. As long as employees
act with “reasonable care” towards the nonprofit,
they will not be responsible for damages. Unless an
employee acts with recklessness or total disregard
for others or intentionally causes harm, the nonprofit
itself—rather than the employee personally—will be
on the hook for any injuries.
For example, if an employee brings her attack-
trained pit bull to the office and the dog seriously
injures a visitor, the employee could be held per-
sonally liable for damages. The same is true if the
employee causes damage through intentional acts,
such as vandalizing the office or assaulting some-
one. Sexual harassment and illegal discrimination
also may expose an offending employee to personal
liability—especially if the nonprofit has solid work-
place policies in place prohibiting such behavior.
When individuals avoid personal liability, the nonprofit may still be on the hook. Even if board members and staff are not liable, the non-
profit itself may still be legally responsible for a
personal injury claim, employee discrimination
claim, or breach of contract lawsuit—and could lose
all or most of its assets in the bargain. Although
board members and staff won’t lose their personal
wealth, they could very well lose their jobs, their
cause, and the organization they’ve fought so hard
to sustain. The bottom line is that no matter who
foots the bill, being on the losing end of a lawsuit
will cause great harm to everyone involved in the
nonprofit’s work (including the communities the
organization exists to serve). The only way to avoid
the problem is to reduce your risks from the outset.
If your nonprofit is not incorporated and your
state has adopted the UUNAA, your employees will
not automatically be liable for judgments against the
nonprofit. See “State Laws May Protect Participants
in Unincorporated Associations,” above, for more on
the UUNAA.
4. Liability for Volunteers
Employers are generally liable for the acts of
their employees, but state laws are less clear on
the question of nonprofit liability for the acts of
volunteers. A federal law, the Volunteer Protection
Act, resolves this issue to some degree by protecting
volunteers in all states from liability for certain types
of lawsuits.
a. State Laws
Every state has enacted one or more laws to ad-
dress whether volunteers are personally liable for
mishaps that happen during their volunteer work.
Unfortunately, these laws differ greatly from state to
state, so there are no general rules when it comes to
volunteer liability protection under state law. To find
out what the law says in your state, you’ll need to
do some research. See “Researching the Law in Your
State,” below, for information on how to get started.
If your nonprofit is not incorporated and your
state has adopted the UUNAA, your volunteers (like
your employees) may be protected from personal
liability for the nonprofit’s problems—but they can
still be sued for their own misconduct. See “State
Laws May Protect Participants in Unincorporated
Associations,” above, for more on the UUNAA.
RISK MANAGEMENT AND INSURANCE 7/ 1 1
Researching the Law in Your State
To find out about the laws on personal liability
in your state, you may have to do a little
digging. Start by contacting the office that
oversees nonprofits in your state—often the
Secretary of State or other corporate filing
office. (See Appendix B for contact information
for the office in your state.) Ask them to
direct you to information on liability statutes
for nonprofits in your state—for example,
charitable immunity or volunteer liability laws.
They may have a publication summarizing your
state’s laws, or they might be able to direct you
to a specific section of your state’s statutes.
The Nonprofit Risk Management Center is
another excellent resource for information on
nonprofit liability issues. This group has put
together an informative, free publication, State Liability Laws for Charitable Organizations and Volunteers, which you can download from its website at www.nonprofitrisk.org. This pub-
lication is updated regularly and offers an im-
pressive summary of liability laws in each state.
If you still need more information, you may
have to do some basic legal research on your
own. For simple tasks like finding state stat-
utes, doing your own legal research is not as
complicated as you might think. Chapter 12
offers tips on how you can do legal research
yourself. For a more thorough reference, see
Legal Research: How to Find & Understand the Law, by Stephen R. Elias and Susan Levinkind (Nolo).
Volunteers may still be liable for certain types of misconduct. Even when state laws shield volunteers from personal liability, they
often make exceptions for certain acts. In other
words, even if a state law protects nonprofit vol-
unteers from liability, that protection won’t exist if
the injury occurred during one of these excluded
circumstances. The most common exceptions to
laws protecting volunteers from liability are for 1)
willful or intentional actions (purposeful miscon-
duct), 2) grossly negligent actions (acts committed
with a total disregard for the safety of others), and 3)
actions committed while operating a motor vehicle.
b. Volunteer Protection Act
In 1977, Congress passed a federal law—the Vol-
unteer Protection Act (VPA) (codified at 42 U.S.C.
§ 14501)—to establish more uniform liability protec-
tions for volunteers nationwide. Lawmakers enacted
this statute to address the concern that people were
less likely to volunteer for worthy causes they were
afraid of being exposed to liability. The VPA pro-
vides limited immunity to volunteers nationwide for
any injuries or damages they cause in the course of
their volunteer activities, regardless of the state in
which they live and volunteer.
The VPA does not require a group to be incor-
porated or to have 501(c)(3) status to be covered.
The VPA covers volunteers of all nonprofit groups
that have 501(c)(3) status, or that are “organized and
conducted for public benefit and operated primarily
for charitable, civic, educational, religious, welfare,
or health purposes.” (42 U.S.C. § 14505(4)(B).)
(Interestingly, the VPA excludes from the definition
of “nonprofit organization” any group that engages
in hate crimes, as defined by federal law.)
To qualify as a “volunteer” under the VPA, a
worker must not receive compensation or anything
of more than $500 value per year for his or her ser-
vices. Directors and officers who meet this require-
ment also qualify as volunteers. Volunteers may be
reimbursed their out-of-pocket expenses and still be
protected by the Act.
In addition, for a volunteer to be protected from
liability under the VPA, his or her actions must meet
all of the following conditions:
• The volunteer was acting within the scope of
his or her responsibilities at the time of the act
(or lack of action) that caused the harm.
• If appropriate or required, the volunteer was
properly licensed, certified, or authorized to
act.
• The actions causing the harm were not inten-
tional, criminal, reckless, or grossly negligent
7/ 1 2 STARTING & BUILDING A NONPROFIT
(that is, they were not committed with a total
disregard for the safety of others).
• The volunteer was not operating a motor
vehicle, vessel, or aircraft. (Congress appar-
ently wanted these risks to be addressed by
insurance coverage.)
The general rule is that the VPA overrides any
state law on personal liability for volunteers unless
the state law offers more protection to volunteers
than the VPA. However, there are exceptions—some
state laws that limit protection to volunteers will still
have legal force despite the VPA. In other words,
certain state volunteer protection laws will not be
overridden by the VPA. State laws that continue to
apply despite the VPA include the following:
• Any state law that limits protection to non-
profits that have adopted policies to manage
their risk of liability, including mandatory
volunteer training. In other words, if a state
law says that volunteers are protected only if
the nonprofit has adopted risk management
policies, then volunteers for a nonprofit that
has not done so will not be protected by state
law or the VPA.
• Any state law making nonprofits liable for the
acts of their volunteers to the same extent that
private employers are liable for the acts of
their employees. If a state has such a law, the
VPA will not do anything to change it.
• Any state law that says that volunteers are
not protected from liability if a state or local
government officer brings the suit against
the volunteer. If such a state law exists, then
the VPA will not provide immunity if a dis-
trict attorney or other public official files suit
against the volunteer.
• Any state law that protects only those non-
profits that offer a source of compensation
for those who are injured—for example, an
insurance policy. If state law makes such a
limitation, then the VPA won’t help a volun-
teer at a nonprofit that doesn’t have insurance
or another source of financial relief for those it
may injure.
Another notable exception to the VPA is that a
volunteer who commits a violent crime, hate crime,
sexual offense, or violation of civil rights law against
someone, or who injures someone while under the
influence of alcohol or drugs, will not be protected
from liability under the VPA. Also, the VPA does
not prevent a nonprofit from suing a volunteer for
injuries he or she caused; it just protects volunteers
from lawsuits by third parties for actions the volun-
teer took during his or her volunteer work.
Nonprofits are not shielded from liability. The VPA does nothing to prevent lawsuits against nonprofit organizations—it protects only
the volunteers working for those nonprofits. But
because nonprofits often have little or no assets,
it’s often the volunteers and their deeper pockets
(if they have them) who need protection from those
suing for money damages.
C. Managing Your Nonprofit’s Risks
So far, this chapter has looked at the (often intricate)
rules that determine who may be on the hook for
any harm that occurs during the course of a non-
profit’s activities. As discussed, there are many gray
areas when it comes to who will be liable; often,
the only definitive answer is the one that’s handed
down by a judge or jury. Despite the legal com-
plexities, however, one thing is crystal clear: Taking
sensible steps to minimize your risk of being sued
in the first place is the best way to avoid liability.
Your primary goal is not to win a lawsuit by some-
one who has been injured by your nonprofit—or to
rely on state and federal protections as a shield—but
to avoid the lawsuit altogether.
The term “risk management” refers to the practice
of actively addressing, managing, and minimizing
your risk of causing injuries or being sued. It’s a
rapidly growing field, in no small part due to the
perfectly sensible fear that a lawsuit will drop out of
nowhere and wreak havoc on your nonprofit. Pur-
chasing various types of insurance is a part of a risk
management program but does not in itself consti-
tute risk management. Sometimes, insurance provides
adequate protection; in other cases, insurance may
be either too expensive or simply unavailable for
particular activities. (Section C3, below, discusses
insurance.)
RISK MANAGEMENT AND INSURANCE 7/ 1 3
A basic risk management strategy will address the
following questions:
• What can go wrong in our organization?
• How can we prevent these events from
happening?
• If, despite our best efforts, things still go
wrong, how will we control the damage?
• If we do get sued, how will we pay for
lawyers, court judgments (if we lose), or out-
of-court settlements?
Focus on what you are trying to protect. Keep in mind that your risk management
efforts are all geared towards protecting your
assets—financial and otherwise. Most organizations
will have a similar list of things they want to protect:
their people, their physical and financial assets,
and their reputations. It’s a good idea to put a little
thought into what assets your risk management
efforts are designed to protect. Knowing which as-
sets are most important to you will help you identify
potential threats to those assets more effectively.
1. Anticipate What Can Go Wrong
Start your risk management program by outlining
the operations and activities your nonprofit plans to
undertake. This will help you identify your potential
risks. For example:
• If your office will be open to the public, you’ll
need to make sure that your office environ-
ment is safe.
• If you plan to have a lot of employees or
volunteers, you’ll need to take steps to avoid
workplace-related lawsuits.
• If you want to engage in potentially risky
activities, such as horseback riding trips,
kayaking lessons, or art classes with potentially
hazardous materials, you’ll need to take steps
to avoid injuries and legal claims.
• If you intend to hold special events, you’ll
need to plan for dealing with large sums of
cash, which can get lost or stolen.
• Any driving done in the course of nonprofit
activities raises the risk of auto accidents—and
the expensive lawsuits that can be the result.
In addition to identifying the risks that arise
from your specific activities, you should brain-
storm to come up with other possible problems.
Talking with an insurance agent who is familiar
with nonprofits—or, better yet, with your type of
nonprofit activities—can help identify risks that you
might not have considered. It’s also useful to talk
with other local nonprofits about their risk manage-
ment strategies and to read trade magazines and
other media to keep abreast of the kinds of lawsuits
being filed against nonprofits. Don’t forget to ask
your employees what risks and problems they see
lurking, as they may be one of your best sources for
ideas that will help you reduce your risks.
Finally, it should come as no surprise to you
that your nonprofit can get in trouble for violating
government requirements or breaking criminal laws.
Failing to pay federal or state taxes is a common
way that nonprofits find themselves in trouble. Less
commonly, nonprofits discover that an employee or
board member has committed theft or fraud. While
these may seem like remote possibilities, it’s best to
think broadly when assessing potential risks.
2. Focus on Prevention
Once you’ve identified the main risks facing your
nonprofit, it’s time to think about ways to protect
yourself against these risks. There are many
ways to minimize potential problems, including
ensuring adequate supervision, implementing and
communicating clear policies, and getting insurance.
In some situations, however, you may have to
consider the possibility of changing or eliminating
certain activities that you deem too risky (or that
involve prohibitively high risk prevention costs). Of
course, what is too risky may depend on the law
and the availability of insurance in your state.
a. Run a Tight Ship
It goes without saying that you should operate
your nonprofit conscientiously. Besides ensuring a
quality operation, solid management is also crucial
to preventing legal problems. Proper management
includes:
• filing all required papers and getting the
necessary permits
7/ 1 4 STARTING & BUILDING A NONPROFIT
• being truthful and accurate in your paperwork
and personal dealings
• keeping track of nonprofit funds, inventory,
and important documents
• paying your debts
• delivering what you promise
• maintaining safety standards, and
• complying with all applicable laws, especially
by paying taxes on time.
As mentioned earlier, even if an executive
director, manager, or other employee is in charge of
filling out and filing the paperwork, ultimately it’s
the board’s responsibility to make sure the nonprofit
complies with all applicable laws. Your board should
check in regularly to make sure that the necessary
paperwork is getting done on time.
b. Establish Workplace Policies
The key to minimizing the significant risks of
workplace-related lawsuits is to be proactive—to
implement policies and trainings designed to
avoid such claims in the first place. It’s essential to
understand the employment laws that apply to your
organization and to hire and fire carefully, train
thoroughly, supervise adequately, implement solid
personnel policies, and maintain a safe working
environment. If you don’t, any employees you
hire pose a significant risk to your nonprofit—and
possibly to its board members, managers, and other
employees who could be sued personally. For more
on potential employee lawsuits, see Section A2,
above.
Particularly with employment-related legal issues,
one of the best risk management techniques is to
implement effective policies and training programs
from the get-go. For example, straightforward hiring
and firing policies, including a written policy that
employment is “at will,” can help protect you against
claims of wrongful termination. A clear policy
prohibiting sexual harassment and identifying what
an employee should do to make a harassment com-
plaint is essential to protect you from losing a sexual
harassment claim. Including these crucial policies in
an employee and/or volunteer manual and posting
them in common areas (particularly effective with
a sexual harassment policy) will help get everyone
on the same page and avoid misunderstandings that
can lead to legal conflicts.
In addition to having clear policies in writing,
it’s also smart to conduct orientation and training
programs on important policies to make sure your
employees and volunteers understand them—for
example, sexual harassment, antidiscrimination, and
workplace safety policies. Actively teaching your
staffers what behavior is expected and what will not
be tolerated will significantly reduce your liability
exposure in those areas.
Beyond establishing and communicating personnel
and other policies to your staff, you need to make
sure that your management structure ensures that
the policies will be enforced. Even the most air-tight
written policy on sexual harassment or workplace
safety won’t protect a nonprofit from being sued if
no one knows the policies, complaints go uninves-
tigated, or the organization doesn’t take effective
action to deal with violations. An “open door” policy
and a safe channel through which an employee or
volunteer can launch a complaint can be very help-
ful. Employees who understand that their employer
is taking care of their concerns are less likely to
become frustrated and sue; and an employer who
makes sure to follow all applicable workplace laws
is less likely to be found at fault if sued.
If you are unsure which laws apply to your
organization or which employment policies you
should put in place, check the Small Business
Compliance section of the U.S. Department of
Labor website (www.dol.gov), and check with
your own state’s department of labor. (Look in the
state government pages of your phone book under
“Labor” or “Department of Labor.”) You can also
find helpful information on websites such as the
Human Resources Learning Center (www.human-
resources.org) and Nolo (www.nolo.com), as well
as in books such as Create Your Own Employee
Handbook: A Legal & Practical Guide, by Lisa
Guerin and Amy DelPo (Nolo). You may wish to
review other employers’ personnel manuals to see
what they cover, and/or hire a personnel specialist
or HR consultant.
RISK MANAGEMENT AND INSURANCE 7/ 1 5
Want more information on employment law? Nolo publishes many different titles on a wide array of employment law, human resources,
and workplace-related topics. For a complete list,
see “Nolo Resources on Workplace Issues,” in
Section A2, above.
3. Obtain Appropriate Insurance
Another powerful risk management tool is insurance
coverage. All businesses and nonprofits should
consider purchasing standard property and liability
insurance. In addition, there are some types of
insurance designed specifically for nonprofits and
the people who work for them.
Employers are subject to special state and federal insurance rules. As discussed in Chapter 5, if your nonprofit hires employees,
it will be subject to a number of additional
insurance requirements. Typically, employers
must pay for workers’ compensation insurance
and unemployment insurance; a handful of states
also require employers to pay into a state disability
insurance fund. These insurance programs are
specifically set up for employers and are regulated
by state or federal agencies. See Chapter 5 for more
on the rules that govern employer and employee
contributions to these insurance programs.
Caring for your policy. Treat your insurance policy like the precious, and possibly
irreplaceable, document that it is. Store it carefully.
Keep copies of old policies for your records, even
if you change insurance providers. Claims can arise
from long-ago events, and that document may be
your only way to track down an insurer you had in
the past. If the insurance company or its successor
is still in business and you have a copy of the old
policy to prove that it covered that event, the
insurance company should provide the protection
you paid for at the time.
Alternative Dispute Resolution
One good way to avoid lawsuits—and ensure
that workplace problems are resolved quickly,
with input from everyone involved—is to
steer disputes towards alternative methods of
resolution, such as mediation and arbitration.
One option is to include a provision in your
personnel manual that workplace-related
complaints will be referred to a mediator
and then, if they can’t be resolved within a
reasonable time, to an arbitrator. A mediator
is someone who helps people come to an
agreement, while an arbitrator makes a binding
decision. Some states automatically refer civil
lawsuits to a mediator to see whether the
parties can settle before a judge will hear the
case.
To encourage employees to use the
system—and to make sure that a court will
uphold its validity—you should pay the costs
of mediation and arbitration. These can range
from $500 to $3,000 per day, depending on the
nature and complexity of the dispute. Some
community mediation groups will take on
nonprofit or small business claims free or for a
nominal cost.
Bear in mind that agreements between
employers and employees that make
arbitration the employee’s exclusive remedy
are not always binding. Judges do not like to
see employees give up their rights to complain
to government agencies or to bring lawsuits,
especially if the employee has to agree to
arbitrate future disputes as a nonnegotiable
condition of employment. The law in this area
is changing rapidly, so you should find out
what is legal in your own state. For a good
short discussion of mandatory arbitration, see
The Employer’s Legal Handbook, by Fred S. Steingold (Nolo).
7/ 1 6 STARTING & BUILDING A NONPROFIT
a. General Liability Insurance
General liability coverage insures you against the
classic slip-and-fall situation: Someone is injured on
your premises and sues you for damages. A general
liability policy (sometimes called a “commercial
general liability” or “CGL” policy) will cover damages
that your nonprofit is ordered to pay to an individual
(visitor, customer, supplier, associate, or whomever)
who was injured on your property. Injured employees
are covered by worker’s compensation insurance, so
employees aren’t a concern here.
For instance, if a visitor breaks a hip when she
trips on an electric cord, or is hurt when a shelving
unit falls over, he or she might sue. In this age
of fast and furious personal injury lawsuits, one
accident like this can wipe out your organization’s
assets. For this reason, any operation—for-profit or
nonprofit—that has even minimal contact with the
public should obtain liability insurance.
Most general liability policies do not cover certain
employment law claims such as harassment, dis-
crimination, and wrongful termination. Coverage for
these claims (sometimes called “employment prac-
tices liability” or “EPL”) must usually be purchased
separately or as part of directors and officers insur-
ance (as discussed below in Subsection e).
b. Product Liability Insurance
Product liability insurance protects you from law-
suits by customers claiming to be hurt by a product
you provided—for example, a parent who sues the
maker of a toy that injured his or her child, or a
person who sues McDonald’s after claiming to be
burned by its extremely hot coffee. Most nonprofits
are not in the business of selling products to the
public—but if yours is, you might consider this type
of insurance. It can be expensive, but it’s better
to pay a high premium than a multimillion dollar
award to someone who sues you and wins.
c. Property Insurance
While this chapter has focused on legal liability
issues, there are, of course, other types of risks that
can be devastating to a nonprofit. You can protect
yourself from loss of property to theft, fire, or other
causes with a property insurance policy. There
is wide variation from policy to policy on what
property is covered, what risks are covered, and
how much the policy will pay out; be sure you’re
absolutely clear on these issues when choosing a
policy.
When considering what property to cover, make
sure that your policy covers the nonprofit’s premises
as well as any assets kept there, including:
• fixtures to the property, such as lighting
systems or carpeting
• equipment and machinery
• office furniture
• computers and accessories (monitors, CD-ROM
drives, modems, printers, and so on), and
• inventory and supplies.
Most basic policies will cover these items.
Renters may have to purchase property insurance. If your nonprofit rents its space, your lease may require that you obtain a specific
amount or type of property insurance coverage. Be
sure to check your lease for any insurance require-
ments before you purchase a policy.
Besides establishing what property will be cov-
ered under your property insurance policy, you’ll
need to understand which types or kinds of losses
will be covered. Ask your agent or broker to explain
what kinds of property damage or loss your policy
covers, and make sure you understand all of the
details.
Most property insurance policies provide either
“basic form,” “broad form,” or “special form”
coverage. A basic form policy will commonly cover
fire, explosions, storms, smoke, riots, vandalism,
and sprinkler leaks. A broad form policy typically
includes the above, plus damage from broken
windows and other structural glass, falling objects,
and water damage. Both basic and broad form
policies, however, usually exclude certain risks from
coverage—for example, many policyholders are
surprised to learn that theft is not typically covered
under either basic or broad form policies. Special
form coverage offers the widest protection, usually
covering all risks—including theft—unless they are
specifically excluded. While premiums for special
RISK MANAGEMENT AND INSURANCE 7/ 1 7
form policies will be more expensive, it may be
worth it if your nonprofit faces several or unusual
risks, or if theft is a big concern for your group.
Also bear in mind that some policies may
not cover property owned by others that is lost,
destroyed, or damaged while on your nonprofit’s
premises. For instance, if a volunteer’s personal lap-
top is destroyed in an office fire, the computer may
not be covered under some policies. If you expect
to rely on the personal equipment of staffers at your
nonprofit office, make sure that your property insur-
ance covers their property. As an alternative, you
could advise staffers that any personal equipment
used at the nonprofit’s office should be protected
under their own homeowners’ or renters’ coverage.
If the policy you’re considering excludes one or
more items that you want covered, find out whether
you can get it included and at what cost. You may
have to purchase what’s commonly called a “rider”
or an “endorsement” that adds special coverage to
your policy. For example, standard property insur-
ance policies often exclude accounting records, cash,
and deeds, but these can usually be covered by add-
ing a rider to the policy—and paying an additional
premium.
There may be other ways to bring additional
property under the scope of your policy, too. For
example, if you keep your personal stereo at your
office but the policy excludes personal property, you
could transfer ownership of the stereo to the non-
profit.
If you run the nonprofit out of your home, you may need to adjust your homeowners’ or renters’ insurance policy. Some homeowners’ or renters’ policies exclude coverage of business-
related claims, while others forbid business use
of the home—meaning that if you run a nonprofit
out of your home, your coverage could be limited
or rendered void altogether. Make sure that
this doesn’t happen to you: It’s better to come
clean with your insurance company about your
activities—even if it means spending some more on
your premiums—than to find out after a catastrophe
that your homeowners’ coverage has been voided
by your nonprofit activities.
Finally, be sure that you understand the dollar
limits on your policy and any deductibles or co-
payments the nonprofit will have to make. Make
sure the policy covers the cost to replace the property,
not merely its current (usually much lower) value.
For example, if your four-year-old computer is stolen,
you want the insurance company to pay you enough
to buy a new computer, not to reimburse you for the
negligible value of the one that was stolen.
d. Auto Insurance
Auto liability insurance, which pays for injuries a
driver causes to other people or property, is a must
if your staff or volunteers use any vehicles (including
their own cars) for the activities of the nonprofit. As
mentioned above, your general liability insurance
will not provide auto liability coverage, which is re-
quired by law in the vast majority of states. Even if it
is not required in your state, you’d be foolish not to
protect yourself against the common and potentially
devastating risk of an auto accident.
In addition to auto liability insurance, some
states require drivers to have other types of auto
insurance, including personal injury protection (PIP)
coverage and uninsured/underinsured motorist
(UM/UIM) coverage. And, if your state requires
certain types of coverage, it will usually also require
you to purchase a certain minimum amount of
coverage. Check with your state’s department
of motor vehicles to find out the insurance
requirements for drivers in your state.
To get coverage for the personal cars that your
employees or volunteers use for business purposes,
your nonprofit will have to obtain “nonowned auto
liability insurance.” This will protect the nonprofit
if an employee or volunteer hurts someone or
damages property while driving a personal car for
nonprofit business. If your employees or volunteers
will use their own cars for nonprofit activities, you
should get this type of coverage even if your state
doesn’t require it. Many nonowned auto liability
insurance policies do not protect workers, howev-
er—they just protect the nonprofit itself. To protect
themselves, workers generally need to get their own
coverage as well (which they should have, anyway).
7/ 1 8 STARTING & BUILDING A NONPROFIT
e. Directors and Officers Insurance
As their name suggests, directors and officers insur-
ance policies (often referred to as “D&O insurance”)
cover claims against a nonprofit’s directors and
officers. Unlike general liability insurance, which
protects the nonprofit against personal injury suits,
traditional D&O coverage focuses on lawsuits
against a nonprofit that allege fraud or financial
mismanagement and name the directors or officers
personally in the lawsuit.
Even though board members are not usually per-
sonally liable for their work on behalf of a nonprofit,
it’s not uncommon for them to be personally named
in lawsuits. For example, if a board member invests
the nonprofit’s assets unwisely and loses everything,
a creditor might sue the nonprofit as well as its
directors and officers. In such cases, D&O insurance
would cover the cost of defending the directors and
officers in the lawsuit as well as any money damages
they are ordered to pay.
As with any insurance coverage, it is important
to understand what types of claims are and are not
covered by a D&O policy. D&O insurance typically
covers a broad range of “wrongful acts,” with specific
exclusions. Claims that are usually excluded from
D&O coverage include those arising from criminal
or fraudulent behavior and “insured vs. insured”
claims—lawsuits brought by one director against
another.
Personal injury claims and employment claims
(such as wrongful termination, sexual harassment,
and discrimination) are also usually excluded from
D&O insurance policies, unless the policy includes
employment-related claims coverage (sometimes
called “employment practices liability” or EPL cov-
erage). While a policy that excludes employment
claims will usually save you money on your insur-
ance premiums, you probably shouldn’t go this route
if you have employees—the most common claims
filed against directors and officers are employment-
related.
The premium costs for D&O insurance vary
a great deal depending on the nature of the non-
profit’s activities and the number of employees (if
employment-related coverage is included), as well as
the benefits offered and claims covered. Be sure to
shop around, ask a lot of questions, and make sure
you understand the policy’s deductible and out-of-
pocket limits before making a decision.
f. Professional Liability Insurance
Professional liability coverage—also sometimes
called “errors and omissions” (E&O) or malpractice
insurance—is similar to D&O coverage in that it
protects against liabilities resulting from misman-
agement (or alleged mismanagement) of a non-
profit. Unlike D&O insurance, liability insurance
doesn’t cover just directors and officers, but also
staff, volunteers, and the nonprofit itself. It aims to
protect both the organization and the people work-
ing or volunteering for it from judgments resulting
from poor management of the nonprofit or from
workplace-related lawsuits such as discrimination or
sexual harassment.
As with D&O insurance, some professional liabil-
ity policies may exclude workplace-related claims
from coverage. Generally speaking, if you’re going
to pay for professional liability coverage, you should
include protection from workplace-related lawsuits,
because they are among the most common claims
brought against nonprofits and their workers.
g. Investigating and Purchasing a Policy
The key to making an intelligent and cost-effective
insurance purchase is to do your homework.
Understanding the fine print is absolutely essential
in order to compare policies and find one that meets
your needs. For example, you can’t really compare
the cost of different policies unless they cover the
same types of property, the same risks, and up to
the same dollar amounts of coverage. You need to
research and understand all of these details fully to
make an informed decision.
Insurance brokers who gather information from
different insurance companies can be a big help
when you’re trying to decipher policies and come
up with the best deal. Make sure your broker
understands any special issues facing nonprofits and
the risks that are, or may be, involved with your
particular activities. If possible, use a broker who
specializes in policies for nonprofits.
RISK MANAGEMENT AND INSURANCE 7/ 1 9
4. Deal With Problems Effectively
No matter how much preventative risk management
you do, problems can still arise. The key to protect-
ing your nonprofit and its people is to respond to
problems promptly and appropriately, in a fair and
thorough manner. When a problem arises, stay as
calm as possible while you get the information you
need to decide what to do. You won’t do yourself
or your nonprofit any good by making an unconsid-
ered response.
If a problem comes up involving a written
contract, start by reviewing the contract to pinpoint
where things went wrong, whether the contract
addresses the problem, and what solutions (if
any) are available under the contract. After you’ve
clarified the dispute as best you can in your own
mind, a calm meeting or phone call with the other
party is usually a good idea, followed up by a letter
summarizing the meeting or conversation. If a
problem arises with an employee, be sure to follow
your established policies and keep employment
matters confidential. If necessary or appropriate,
or if you simply feel that you are in over your
head, contact an expert such as a lawyer, mediator,
employment law specialist, or other professional.
(See Chapter 12 for more information on finding and
working with lawyers.)
Keep in mind that if someone sues your organi-
zation, you may decide—or be required—to pay
something to settle the claim or to defend yourself,
whether or not you feel responsible for what went
wrong. If you have insurance, the insurance com-
pany will generally pay for an attorney to defend
you against claims covered by your policy. It will
also likely pay some, if not most, of any eventual
settlement or judgment against you if the claim is
covered by your policy.
If you don’t have insurance, you may have to
get creative to adequately address your costs or
losses in an emergency. Some nonprofits will be
fortunate enough to have some extra money in the
bank for emergencies. Others may choose to hold
a special event to raise money in an unexpected
emergency, such as a fire or natural disaster. While
special events aren’t cheap, you may find that local
businesses, individuals, or other nonprofits might
be willing to pitch in (in an emergency) to help or
offer a venue, food, music, or other things for free.
Flexibility and creativity will be your best assets for
dealing with this type of crisis.
Checklist: Risk Management and Insurance
Treat liability issues seriously. Take active steps to protect your organization and its
people.
Understand the common types of lawsuits— contract disputes, employment claims, and
personal injury lawsuits—in order to recog-
nize where your nonprofit might be at risk.
Understand who can be held liable in different situations: your board members,
staff, volunteers, and/or the organization
itself.
Use risk management strategies to minimize the possibility of a lawsuit against your non-
profit. Anticipate what can go wrong, and
focus on prevention.
Operate your organization conscientiously and implement effective workplace policies.
Obtain appropriate property, liability, auto- mobile, and other types of insurance for your
nonprofit.
If seriously threatened with a lawsuit, obtain legal advice specific to your situation.
■
C H A P T E R
1 Chapter 8
Understanding Contracts and Agreements
A. Contract Law Basics .................................................................................................... 8/2
1. Agreement Between Parties ............................................................................... 8/2
2. Exchange of Promises or Things of Value ........................................................ 8/4
3. Oral Versus Written Contracts ........................................................................... 8/5
B. Using Contracts in the Real World .......................................................................... 8/7
1. Using Standard Contracts ................................................................................... 8/7
2. Using the Other Party’s Contract ...................................................................... 8/8
3. Signing a Contract ................................................................................................ 8/9
4. Modifying a Signed Contract ............................................................................. 8/9
C. Typical Contract Terms .............................................................................................. 8/9
1. Contract Title ....................................................................................................... 8/10
2. Names and Addresses of Parties ..................................................................... 8/10
3. Brief Background Description ......................................................................... 8/10
4. Description of the Services or Products ....................................................... 8/10
5. Schedule and Deadlines ................................................................................... 8/11
6. Price ...................................................................................................................... 8/11
7. Payment Arrangements ..................................................................................... 8/12
8. Warranties ........................................................................................................... 8/12
9. Indemnity ............................................................................................................. 8/13
10. Duration of Contract ......................................................................................... 8/13
11. Terminating the Contract .................................................................................. 8/13
12. Resolving Disputes ............................................................................................. 8/14
13. Applicable Law .................................................................................................... 8/15
14. Signatures and Dates ......................................................................................... 8/15
8/ 2 STARTING & BUILDING A NONPROFIT
R egardless of its size, mission, or activities,
your nonprofit will eventually have to enter
into agreements with others, including other
nonprofits, for-profit businesses, and individuals. For
example, if you book a venue for an event, hire a
consultant, order a set of printed brochures, or rent
office space, you will have to reach an agreement
with the other party about the details: the price of
using the venue, the number of printed brochures,
and so on. While some of these transactions may be
simple enough to complete with a handshake, some
will be sufficiently detailed, long-term, or financially
important to require a written contract.
Thankfully, most contracts are relatively short,
simple documents that clearly set forth the essential
terms of a deal or agreement. You probably won’t
need a lawyer to complete many of the contracts
your nonprofit will execute. However, there are
some situations in which lawyers can be helpful or
even essential. For example, if there’s a type of con-
tract you expect to use over and over again—such
as a consulting agreement to use when you hire
independent contractors—you might want to have a
lawyer look over your contract and make any neces-
sary refinements so that you’ll have a solid template
to use for years to come. And if you’re entering into
a complicated, high-stakes agreement, you should
certainly get a lawyer either to help you draft the
contract or to review any contract that is presented
to you to sign. But you should be able to handle the
majority of day-to-day transactions and agreements
on your own, without bringing in a lawyer.
This chapter will explain contract basics, includ-
ing what makes a contract enforceable and how to
decipher common contract clauses.
A. Contract Law Basics
A contract doesn’t have to take any particular form
or contain any magic words to be legally binding.
What “legally binding” means is that if you fail to
live up to your end of the contract, you can be sued
and forced to pay money damages to the other party
or, in some circumstances, to do the things you
promised in the contract. Some contracts are 50-
page documents filled with Latin phrases and legal
boilerplate; others are two- or three-sentence agree-
ments scratched out on a napkin. Regardless of its
length or formality, a contract will be legally binding
if it meets these two requirements:
• The parties have reached an agreement—that
is, an offer has been made by one party and
accepted by the other.
• Promises or other things of value have been
exchanged, such as money, merchandise, or a
promise to perform services.
Generally, a contract is legally binding whether
or not it is in writing. However, there are some
situations when a contract must be in writing to be
valid—these are covered in Section A3, below.
Nonprofits must comply with their contracts, just like other businesses. The legal rules covering contracts apply to nonprofits just the same
as any other entity. As long as the contract is valid
under the rules of contract law (as described in this
section), it binds a nonprofit just as it would a for-
profit business or any other entity.
1. Agreement Between Parties
Although it may seem obvious, a contract is valid
only if all parties really do agree on every major
issue. Sounds simple enough, but in real life it can
often be hard to tell the difference between a pre-
liminary discussion and a true agreement. To help
bring the dividing line into clearer focus, the law
has developed rules that define when an agreement
has been reached.
The basic rule is that an agreement exists when
one party makes an offer and the other party accepts
it. If the acceptance of the offer is followed by
an exchange of promises or other things of value
(discussed next, in Section A2), a binding contract
has been created. For most types of contracts, an
offer and acceptance can be made either orally or
in writing. In a few cases, however, the offer and
acceptance must be in writing (see Section A3,
below). In any case, it’s always a good idea to put
your agreement in writing, to avoid future misunder-
standings.
To illustrate the steps of offer and acceptance,
let’s say that you’re shopping around for a print shop
UNDERSTANDING CONTRACTS AND AGREEMENTS 8/ 3
to produce brochures for your nonprofit. One printer
says (by phone or by fax) that he’ll print 1,000 two-
color brochures for $400. This constitutes his offer. If
you tell him to go ahead with the job, you’ve accept-
ed his offer. This constitutes an agreement between
the parties in the eyes of the law. But if you tell the
printer you’re not yet sure and want to continue
shopping—or you don’t respond to his proposal at
all—you haven’t accepted his offer and no agree-
ment has been reached.
In the day-to-day world of business transactions,
the seemingly simple steps of offer and acceptance
can sometimes become quite convoluted. For in-
stance, you might make an offer and then decide
that you want to withdraw or amend it before the
other party accepts. Or, the other party might pro-
pose a change of terms, such as a higher price or
a different end product. Delaying acceptance of an
offer, revoking an offer, and making a counteroffer
are common situations that may lead to confusion or
even conflict. To minimize the potential for dispute,
here are some rules that will help you figure out
whether you’ve reached a valid agreement.
a. Duration of an Offer
Unless an offer includes a stated expiration date,
it remains open for a “reasonable” period of time.
What’s reasonable, of course, is open to interpreta-
tion and will depend on the particular situation. The
law in this area is vague, so it’s best to act quickly
and be clear about your intentions. If you want to
accept someone else’s offer, do it as soon as possible,
while there’s little doubt that the offer is still open.
If you made an offer but haven’t received a response
for a while, you should revoke the offer explicitly
rather than letting it hang out there.
EXAMPLE: A nonprofit emails a Web developer to ask if she will create a new feature for its
website for $300. The Web developer does not
reply for three months; in the fourth month, she
sends an email accepting the offer. In the mean-
time, the nonprofit has already found someone
else to do the job and is now worried about
whether it has any legal obligation to the first,
slow-to-respond developer. A board member
with a legal background advises the group that
most courts would probably say three months
was not a reasonable amount of time for the
Web developer to expect the offer to remain
open. But, of course, there’s no guarantee that a
particular judge will agree.
The nonprofit sends a polite, carefully
worded letter to the Web developer explaining
that the job is no longer available because she
took so long to get back to them. Thankfully,
the Web developer responds by apologizing
that she took so long in responding to the offer
and stating that she would be interested in
future work. Her response makes it clear that
she’s not considering legal action to enforce any
perceived agreement, and the nonprofit realizes
it dodged a potential bullet. From now on, it
plans to revoke any offer that doesn’t receive a
response after two weeks.
If you are making the offer, you can avoid poten-
tial confusion by being very clear about how long
your offer will remain open. The best way to do this
is to include an expiration date in the offer. In the
above example, the nonprofit might have included
the following text in its offer to the Web developer:
“If we do not receive a response within two weeks,
this offer automatically expires.”
b. Revoking an Offer
The person who makes an offer can revoke it as
long as it hasn’t yet been accepted. (Options—offers
that can’t be revoked for a period of time—are an
exception to this general rule; see Subsection c,
below.) If the other party wants to accept an offer
after you’ve revoked it, it’s too late—no agreement
will have been reached because the offer is no
longer open. But if the other party accepts your offer
before you revoke it (and before any expiration date
or a “reasonable” time has passed), an agreement
will exist and you’ll be well on your way to
establishing a binding contract.
It’s a good idea to state explicitly in your offers
that you have the right to withdraw the offer prior
to acceptance. A simple statement such as “We may
revoke this offer at any time before acceptance”
should suffice.
8/ 4 STARTING & BUILDING A NONPROFIT
Always revoke an offer in writing. Although you are not legally required to put your revo-
cation in writing, it’s a very sensible idea. Revoking
an offer in writing will help prevent misunderstand-
ings about exactly what was said (and when). If the
other party later tries to shade the truth, you’ll have
a written document to back you up.
c. Options
Sometimes the party making an offer agrees that it
will remain open—that it cannot and will not be
revoked—for a stated period of time. This type of
contract is called an option. Usually, the offer or
requests a fee in exchange for keeping the offer
open, to compensate for the fact that he or she can-
not revoke the offer and make a deal with someone
else while the option is in effect.
Say someone offers to sell a pickup truck to your
nonprofit for $8,000, and you want to think the
offer over without having to worry that the seller
will revoke the offer or sell the truck to someone
else. You and the seller could agree that the offer
will stay open for a certain period of time—say, 30
days—in exchange for a nonrefundable payment of
$50. Once the option is in place, the offer or cannot
revoke the offer for 30 days.
d. Counteroffers
Often, a person responds to an offer not by accept-
ing the terms immediately, but by bargaining or
proposing different terms (such as a lower price). In
this situation, the original offer hasn’t been accepted
and there is no agreement. In most instances, the
law will treat a modified proposal as a “counteroffer,”
which must then be accepted by the other party (the
original offer or) in order for the parties to reach an
agreement in the eyes of the law. In other words,
when a counteroffer is made, the legal responsibility
to accept or decline shifts back to the person who
made the original offer.
For instance, say your printer offers to print 1,000
brochures for you for $400. If you respond by say-
ing you’ll pay only $300 for the job, you have not
accepted his offer (no contract has been formed)
but instead have made a counteroffer. It is then up
to your printer to accept, decline, or make another
counteroffer (perhaps to charge $350). However, if
your printer agrees to do the job for $300, he has
accepted your counteroffer and an agreement has
been reached.
2. Exchange of Promises or Things of Value
Even if the parties reach an agreement, they haven’t
made a contract unless they exchange something
of value in anticipation of the completion of the
contract. The “thing of value” being exchanged—
called “consideration” in legal-speak—is most often
a promise to do something in the future, such as a
promise to pay a fee, perform services, or provide
a product. The purpose of this rule is to distinguish
enforceable contracts from one-sided promises—
such as a promise to give someone money as a
gift—which are not legally enforceable. The legal
reasoning here is that you shouldn’t be able to
enforce a promise unless you’ve given something in
return.
For example, say a printer agrees to print free
business cards for your nonprofit. If you make no
promise in return, such as to put the printer’s logo
at your website or to use the printer for another
job, then the consideration requirement hasn’t been
met. Because you and the printer didn’t exchange
promises (only the printer made a promise), there’s
no contract—the printer could change his mind and
refuse to provide the free business cards, and you
would have no legal right to force him to do it. But
if your printer promises to print brochures and you
promise to pay for them, then you have exchanged
promises to do things of value, which creates an
enforceable contract. If the printer then refused to
do the print job, you could sue him for damages.
Although the consideration requirement is met in
most transactions by an exchange of promises (“I’ll
promise to pay money if you promise to print my
brochures”), actually doing the work or paying the
money can also satisfy the rule. If, for instance, you
leave your printer a voicemail message that you’ll
pay an extra $50 for the brochures to be folded,
UNDERSTANDING CONTRACTS AND AGREEMENTS 8/ 5
the printer can create a binding contract by actually
doing the folding. And, once he does so, you can’t
weasel out of the deal by claiming that you changed
your mind.
3. Oral Versus Written Contracts
Before explaining which contracts have to be in
writing to be legally enforceable, here’s some simple
advice: All contracts that are of more than minor
importance should be written out and signed by
both parties. Here’s why:
• Writing down terms tends to make both
parties review them more carefully, which
helps eliminate ambiguities, misunderstandings,
and other fatal flaws right from the start.
• An oral agreement—no matter how honestly
made—is hard to remember accurately. A
few months later, the parties could well have
some differing recollections about the agree-
ment. If you have a written contract, you can
easily refresh your memories by pulling out
your document and reading it. In the absence
of a written agreement, you may end up in
a potentially relationship-killing argument—
which, in the worst case, might have to be
conducted in front of a judge.
• Oral agreements are subject to willful misin-
terpretation by a not-so-innocent party who
wants to get out of the deal.
• Oral contracts are often difficult (and com-
monly impossible) to prove, which makes
them hard to enforce if you do end up in
court.
EXAMPLE: Samantha, the executive director of a nonprofit, wants to run an ad in the local
weekly paper for her nonprofit’s upcoming
event. She asks Leandro, an acquaintance who
is a graphic designer, to create the ad. Because
Samantha needs the ad right away, and because
the two have known each other for a couple of
years, they make a quick oral agreement that
Leandro will create the ad for $100.
The finished ad contains a beautiful image
that Samantha loves—so much, in fact, that
she wants to use the image on T-shirts, mugs,
mouse pads, and other types of merchandise to
promote the nonprofit. When she tells Leandro
of her plans, Leandro realizes that he and
Samantha never discussed how the ad could
be used. Leandro’s agreement to create the ad
for $100 was based on his understanding that
the ad would be used just once in the weekly
newspaper. As is standard in the graphic
design business, Leandro would have charged
significantly more to create an image that
Samantha’s nonprofit could use over and over.
If Samantha and Leandro had used
Leandro’s standard agreement for graphic
design work, there would have been no
misunderstanding—Leandro’s contract would
have clearly outlined the allowed uses for
the work and stated that all other rights were
retained by Leandro’s graphic design studio.
Now, after the fact, Leandro finds himself
in the uncomfortable position of having to
tell Samantha that she cannot use the image
freely and that they must renegotiate a fee if
Samantha wants to use it for other purposes.
Thankfully, when Leandro explains the
situation to Samantha, she agrees that they
hadn’t talked about other uses when she asked
Leandro to create the ad. They work out a new
fee, giving Samantha’s nonprofit unlimited use
of the image. They also agree that they’ll use a
written agreement for all future work.
That’s my good advice; now here’s what the law
says: While many oral contracts are enforceable,
a variety of state and federal laws require certain
types of contracts to be in writing. These laws are
often called “statutes of frauds” and are quite similar
from state to state. In addition, most states have also
adopted some version of the Uniform Commercial
Code (UCC), which applies to certain sales of goods.
These laws typically require the following types of
contracts to be in writing:
• An agreement that by its terms can’t be
completed in a year or less. For example, a
contract for a Web developer to maintain your
nonprofit’s website for two years must be in
writing. On the other hand, if the contract
8/ 6 STARTING & BUILDING A NONPROFIT
might take longer than a year to complete but
could be completed within a year, it doesn’t
have to be in writing. For example, a contract
for a consultant to overhaul your nonprofit’s
management structure would not have to be
written, because it is quite possible that the
consultant would finish the work within one
year. Similarly, a contract for a web developer
to do specified site revisions with no time
period stated would not have to be in writing.
• A lease for a term longer than one year, or an
agreement authorizing an agent to execute
such a lease on your behalf.
• Any sale of real estate (or of an interest in real
estate), or an agreement authorizing an agent
to purchase or sell real estate (or an interest in
real estate) on your behalf.
• An agreement that by its terms will not be
completed during the lifetime of one of the
parties.
• A promise to pay someone else’s debt.
• A promise to sell goods for $500 or more.
A full-blown contract is not necessary here,
only a brief written note or memo setting
forth two essential terms of the agreement:
that an agreement was reached, and the
quantity of goods to be sold. Other items
that are typically covered in contracts, such
as the price of goods or the time and place
of delivery, don’t have to be included to
satisfy this rule (from state UCC statutes).
This written memo usually has to be signed.
However, if one party doesn’t object to the
memo within 10 days of receiving it, then his
or her signature isn’t required.
Additional laws may apply to your situation. While the rules outlined above are the most common laws that require contracts to be in writing,
other laws at the state or federal level may apply to
specific types of contracts. For example, under the
federal Copyright Act, a contract to sell all copy-
How Formal Should You Be?
It can be tricky to figure out how formal you need
to be with various transactions. While the table
below doesn’t address every possible situation, it
offers some examples to give you a general idea
of which agreements need to be taken more seri-
ously than others. As you gain more experience,
you’ll undoubtedly develop your own inner com-
pass.
Handshake probably OK
Put a contract in writing, using a template or your own draft
Put a contract in writing, and consider getting assistance from a lawyer or other professional
Scheduling a community leader to come speak to your organization at an informal lunch.
Hiring a consultant to revamp your nonprofit’s website.
Purchasing another business or nonprofit.
Assigning volunteers to help set up and break down an event.
Renting a hotel or other venue for a nonprofit event.
Holding a major event such as a film fes- tival, trade show, or other gathering with many sponsors and/or participants.
Having a local business donate free coffee and donuts for your board meetings.
Hiring a caterer to supply meals for 200 guests at your annual dinner.
Buying real estate.
UNDERSTANDING CONTRACTS AND AGREEMENTS 8/ 7
rights in a creative work (known as a copyright
assignment), or to grant an exclusive license to a
creative work, must be in writing. These miscella-
neous laws apply much less often than state statutes
of frauds and UCC laws, but they might come up in
a given situation. The good news is that you won’t
have to worry about these laws if you follow my
advice and put all of your important agreements in
writing.
Confirm Oral Agreements in Writing
If you’re making a simple agreement with
another party and feel that the situation falls
in the gray area between “simple enough for a
handshake” and “better put it in writing,” it’s
a good idea to send a letter or at least an email
confirmation of the important terms of your
agreement. True, emails aren’t an ideal way to
document important agreements for a number
of reasons: they encourage informality rather
than careful consideration; they can’t easily
be “signed” in a verifiable way; they are prone
to being accidentally deleted; and they lack
the sense of importance that formal contracts
inherently carry. Still, it’s far better to quickly
list the fundamental terms of your agreement
and email them to the other party than to rely
on all-too-fragile human memory.
When sending a letter or email confirma-
tion, include a statement at the end that you’d
appreciate a reply indicating whether every-
thing looks in order. Also indicate that if you
don’t receive a reply, you’ll presume that the
other party agrees with your recitation of the
terms. If the other party emails you back say-
ing, “The agreement you emailed looks fine,”
you’ve got a fairly solid record of your agree-
ment. If you print out these emails and keep
copies of them on your computer, you’ll have
some written proof of your agreement in case
there’s a dispute.
B. Using Contracts in the Real World
Now that you understand how important it is to
put your contracts in writing, you may wonder
exactly how to go about it. The good news is that
you probably won’t have to draft anything from
scratch. Standard, fill-in-the-blanks contracts are
readily available that cover many types of business
transactions. Even if you need to make modifications
to a standard contract, it’ll be much easier than
writing one from scratch.
This section explains how to use (and, if nec-
essary, modify) a standard contract or review a
contract provided by the other party. It also covers
practical issues such as signing the contract and
making changes after it’s been executed.
1. Using Standard Contracts
Standard contract templates are readily available for
many types of business transactions. Contracts to
provide services, rent property, hire independent
contractors, sell goods, and license intellectual
property are just a few of the blank-form agreements
you should be able to find easily. Standard rental
agreements, for example, are widely available at
office supply stores, through landlords’ associations,
at most public libraries, in Nolo’s LeaseWriter
software, and from many other sources. Nolo also
publishes standard contracts to use when hiring
various types of independent contractors. Keep in
mind that even though you’re running a nonprofit,
the contract you need may exist in the for-profit
world.
Nolo publishes standard contract forms. Nolo offers many standard forms for sale,
including independent contractor agreements,
nondisclosure agreements, releases, and more.
Go to Nolo’s website, at www.nolo.com, to see the
complete list.
8/ 8 STARTING & BUILDING A NONPROFIT
Here are a few sources for standard contracts, in
electronic and/or hard copy form:
• Nolo books and software offer many different
blank-form agreements. For general business
contracts, a great resource is Quicken Legal
Business Pro, a software program that provides
more than 140 business contracts.
• Trade associations are excellent resources for
fill-in-the-blank contracts.
• Other nonprofits may be willing to share their
contracts with you. If local groups aren’t eager
to let you in on their secrets, try nonprofits
nationwide.
• The Web has oceans of information about
various business transactions, including
sample contracts. Try searching for terms
particular to your needs, such as “events
contracts” or “contractor agreements.”
Once you find a contract covering the subject
matter of your transaction, you’ll probably have
to modify it at least slightly to meet your specific
needs. It’s entirely appropriate and often necessary
to change clauses of a standard contract. If you’re
working with a hard copy, it’s okay to make minor
changes by simply crossing out language and filling
in new language directly on the contract itself. Both
parties should initial any such changes to show that
they weren’t made after the fact without one party’s
knowledge. In today’s world, however, you’ll prob-
ably be working with an electronic copy of the con-
tract either on your computer or the other party’s. If
so, it’s a good idea to make the necessary changes
to the electronic file and then print out a clean copy
for both parties to sign.
Of course, you shouldn’t make any changes to a
standard contract unless you understand what you’re
doing. Don’t just strike a clause because you don’t
understand what it means or add a clause without
fully knowing the consequences of including it.
Section C, below, will help you avoid these pitfalls
by explaining the meaning and purpose of many
common contract clauses.
2. Using the Other Party’s Contract
Sometimes you won’t need to worry about finding a
standard contract or drafting your own, because the
other party will present you with a contract. While
this might save you some time initially, you’ll have
to review the contract’s terms very carefully, to make
sure you understand what you’re signing and to
figure out whether any changes are in order.
You may be hesitant to propose changes to the
other party’s contract, but you shouldn’t be. If a
clause is poorly written, is hard to understand,
or doesn’t accomplish your key goals, you should
suggest changes to make it clearer or to better suit
your needs. Of course, the other party might not
accept your proposed changes, but you should still
give it a try. Your success in convincing the other
party to accept your proposed changes will largely
depend on how much bargaining power you have—
that is, on how much the other party wants what
you have to offer or wants to do business with you.
As discussed in Section A, above, when you
propose changes to a contract, you’re making a
counteroffer. Contracts are commonly negotiated
back and forth (offer and counteroffer) several times
until both parties accept all the terms. If the parties
don’t reach an agreement, there’s no contract—no
matter how many discussions, drafts, or proposals
go back and forth.
UNDERSTANDING CONTRACTS AND AGREEMENTS 8/ 9
E
Eschew Obfuscation in Your Contracts
When modifying or drafting a contract, keep things simple. Despite what many lawyers would have you believe, dropping in a bushel of “therefores,” “wherefores,” and “parties of the first part” is more likely to introduce obfus- cation (how’s that for legal speak) than it is to promote clarity.
Here are some tips that will help you create a clear, straightforward agreement:
• To prevent confusion, don’t use “he,” “she,” “they,” or other pronouns in your contracts. Instead, use either the actual names of the parties (Urban Ecol- ogy and Ben Smith) or, if you must, their roles, such as Client and Contractor. It might seem repetitive or clumsy to write this way, but your goal is to be clear—not to write beautiful, flowing prose.
• Stay away from legalistic words like wherefore, herewith, or hereinafter. Far from making your contract sound more impressive, this type of language is sim- ply unnecessary and outdated. Stick to modern, clear English. And don’t throw in legal terms unless you are absolutely sure of their meaning. Legalistic jargon won’t make your contract more bind- ing—and if you get it wrong, you may be bound to terms you didn’t want, or your contract may be void.
• Make at least a couple drafts of your contract. After completing the first draft, let it rest a day or so, and then go back over it. Does it leave any questions in your mind? If it does, you need to fill in the gaps with more information.
• Get a lawyer’s help, if you need it. If you have an important question or want help drafting specific language, a quick con- sultation with a lawyer for these limited purposes will get you the information you need quickly—and won’t cost nearly as much as hiring the lawyer to draft the contract from scratch. (See Chapter 12 for more information on finding and working with lawyers.)
3. Signing a Contract
Before you enter into any written agreements, you’ll
need to know who is authorized to sign contracts
for your group. The answer can often be found in
the nonprofit’s bylaws, which outline the powers
and authorities held by members and officers of the
board of directors. Most standard bylaws state that
the president of the board of directors is responsible
for executing (signing) contracts and that the board
can extend this power to any officer or agent of the
nonprofit by issuing a board resolution. Assuming
your bylaws adopt this policy, you should pass a
board resolution listing any board or staff members
besides the board president whom you want to have
contract-signing authority.
Besides figuring out who can sign for your group,
you should also make sure that whoever signs the
contract for the other party has the legal authority to
do so. If the signer isn’t authorized to take on legal
obligations for the other party, the contract may be
declared invalid. Usually, common sense will tell
you all you need to know. If a project manager,
senior employee, department head, or other high-
level worker signs the contract for the other party,
you’re probably fine. If in doubt, ask a manager
or supervisor at the other business or nonprofit to
make sure that the signer is authorized to enter into
contracts on its behalf.
4. Modifying a Signed Contract
After it has been signed and gone into effect,
a contract can be amended at a later date with
a separate document called an addendum. The
addendum should state that its terms prevail over
the terms of the original contract, especially if the
terms are in direct conflict, as would be the case if
the price or completion time for a job were changed.
Both parties should sign an original copy of the
addendum and keep it with the original contract.
C. Typical Contract Terms
This section explains some basic terms that appear
in most contracts. The information here will help
you understand, edit, or draft clauses of standard
8/ 1 0 STARTING & BUILDING A NONPROFIT
contracts, contracts presented to you by the other
party, or ones you draft from scratch. You’ll also find
sample language for common contract terms (which
you can certainly reword or refine).
There are many ways to organize a contract. The
sections and titles suggested below correspond to
the common issues and terms that most contracts
include, but they certainly aren’t written in stone. If
you feel that it makes more sense to combine terms
into one section, break a section into two or more
sections, or otherwise arrange your contract differ-
ently, feel free to reorganize.
Remember your goals. If you feel stuck when reading over a contract or contemplating what
it should include, remember that every contract aims
to accomplish certain things. These include:
• to clearly outline what each party is agree-
ing to do (including timelines and payment
arrangements)
• to anticipate areas of confusion or points of
potential conflict, and
• to provide for recourse (remedy) in case the
agreement is not followed through to comple-
tion.
1. Contract Title
Generally a contract will have a simple, descrip-
tive title like “Contract for Consulting Services” or
“Agreement for Sale of Computer Equipment.”
2. Names and Addresses of Parties
You should identify each party by name at the
beginning of the contract. If using full names
throughout will be too burdensome, introduce the
shorthand you’ll consistently use, such as “Client,”
“Consultant,” or “Vendor.”
Some contracts include the addresses of the
parties at the beginning; others list them at the end
of the contract, in the section that includes each
party’s signature.
Business Mentor Network Inc. (“BMN”), a
nonprofit corporation, desires to enter into a
contract with MediaWeb LLC (“MediaWeb”) for
website consulting and development services.
3. Brief Background Description
While not included in every contract, it can be
useful to draft a brief description of the background
of the agreement, often called “recitals.” This type of
information may be necessary to frame the contents
of the agreement. Typically, this section includes
a brief description of what the parties do and the
nature of the transaction covered in the contract.
Background of Parties BMN is an organization that aims to encourage
entrepreneurship in disadvantaged communities.
BMN’s main activity is providing experienced
business mentors for new and prospective
business owners in target communities and
offering classes and seminars on entrepreneur-
ship and business management to members of
these communities. MediaWeb offers website
consulting and development services, helping
businesses and organizations create or restruc-
ture their websites.
The subject of this contract is an agreement
(“Agreement”) that MediaWeb will provide
specific consulting, Web development, and
related services (collectively, “Services”) to
BMN in exchange for payment.
4. Description of the Services or Products
This section describes the terms of the deal. If
a service is to be performed, describe the job in
detail, clearly explaining exactly what each party is
promising to do. If a product is to be sold, describe
the product, price, and delivery date. If a meeting
site is to be rented, describe the site, price, date,
and time of the rental, as well as any items to be
provided with the rental (catering services, audio
equipment, or tables and chairs, for example).
For bigger or more complicated projects, you
may want to outline the project timetable on a
separate document and attach it to the contract.
(See “Including Attachments,” below.) Attachments
may also include site maps for a website project,
flow charts, scale drawings, formulas, or similar
types of detailed information that would otherwise
significantly interrupt the flow of your contract.
UNDERSTANDING CONTRACTS AND AGREEMENTS 8/ 1 1
In many service agreements, one or both parties
must submit reports, memos, sketches, drawings,
outlines, or the like. Items like this (often called
“deliverables”) should be identified in the contract,
either along with the description of services or in a
separate section. If any deliverables have due dates,
include those dates in the next section, “Schedules
and Deadlines.”
Project Description MediaWeb will create a new website for BMN,
which will include information about BMN’s
organization as well as helpful consumer infor-
mation on entrepreneurship generally. Details
regarding the site content, organization, and
features are covered in Attachment A, which
is attached to, and incorporated into, this
contract.
Deliverables MediaWeb will provide the following Deliver-
ables as part of its services:
1. a preliminary, detailed site map (“Prelimi-
nary Site Map”)
2. a final, detailed site map (“Final Site Map”),
and
3. approximately 50 pages of final content
(“Content”).
5. Schedule and Deadlines
Deadlines are a common source of conflict. To help
head off disputes before they arise, make sure that
your contracts clearly outline project schedules and
deadlines for both parties, including any interme-
diate deadlines that must be met before the final
completion date.
If strict compliance with deadlines is necessary,
be sure to include the phrase, “Time is of the es-
sence.” This language conveys the parties’ agree-
ment that deadlines are important—and that missing
a deadline could ruin the deal. If your contract
states that “time is of the essence,” and one party is
even slightly late, a court is likely to find that party
to have breached the contract. If you don’t include
this phrase in your contract, a court might be a bit
more lenient.
Project Schedule & Deadlines MediaWeb will deliver a preliminary, detailed
site map (“Preliminary Site Map”) to BMN no
later than June 1, 2005.
BMN will provide feedback to MediaWeb
within three weeks of receiving the preliminary
site map.
MediaWeb will deliver a final, detailed site map
(“Final Site Map”) by August 1, 2005.
MediaWeb will deliver approximately 50 pages
of final content (“Content”) to BMN no later
than September 1, 2005. Time is of the essence
with regard to the September 1, 2005 deadline.
Including Attachments
If your agreement includes any detailed de-
scriptions—say, the specifications of a creek
restoration project, the details of a children’s
inoculation program, or architectural blueprints—
it’s often best to include them as attachments
to the main contract. To do this, you must
prepare and label your attachment and state in
the main contract that the attachment is part of
the agreement. For example:
“The timeline of the project is outlined in
Attachment A, which is a formal part of this
contract.” (Or, “which is incorporated into
this contract.”)
“The detailed specifications for the Logo
drawing are set out in Attachment B, which
is a formal part of the contract.” (Or, “which
is incorporated into this contract.”)
6. Price
This section states the price or fee to be paid for
the goods or services in the contract. If any future
circumstances may affect the price—for example,
changes in the amount of product or services
needed—be sure to clearly describe how future
8/ 1 2 STARTING & BUILDING A NONPROFIT
adjustments will be calculated. You can include
these details in the price section or put them in a
separate section.
Project Fee BMN will pay MediaWeb a project fee (“Proj-
ect Fee”) of $10,000 for on-time completion of
the Services outlined in this Agreement, which
includes about 50 pages of Web content, as set
out in Attachment 1.
Scope of Work; Additional Fees If the parties agree that the services necessary
for this project significantly exceed the Ser-
vices as described in this contract, the parties
agree to make a good faith effort to negotiate
additional project fees (“Additional Fees”). Any
Additional Fees will be based on a rate of $50
per hour for MediaWeb’s additional work, not
to exceed $2,000. An estimate of the Additional
Fees must be submitted by MediaWeb and
approved by BMN’s Project Manager for this
project before any work is performed that will
result in Additional Fees. If the Additional Fees
are estimated to exceed $2,000, BMN’s Board
of Directors must approve the estimate before
any work is performed that will result in Addi-
tional Fees.
For the purposes of this section, if the par-
ties agree that 60 or more pages of Content
should be produced, this will qualify as “signifi-
cantly exceeding the contract” and additional
project fees will be negotiated.
7. Payment Arrangements
Besides stating the price or fee to be paid, your
contract should spell out how payment will be
made, including due dates. For example, state
whether the fee will be paid all at once or in
installments, when each payment is due, whether
interest will be charged if payments are late, and
any other special requirements (such as whether
payment must be made by certified or cashier’s
check). If strict compliance with payment deadlines
is necessary, use the phrase “Time is of the essence.”
Terms of Payment BMN will pay MediaWeb $4,000 upon execution
of this Agreement; $3,000 within two weeks
of delivery of the Preliminary Site Map; and
$3,000 within two weeks of delivery of the Final
Site Map and Content.
8. Warranties
A warranty is essentially a guarantee made by
one party to another that a product or service will
meet certain standards. This section is usually
called “Warranties” but is sometimes called
“Representations”; the two terms are often used in
conjunction or interchangeably. While most contracts
include warranty provisions, they are not absolutely
essential. It’s up to you and the other party to decide
whether to include them in your contract.
If you do include warranty provisions, you should
consider whether failure to live up to the warranties
should constitute a serious violation of the contract
that would effectively terminate the agreement,
triggering its termination provisions (discussed be-
low). In legal lingo, a deal-breaking violation of the
contract is known as a “material breach,” and you
should include this term in your contract if violation
of a warranty would cause such significant problems
that you would want out of the deal.
Warranties and Representations MediaWeb represents and warrants that
it has the skills, professional experience,
and technical capabilities to complete the
Services in a professional and satisfactory
manner. MediaWeb represents and warrants
that it possesses any and all licenses and
governmental approvals required for it to
perform the Services. MediaWeb represents
and warrants that the Content will not
violate, invade, or infringe on any copyright,
trademark, right of privacy, right of publicity,
or other proprietary or personal right of any
person or entity. Failure to satisfy any of the
warranties and representations in this section
shall constitute a material breach of this
Agreement.
UNDERSTANDING CONTRACTS AND AGREEMENTS 8/ 1 3
9. Indemnity
Another common contract term is an indemnity
clause. “Indemnity” is legal lingo for one party’s
obligation to pay for any damage it does to the other
party. Often, indemnity clauses obligate one party
to pay for any legal claims that are brought against
the other party by outsiders as a result of the first
party’s wrongdoing.
For example, consider a contract between your
nonprofit and a database consultant in which both
parties indemnify each other. Let’s say the database
consultant creates a faulty, bug-ridden database that
crashes the computer systems of everyone who uses
it—including your freelance fundraising consultant,
who sues your nonprofit for the damages to her
computer and the business she lost because her
system crashed. Because your contract included an
indemnity provision, the database consultant would
be legally responsible for any damages your non-
profit suffers as a result of the fundraising consul-
tant’s lawsuit.
Like warranty provisions, indemnity provisions
are common, but not essential. If indemnity provi-
sions are included, make sure they apply at least
as much to the other party as they do to your non-
profit. In other words, don’t agree to indemnify the
other party unless the other party also agrees to
indemnify you.
Indemnification MediaWeb indemnifies BMN and will defend
BMN against, and hold BMN harmless from,
any claims and damages, including legal costs
and attorney fees, arising out of any breach or
failure of MediaWeb to perform any represen-
tations, warranties, or agreements contained in
this Agreement.
BMN indemnifies MediaWeb and will
defend MediaWeb against, and hold Medi-
aWeb harmless from, any claims and damages,
including legal costs and attorney fees, arising
out of any breach or failure of BMN to perform
any representations, warranties, or agreements
contained in this Agreement.
10. Duration of Contract
All contracts should state how long the agreement
will last, known in legal speak as the “term” of
the contract. Generally speaking, contracts should
last until the events covered in the contract have
occurred—for example, when the services or
products that are the subject of the contract have
been completed and paid for. The contract term
establishes the “natural” expiration date for the
contract.
Contract Term The term of this Agreement (“Term”) shall be for a period from March 1, 2005 until Septem-
ber 1, 2005. This Agreement shall automatically
terminate on September 1, 2005 or on the
completion of the Services, unless extended in
a written agreement signed by both parties.
11. Terminating the Contract
Besides specifying the contract term, most contracts
also indicate how a contract may be ended mid-
stream—for example, a contract might terminate if
one party fails to live up to its agreement or decides
that it wants out. These provisions, usually called
“termination” provisions, are generally included
separately from the contract term provisions.
a. Reasons to Terminate
Broadly speaking, there are two types of termina-
tion provisions: clauses that allow either party to
voluntarily end the contract for any reason, and
clauses that allow termination for specific reasons,
also known as termination “for cause.”
A typical voluntary termination provision allows
either party to end the agreement by giving a writ-
ten termination notice. A common example is a
month-to-month lease agreement: Both parties often
have the right to terminate the agreement by giving
the other party written notice at least 30 days in
advance.
Another type of termination provision says that
the contract will automatically end if certain things
8/ 1 4 STARTING & BUILDING A NONPROFIT
happen. The situations that commonly trigger
termination include a party breaching the contract, a
party selling or dissolving its business or nonprofit,
or a party going bankrupt.
Contracts often include provisions for both volun-
tary termination and termination for cause.
b. Payment Provisions
Besides specifying the permitted reasons for
terminating the contract, your contract should also
state whether payments will be made in the case
of termination. In other words, if the contract ends
early, what payments will the contractor be owed? A
common solution is to establish that the contractor
will be paid for work performed prior to the
termination.
Contract Termination MediaWeb or BMN may terminate this Agree-
ment for any reason upon 30 days’ written
notice to the other party.
This Agreement terminates automatically
upon the occurrence of any of the following
events: (1) bankruptcy or insolvency of either
party, (2) the sale of MediaWeb’s business or
dissolution of BMN’s nonprofit corporation, or
(3) material breach of contract by either party.
If this Agreement is terminated by either
party for any reason, BMN will have no further
obligation to make any payments to MediaWeb,
except for Services already done but not yet
paid for prior to the termination, calculated at
the rate of $50 per hour.
12. Resolving Disputes
Despite all your careful planning and contract draft-
ing, you may not be successful in heading off a
dispute with the other party. You can, however, take
steps to minimize the time and expense of dealing
with these disagreements by including language in
your contract to channel any dispute towards resolu-
tion methods other than a lawsuit.
One effective and popular approach to resolving
disputes is mediation. In mediation, a neutral third
party (the mediator) works with the parties to try
to come up with a mutually satisfactory resolution.
Unlike a judge, a mediator does not have the power
to impose a judgment upon the parties, so a solution
will be reached only if both parties agree to it.
If the parties can’t resolve their dispute in media-
tion, they have an additional option short of taking
it to court: arbitration. In arbitration, a neutral third
party (the arbitrator) hears arguments and takes
evidence from both parties, then makes a decision
about what should happen. The arbitration process
is more like a lawsuit in that the person overseeing
the process (the arbitrator) has the authority to make
a decision regarding the dispute, even if the parties
aren’t happy with the decision. But many prefer
arbitration to litigation because it is generally more
streamlined, quicker, and less costly than regular
civil court.
Contracts often state that the parties will try
mediation and then, if that fails, use arbitration to
settle a dispute as an alternative to going to court.
Dispute Resolution If any dispute arises under the terms of this
Agreement, the parties agree to try to mediate
the dispute. The parties will choose a mutually
acceptable mediator and will share the costs
of mediation equally. If the parties are unable
to resolve their dispute in mediation, the
parties agree to choose a mutually acceptable
arbitrator to arbitrate the dispute. The costs of
arbitration will be assigned to the parties by
the arbitrator. The results of any arbitration will
be binding and final.
Want more information on mediation and arbitration? Check out Mediate, Don’t Litigate, by Peter Lovenheim and Lisa Guerin (Nolo). This reference explains mediation in detail
and includes information on selecting a mediator,
presenting your side of the story in mediation,
and drafting mediation agreements that will stand
the test of time. It also includes information on
arbitration.
UNDERSTANDING CONTRACTS AND AGREEMENTS 8/ 1 5
13. Applicable Law
Lawyers worry about which state’s law will apply
if a contract is breached. Because contract law is
very similar in every state, it won’t make that much
difference in how your contract is interpreted. But if
you enter into a contract with an out-of-state entity,
you’ll probably want your state’s law to govern—
otherwise, you may have to travel to another state to
bring or defend a lawsuit over the contract. But for
the fairly simple contracts most nonprofits sign with
local people and organizations, it’s safe (and sen-
sible) to leave this clause out.
State Law This contract shall be governed by and inter-
preted in accordance with the laws of Illinois.
14. Signatures and Dates
Your signature section should ask the parties to
enter their mailing addresses, the names and titles
of the person signing the contract (the “agent”), and
the date(s) on which the contract is signed. Also,
make sure to obtain the tax identification number of
contractors for your tax purposes—as discussed in
Chapter 5, you are required to report payments you
make to independent contractors if you pay them
more than $600 in one year.
Signatures
Business Mentor Network
Mailing address:
Name of agent:
Title:
Signature:
Date:
MediaWeb
Mailing address:
Tax ID or SS #:
Name of agent:
Title:
Signature:
Date:
Special Contract Issues for Booking Venues
Nonprofits often have to deal with contract
issues when they make arrangements with
venues for meetings and events. Hotels or
convention centers often use their own,
fairly complicated, agreements, sometimes
titled “Terms and Conditions,” “Booking
Agreement,” or something similar. You’ll need
to understand some common terms and issues
to stay out of legal trouble when entering into
one of these agreements.
Note: These issues may not come up at all
if you use smaller or nontraditional venues
for your events. For example, if you can hold
your art education seminar in a library, an art
gallery, or another nonprofit’s conference
room rather than at a hotel, you’ll not only save
money, but you also may be able to avoid many
of the long list of contractual rules set out in
typical hotel rental agreements.
• Deadlines. There will often be dead- lines for reserving the space, posting
your deposit, telling the venue how
many people you expect, and cancel-
ing your reservation without losing
your deposit, among other things.
Whoever is in charge of organizing
the event needs to be on top of these
deadlines in order to avoid penalties
and other consequences—such as los-
ing your reservation or having to pay for
the space even though your event was
canceled.
• Reservation. Perhaps the most impor- tant effect of signing a contract with a
venue is that the space will be reserved
for you. However, this reservation often
depends on you living up to your end of
the contract. If you fail to pay deposits
on time or meet other requirements of
the contract, the venue may cancel your
reservation.
8/ 1 6 STARTING & BUILDING A NONPROFIT
• Fees. Some venues will quote you a price over the phone that turns out to be only
a base fee, to which other charges will
almost certainly be added. Make sure the
contract is clear about any extra charges,
such as a fee for help setting up, techni-
cal assistance, power usage, a DSL line,
overtime compensation for the venue’s
staff, parking, or cleaning up afterwards.
• Deposits. Most venues will require your nonprofit to put down a deposit
well ahead of your event. Make sure the
contract clearly outlines when deposit
payments are due, as well as the total
amount you’ll have to pay. Manage your
nonprofit’s cash flow carefully to make
sure you meet these deadlines.
• Cancellations. The contract should clear- ly outline the venue’s cancellation policy.
It’s typical for a venue to refund 100% of
your deposit if you cancel by a certain
date—30 or 60 days before the event, for
example. If you cancel later, you may only
receive a partial refund—and you could
lose your entire deposit if you cancel at
the last minute. If you do cancel, make
sure you put it in writing and obtain
some sort of confirmation of delivery—
certified mail is best.
• Head counts. If your fee will be based on attendance, the venue’s contract will
likely have a deadline by which you must
indicate how many people you expect
to attend. In this situation, it’s important
to have a confirmed attendance number
before the venue’s deadline. If the dead- line approaches and you haven’t finalized
your reservations, you may be forced to
give a high estimate and pay for people
who don’t actually attend, or you may
have to pay penalties if the actual atten-
dance exceeds your expectations.
• On-site costs. If you will need equipment for your event, such as a public address
(PA) system, slide projector, or lighting
equipment, you may be able to rent it
from the venue—but keep in mind that
hotels and convention centers almost
always charge very high rates. Food and
beverage costs are usually similarly in-
flated at these venues. You’ll almost al-
ways be better off renting equipment or
hiring a caterer separate from the venue.
If the venue won’t allow you to do this,
consider holding your event elsewhere. If
you decide that the convenience of using
the venue’s equipment or food services
is worth the higher price, make sure that
everything you’ll need is listed in the
contract, along with the costs.
• Technical services. If you’ll be using ex- tensive electrical equipment, networked
computers, or other technology at your
event, you may need a venue employee
to help you set up. If so, find out whether
you’ll have to pay extra for a technician’s
services or whether the general fee in-
cludes this cost. Again, make sure your
contract includes every service you’ll
need—and doesn’t subject you to charg-
es for items or services you can do with-
out.
• Liability. Make sure the contract addresses whether the venue will assume liability
for injuries that occur during the event.
Venues usually will assume liability. If
they don’t, however, they’ll often ask you
to show proof of liability coverage, which
could be a general liability policy or a
certificate showing coverage specifically
for the event. (See Chapter 7 for a full
discussion of liability issues, including
risk management and insurance.)
Special Contract Issues for Booking Venues (continued)
UNDERSTANDING CONTRACTS AND AGREEMENTS 8/ 1 7
Checklist: Understanding Contracts and Agreements
Familiarize yourself with the legal basics of contracts, especially the rules for what makes
a contract valid and binding.
Put all your agreements into writing whenever possible.
When you need to create a contract, start by looking for a standard form contract. Modify-
ing a standard contract will be much easier
and will likely yield a more solid contract than
drafting one from scratch.
Keep your contract language clear and to the point, and don’t be tempted to use legalese.
Be detail-oriented in your contracts. Make sure that any points of potential conflict are
spelled out clearly.
■
C H A P T E R
1 Chapter 9
Marketing Your Nonprofit
A. Marketing and Public Relations at Work ................................................................ 9/3
1. Common Marketing Terms ................................................................................. 9/4
2. Marketing Approaches and Goals ..................................................................... 9/4
B. Fundamental Marketing Tools .................................................................................. 9/6
1. Networking ............................................................................................................ 9/6
2. Media Relations .................................................................................................... 9/7
3. Listings or Directories ........................................................................................ 9/11
C. Creating a Website ................................................................................................... 9/11
1. Focus on Your Goals .......................................................................................... 9/12
2. Define and Develop Your Content ................................................................. 9/13
3. Create Web Pages for Your Content ............................................................... 9/15
4. Register a Domain Name and Get a Web Host ............................................. 9/16
5. Promote Your Site Simply and Cheaply ......................................................... 9/17
9/ 2 STARTING & BUILDING A NONPROFIT
N o matter what its mission, every nonprofit
needs to market itself. Spreading the
word about your organization’s work and
accomplishments is an indispensable part of running
a nonprofit. When you do this successfully and
consistently, you’ll create a favorable buzz about
your organization, greatly improving your ability
to attract potential funders, volunteers, and other
supporters. This chapter will help you get the word
out to those whom you hope to serve, potential
supporters, and the larger universe of influential
people, organizations, and public agencies interested
in your mission.
Despite what you might think, marketing your
nonprofit does not have to be terribly time-consuming
or expensive. In fact, the best marketing methods
are often the simplest and cheapest. For example,
encouraging good word of mouth and networking
in your community will cost you little (if anything)
and will greatly help your group develop name rec-
ognition and forge productive relationships. Other
inexpensive marketing methods, such as sending
out press releases and fostering media coverage, can
generate far better exposure than spending a fortune
on advertising.
This chapter outlines a simple, affordable approach
to marketing your nonprofit. The strategies and tips
described here will help you get your marketing
machine up and running—and expand your market-
ing efforts as your nonprofit’s resources grow. Here
you’ll find information on:
• marketing basics (Section A)
• marketing tools (Section B), and
• creating a website (Section C).
Marketing and Publishing Can Overlap
While this book covers marketing and publish-
ing in separate chapters, they are not mutually
exclusive. “Publishing” means conveying substantive information to the public—for
example, producing a newsletter with articles
about water conservation or creating a web-
site with photos and detailed instructions on
self-defense techniques for women. “Market-
ing” means conveying information about your
organization with less emphasis on substantive
issues. Examples of marketing include distrib-
uting brochures with basic information about
your nonprofit, running ads in a local paper to
promote an event, or putting up a one-page
website with your mission statement and infor-
mation on how to donate.
Publishing efforts usually create marketing
opportunities. For example, if your ecological
organization publishes a quarterly newsletter
with articles on land preservation policy, you
can (and should!) also include promotional
information asking for volunteers and financial
support. The same strategy applies to publish-
ing a website: If your nonprofit creates a
website with detailed, educational content
on self-defense techniques for women, the
website should also include some pages with
marketing-driven content, such as how to
donate, the history of the organization, or a
request for volunteers.
Publishing efforts are covered in the next
chapter, which explains how to decide whether
to publish, different types of publications, what
resources you’ll need, and how to get started.
MARKETING YOUR NONPROFIT 9/ 3
A. Marketing and Public Relations at Work
There’s no denying that we live in a world driven by
markets—and saturated by marketing. As annoying
as it is to be relentlessly courted by thousands of
companies each day, constant exposure to market-
ing messages offers one benefit you can put to
use for your nonprofit: Whether you’ve “studied”
marketing or not, you’ve unwittingly absorbed a
basic understanding of how marketing works. As
you review the marketing strategies in this section,
keep in mind that as an experienced marketing
target, you probably know more about marketing
than you think you do. Use this knowledge to turn
the tables—to think like a marketer, rather than a
“marketee.”
Marketing is not synonymous with advertising.
Paid advertising can be part of a marketing strategy,
but it seldom makes sense for a new nonprofit to
invest precious resources on ads. Paid advertising
is much more expensive—and less effective—than
many cheaper (or even free) methods of getting
exposure.
More efficient ways to promote your nonprofit
include:
• coaching board members and other influential
supporters to spread the word
• networking with other nonprofits, government
agencies, and community leaders
• creating a website and promoting it
• distributing brochures, flyers, or other litera-
ture
• pitching stories about your nonprofit to local
media
• listing your organization or events in local
calendars and directories, or
• organizing or participating in conferences,
seminars, or other events.
Effective Marketing Starts With a Solid Organization
Lots of nonprofits (and even for-profit busi-
nesses) fail to understand the importance of
having an efficient, organized operation in
place before they start their marketing efforts. After all, you’ll want to be ready to handle the
heightened attention your marketing will bring
to your organization. For example, a restaurant
should not start a big marketing campaign
without already having a good chef and
enough wait staff in place to handle a surge of
diners. Otherwise, the unprepared restaurant’s
marketing efforts would likely result in un-
happy diners and bad publicity.
The same holds true for a nonprofit. If
you’re not ready to manage volunteers or
accept donations, sending out a press release
with a plea for support could easily lead to
disaster. If dozens of potential volunteers and
donors call your nonprofit in response, only
to learn that your group has no clear volunteer
opportunities or system to handle donations,
your nonprofit will lose credibility and suffer a
blow to its reputation.
Before you decide how to market, pay attention to what you’re marketing. Make sure your group’s house is in order before you
worry about how to call attention to it. For
more information on this and other common-
sense tips for cost-effective marketing, read
Nolo’s Marketing Without Advertising, by Michael Phillips and Salli Rasberry.
9/ 4 STARTING & BUILDING A NONPROFIT
1. Common Marketing Terms
Because so many terms are bandied about when
referring to marketing efforts, it can be hard to
understand the distinctions among specific types of
marketing, such as publicity, public relations, and
media relations. Truth be told, there’s often only
a fuzzy line among these categories. This section
defines some of the most common marketing terms
as they are used in this chapter.
Marketing. This general term refers to just about any promotional activity: advertising, special events,
direct mail, online discounts and promotions, and
the like. “Marketing” means any and all ways
of promoting your nonprofit. This chapter uses
more specific terms to refer to individual types of
marketing activities.
Advertising. “Advertising” means buying space or airtime to deliver a promotional message de-
signed to reach the general public, usually through
print media, television, radio, or the Internet. Of
course, just about anything can carry an advertising
message, including the sides of buses, billboards,
and park benches.
Listings or Directories. These terms refer to phone books, online directories, classified ads, or
other specialized publications designed to reach a
self-selected group of people, as opposed to the
general public. As with advertising, you must pay
for a listing. But, unlike most ads, directories often
serve as valuable resources that are used again and
again, which means that they can be very effective
marketing tools if they get to the right audience.
Public Relations. “Public relations” is another broad term that can refer to many different types
of outreach efforts. In this chapter, public relations
means a coordinated, multifaceted effort to get
your nonprofit’s message out to the public. Public
relations might include advertising, paying for listings,
pitching stories to the media, inviting key people to
participate in conferences, and making speeches.
Media Relations. This term refers to contacting the media and pitching story ideas in hopes of
obtaining editorial coverage (coverage in articles
or feature stories not tied to advertising). Most
commonly, media relations involves sending press
releases to newspaper editors, reporters, and
television producers to announce an event or
provide information that could be the subject of a
news story. Another media relations technique is to
hold a press conference at which your organization
conveys a specific (and newsworthy) message to
invited members of the press.
Publicity. Although the term “publicity” is often used loosely and sometimes interchangeably with
the term “public relations,” in this chapter, publicity
means event-related marketing efforts. Examples
include making speeches, sponsoring seminars, and
participating in conferences.
Nolo’s Marketing Without Advertising offers a whole book’s worth of good marketing ideas. Although Marketing Without Advertising, by Michael Phillips and Salli Rasberry, is tailored more
to profit-driven businesses than nonprofits, it offers
a wealth of information about how to build positive
recognition without spending a dime on traditional
advertising. Its insights into effective marketing
techniques are valuable for any enterprise, for-profit
and nonprofit alike.
2. Marketing Approaches and Goals
New nonprofits often worry that they don’t have
the budget or resources to market themselves. This
worry is usually unfounded. Not only are there
many low-cost ways to effectively market your non-
profit, but many nonprofits also overestimate how
much information they need to provide to potential
supporters.
In truth, most nonprofits don’t need a marketing
blitz; instead, they simply need to provide timely,
clear information about specific events or programs
and how the public can participate. Newer non-
profits will do better to promote specific events—it’s
easier to tell the public about an event than it is to
explain your nonprofit in the abstract. Focusing on
an opportunity for the public to take a class, attend
an event, or participate in a rally is often a great
way to cut through the media clutter and reach
potential supporters.
To help you focus on the marketing angles that
will work best for your nonprofit, consider the
MARKETING YOUR NONPROFIT 9/ 5
following different types of marketing approaches
and goals:
• General marketing. This approach focuses on spreading the word about your nonprofit
broadly, so the public knows about the ser-
vices or benefits you offer. The goal is to build
general recognition of your nonprofit and its
mission.
• Niche marketing. If much of your future success depends on building your reputation
among a smaller group—influential funders,
agencies, nonprofits, or another niche group—
focus your marketing efforts on reaching these
key targets. For example, if your nonprofit is
dedicated to improving access to health care
for low-income families in Illinois, it may be
very important for you to have the support
of a certain government agency or task force.
If so, you would definitely want to tailor
some marketing efforts toward this group,
which would undoubtedly require a different
approach than marketing to the general
public.
• Event marketing. This approach focuses on providing timely information to the pub-
lic about your nonprofit’s specific activities,
events, and programs. The goal is not to make
your nonprofit a household name but to pro-
mote individual events or activities to generate
a high level of response or participation.
While there are no hard-and-fast boundaries
between these different marketing approaches, it
can be helpful to think about them separately to
focus your marketing efforts to best suit your needs.
In the end, your nonprofit will need to decide for
itself which type of marketing is appropriate at any
given time and how wide or aggressive its marketing
efforts should be. At a minimum, make sure you
publicize your important activities well. Also, don’t
overlook the importance of focusing marketing
efforts within any niche that is crucial to your
group’s success. If you regularly and consistently
market your major activities and make your work
known to important potential supporters, your
general recognition will grow as a result.
Finding Volunteer Designers
David Dabney is a graphic designer and
Principal of Red Rooster Creative, a graphic
design firm in Santa Fe, New Mexico. He offers
the following advice for nonprofits that need
graphic design work but are short on funds:
“Depending on the size of the project, de-
sign and printing can quickly eat up project
funds. To stretch your dollars, see if a design
school or class might be willing to do the
work you need as a class project. For example,
a student might be assigned your project
as his or her main project for the semester.
Schools commonly match students with local
nonprofits in order to give the students real-
world knowledge about working with clients
and to help build the students’ portfolios.
Remember, even if your town doesn’t have a
design college, most community and technical
colleges offer print and Web design classes.
For print jobs your nonprofit will usually have
to pay for the costs of paper and ink, but you
will save the considerable costs of hiring pro-
fessional designers.
In addition, many design firms and indi-
vidual designers aim to do a few projects per
year in which they donate their time for worthy
causes. The key is to find out who they are and
let them know about your nonprofit’s needs.
Try going to local meetings of the American
Institute of Graphic Arts, the Graphic Arts
Guild, or other design organizations in your
area to get to know local firms and designers
and put your nonprofit on their radar screens.
Network in your community to find designers
who might be willing to volunteer their services
for your group.”
9/ 6 STARTING & BUILDING A NONPROFIT
B. Fundamental Marketing Tools
While there are loads of ways to market your non-
profit, a few tried-and-true methods are particularly
effective—and won’t break the bank: networking,
media relations, and listing your organization in
directories. This section explores each of these
strategies in detail.
1. Networking
Those in the for-profit business world understand
that networking is one of the best ways to build
a business. This is even truer in the nonprofit
sector, where money is tight and credibility is
crucial. Through networking, you actively cultivate
relationships with key contacts. With these relation-
ships established and nurtured, you’ll stand a better
chance of being able to motivate these contacts
at crucial times to help further the goals of your
organization.
Nonprofit-minded people often fear that success-
ful networking requires unsavory schmoozing or
pandering. These concerns are unfounded. In fact,
if you adopt a sleazy wheeler-dealer approach, you
risk alienating the very people whom you want to
make your allies. Instead, successful networking
flows from your sincere desire to create relationships
that further the honest and laudable goals of your
organization.
EXAMPLE: Main Street Reborn is a nonprofit dedicated to preserving historical main street
districts in Florida’s small towns. One of its
board members, Melissa, attends a city council
meeting in the town of Arcadia, which was
called to discuss the problems of Arcadia’s
blighted old downtown area. Melissa testifies
to the council about the nonprofit’s work in
other small towns and the positive impacts of
its education and preservation efforts. After
the meeting, Melissa introduces herself to
members of the city council, a local reporter,
and the head of the local historical society.
After some conversation, she exchanges contact
information with each person with whom she
speaks, gives out Main Street Reborn’s website
address, and promises to keep in touch.
A few days later, Melissa sends an email
to each contact from the meeting, stating how
much she enjoyed meeting them and learning
more about the issues facing Arcadia’s down-
town. In the emails, she also mentions a couple
of suggestions about how Main Street Reborn
could help start an educational campaign about
Arcadia’s downtown and help with ongoing
efforts to preserve some of the area’s older
buildings.
The following month, one of Arcadia’s city
council members contacts Melissa to ask if
she would be willing to meet with a historical
preservation committee to exchange ideas and
suggest strategies. Melissa is delighted to do so
and soon thereafter becomes involved in the
city’s plans to save Arcadia’s downtown. Later,
when trying to prevent the scheduled demolition
of Arcadia’s oldest building, Melissa calls the
local reporter she met at the initial city council
meeting, who writes an article letting the public
know how they can oppose the demolition.
Far from sleazy, the networking efforts in the
above example show that good networking is little
more than sincere interest and communication with
others who share your nonprofit’s interests or can
help expand the scope of your nonprofit’s work.
Similarly, you are “networking” every time you attend
an event held by another nonprofit, get to know
community leaders and activists, write a letter to the
editor, participate in an online discussion group, or
communicate your nonprofit’s mission to others who
may be interested.
To network successfully, you need to know who
in your community may be interested in your cause.
For instance, if your nonprofit supports music edu-
cation for children, you would want to know about
any similar groups in the area or any prominent
individuals (such as local musicians or educators)
who have demonstrated an interest in the issue.
You probably already know of other groups and
individuals who share your organization’s mission; if
not, you need to take the time to find out who they
are. Once you identify these contacts, get in touch
with them and let them know about your nonprofit’s
work.
MARKETING YOUR NONPROFIT 9/ 7
Think broadly about who might be interested in
your cause. Don’t restrict your networking efforts
to those whom you already know or those closest
to your field. Some of your best resources may be
people from other walks of life who share an inter-
est in your cause, including:
• other nonprofit leaders
• community activists and local clergy
• local politicians, such as city council members
or alderpersons
• state politicians, such as legislators or the
governor
• members of government agencies, boards, or
commissions
• prominent businesspeople, and
• members of print, radio, or television news
media.
Keep in mind one of the golden rules of network-
ing: It’s best to forge relationships with contacts
before you need help from them. For example, if
you need the support of a local politician on an up-
coming ballot measure, you’ll have a better chance
of getting the politician’s vote if he or she already
knows you and thinks favorably of your organiza-
tion than if you place a call to his or her office out
of the blue.
While it may be easiest to meet someone at an
event, introducing yourself to a potentially useful
contact can be as simple as picking up the phone,
writing a letter, or sending an email. In making your
initial contact, you should be as formal or informal
as is appropriate for the person with whom you are
making contact. A letter of introduction on attractive
letterhead might be best for an influential politician,
for example, whereas a phone call might be fine to
introduce yourself to a local business owner. In your
letter, email, or phone call, explain who you are,
what your organization does, and why you thought
that person might be interested in your activities.
Try to conclude by encouraging further communica-
tion in the future, such as inviting the contact to an
event or asking if he or she would be interested in
receiving email updates from your group. If you talk
to someone on the phone, a follow-up email or letter
thanking the contact for his or her time is always a
smart idea.
When sending emails, always include a link to your website. When you include a web- site address in the text of your email, the address
will often automatically appear as a clickable link.
When recipients click on the link in the email, their
browser window opens and your website appears.
Keep in mind, though, that some email programs
will do this only if you include “http://” before the
website address. For example, depending on the
email program, “http://www.nonprofiteur.org” will
become a link that a recipient could click on, but
“www.nonprofiteur.org” will not. To be safe, always
include the prefix “http://” so that recipients can
simply click on the link in the email rather having to
type the website address into their browser. (Sec-
tion C, below, explains how to create a website.)
2. Media Relations
Another excellent—and inexpensive—way to
promote your nonprofit is to generate free media
coverage in newspapers or magazines, or on
radio, television, or the Internet. Your goal is to
get “editorial” coverage, meaning some mention
of your group or event in news or feature stories
(as opposed to paid advertising). Because editorial
coverage is far more credible than advertisements
or paid publicity, it will have a greater impact.
For example, a local newspaper article about your
nonprofit’s upcoming seminar will almost always
attract more attendees than any advertising you
purchase for the same event. And editorial coverage
costs you nothing but time.
The term “media relations” means the process of
attempting to obtain editorial coverage. It is a fairly
simple process: You contact the media on behalf of
your nonprofit and encourage an editor, producer,
or reporter to write or produce a story about your
particular subject. As with most marketing efforts,
the more specific and targeted your message,
the more impact it will have. For example, you’ll
be more likely to get editorial coverage of your
nonprofit’s River Clean-Up Day than of the very
general fact that your nonprofit exists.
9/ 8 STARTING & BUILDING A NONPROFIT
The basic steps for conducting media relations
are:
• Write a press release. A press release is a key tool to use when pitching a story idea.
Typically, a press release is a one-page
announcement outlining the information you
want the media to cover. You have two main
goals in writing a press release: 1) to capture
the journalist’s attention, and 2) to make it
easy for the journalist to write the story you
want published. Stylistically, press releases
are usually written like news stories, offering
journalists an example of the story you want
them to produce. (See “Elements of a Strong
Press Release,” below, for more details on how
to put together a winning pitch.)
• Make initial contact with the journalist by phone. Make a preliminary phone call before sending a press release, so your release
doesn’t get lost in the shuffle. If you haven’t
identified the person at the news outlet
who would cover your story, call the news
department, briefly describe the nature of
your press release, and ask who might be the
best person for you to contact. Once you have
a name of a reporter, editor, or producer, give
that person a call to introduce yourself and
your nonprofit, briefly explain the nature of
your news story, and tell the person you will
be sending a press release. If you can’t reach
the journalist by phone (as is often the case),
don’t let it hold you up: Leave a message and
send out your press release. While you could
make this initial contact by email, a phone
call makes a stronger impression. And creating
lasting relationships with individual reporters
is the best way to get positive coverage over
the long term.
• Send the press release by email, fax, or both. Years ago, press releases were sent by mail.
This practice has long since given way to
delivery by fax. Today, it’s a good strategy to
send press releases via email as well, ideally
as a both a PDF attachment and as plain
text in the body of the email. Emailed press
releases work because reporters like having
an electronic copy from which to cut and
paste when writing their stories; faxes work
because they don’t get lost or buried as easily
as email. To cover your bases, send your press
releases in both forms.
• Follow up after you send the press release. Shortly after sending your press release—a
few hours or a day later, depending on the
timing of your announcement—follow up
with another phone call or email to make sure
your press contact received the release and to
answer any questions he or she may have.
An example of a press release is shown below.
Some people feel timid about contacting the media
and asking them to cover a specific story. While you
shouldn’t be a pest, you also shouldn’t feel shy about
pushing your story idea persistently. To do their
jobs, journalists must come up with a constant stream
of interesting new story ideas. Just as you need their
help, they need yours. Because you will often know
more than reporters do about a particular story, you
can offer valuable information that they can use
when writing stories. If you are honest and reliable,
you will usually be treated with respect.
If you don’t get a response after an introductory
phone call, a press release via email and fax, and a
follow-up call, let the particular story idea rest; this
will help you preserve your reputation as a pleasant,
professional person to deal with the next time you
want to pitch a story. A journalist may not cover
your story because he or she does not think it is
newsworthy or because there are other stories that
take precedence. A few months later, when you try
again, you may be pleasantly surprised to find that
you’ve pitched the right story on the right day.
The most effective media relations come from
relationships you build with reporters, editors,
producers, and other media contacts. Because you
are more likely to get news coverage from a reporter
with whom you’ve worked before than from some-
one who’s never heard of you, you should always
treat your relationships with people in the media as
the valuable resource they are.
MARKETING YOUR NONPROFIT 9/ 9
Sample Press Release
FOR RELEASE ON APRIL 26, 2005
Shawnee Independent Business Alliance Kicks Off With Launch Lunch
SHAWNEE, Oklahoma—The Shawnee Independent Business Alliance (SIBA) will hold its
inaugural event, the SIBA Launch Lunch, on May 13, 2004 at the Outpost Community Space.
Attendees will be introduced to SIBA by its founders and learn more about the organiza-
tion’s activities and membership benefits. The event will also feature a presentation by Sara
Berger of the Small Business Institute about the benefits of alliance building. A box lunch
will be included. Those who wish to attend should call 405-555-1234 by May 7 to reserve a
space. (See time, location, and cost details below.)
Founded in 2003, SIBA is dedicated to supporting Shawnee’s local, independent businesses
through programs such as cooperative marketing, networking, and branding the “indie”
business image. Benefits for members include a listing at SIBA’s online directory of local
businesses, joint advertising opportunities, and a window decal identifying them as a local,
independent Shawnee business. SIBA also aims to educate consumers about the impacts of
their spending decisions and to encourage them to shop local and independent.
SIBA is part of a nationwide movement that recognizes the connection between a healthy,
local economy and strong, vibrant communities. Betty Breitbard, SIBA President and owner
of North Valley Day Spa, says, “Shopping at local, independent businesses is the best way to
nurture a healthy, local economy and make Shawnee a great place to live.”
SIBA supporters include its community sponsor, First State Bank, and its founding members,
North Valley Day Spa, Clarity Media, and Page Turner Bookstore.
EVENT INFORMATION:
SIBA Launch Lunch
May 13, 2005, 11 am to 1 pm
Outpost Community Space
1250 N. Harrison Ave., Shawnee
Cost: $10 for members; $15 for nonmembers
To reserve space: Call 405-555-1234 by May 7
MEDIA CONTACT:
Polly Harvey, SIBA Treasurer
Owner/Director, Clarity Media
405-555-1234
polly@shawneeiba.org
SIBA
135 Main St.
Shawnee, OK 74801
ph: 405-555-9876
http://www.shawneeiba.org
9/ 1 0 STARTING & BUILDING A NONPROFIT
Elements of a Strong Press Release
The better your press release, the more likely a journalist will write about your nonprofit, giving you valuable exposure in the press. Reporters, editors, and producers are chronically busy and squeezed by deadlines; they need good story ideas and clear information to get their jobs done. The easier you can make it for them to cover your story, the more likely they are to oblige. If you write a strong, clear press release, they may even use parts of your release verbatim. But because most media people are flooded with press releases and story pitches, you’ll need to keep your press release as succinct as possible.
Here are some tips on how to construct a compelling press release that is likely to generate media placements:
• Start with a news hook. Like a news story, your press release should have a strong first sentence, known in the news biz as the story’s “lead.” What is the most important point you want to get across? Write it in a clear, straightforward style and you will have your lead. Compare the following examples:
■ Weak lead: “The mission of the Shawnee Independent Business Alliance is to help local, independent businesses compete with big box stores.”
■ Strong lead: “The Shawnee Inde- pendent Business Alliance will host a free marketing workshop on May 6, 2005 to teach local business owners how to compete with big box stores.”
• Date, time, and location information should be easy to find. If your press release is promoting an event, don’t bury important information deep within long paragraphs. Include important event details such as date, location, and regis- tration deadlines in the first sentence or two, in the last sentence (perhaps in bold text), or summarized in bullet points at the end of the press release.
• Include the most important information first. Like stories in the newspaper, your press release should include all impor- tant details up front, then work toward more general or background information in later paragraphs. You could even put background information at the end of the release, in a separate section.
• Include quotes from board members or prominent supporters. Reporters like to include quotes from real people in their stories, so include at least one or two catchy quotes in your press release. If you are writing the release and you are the best person to offer a quote, don’t be shy about quoting yourself! It may feel strange but it’s perfectly appropri- ate. Remember, you’re offering the media a sample of the story you want them to write, so include a quote as if an outside reporter interviewed you.
• Include a separate section with contact information. The journalists who receive your release may have additional ques- tions to ask you or others in your group. Choose a point person who will be avail- able to field any such questions, and include his or her contact information clearly at the end of the release.
• Create a news angle. If it is appropriate and possible, tie your release into a topic that’s currently in the news. For example, if your press release announces your nonprofit’s services assisting uninsured people in accessing health care at county and community centers, you’d certainly want to include a reference to the nation- wide problem of people lacking health insurance—perennially a hot news topic.
• Use statistics. Reporters love statistics that show how prevalent a problem is or how many people are affected by an issue. Using the previous example, you could include recent statistics that 20% of people nationwide lack health insurance.
MARKETING YOUR NONPROFIT 9/ 1 1
3. Listings or Directories
Getting your group listed in appropriate directories
is a great way to connect with your audience. Listings
work so well because consumers who consult a par-
ticular information source have already determined
that they want this type of information. In addition
to every city’s phone books and classified ads, most
communities have other types of directories—for
example, a directory of local arts organizations,
environmental groups, or social service agencies.
Some directories are published in hard copy, though
many directories are posted online. And many
different entities publish community directories,
including local government offices, trade associations,
nonprofits, or other organizations.
Many directories—particularly those online—may
give your nonprofit a free listing. Other directories
may charge a modest fee, which may well be worth it
if the price is reasonable and the directory exposes
your group to the right audience. Some directories,
however, are prohibitively expensive; these are not
worth considering unless the audience you’re trying
to reach is extremely narrow and desirable and the
directory is highly targeted to that audience.
To find all of the directories in which you should
list your nonprofit, you’ll have to do some homework.
Looking online is a good start, but you should also
check with local resources such as local government
offices, trade associations, and other nonprofits. Don’t
limit yourself to nonprofit-only directories; your
organization might fit well in a directory that lists
both for-profit and nonprofit groups. A directory of
local film organizations is a good example: It might
list for-profit businesses such as production companies,
camera repair shops, and film stock companies, as
well as nonprofit groups such as film preservation
societies and artist advocacy organizations.
C. Creating a Website
Creating a simple website is a great way to begin
your marketing efforts. If, like most start-up
nonprofits, you lack the budget to launch a large
or complex site, you should still make developing
a basic site a high priority. You can implement a
simple website that outlines your mission statement,
planned activities, and contact information quickly
and cheaply, providing a great way for you to make
information about your group widely available. You
can then include the website address (or “URL”) in
all of your correspondence and marketing materials
(including brochures, postcards, and letterhead)
and encourage everyone you speak with to visit the
site for more information. A website is very useful
because you can start off with a small, basic website
to let the world know you exist, then expand as
your priorities evolve and your resources grow.
Websites are also a great place to try out ideas
and experiment with marketing and other strategies
without having to commit them to print. Many
nonprofits begin their websites as internal working
documents, allowing board members to suggest
ideas, changes, or additions. Of course, once you
announce your website to the public and start to
get regular visitors, you’ll want to keep the website’s
content and appearance more consistent. But
you can still improvise a bit because websites are
never “final”—you can always make quick changes
or additions without worrying about the time or
expense of printing and distribution.
This section walks you through a simple, basic
approach to creating a website that will help you
market your nonprofit. (For information on publish-
ing substantive content on your site—and offline,
too—see Chapter 10.)
Use your website for online publishing. Publishing materials online rather than on paper is an effective way to convey information to
your community—it saves printing costs and allows
you to update the information more frequently.
Some nonprofits begin publishing efforts online—
for example, by creating an electronic newsletter—
which allows them to work out the kinks before
producing a print edition. For a discussion of online
publishing, see Chapter 10.
Helpful resources for creating a website. Books and other resources explaining how to
build websites abound. Even if you hire a contractor
to build your nonprofit’s website, you may want
to read up on the basics of site creation. Here are
some good places to start:
9/ 1 2 STARTING & BUILDING A NONPROFIT
• The Non-Designer’s Web Book, by Robin Williams and John Tollett (Peachpit Press), is
especially helpful for beginners. It offers a
solid introduction to technical concepts and
principles of effective design.
• HTML for the World Wide Web with XHTML and CSS: Visual QuickStart Guide, by Elizabeth Castro (Peachpit Press), demystifies
HTML code with lots of illustrations and
screen shots. Beginners and experienced Web
developers alike will find it a useful reference.
• Web Design in a Nutshell, by Jennifer Niederst (O’Reilly), is a condensed-yet-comprehensive
guide to creating Web pages, covering design
basics, HTML tags and other code, browser
compatibility, images, audio, video, and much
more.
• Webmonkey is a helpful site with loads of free
articles, how-tos, demos, and other resources
for Web developers. It has separate sections
for “Beginners,” “Builders,” and “Masters,”
so you’ll likely find something useful here
no matter what your skill level. Go to http://
webmonkey.wired.com/webmonkey.
If you outsource your site, retain control of important decisions. Most of the steps described in this section are not difficult, even for
those who are new to website creation. Still, you
may prefer to hire someone else to create your
nonprofit’s website. It is common—and often
wise—for nonprofits to outsource some or all of the
website creation process.
Do not, however, give a consultant or Web design
company complete discretion over your nonprofit’s
site—particularly over identifying the site’s goals and
content. Even if you know and trust the designer you
hire, your board or other decision-making group
must be involved in defining the site’s goals and
content in keeping with your nonprofit’s mission. The sections below describe the overall process of
creating a website and can help you decide how
much your nonprofit can handle in house. If you do
use a contractor to create your site, someone from
your nonprofit should work closely with the con-
tractor to make sure the site achieves the goals and
features the content your nonprofit wants.
1. Focus on Your Goals
All too often, organizations fail to identify clear
goals when creating their websites. Without focused
goals, you’re likely to end up with a confusing site
that visitors are quick to leave. Don’t make this
mistake! Decide on the main point of your website
early on: Is your goal to attract new members? To
raise money? To educate the public? While you may
have multiple goals, identify the most important and
use them to guide the site’s development.
EXAMPLE: The mission of the Shawnee Inde- pendent Business Alliance (SIBA) is to educate
its community about how supporting locally
owned, independent businesses can help build
and nurture a healthy local economy. The SIBA
Shopper Network is one of SIBA’s main pro-
grams. Local, independent businesses can join
the network as SIBA Businesses, and people in
the community can join as SIBA Shoppers. The
SIBA Shoppers get a card they can present for
discounts at any of the SIBA Businesses.
In its start-up days, SIBA’s board members
make a quick website displaying its mission
statement on the home page. Other pages offer
information about the organization, including
its history and contact information for the
board.
After a few months, SIBA’s board members
realize that the website isn’t doing much for
their organization. They decide that the website
should focus on a specific goal: promoting the
SIBA Shopper Network. With this goal clarified,
they revamp the website to feature the SIBA
Shopper Network’s logo and introductory infor-
mation prominently on the home page. They
add a link to the directory of SIBA Businesses
to make it easy for shoppers to use the SIBA
Shopper Network. In addition, they provide
links to:
• membership information for businesses
and individuals
• a sign-up page for new members
• educational materials about the impor-
tance of supporting local, independent
businesses, and
MARKETING YOUR NONPROFIT 9/ 1 3
• a description of SIBA, including its
history, board members, and mission
statement.
Within a few months, the site traffic more
than doubles, with most hits at the pages
featuring the SIBA Shopper Network. For SIBA,
featuring its main program is a much better
goal for the website than offering general infor-
mation about its mission. Its mission statement
still appears on the site, but in a much less
prominent position.
Once you have clear goals for your website, you
can design your site to achieve those goals. Your
goals will help your website designer develop solid,
clear site “navigation”—the organization and links
among your pages that allow visitors to steer their
way through the site. Sites with poor navigation
leave visitors wondering where they are, how they
got there, and how on earth to get back, often re-
sulting in visitors leaving the site with an annoyed
click. A site with good navigation makes it easy for
visitors to find the information they seek—and hard
for them to miss any information you want them to
see.
For example, if you rush to put together your
website and fail to provide a prominent link to your
“Donations” page, you probably won’t get many
online donations. If, on the other hand, you outline
your goals for the site and identify online donations
as a priority, you would be less likely to make that
blunder. This advice may sound obvious, but an un-
believable number of websites are poorly designed
to the point of uselessness. Don’t join their ranks.
2. Define and Develop Your Content
Once you’ve identified clear goals for your website,
you must decide what content to use and how to
organize it on your site to achieve your goals. Your
content should be clear, concise, and free from
errors. A little bit of care in these areas will go a
long way toward making your site useful to visitors
and enhancing the credibility of your nonprofit.
a. Choose Your Content
Rather than crowding your website with filler, you
should focus on offering content that meets the
goals you’ve set for your website and helps achieve
your nonprofit’s mission. For example, if a charitable
nonprofit uses its website primarily to fundraise
and recruit workers, its content may consist largely
of appeals to donors and volunteers. If, on the
other hand, a scientific nonprofit uses its website
as a crucial research tool to achieve its mission,
its content may be heavy on in-depth scientific
information of special interest to researchers who
visit the site.
If you put thought into defining your website
goals, you will have already made progress toward
deciding what content to include. If you want to
attract new members, you’ll need a page that clearly
explains your membership benefits and process for
joining. If you want to educate the public, you’ll
need well-organized and accessible pages of inform-
ation. Your content should directly help you achieve
your goals for the website, which should, in turn,
contribute to your overall mission.
In addition, most nonprofit websites include
basic background information about the organiza-
tion, including its mission statement, a list of board
members, and contact information. Also, include
information about upcoming events, an appeal for
donations, and information on how to volunteer or
get involved.
Keep time-sensitive content fresh. If you include time-sensitive information on your
website, be sure to keep it up to date. To do this,
you should plan for regular updates and budget
appropriate resources before you commit to includ-
ing the material on your site. Having dated content
on your site looks unprofessional to visitors, who
may include potential funders and other important
folks. If you know you won’t have the resources
necessary to continually update your site, don’t post
information that will rapidly go stale (or downright
rotten). Instead, concentrate on material that will
have a reasonably long shelf life.
9/ 1 4 STARTING & BUILDING A NONPROFIT
b. Organize Your Content
Once you’ve decided what content to include on
your site, think about how to divide that content up
into individual pages and how visitors will navigate
among them. While this task is often turned over to
an outside Web developer, you might fi nd it helpful
to take a stab at identifying how many pages your
site will have and what information will be included
on each. Doing so will help your nonprofi t have a
clearer vision of its website, making it easier for you
to communicate exactly what you want to the person
who designs your site. This will help you make sure
that the designer creates a site that will work for you.
For example, a very simple fi ve-page site might
contain:
• a home page—an introduction to the non-
profi t and its mission
• a programs page—a description of major
program areas or services
• a donations page—information on the non-
profi t’s fi nancial needs and how to donate
(including your mailing address and the group
name to whom checks should be payable)
• a volunteers page—information on what help
is needed, and
• a contact information page—information on
how to contact the nonprofi t (and, if you
choose, its staffers, and board members) via
mail, phone, and email.
In addition to determining the individual Web
pages on your site, you will need to fi gure out how
visitors will navigate among the pages. The simplest
organization is to make all pages accessible from the
home page and from each other. For example, using
the fi ve-page site outlined above, each page could
have a list of links (often called a navigation bar) at
the left side of the page, as in the example shown
below.
MARKETING YOUR NONPROFIT 9/ 1 5
Outlining how your pages will relate to one an-
other can range from very simple (like the five-page
site described above) to dizzyingly complex for sites
with dozens of pages of content.
c. Create Quality Content
Now comes the part that many nonprofits dread the
most: writing and editing the actual content. Writing
and editing are time-consuming tasks (even for us
professional writers), so content development often
feels like a burden.
To cross this hurdle, start with what you have.
You’ve probably already spent some time developing
brochures, flyers, or other written information about
your nonprofit. Don’t reinvent the wheel: Use what
you have as a basis for your website’s content. You
probably will need to rework your existing content
to make it shorter and more concise for the Web,
but it’s still easier to adapt something that’s already
written than to start from scratch.
Bullets make good ammunition online. When reading from a computer screen, people prefer short, quick bits of information to
long paragraphs of text. Keep this in mind as you
create online content or adapt existing content
for your website. As much as possible, try to keep
information blurb-sized or broken down into bullet
points. If you’re adapting existing content, break
longer paragraphs down into bite-sized pieces.
If you don’t have any existing written materials,
someone will need to start writing. The good news
is that, generally speaking, less is more when it
comes to online content; nothing will turn visitors
away from your website faster than dense, lengthy
paragraphs. The best Web content is concise and
easy to digest, so don’t be afraid to get right to the
point and condense information into lists, bullet
points, and short blurbs.
If you decide to publish longer material—for
example, the text of a report your organization
produced—either break it up into sections (with
links between them) or provide the document in
a downloadable format, such as a PDF (Portable
Document Format) file. Better yet, offer both an
HTML version navigable by section and a down-
loadable version, so that your visitors can read the
document in they manner they prefer. (Chapter 10
covers online publishing in detail.)
Finally, make sure that at least two people are
involved in creating the website’s content. At a
minimum, one person should write the material and
another person should review and edit it. Even if the
writer is experienced, a second set of eyes can really
make a difference.
3. Create Web Pages for Your Content
When you’re done creating the content you want
your site to feature, the next step is to create the
Web pages that contain the content you’ve developed.
Roughly speaking, each Web page corresponds
to an HTML file—which is, simply put, a file that
contains your text content, links to images and
other Web pages, HTML code, and other features.
(HTML stands for Hypertext Markup Language.) As
described below, these HTML files are what visitors
to your site will actually view.
Unless you have someone on staff who knows
how to create HTML files (Web pages), you may
need to get outside help with this step. The good
news is that if you’ve already done the work of
defining your goals, outlining your site’s basic
organization, and creating content, the help you’ll
need will be limited and likely quite affordable.
HTML files are typically made using specific soft-
ware such as Macromedia Dreamweaver, Adobe
GoLive, or Microsoft FrontPage, much like you create
a document with word processing software (such as
Microsoft Word or WordPerfect). Besides including
the content that you’ve developed, whoever creates
the pages will need to design the pages, including
making decisions on colors, fonts, composition, and
other elements. Links and other functions need to
be added in as well, which may require an under-
standing of HTML code. Web page-creation software
is fairly easy to learn but may be confounding to
folks who are not computer- or Web-savvy. Decide
for yourself whether you are comfortable creating
your own Web pages or would prefer to hire some-
one else to do this for you.
9/ 1 6 STARTING & BUILDING A NONPROFIT
What’s the difference between a registry and a registrar? A “registry” is the official list of names included in a particular domain. For
instance, the .org registry lists all the names that
have been registered that end in “.org”: kidscare.
org, cleanphilly.org, curecancernow.org, and so
on. Registries are typically operated by one official
company, often called a “registry operator.” For
example, the .org registry is operated by a company
called Public Interest Registry.
A “registrar,” on the other hand, is an entity that
is authorized to add new people or organizations
to a registry. While each registry is operated by just
one registry operator, many different registrars are
authorized to sign new customers up to each regis-
try. For example, the registrar Alldomains.com can
register a domain name for you in the .org domain,
even though it’s not the official registry operator. In
other words, you don’t need to sign up for a .org or
other domain name with the official registry opera-
tor—you can sign up with any approved registrar.
Although registering a domain name is pretty
simple, there are a few potential pitfalls. In par-
ticular, if you allow your Web host to take care of
domain name registration or renewal (a common
practice), you must make sure it lists your nonprofit
or an authorized representative as the domain name
registrant and administrative contact. If anyone but
an authorized representative of your nonprofit is
listed as the domain name registrant, you might find
that your control over your domain name has been
seriously compromised. Web host companies have
developed a nasty habit of registering their clients’
domain names under the host company’s name,
rather than the name of the client. This creates
serious domain name ownership and control issues.
For example, if your Web host handles the domain
name registration process for your nonprofit and
lists itself as the registrant of the domain name
you’ve chosen, you might not be able to make any
changes to your host account or even your domain
name account, because you are not listed as the
registrant. In this way, the Web host company can
hold your domain name hostage, preventing you
from switching hosts or otherwise managing this
crucial part of your nonprofit’s identity.
Because there are so many different technologies
available that change so quickly, this book does not
go into detail about how to create Web pages. (For
more information, see the resources listed at the
beginning of this section.) Once you complete this
step and create Web pages containing your content,
you’re almost done; once you tend to a few more
details, your website will be up and running.
4. Register a Domain Name and Get a Web Host
Before you can post your Web pages for the
world to see, you must register a domain name
and sign up with a Web hosting company. Your
“domain name” is part of the address visitors will
use to access your site, such as artsforkids.com or
cleanmilwaukeeriver.com. Your “Web host” is the
company that keeps your site pages on computer
servers that are connected to the Internet 24 hours a
day, so they’re always available for visitors to view.
a. Registering Your Domain Name
Your first task is to choose an available domain
name—that is, a name that is not currently registered
to, or being used by, another group. (Chapter 1,
Section A, explains how to do this). Once you select
an available name, you should register it online at
a domain name registrar. One popular registrar is
Network Solutions at www.networksolutions.com,
but there are hundreds of options out there. (If
you’d like to do some comparison shopping, you
can find a list of approved registrars at www
.internic.org.)
At the Network Solutions website, you will first
be prompted to enter your proposed domain name
to see if it has already been registered. If not, you
will be allowed to proceed and register the name
yourself. Fees will vary depending on the options
you choose; all are generally affordable. Register-
ing one name for one year runs about $35 and will
be cheaper per year if you register for two or more
years at a time. Once you’ve chosen your options,
simply enter information about your nonprofit and
provide credit card information (or, if you prefer,
call Network Solutions and do it by phone).
MARKETING YOUR NONPROFIT 9/ 1 7
Web hosts may charge by the month or by the
year. Fees are based on how much data you want
the server to store (the size of your website in disk
space) or how much data you transfer to and from
your website each month.
There are dozens of Web hosts out there with
varying rates, and many Web hosts offer special
deals for nonprofits, so it shouldn’t be hard to find
one that’s in your price range. Of course, the cheap-
est isn’t always the best: Pay attention to the host’s
customer service practices, your ability to speak
with a live tech support person, and any other fea-
tures your nonprofit feels are important. Searching
online for a web host will yield plenty of results—
too many, in fact, to be very useful. It’s better to get
recommendations from other nonprofits and busi-
nesses to find a web host that offers reliable servers
and good customer service. (My favorite is FatCow,
www.fatcow.com, which charges a $99 yearly fee for
up to 500 MB of disk space, 25 MB of monthly data
transfer, up to 100 individual email accounts with
your domain name, and features such as shopping
carts and usage statistics.)
5. Promote Your Site Simply and Cheaply
Of course, once you’ve launched your sparkling new
site, you’ll want the world to see it. There are several
different ways to promote a website, some quite
simple and others more complicated. Generally
speaking, the more complicated, aggressive, and
expensive methods of site promotion are usually used
by companies that rely on their websites to generate
business. Ecommerce sites such as Amazon.com or
Hotels.com are good examples. These companies
spend major resources—including significant fees
to paid search engines—making sure their website
addresses become household names and appear at
the top of search engine results.
Most nonprofits can’t afford this type of website
marketing (and don’t really need it). Nonprofits
(especially new ones) don’t typically use their sites
to gain wide exposure but instead to offer informa-
tion and resources to people who have heard about
the nonprofit from some other source. When you
look at your website this way—as a great tool to
Your domain name is an asset, and the people or
organizations listed in the domain name registration
have varying degrees of authority over the asset.
Be particularly careful about whom you list as the
following:
• The registrant. The registrant is the legal owner of the domain name. You should use
your nonprofit’s legal name, not your Web
host company’s name.
• The administrative contact. The adminis- trative contact should be someone in your
nonprofit who has authority to make policy
decisions, particularly with regard to the
domain name. Again, you should not list your
Web host company here.
• The technical contact. This is the person whom the registrar may contact with technical
issues. You may list your Web host company
here.
If your Web host handles domain name registra-
tion or renewal, make sure it uses the names you
want, or it may cost you many times the original
registration fee to get the registration back in your
rightful name. Register.com, for instance, charges a
$200 fee to transfer the registrant from one name to
another, even if you never intended to list your Web
host or someone else as the registrant in the first
place. (One way to avoid this fee is to transfer the
domain name from the registrar where it is currently
registered under the wrong name to another reg-
istrar, making sure to use the correct names when
you transfer the registration.)
b. Sign Up With a Host and Upload Your Pages
Once your Web pages are created, you need to “up-
load” them to (or post them on) a Web host’s server.
A server is simply a high-performance computer
that’s connected to the Internet 24/7, “serving” the
Web pages stored on it to the world. A Web host is
the company that maintains the servers. When your
Web pages are on the host’s server and your Web
host has configured your domain name correctly,
your website will be “live” and all the information it
offers will be available to visitors around the globe,
24 hours a day, 365 days a year.
9/ 1 8 STARTING & BUILDING A NONPROFIT
communicate with your audience and potentially to
reach some new people, rather than a mass market-
ing tool—you’ll see that many of the heavily hyped
website promotion services on the market today are
simply unnecessary for your purposes.
Search engine placement is not crucial for most nonprofits. As you read the material in this section, keep in mind that a whole “search en-
gine optimization” industry has grown to handle the
increasing complexities of getting your site placed
at the top of search engine results lists. Unless driv-
ing traffic to your site is truly crucial, these services
probably won’t be of much worth to your nonprofit.
The following subsections offer some simple and
inexpensive ways to help ensure that your audience
can find your site.
a. Include Your Web Address in All Nonprofit Communications
A great way to raise the visibility of your website
is simply to mention it in all of your nonprofit’s
materials and communications. Include your Web
address on your brochures, business cards, and
letterhead; refer to it in your press releases and
announcements; and tell people you speak with to
go to the website for more information. Similarly,
include it any time you list the nonprofit in a
directory (including the phone book) or purchase an
advertisement.
b. Get Listed in Online Directories
Make sure to look into online directories and get
your nonprofit listed where appropriate. Listing your
nonprofit in online directories that list businesses
and nonprofits in your city or region can be a great
way to get the word out to your community. In
many cases, local online listings are free.
c. Encourage Others to Link to Your Site
Contact other organizations or businesses that have
“links” pages and encourage them to include a link
to your nonprofit’s site. Sometimes, the other site
will require you to link to their site as well—a link
swap, essentially. Swapping links can be a win-win
situation, but make sure that you’re comfortable with
the other site’s content before including a link to it
from your site.
c. Use Meta Tags
While they’re not as effective as they used to be,
meta tags can help search engines find your website.
At the risk of oversimplifying, meta tags are words
or phrases inserted into the code of your HTML
pages (specifically, into the “head” area of the code)
that describe the content of your page. While they’re
not visible to your site’s visitors, meta tags are seen
by search engines scanning the Web, looking for the
keywords a user is searching for. As described in
more detail below, it won’t hurt to include meta tags
in your pages, and it may even drive some traffic to
your site. But the way that search engines work is
constantly evolving, and meta tags aren’t as effective
as they used to be in getting search engines to find
your site.
There are a few different types of meta tags. A
meta description tag, for example, is a description
of your page that may appear on the search results
page, depending on which search engine the user
has chosen. A meta description tag looks like this:
<META name=“description” content=“This
page explains the process of obtaining health
care services at Rock County clinics.”>
Another type of meta tag is a meta keyword tag,
which is a list of keywords or phrases that relate
to the subject matter of the page. Again, whether a
search engine will actually find your site based on
meta keyword tags depends on certain factors such
as whether the keywords are also included in the
content of your page and which search engine is
being used. For example:
<META name=“keywords” content=“doctor,
medicine, health care, uninsured, rock county
clinics”>
Once you’ve gone to the trouble of creating a
website, it hardly makes sense to omit meta tags—
however, there’s no guarantee that they’ll actually
result in prominent placement with search engines.
MARKETING YOUR NONPROFIT 9/ 1 9
These days, most search engines give the best
placement to websites that pay for it. In addition,
each search engine reads meta tags differently—for
instance, some simply ignore description tags. The
bottom line is that it’s not a bad idea to include meta
tags, but you shouldn’t expect any miracles.
d. Submit Your Site to Search Engines
Search engines like Yahoo! and Google allow
website owners to submit their sites to be included
in their search indexes or directories for free.
When your site is included in a search engine
index or directory, users should be able to find it
when searching for related terms or browsing a
related subject area. As with including meta tags in
your pages, it can’t hurt to submit your pages for
free to all the major search engines—but because
search engine placement is so often fee-based, you
shouldn’t expect your site to appear prominently in
their categories or search results pages.
Checklist: Marketing Your Nonprofit
Focus on marketing strategies other than advertising—such as networking, media
relations, and listing your organization in
directories—that are usually less expensive
and just as effective.
Have an efficient, organized operation in place before you start your marketing efforts.
Learn basic marketing terminology, approaches, and goals.
Focus on getting the word out about your nonprofit’s events and activities, rather than
about the nonprofit in the abstract.
Network by cultivating relationships with other nonprofits, community leaders, and
others interested in your mission.
Develop relationships with reporters and editors and pitch newsworthy stories about
your nonprofit to them.
Maintain at least a simple website, with content that helps achieve your nonprofit’s
mission.
■
C H A P T E R
1 Chapter 10
Publishing Informational Materials
A. Decide Whether to Publish .................................................................................... 10/2
1. Do You Have Substantive Information to Convey? ..................................... 10/3
2. Do You Have the Necessary Resources? ........................................................ 10/3
B. Create a Publishing Plan .......................................................................................... 10/4
1. Define Your Editorial Mission and Features .................................................. 10/4
2. Evaluate Your Resources ................................................................................... 10/5
3. Choose Your Media ............................................................................................ 10/6
4. Putting It All Together ........................................................................................ 10/9
C. Copyright Basics for Nonprofit Publishers ........................................................ 10/11
1. What Copyright Protects ................................................................................. 10/11
2. Ownership and Works for Hire ..................................................................... 10/12
3. Sample Contractor Work-for-Hire Agreement ........................................... 10/13
4. Sample Volunteer Assignment Agreement ................................................. 10/15
10 / 2 STARTING & BUILDING A NONPROFIT
C reating informative publications is a great way
to communicate substantive information to
your constituency and the public. Newslet-
ters are the most common way to make information
available, but nonprofits also publish books, guides,
pamphlets, how-to manuals, training materials, con-
tent-rich websites, CD-ROMs, instructional videos,
and many other types of media, both in print and
online.
Besides providing information, publications and
other media can also help your nonprofit in other
ways, such as:
• forging a closer bond with your constituency
• motivating readers to take action on certain
pressing issues, and
• broadening your audience by reaching new
members of the public.
If you decide to publish, you’ll need a plan to help
you manage the many resources required for even
the smallest newsletter or pamphlet. Developing story
ideas, writing articles, designing graphics and text,
laying out a publication, printing it, and distributing
it will all take valuable time—and usually also cost
money. If you don’t do some planning at the outset
to clearly define what you intend to publish and how
you will get the work done, you may find yourself
either completely overwhelmed by your publishing
operation or simply unable to pull it off (or both).
This chapter covers many important issues you
will need to consider before your nonprofit starts
any sort of publishing project. Section A, below,
will help you make the first and most important
decision: whether your nonprofit should undertake
a publishing operation or not. If you decide publish-
ing doesn’t make sense for your group right now,
then you can skip the rest of this chapter—unless
and until your situation changes and you decide to
start publishing.
If you decide that publishing is appropriate for
your group, you need to think through and make
decisions about a number of issues—from broad
concepts such as what your publishing goals are
to specific items such as what media you’ll use and
where you’ll distribute your information. Section B,
below, explains these issues and describes the nuts
and bolts of how to get articles, reports, and other
important information out to the world, whether in
print or online.
Section C, below, covers copyright law—the legal
rules that set forth who owns text, graphic art, video,
and other original materials, including who can use
or copy those works and under what circumstances.
Nonprofits need to know this basic information
to make sure that they don’t inadvertently create
publications that violate someone’s copyright and
risk exposing their group to lawsuits for copyright
infringement.
Your publishing efforts can help market your nonprofit. As discussed in Chapter 9, pure marketing materials differ from publications in their
content and purpose. Marketing materials focus
solely on promoting your group, while publishing
focuses on conveying substantive information
on topics of interest to your group. However, this
doesn’t mean that you can’t use your publications
to market your nonprofit. If you create articles,
statistics, studies, or other informational materials
on topics of interest to your group, use them to
demonstrate that you are experts in your field—and
that you are using this expertise to help people. Con-
sider including excerpts from (or copies of) recent
publications in your marketing and fundraising
materials. And, of course, include marketing messages
within your publications—for example, an ad for an
upcoming event or an appeal for contributions. (For
more information on marketing, see Chapter 9.)
A. Decide Whether to Publish
Many new nonprofits jump into publishing projects
without first considering whether publishing makes
sense for their group at all. Although this kind of
initial enthusiasm might yield a few interesting articles
written by board members or volunteers, failing
to plan ahead will inevitably lead to a misguided
publishing effort fraught with stress, confusion, and
wasted resources.
With this in mind, one of the first questions your
nonprofit leaders should ask is whether to publish at
all. The answer to this question will largely depend
on two factors: whether you have any substantive
information to convey and, if so, whether you have
(or can obtain) the necessary resources to publish
that information in some form.
PUBLISHING INFORMATIONAL MATERIALS 10 / 3
If information is at the heart of your work, publishing may be essential to your goals. Many groups—particularly those with a scientific
or educational mission—specialize in generating,
analyzing, and presenting data. These groups may
need to publish in order to achieve their mission.
If your group falls in this category, feel free to skip
ahead to Section B. Starting with that section, the
rest of this chapter will outline publishing basics and
explain how to use your existing resources to create
a realistic publishing plan.
1. Do You Have Substantive Information to Convey?
Even if you have all the money and resources in the
world, your nonprofit shouldn’t jump into publishing
unless it can generate some substantive information
that will interest its intended audience. Remember,
unlike marketing, publishing efforts should go
beyond merely promotional materials to feature
informative content related to your nonprofit’s focus.
While the essence of a publishing operation is
putting out substantive material, this information
doesn’t have to take the form of lengthy, footnote-
heavy reports or dry, academic articles. Anything
that can be presented in articles, reports, books, or
videos might fit the bill, including:
• an article on the environmental effects of a
proposed river dam
• a feature story about the efforts of a women’s
health activist in the community
• results of a study examining the negative
effects of cuts in arts education
• a legal FAQ for victims of spousal abuse
• a book-length manual explaining the latest
techniques of wilderness rescue and emergency
medicine, or
• a five-minute video examining the negative
effects of acid rain on the environment.
Start by considering what type of content your
publication or other type of media should logically
feature. In the publishing world, determining your
content is often referred to as defining an editorial
mission or an editorial focus.
Some nonprofits will have an obvious editorial
focus for their publishing efforts. For example:
• A nonprofit aimed at educating the public
about the history of the Zuni tribe in Arizona
would focus its editorial content on Zuni
history and culture in Arizona.
• A nonprofit focused on finding a cure for
pediatric leukemia could publish analysis of
recent research studies, information on avail-
able treatments and therapies, and articles
about the latest medical breakthroughs in the
fight against pediatric leukemia.
Other nonprofits, however, might have to stretch
to come up with an editorial focus for a publishing
venture. For example:
• A nonprofit dedicated to delivering home-
cooked meals to AIDS patients may have
trouble coming up with ideas for articles or
a publication, because its activities are totally
focused on delivering meals, not on any sub-
stantive topics.
• A nonprofit that offers day care services for
low-income single parents might not know
what it would feature in a newsletter or
website, other than basics about its day care
services (such as hours of operation, costs,
policies, and so on) that would be better
suited for marketing materials, not a publish-
ing venture.
Some nonprofits may simply not have much
substantive information to pass along. If you have a
hard time coming up with an editorial focus, it may
mean that publishing isn’t the best way for your non-
profit to spend its time and money.
2. Do You Have the Necessary Resources?
Even if your group can easily come up with a com-
pelling editorial concept, you may find it difficult to
marshal the resources necessary to start publishing.
Even small publishing ventures require a decent
commitment of time and money, which are always in
short supply in your early days. You’ll simply need
to evaluate your priorities and your resources and
then decide where publishing fits into the bigger
picture. If your resources are thin and publishing isn’t
vital, you may want to put off your publishing plans
until you’re better prepared. (If you decide to move
10 / 4 STARTING & BUILDING A NONPROFIT
ahead after all, you’ll have to devise a strategy that
works with the resources available to you, a process
covered in Section B, below.)
When evaluating how important publishing is
to your group, start by considering whether and to
what extent publishing helps to achieve your mis-
sion. If publishing is a central or important way to
further your mission, then it should bump upward
on your priority list. If publishing is not directly tied
to your mission, other activities should probably
come first.
Even if publishing isn’t directly tied to your
mission, it can offer several benefits, including
forging stronger ties with your members or gaining
exposure for your group. But if you’re short on
resources, publishing won’t be the most cost-effective
way to achieve these goals. You can bond with
members and get publicity through other methods
(such as special events or media relations) and save
the significant resources that would go into a larger
publishing project.
Consider forming a publishing alliance. Before you launch your own publishing venture, search existing literature—both in libraries
and online—to see whether any similar publications
are already in print. If so, perhaps you could period-
ically contribute articles to that publication instead
of starting your own. If you don’t find an existing
publication, you might approach another nonprofit
to discuss joining forces to create one. For example,
if your organization provides donated computer
equipment to low-income children, it might make
sense to approach another group—say, a computer
department at a local college—to author a series
of how-to manuals for the computers, rather than
trying to publish them on your own.
B. Create a Publishing Plan
If you decide to go forward with a publishing proj-
ect, you’ve got some planning to do. You’ll need to
sketch out big-picture issues such as your publishing
goals, the information you want to convey, and
your intended audience. You’ll also have to consider
practical issues such as what resources you’ll have
available, what publishing vehicles you’ll use, how
often you’ll publish, and how you’ll distribute your
publications.
Lots of details, large and small, go into every pub-
lishing project. But figuring out these issues doesn’t
have to be a complicated affair. The most important
step is to take the time to think through these issues
and make a plan. Doing so will yield a big payoff
in efficiency and will help maximize your resources
when you put your plan into action.
Recommended reading on planning and executing a publishing venture. Starting & Running a Successful Newsletter or Magazine, by Cheryl Woodard (Nolo), is an excellent resource for
new and experienced publishers alike. The author
is an expert in the business side of planning pub-
lications, particularly in circulation budgeting and
financial management. While this book is geared
toward commercial publishing operations, it offers a
wealth of knowledge that all publishers—including
nonprofit groups—will find invaluable.
1. Define Your Editorial Mission and Features
The best way to start your planning is to hone in on
exactly what you want to achieve with your publish-
ing operation. Start with your broadest ideas about
your goals and audience. Do you aim to educate
your audience about a certain topic? Inform them
about late-breaking developments in your area?
Motivate them with stories about inspiring people?
With your fundamental goals clarified, you can turn
to the task of defining your editorial mission.
a. Editorial Mission
Much like a nonprofit needs to have a well-defined
mission that guides its activities, a publication needs
an editorial mission to shape its content. When
planning your publishing operation, you should
put careful thought into the topics your publication
will cover and draft an editorial mission statement
reflecting this editorial scope. While your editorial
mission statement will undoubtedly be similar to
your nonprofit mission statement, it should speak
directly to the focus of the publishing venture, not
the focus of the nonprofit in general.
PUBLISHING INFORMATIONAL MATERIALS 10 / 5
EXAMPLE:
Nonprofit Nonprofit mission statement Newsletter’s editorial mission statement
Artists Rights Alliance The mission of Artists Rights
Alliance (ARA) is to help art-
ists understand copyright and
other arts-related legal and
business issues.
The editorial mission of ARA’s newsletter,
Copy—Right! is to offer the latest news and information about copyright laws, informative
articles on specific copyright issues, and
entertaining stories about artists and their
work.
Robots Care Robots Care’s mission is to
help disabled people live in-
dependently with the help of
robotic technology.
The editorial mission of Robots Care’s news-
letter, Robots Today, is to inform readers about the latest developments in robotic tech-
nology, show how this technology improves
the lives of disabled people, and profile the
inventors and engineers pushing the industry
forward.
b. Regular Features
Besides outlining the topics your publication will
cover, it’s also a good idea to identify the specific
features it will offer. For example, a short 8- or 12-
page newsletter might contain the following regular
features:
• letters from readers
• a current events column with short news
blurbs
• two feature stories
• a question-and-answer column
• one editorial/opinion article
Planning and executing each issue will be much
easier if you identify in advance regular features
such as the ones listed above. Of course, you
can always deviate somewhat from your list—for
example, sometimes you might not have room for
two features, or you might need to add an extra
editorial piece to fill up space. But having an outline
of regular features will help everyone plan their
time and workloads more effectively—and create a
consistent product for your readers.
2. Evaluate Your Resources
An important step in planning your publishing
venture is to make a realistic assessment of the
resources you can commit to it. Obviously, the
publishing strategy of a large, well-funded nonprofit
will be quite different from the strategy of a scrappy
young nonprofit with a few committed founders and
a three-digit bank balance.
When assessing resources, don’t think just in
terms of money—you’ll also need people with
publishing skills on board. This includes people
who can write, edit, and do graphic design, as well
as folks who understand how to market and dis-
tribute a publication. If you don’t have these people
on staff, you’ll need to hire them as employees or
freelancers or seek out able volunteers. Bear in mind
that the more you outsource your publishing opera-
tion to an outside contractor, the more money you’ll
spend and the less control you’ll have over the final
product. The more you can do with your existing
board, staff, and volunteers, the better.
If you can’t avoid the need to bring in outside
help, consider starting by hiring a consultant to help
you plan your publishing program, from overall
strategies to specific steps. If your board, staff, and
volunteers possess even just a few publishing skills,
this plan may be all you need from the outside con-
sultant. With a clear plan in place, it may be possible
for your own people to execute the writing, editing,
production, and distribution of your publications.
If not, you can hire contractors only for those tasks
that you can’t handle in house.
10 / 6 STARTING & BUILDING A NONPROFIT
Make sure you own your content (or have the right to publish it). If contractors or volun- teers create the content for your publications—for
instance, articles, photographs, illustrations, or
other graphics—you’ll need to pay special attention
to copyright ownership issues and make sure that
your nonprofit obtains ownership to the content
or the right to publish it. Generally speaking, your
nonprofit will automatically own copyright to the
content created by employees, but not the content
created by freelancers. The legal rules governing
works created by volunteers are fuzzy, and your
nonprofit may not automatically own their work. To
obtain ownership to content created by freelancers
(and possibly volunteers), you should put an agree-
ment in writing. Copyright and intellectual property
issues are covered in Section C, below. For the full
treatment, be sure to read Getting Permission: How to License & Clear Copyrighted Materials Online & Off, by Richard Stim (Nolo).
3. Choose Your Media
With your goals and available resources sketched
out, it’s time to choose the form your publishing
venture will take. Common nonprofit publishing
vehicles include newsletters (both print and elec-
tronic versions), websites, guidebooks, pamphlets,
and videos. It’s common to use a combination of
publishing tools—for example, a website and a
newsletter, plus an informational guidebook and a
few respected peer-reviewed studies.
Need more information on websites? This chapter covers only informative websites
—those that publish articles, guides, and other
editorial content. For information on simple,
marketing-driven websites, see Chapter 9.
Generally speaking, the media you should use
will depend in large part upon the nature of the
information you want to convey, which will depend,
in turn, on your publishing goals and editorial
mission. For example:
• If your nonprofit will regularly generate infor-
mation that you want to communicate to the
public, then a periodic newsletter (in print,
online, or both) may be the best choice.
• If you want to distribute lengthy information
or content that will be generated sporadically,
the material may be better suited for a guide,
report, pamphlet, or website.
• If your nonprofit will constantly be generating
new information that will rapidly go out of
date, a website or electronic newsletter may
be the best way to make it available. You
can update these media as often as you want
without incurring print costs.
Besides the information you want to convey,
another important factor in choosing specific media
is your budget. It costs money to produce printed
materials, and periodicals like newsletters will
need to be printed on a regular basis, usually at
least quarterly. To keep print costs down, many
nonprofits start their publishing efforts online or
choose nonperiodical print formats like pamphlets
or guides, which you don’t have to publish on a
regular basis.
a. Print or Digital Format
Websites (and other online methods of distributing
information) are the biggest thing to hit publishing
since the invention of movable type centuries ago.
Online publishing offers some major advantages
over traditional print publishing—particularly the
freedom from print and paper costs. In addition,
distribution can be instant and worldwide, and
updates (not to mention corrections) can be made
easily and inexpensively. Interactive features allow
you to obtain valuable feedback from your audience
and build communities through forums and bulletin
boards.
On the down side, people are flooded with on-
line media these days, which can make it very hard
to break through the clutter and get your audience’s
attention. If your readers have overloaded email
boxes, they may barely read the subject line of
your e-newsletter before clicking it into the trash.
Unlike a print newsletter that readers can peruse
on the couch, online media is usually read at the
computer—often during the workday, when people
are pressed for time. It can be a stretch to expect
PUBLISHING INFORMATIONAL MATERIALS 10 / 7
Websites Can Serve Different Purposes
As you consider specific ways to publish your
information, remember that websites are inher-
ently shape-shifting: They can act as marketing
vehicles, as magazines and newsletters, as retail
stores, as community forums, and more. Some
websites simply offer articles or other substan-
tive information in their pages, in which case
the website itself is the publishing vehicle. If the
website implies that a new “edition” or “issue”
will be forthcoming, then the website is acting
like a periodical, such as a newsletter or maga-
zine.
Some websites serve as an umbrella or
storefront for a few different types of electronic
publishing. For example, besides a few pages
with news items and articles about a certain
topic, a website might also offer a newsletter
with its own name and special format and
an indication of how often new issues are
published. In this case, the website itself isn’t
the newsletter but contains the newsletter as a
separate entity.
At the end of the day, the lines can often be
blurry between different types and formats of
media, particularly in the online world. Here are
some tips to help you recognize the fundamental
characteristics of various media types and
distinguish one type from another:
• Print or electronic newsletters are published periodically, such as every
month or quarter. Electronic newsletters may be distributed via email or posted at a
website in HTML format. No matter what
the format—print, email, or Web-based—
what distinguishes a newsletter is that it
is put out periodically, according to some
regular schedule.
• Most websites are like storefronts, which may or may not offer periodical-type in- formation. For example, the site of WFMU, an independent freeform radio station
(www.wfmu.org), includes links to stream-
ing radio, streaming archives, playlists, and
program information, plus background
information about the station and how to
donate. However, WFMU also publishes a
periodical newsletter—“Blast of Hot Air”—
in two formats: an email version and an
HTML version at the WFMU website. This
newsletter is part of the overall site but is
formatted so that it has its own identity
apart from the rest of the site.
• Some websites operate almost entirely like periodicals. A site such as The New York Times (www.nytimes.com) is a per-
fect example of a periodical model, in that
a new edition is published every day (just
like the print version), and updates are
added throughout the day as well. In a real
sense, the website is the periodical.
10 / 8 STARTING & BUILDING A NONPROFIT
even committed members to take the time to read
through your website or e-newsletter unless the
information is truly compelling or practical.
With these pros and cons in mind, it’s often a
good strategy for budget-pressed nonprofits to start
with a website or electronic newsletter and later,
once the nonprofit has funds for printing and dis-
tribution, add printed publications to the mix. Not
only can online media be inexpensive to create, but
they are also inherently malleable—an important
factor in the early days when you’ll still be refining
your publishing strategy. You can tinker with your
website or your e-newsletter as you get a sense of
what kind of information you want to publish. When
you have settled on appropriate content and style,
you can consider creating a print publication as well.
If you publish both in print and online, your print
and online versions will almost certainly differ in
some ways and should offer slightly different sets of
information. Some content may be appropriate for
one medium but not the other. Certain interactive
features, for example, will only be possible at a
website, not in print. But another reason to vary
your content between print and online versions is to
achieve strategic goals. For example, your nonprofit
may want to sign up readers for a print newsletter
in order to obtain mailing address information for
future fundraising efforts. If so, you might offer
some information only in your print edition as an
incentive for your online readers to sign up for a
print subscription.
EXAMPLE: Eco-Sud is a nonprofit formed to support environmentally friendly urban
planning efforts in South American cities.
It publishes a newsletter in print and at its
website. Both the print and online editions
include all of the newsletter’s feature articles
and news items. At the online edition only,
the newsletter also offers a community forum
where people can respond to articles, post
ideas, and discuss issues. The print edition also
offers exclusive content: a regular column by a
prominent Argentinean community planner.
By offering this column in the print edition
only, Eco-Sud hopes to attract more subscribers
to the print newsletter. Eco-Sud has found its
print subscribers to be more active in commu-
nity planning issues than the online readers.
Eco-Sud wants to increase the ranks of this
motivated readership in order to encourage
activism and involvement among its constituents.
It also hopes to raise funds from new print
subscribers.
b. Frequency
Lots of people assume that “nonprofit publishing”
consists solely of putting out a newsletter. These
folks forget that publishing isn’t only about creating
periodicals—publications that are issued according
to some regular schedule. In fact, you don’t have
to commit to putting out a publication each week,
month, or quarter to enter the publishing world.
Instead of a newsletter, you could publish an
occasional guide or report, or a website that doesn’t
promise to be updated at any particular time. You
should commit to a regular periodical only if you
really want to—or, better put, if you actually have
the information to fill it and the resources to put it
out, issue after issue.
If you decide to publish a periodical, then you’ll
have to determine how often you’ll put it out. This is
called the publication’s frequency. Most newsletters
are published every month or every quarter, though
some are done bimonthly (every other month) or
twice a year. If you can’t commit to a publishing
schedule of some sort, you’d be better off consider-
ing a single-issue publication, like a guide, report, or
website, so you don’t create an expectation among
your readers that another issue will come out on a
particular date in the future.
Publishing even a small newsletter (whether
in print or online) requires a fairly serious commit-
ment. While you may think it’s easy to write a
couple of short articles every month or quarter,
you’d be amazed at how many nonprofits dread
their newsletter deadlines. It’s not uncommon for
a nonprofit to realize—only after putting out an
issue or two—that it doesn’t have the resources to
publish a newsletter after all. It might decide instead
to focus on one or two publishing projects a year,
or even to abandon the idea of publishing altogether
in favor of more basic marketing efforts. Rather than
PUBLISHING INFORMATIONAL MATERIALS 10 / 9
wasting time and resources—and risking losing
some of your audience because you’ve failed to
meet their expectations—it’s much better to plan
realistically from the start so you can choose a
publishing schedule that works for your group.
When trying to determine how often you’ll put
out your newsletter, consider factors such as:
• Staff resources. Don’t commit to putting out a newsletter every week, month, or quarter un-
less you’re confident your staff and volunteers
can pull it off.
• Costs. Costs are a real issue with print publications—the more often you publish, the
higher the cost.
• Type of content. Some content has a longer shelf life than others. A publication that
focuses on profiles of community leaders will
remain fresh for a longer time than a news-
letter based on breaking legal news.
• Timing of subject matter. If your publication will report on events that have their own
schedule, you may want your publishing
schedule to be similar. For example, a com-
munity garden nonprofit might time its news-
letter to precede the planting season and
harvest season.
c. Distribution
Distributing nonprofit publications is somewhat
simpler than distributing commercial newsletters
and magazines, because most nonprofits start with
a built-in readership base. Print publications are
generally sent by mail to nonprofit members and
supporters or distributed via racks at appropriate
locations. Electronic publications are simply sent
via email. The more members and supporters you
already have in your databases, the easier it will
be for you to get your publications into their hands
and email boxes. That said, you may also want to
expand your audience, in which case you should put
some thought into your distribution strategy.
To reach a broader audience, use the market-
ing techniques discussed in Chapter 9 and think
creatively about distribution methods. A great
approach is to look for opportunities to link up with
other like-minded groups. For example, if you know
a fellow nonprofit is about to hold a well-publicized
seminar, ask whether you can leave a stack of your
publications at the event. Likewise, a neighbor
nonprofit might be willing to swap advertising or
editorial space in their newsletter for space in yours,
which gives each of you an opportunity to promote
your own publications to a new audience. As with
any marketing efforts, the most effective outreach
will be to a targeted group, rather than to the public
at large. The more you can reach members of
groups with similar inclinations to yours, the better.
Here are some more tips on how and where to
distribute your publication:
• Most cities have public information centers
where businesses and community groups can
distribute their information.
• Nonprofits often have tables at their offices
with literature from other groups.
• For-profit businesses may be willing to carry
your publication, especially if your work over-
laps with theirs.
• Universities and colleges are good places to
distribute nonprofit publications. Check with
individual departments that are close to your
subject area.
• Churches often distribute literature from
community groups.
4. Putting It All Together
With your goals clarified; resources identified; types
of media chosen; and issues like format, frequency,
and distribution nailed down, you’ll have all the
major components of a publishing plan in place. As
with many of the planning tasks discussed in this
book, it’s a good idea to put your publishing plan in
writing—you might even include it as an addendum
to your strategic plan.
Ultimately, your plan will need to balance what
you want to communicate with the resources you
have available for getting the job done. Whether in
print, online, or both, the initial publishing efforts
of many nonprofits are bite-sized—say, a four-page
newsletter distributed quarterly or a basic website
offering a few informative articles posted every other
month. As long as you get out the information that
10 / 1 0 STARTING & BUILDING A NONPROFIT
you deem essential, taking a modest approach can
work just fine.
As your nonprofit grows, your publishing ven-
tures can grow along with it. Some large, mature
nonprofits publish high-end magazines, sophisti-
cated books, feature-length documentary videos, or
cutting-edge websites with thousands of pages of
information. It’s not uncommon for educational or
research-driven nonprofits to develop into publish-
ing-intensive organizations. The bottom line is that
the scope of your publishing efforts will depend
largely on how they further your mission and on
what you can afford.
EXAMPLE 1: Native Florida History Inc. (NFH), a nonprofit dedicated to educating the public
about the history of Native Americans in
Florida, decides that publishing is central to its
goal of telling the story of native Floridians.
The nonprofit plans to conduct four historical
research projects each year and present the
findings of the research to the public through
seminars and printed materials. The group
decides to post each report at its website. NFH
also wants to publish the reports in print, to
make them available to people who don’t have
Internet access and to use as a tool in meetings
with potential supporters and funders. A local
print shop has offered to print NFH’s materials
at half-price, allowing NFH to expand its print
efforts beyond what it could otherwise afford.
The board discusses printing the report
results in individual pamphlets whenever a
research project concludes. However, they
also want to convey other information to their
readers, such as a calendar of events, grant
announcements, and other NFH news that
changes regularly. This leads them to decide
to publish a regular newsletter instead of indi-
vidual pamphlets. The board decides to publish
the newsletter quarterly, to coincide with the
research reports that are concluded every three
months.
As board members continue to discuss the
newsletter, they quickly realize that they can’t
afford to include every report in full, which
would push each issue into the 40-page range.
Instead, they decide to print abbreviated two-
page versions of the reports in each newsletter
and publish the full versions at the website.
The print version would refer readers to the
website for the full reports and any other Web-
exclusive content.
The board decides to mail its newsletter
to all supporters on its mailing list, except
for those who specifically ask that it not be
delivered. They will also make free copies
available at seminars and in the reception
area of NFH’s office. They also make plans
to contact other local nonprofits to ask about
leaving stacks of the newsletter in their offices,
perhaps in exchange for allowing the other
nonprofits to distribute their materials at NFH’s
office.
EXAMPLE 2: The president of the board of Critters Care, a nonprofit that provides
companion animals for sick children, proposes
that Critters Care publish information about
the therapeutic benefits of companion animals
so that the public understands the value of
their nonprofit mission. But financial resources
are very tight, and the board wants to make
sure that pursuing a publishing program won’t
prevent the organization from accomplishing
its key goals of matching pets with children,
providing initial vaccinations for each pet, and
equipping each pet with basic necessities such
as leashes and collars.
Because the board understands the impor-
tance of keeping the public informed about
their mission and accomplishments, they decide
to create a website where they will regularly
post articles and feature stories about their
activities. To start, they’ll publish two articles:
The first will be an informative article on the
benefits of human/animal interaction, with
interviews from doctors and results of studies on
the issue. The second will be a profile of one
of the children served, containing interviews
with her parents and doctors noting how much
her mood had improved since she got her dog
through Critters Care. Besides these stories, the
website will include basic information about
PUBLISHING INFORMATIONAL MATERIALS 10 / 1 1
the nonprofit, its history, contact information,
and an appeal for donations.
The Critters Care board decides to update
the site with at least two new articles per
quarter. They also decide that after one year
of maintaining the website, they will revisit the
issue of publishing a print version of informa-
tion relevant to Critters Care’s mission.
C. Copyright Basics for Nonprofit Publishers
Even simple publishing efforts can raise serious
questions regarding ownership and rights to use
text, artwork, or other content. This area of law
is known in general as intellectual property law,
and the specific area of intellectual property that
publishers need to deal with is known as copyright.
While copyright law can quickly become a complex
topic, the basic rules are fairly straightforward.
This section will introduce you to the fundamental
issues you will need to understand if you decide to
publish.
Recommended reading on copyright and licensing. For more information on licens- ing text, artwork, and other copyrighted materials,
consult Nolo’s Getting Permission: How to License & Clear Copyrighted Materials Online & Off, by Richard Stim. It’s an excellent resource that will help
you understand and figure out how to handle copy-
right and other intellectual property issues in both
traditional media and emerging digital formats.
1. What Copyright Protects
You’re probably already aware that much creative
work is protected by copyright. Generally speak-
ing, when someone creates a work such as a book,
song, painting, poem, photograph, or other original
material, that person owns a broad set of rights to
control how that work is used, known collectively
as a copyright. Copyright laws prohibit others from
reproducing, modifying, distributing, or selling such
a work without the copyright owner’s permission.
Not All Content Is Protected by Copyright
Certain material, including works published
before 1923 and works created by the United
States government, fall into a category known
as the public domain. If a work is in the public
domain, anyone can use it without permission.
If you want to use content from another site
that falls into the public domain, you can do so
without obtaining permission from, or entering
into a contract with, the owner of that site. By
the same token, if your website posts public
domain material, other sites are also allowed to
post that material without your permission.
Broadly speaking, there are four situations
that may put a creative work in the public
domain:
• The original copyright of the work has
expired.
• The original copyright of the work was
not renewed according to specific copy-
right rules.
• The work was deliberately placed into
the public domain by the owner.
• The work was not eligible for copyright
protection in the first place; U.S. govern-
ment works fall into this category.
Public domain rules are fairly complex; for
detailed information, see The Public Domain, by Stephen Fishman (Nolo).
Copyright protects a broad range of creative
work, not just fine art or literature. Materials sub-
ject to copyright include original text, photographs,
drawings, computer graphics, Web design, multi-
media works, videos, music, sculpture, and even
architecture.
In legal terms, obtaining permission to use some-
one else’s copyrighted content is known as getting
a license. A content license is simply a contract that
allows you to use copyrighted content according
to whatever specific terms you’ve outlined in the
agreement. The party that owns the content and
10 / 1 2 STARTING & BUILDING A NONPROFIT
gives permission for someone else to use it is called
the licensor; the party that gets to use the content is
called the licensee.
When you license content, you do not own it;
you’re simply obtaining the right to use it in specific
circumstances. In contrast, buying the copyrights to
a creative work (known in legal terms as a copyright
assignment) gives you all the rights to the work as if
you were the original copyright owner.
2. Ownership and Works for Hire
When employees, contractors, or volunteers create
content or other creative works for your nonprofit,
you’ll need to understand who owns the work.
Your nonprofit will want to make sure it has unfet-
tered rights to use any text, artwork, photos, logos,
and other materials that are created by the people
working for you. In some situations, you probably
won’t want or need to own the copyright to certain
works, as long as you have permission to use them
(a time-sensitive article for your website might fall
into this category). In other situations, however, you
will want full ownership—for example, to your non-
profit’s logo and any other graphics or photos you
use to identify your nonprofit. Before you hire any-
one to create anything for your group, you should
understand the rules regarding ownership of creative
works.
The general rule is that the person who creates
content owns the copyright. However, there is an
exception for “works for hire”—such works are
owned by the hiring party, not the creator. The
rules regarding what constitutes a work for hire vary
depending on whether the work is created by an
employee or an independent contractor.
a. Rules for Employees
When an employee creates any work in the course
of employment, the employer—not the employee—
owns copyright to that work. Having your content
created by employees, not contractors (or volunteers,
as discussed below), is the simplest and most
straightforward way for your nonprofit to make sure
that it owns copyright in the content.
b. Rules for Contractors
When a contractor creates certain types of content,
the hiring party owns copyright in the work only if
the contractor and hiring party have made a written
agreement stating that the work is a work for hire.
Work-for-hire agreements are necessary whenever
a nonemployee creates the work. Without a written
work-for-hire agreement, the nonemployee creator
owns copyright to the work.
However, you cannot turn every kind of creative
work into a work for hire using a written agreement.
According to copyright law, a work-for-hire agree-
ment will give copyright to the hiring party only
if the content falls into one of the following eight
categories:
• part of a larger literary work, such as an
article in a magazine or a poem or story in an
anthology
• part of a motion picture or other audiovisual
work, such as a screenplay
• a translation
• a supplementary work, such as an afterword,
introduction, chart, editorial note, bibliography,
appendix, or index
• a compilation
• an instructional text
• a test or answer material for a test, or
• an atlas.
If the content created by a contractor doesn’t fit
into one of these categories, then a written work-for-
hire agreement won’t be sufficient to give copyright
to the hiring party. Instead, you’ll have to execute a
copyright assignment—an outright sale of all copy-
right from the contractor to your nonprofit. Unless
you decide to hire the creator as an employee, you’ll
need to use one of these two types of agreements—
a work-for-hire agreement if the work falls into the
categories above, or an assignment agreement if it
does not—in order for your nonprofit to gain owner-
ship rights in work created by the contractor.
At the end of this chapter, you’ll find a Contractor
Work-for-Hire Agreement that also includes assign-
ment provisions. You should be sure to execute
this agreement with any contractors who create
copyrightable work, such as text, artwork, graphic
design, or other media. The agreement is structured
PUBLISHING INFORMATIONAL MATERIALS 10 / 1 3
to establish the work as a work-for-hire unless the
work does not meet the applicable requirements,
in which case a back-up provision converts the
arrangement to an assignment.
c. Rules for Volunteers
Nonprofits often use work created not by employees
or contractors, but by unpaid volunteers. Unfortu-
nately, copyright law doesn’t even address this situa-
tion—it deals only with employees and contractors.
Because copyright law doesn’t provide any guid-
ance on ownership of works created by volunteers,
the wisest legal course of action is to assume the
worst—that is, to assume that you will not auto-
matically own copyright in your volunteers’ work
but will have to obtain it through a work-for-hire
agreement or a copyright assignment. Because some
works won’t fall into the categories required for
work-for-hire agreements, many nonprofits simply
ask all volunteers to sign an agreement assigning
copyright to the nonprofit for any work they create
in the course of their relationship with the nonprofit.
You’ll find a streamlined Volunteer Assignment
Agreement below. As in the Contractor Work-for-
Hire Agreement, the agreement establishes the work
as a work for hire if it meets the legal requirements.
Otherwise, the agreement will act as a copyright
assignment.
3. Sample Contractor Work-for-Hire Agreement
You should use the sample agreement below when-
ever you hire contractors to create copyrightable
material for your nonprofit. Enter the names of
the nonprofit and the contractor in the appropriate
blanks. In the Services section, describe the work
that the contractor is supposed to perform, for
example: “Shoot photographs to use at the Eco-
Sud website.” Insert the amount to be paid to the
contractor in the payment section.
The section titled “Works for Hire—Assignment
of Intellectual Property Rights” establishes that the
work is made for hire. However, if the work does
not meet the requirements of copyright law, the
agreement contains a back-up provision that con-
verts the arrangement to an assignment. Businesses
and nonprofits commonly use this type of provi-
sion to cover all of their bases and make sure that
ownership rights have been acquired.
The Warranty provision establishes that the
work is the contractor’s original material and that
it doesn’t violate any intellectual property or other
laws. This and the indemnification provision serve
to protect the nonprofit if the material proves to
be legally unsound (for example, if the contractor
copied the work from another source without
permission). In the agreement’s miscellaneous
provisions, insert the nonprofit’s home state, which
will establish which state’s law will govern the
interpretation of the agreement in the event of a
dispute.
The following Contractor Work-for-Hire
Agreement is included as a form in Appendix
F and, in digital version, on the CD that accompanies
this book.
10 / 1 4 STARTING AND RUNNING A NON-PROFIT: A PRACTICAL GUIDE EDITION
Contractor Work-for-Hire Agreement
This Work-for-Hire Agreement (the “Agreement”) is made between
(“Nonprofi t”), and
(“Contractor”).
Services
In consideration of the payments provided in this Agreement, Contractor agrees to perform the following
services:
.
Payment
Nonprofi t agrees to pay Contractor as follows:
.
Works for Hire—Assignment of Intellectual Property Rights
Contractor agrees that, for consideration acknowledged in this Agreement, any works of authorship
commissioned pursuant to this Agreement (the “Works”) shall be considered works made for hire as that
term is defi ned under U.S. copyright law. To the extent that any such Work created for Nonprofi t by Con-
tractor is not a work made for hire belonging to Nonprofi t, Contractor assigns and transfers to Nonprofi t all
rights Contractor has or may acquire to all such Works. Contractor agrees to sign and deliver to Nonprofi t,
either during or subsequent to the term of this Agreement, such other documents as Nonprofi t considers
desirable to evidence the assignment of copyright.
Contractor Warranties
Contractor warrants that the Work does not infringe any intellectual property rights or violate any laws related
to libel, privacy, or otherwise, and that the work is original to Contractor. Contractor agrees to indemnify
Nonprofi t and hold it harmless in any action arising out of, or relating to, these representations and warranties.
Miscellaneous
This Agreement constitutes the entire understanding between the parties and can be modifi ed only by
written agreement. The laws of the State of
shall govern this Agreement. In the event of any dispute arising under this agreement, the prevailing party
shall be entitled to its reasonable attorney fees.
Contractor Signature:
Contractor Name:
Contractor Address:
Contractor Tax ID #:
Date:
Nonprofi t Authorized Signature:
Name and Title:
Address:
Date:
PUBLISHING INFORMATIONAL MATERIALS 10 / 1 5
4. Sample Volunteer Assignment Agreement
If your nonprofit will use volunteers to create con-
tent for your publications or any other copyrightable
material, make sure they fill out and sign a volunteer
assignment agreement such as the one below. It’s
very similar to the agreement for contractors but
simplified and streamlined so as not to be intimidat-
ing to your volunteers. It also differs in that it covers
ongoing work by the volunteer rather than a specific
project, so you can simply have the volunteer fill it
out and sign it once.
You can adapt this agreement by entering your
nonprofit’s name throughout. Then, simply have the
volunteer enter his or her name and complete the
signature portion. Also indicate what, if anything,
the nonprofit is promising to do for the volunteer—
for example, to include credit for the volunteer’s
work or acknowledge the donated copyright as
a charitable contribution. If you want to address
credit and acknowledgments separately for each
project, you could check “other” and enter “Terms
will vary per project and will be outlined in attach-
ments.” Then, for each project, outline the credit
and acknowledgment terms and include them with
the main agreement as separate attachments labeled
Attachment A, Attachment B, and so on.
The following Volunteer Assignment Agree-
ment is included as a form in Appendix F and,
in digital version, on the CD that accompanies this
book.
10 / 1 6 STARTING AND RUNNING A NON-PROFIT: A PRACTICAL GUIDE EDITION
Volunteer Assignment Agreement
I, ,
am a volunteer with . It is my intent that any
Work I create in my capacity as a volunteer for ,
will become the property of ,
which will own full copyright in all such Work(s). To the extent that any Work(s) I create for
is not a work for hire, I assign and transfer to
all worldwide copyright interests in
the Work(s), for the life of such copyright interests.
In assigning all right, title, and interest in the Work(s) to ,
I intend to transfer to the full ownership in and
of the Work(s), including all rights of reproduction, distribution, display, and adaptation, and the right to
create derivative work(s). All such rights apply without limitation to any print, electronic, multimedia, or other
formats including HTML format for websites, distribution online by email, and all other methods of creating
and distributing media. I agree to sign and deliver to ,
either during or subsequent to the term of this Agreement, such other documents as
considers desirable to evidence the assignment
of copyright.
In consideration of this agreement, agrees to
(check all that apply):
allow me to include the Work or a reproduction of the Work in my portfolio or other such compilation,
to be shown to my prospective employers or clients, and no other commercial or noncommercial use. All
such portfolio uses must include a notice of ’s
copyright ownership.
acknowledge my transfer of the Work to
as a charitable contribution
give full and complete credit in all versions of the Work(s)
other:
I warrant that any Work(s) I create pursuant to this agreement are original and do not infringe any intellectual
property rights or violate any laws related to libel, privacy, or otherwise. I agree to indemnify and hold harm-
less in any
action arising out of, or relating to, these representations and warranties.
Volunteer Signature:
Volunteer Name:
Volunteer Address:
Date:
PUBLISHING INFORMATIONAL MATERIALS 10 / 1 7
Checklist: Publishing Informational Materials
Decide whether to publish. Do you have substantive information to convey? Do you
have the necessary resources?
Create a publishing plan that defines your publishing goals, the information you want to
convey, and your audience.
Evaluate your publishing resources. Consider publishing alliances with similar publications
or groups.
Decide on publishing vehicles, formats, and distribution strategies that fit with your
publishing plan.
Become familiar with the basics of copyright law and copyright agreements.
■
C H A P T E R
1 Chapter 11
Managing Your Finances
A. Bookkeeping and Accounting Overview ............................................................. 11/2
1. Bookkeeping Versus Accounting: What’s the Difference? ......................... 11/4
2. Cash Versus Accrual Accounting ..................................................................... 11/5
B. Tracking Income and Expenses .............................................................................. 11/6
1. Recording Income .............................................................................................. 11/7
2. Recording Expenses ........................................................................................... 11/9
C. Creating Basic Financial Reports .......................................................................... 11/10
1. Income Statement ............................................................................................ 11/10
2. Cash Flow Projection ....................................................................................... 11/12
D. Audits, Reviews, and Compilations ..................................................................... 11/15
E. Reporting Requirements ....................................................................................... 11/16
11/ 2 STARTING & BUILDING A NONPROFIT
I mplementing a good system of financial man-
agement is an essential part of running a non-
profit. You can’t make wise financial decisions
without having a clear understanding of how and
when money comes in and goes out. And if that
isn’t reason enough, you also need well-organized
bookkeeping and accounting systems because the
tax advantages given to nonprofits come with a strict
duty to manage funds properly.
The good news is that you don’t need to be a
financial whiz to manage your nonprofit’s finances.
When you’re first starting out, just make sure that
the person who serves as your nonprofit’s treasurer
has a comfortable working knowledge of the basics.
As your nonprofit grows (or if you run into any
complicated tax or accounting problems), you can—
and should—hire an accountant or other financial
professional who has experience with nonprofit
finances to give you a hand.
This chapter explains how to manage your non-
profit’s money, including what records your non-
profit should keep and how to keep them. This
chapter also explains how to use the information in
your financial records to measure your nonprofit’s
financial health and ensure that you will have
enough cash to pay your important bills on time.
If you find yourself approaching this chapter
with any discomfort or fear, you’ll be pleasantly
surprised to learn that managing your finances is a
relatively straightforward task. Due to the availability
of powerful and affordable software programs (such
as Quickbooks and MYOB), the accounting process
is much easier to handle than ever before. Once you
enter your income and expenses into the program,
you’re only a few mouse clicks away from sophisti-
cated financial reports that would have taken many
hours and considerable skill to generate just a de-
cade ago. In fact, these programs are so affordable
(many under $300) and user-friendly that it makes
little sense not to use one of them.
But while accounting software makes it much
easier to keep records and generate informative
financial reports, you still need a basic understand-
ing of what the numbers mean so that you can
make them work for your nonprofit. It’s especially
important that the person in charge of managing your
nonprofit’s money and the people on any financial
committees your nonprofit creates are able to com-
municate clearly regarding financial issues. This
chapter offers the information you need, explaining
financial basics and sound bookkeeping and
accounting practices that will help you keep your
nonprofit on track.
It pays to get help with bookkeeping and
accounting tasks. The information provided
in this chapter will be valuable for anyone who is
unfamiliar with accounting basics. Depending on
the size and operations of your nonprofit, how-
ever, hiring experienced help may be a smart idea.
This need not be prohibitively expensive: In an
hour or two, an accountant with nonprofit experi-
ence should be able to suggest effective strategies
for keeping records, selecting and configuring a
computerized accounting system, and other ways of
managing your nonprofit’s money. At the beginning,
a competent board member, staff person, or volun-
teer should be able to keep your system humming.
But as the nonprofit’s budget grows, you should
consider hiring a part-time bookkeeper to maintain
your books and an accountant to complete your
taxes.
A. Bookkeeping and Accounting Overview
While budgeting (discussed in Chapter 3) helps you
create a realistic plan for raising and spending your
nonprofit’s money, bookkeeping and accounting
allow you to keep track of the actual money that
flows into and out of the nonprofit. Despite what
you may fear, bookkeeping and accounting can
be fairly straightforward—the key is to put some
thought and planning into your system early on.
You have three primary goals when doing book-
keeping and accounting:
• Keeping track of income and expenses in order to run your nonprofit efficiently. To make smart decisions about how to use scarce
resources, avoid waste, pay bills on time, and
plan to raise adequate funds, you must have
an up-to-date and accurate accounting system.
MANAGING YOUR FINANCES 11/ 3
• Organizing financial information about your nonprofit to file tax returns and other finan- cial reports required by government or other agencies. If you don’t have your finances in order, putting together tax returns and other
financial reports (for a major institutional
funder, for example) can be a real nightmare—
one that you can prevent by putting the
proper systems in place.
• Avoiding the penalties and embarrassment that come from mismanaging nonprofit funds. Even with the best of intentions, your nonprofit
can get into real trouble and generate negative
publicity if it mismanages its finances and is
exposed through an audit or other examination.
Common Financial Terms
The first step towards understanding nonprofit
finances is to learn some commonly used finan-
cial terms. Unfortunately, many people use these
terms imprecisely or even incorrectly—and if this
happens in your organization, it can be almost
impossible to have a meaningful conversation
about the numbers. Once you’re familiar with
these basic terms, you’ll be well prepared to
make sense of basic written reports and better
able to communicate with others about impor-
tant financial information. Here are a few of the
terms you should know:
• An invoice is a written record of a trans-
action, usually submitted to a customer or
client when requesting payment. Invoices
are sometimes called bills or statements,
though the latter term has its own specific
meaning (see below).
• A statement is a formal written summary
of an account. Unlike an invoice, a state-
ment is not generally used by itself as a
request for payment but to clearly outline
an account’s transactions and to clarify
what is owed to whom.
• A ledger or register is a collection of
related financial information, such as rev-
enues, expenditures, accounts receivable,
and accounts payable. Ledgers used to be
kept in books preprinted with lined ledger
paper (which explains why a business’s
financial information is often referred to
as the “books”). Checkbooks also come
with a register where you keep track of
the checks you’ve written. These days,
the terms “ledger” and “register” are also
used to refer to the screens where you
enter transactions into accounting soft-
ware.
• An account is a collection of financial in-
formation grouped according to purpose.
For example, if you have a regular supplier,
the collection of information regarding
purchases and payments to that supplier
would be called its “account.” A written
record of an account is called a statement.
• Accounts payable are amounts that your
nonprofit owes. For example, unpaid
utility bills and purchases your nonprofit
makes on credit are included in your
accounts payable.
• Accounts receivable are amounts owed to
your nonprofit but not yet paid. Accounts
receivable includes sales your nonprofit
makes on credit.
Above and beyond these fundamental goals, well-
organized finances will help your nonprofit:
• Set appropriate fundraising goals. Only by staying on top of your income and expenses
will you know how much money you need to
bring in to pay for your programs. This knowl-
edge is essential for you to come up with a
solid fundraising plan, including whether and
how much to charge in fees for your programs
or membership dues and how to generate income
through grants, donations, and other sources.
• Pace your growth effectively. A good set of books will give you the information you need
to decide when and how to expand your pro-
grams. Without meaningful financial numbers,
11/ 4 STARTING & BUILDING A NONPROFIT
making any decisions about growth can be
a gamble. For example, just because your
nonprofit has a lot of money in its check-
ing account after a fundraising drive doesn’t
mean that you should spend it all on a new
program. A well-organized set of financial re-
cords will give you an accurate and complete
financial picture, including information on
where your money is most needed.
• Minimize taxes on unrelated business income. As explained more fully in Chapter 6 and
in Section B1, below, many nonprofits earn
money from activities that are unrelated to
their central mission—and that income is tax-
able under IRS rules, even if you have tax-
exempt status. Keeping careful track of your
expenses will help you spot deductions that
can reduce your tax bill. If you are sloppy
with your bookkeeping, you’ll miss valuable
opportunities to save tax dollars.
• Avoid tax penalties. Responsible bookkeeping can also help you avoid errors in your tax
returns that can subject you to fines and other
penalties. If your nonprofit is audited and its
books are in bad shape, you risk harsh treat-
ment by the IRS. Don’t court this kind of
trouble—make sure to maintain basic, accu-
rate records.
1. Bookkeeping Versus Accounting: What’s the Difference?
Generally speaking, bookkeeping consists of entering
data into a system—usually computer software—to
track your income and expenses. Accounting refers
to using those figures to generate reports that offer
insight into your financial situation and to complete
tax returns. Although people sometimes use the
terms interchangeably, it’s important to understand
how they differ—particularly if you plan to hire
a professional to help you with your finances. For
example, you wouldn’t want to spend a lot of money
to hire a CPA just to enter routine data into your
books. On the flip side, you also wouldn’t want
to ask your part-time bookkeeper to complete a
complex tax return.
Double-Entry Versus Single-Entry Bookkeeping
The terms “double-entry” and “single-entry”
bookkeeping refer to two systems for keeping
track of an organization’s finances. In a single-
entry system, every transaction is recorded
once, either as income or as an expense to
your nonprofit. In a double-entry system,
each transaction is recorded (you guessed it)
twice, as both a debit to (deduction from) one
account and a credit to another.
Double-entry bookkeeping is intended
to reflect the basic structure of financial
transactions: Money is paid in exchange for
something. Therefore, a cost to one account
is always a benefit to another. For example,
spending $1,000 on a computer would be a
debit to your bank account (a loss of $1,000)
but a credit to your assets (a gain of the com-
puter as your property). On the other hand,
selling a nonprofit publication for $50 would
be a credit to your bank account (a gain of $50)
but a debit to your assets (a loss of one book
from your inventory).
Double-entry bookkeeping is designed to
help you catch clerical errors in your data-
entry system. Because all transactions have to
be entered twice, you can compare the entries
periodically to make sure that your books are
accurate. Not surprisingly, however, double-
entry systems are also more labor-intensive
than single-entry bookkeeping. It makes sense
to go to this extra effort only if your nonprofit
will handle thousands of transactions each year
or has significant assets (and a corresponding
concern about accuracy and error detection).
For the vast majority of nonprofit start-
ups, a single-entry system will work fine for
your early days—and likely well beyond. Your
accountant will let you know if and when you
should consider converting to a double-entry
system.
MANAGING YOUR FINANCES 11/ 5
2. Cash Versus Accrual Accounting
When setting up your financial record-keeping
system, you’ll need to choose one of two principal
methods for keeping track of your income and ex-
penses: the cash or the accrual method (sometimes
called cash basis and accrual basis). These methods
differ in the timing of when you credit or deduct
transactions to your accounts:
• Under the more common accrual method, you
record transactions when the transaction occurs,
regardless of when you actually receive or pay
the money.
• Under the cash method, you do not record the
transaction until the payment (cash, check,
or credit card payment) is actually received,
and you do not record expenses until they are
actually paid.
In other words, the cash method tracks the actual
cash you have on hand at any given time, whereas
the accrual method tracks transactions and obliga-
tions as they occur, even before you actually receive
or pay out the money.
EXAMPLE 1: You purchase a new laser printer for $2,000 on a credit card in May and pay the
$2,000 credit card bill two months later, in July.
Using the accrual method, you would record
the $2,000 debit in your books in May, as soon
as you purchase the laser printer and become
obligated to pay for it. Under the cash method,
however, you would wait to record the $2,000
debit until the month of July, when you actually
pay the $2,000 to your credit card company.
EXAMPLE 2: A foundation awards your non- profit a $10,000 grant in November 2004, but
you do not receive the award check until
January 2005. You would record the $10,000
credit to your account in November 2004 under
the accrual method, but you would wait to
record the $10,000 credit until January 2005
under the cash method.
Nonprofits and for-profit businesses alike use
the accrual method more often than the cash
method, in large part because the accrual method
is the standard used by accounting and financial
professionals. Although you don’t have to follow
their lead when keeping your internal books, using
the accrual method will help you when it comes
time to generate reports for outside agencies, who
will expect (and often demand) that you adhere
to the standards of the profession. (See “Generally
Accepted Accounting Principles,” below, for more on
these standards.)
Another good reason to use the accrual method is
that it generally provides a more accurate picture of
your nonprofit’s financial health, because it reflects
earning and spending activity as it happens rather
than when cash changes hands—in other words,
it shows you how much money you really have
available to use, not including cash that you are
already obligated to pay out. If, for example, you
have $10,000 in the bank when you buy a $2,000
computer on credit, the accrual method would show
that you only have $8,000 left to spend, despite the
fact that your bank account balance would still show
$10,000 until you pay your credit card company.
Because the accrual method is used by profes-
sionals and provides more accurate information, all
but the smallest nonprofits would be well advised
to use it—particularly for important reports such
as quarterly or year-end financial statements. The
accrual method isn’t perfect, however. Although it
shows the ebb and flow of income and debts as they
occur, it may leave you in the dark about how much
money you actually have on hand—which could
result in a serious cash flow problem. For instance,
your income records may show thousands of dollars
in grants and contributions, while in reality your
bank account is empty because your funders and
donors haven’t put their checks in the mail yet.
No matter which system you decide to use, in
other words, you will not be getting the whole
story. To get a complete picture of your nonprofit’s
finances, you need to understand what the numbers
mean and how to use them to answer specific
financial questions, as discussed in Section C, below.
11/ 6 STARTING & BUILDING A NONPROFIT
Generally Accepted Accounting Principles
Professionals in the field of finance follow
particular standards, designed to ensure
consistency and accuracy in financial records
and reports. These rules, called “generally
accepted accounting principles” (GAAP), are
intended to make it easier for the public to
understand an organization’s financial books—
and to make it more difficult for an organiza-
tion to hide financial problems from funders,
auditors, and others with an interest in how the
group makes and spends its money.
GAAP rules apply only to reports and state-
ments generated for those outside your group,
not to your internal books. For instance,
government and private grant-giving agencies
often ask grant applicants to submit an audited
statement (see Section D, below), which must
be prepared by a certified public accountant
in accordance with GAAP. Because you will
virtually always hire an accountant to prepare
these types of formal reports, you really don’t
have to worry about GAAP. As long as your
internal books are accurate and complete (and
you keep track of the information required by
GAAP, as explained in Section B, below), your
accountant should have no trouble generat-
ing reports and statements that meet GAAP
requirements.
For information on GAAP requirements
for nonprofits, go to the website of the
Financial Accounting Standards Board, the
private organization that sets the standards,
at www.fasb.org. See Statements 116 and 117,
in particular, for rules that apply to nonprofit
reports.
B. Tracking Income and Expenses
For your financial records to be useful, they must
be based on accurate information about your non-
profit’s income and expenses. To keep your books
in shape, you’ll have to develop good habits —like
keeping all receipts so that you have a record of the
amount, date, type, and other relevant information
for each and every transaction. You will also need
to be disciplined about having someone enter these
transactions into your books on a regular basis.
Tax Years and Accounting Periods
All nonprofit and for-profit enterprises must
use an accounting period called a “fiscal
year.” Also sometimes called a “tax year” or
an “accounting year,” this simply refers to the
12-month period for which you report your
income and expenses for tax purposes. While
you may choose the calendar year as your fiscal
year, you may also choose a different period—
say, June 1 to May 31—if it makes more sense
for your organization.
While many nonprofits find it simplest to
use the calendar year as their fiscal year, some
nonprofits find that a different 12-month
period works better for them. If your programs
run on a schedule other than a calendar year—
for example, you run an after-school program
that mirrors the academic year, with most of
your income arriving in August and most of
your spending occurring between September
and May—you might want to choose a different
fiscal year. If you are unsure what fiscal year to
use, you could start by using the calendar year
and then see if any issues arise that warrant
choosing a different fiscal year.
MANAGING YOUR FINANCES 11/ 7
Creating Accounts in Your Bookkeeping Software
Bookkeeping software programs (such as
Quickbooks and MYOB) allow you to track all the separate accounts that belong to your
nonprofit—for example, your checking,
savings, credit card, investments, and petty
cash accounts. It’s important to set up your
accounting software to categorize each of
these accounts separately, so you can easily
reconcile your records with your bank, credit
card, and other statements. Here’s how to do
it:
• Start by creating a checking account in
your bookkeeping software. Enter all
transactions from your bank checking
account here. When you deposit checks
into your checking account (or spend
money from it), enter those totals into
the checking account section of your
bookkeeping software.
• If you use a credit card, set up a separate
credit card account in your bookkeeping
software. When you make purchases
on credit, enter those expenses in the
credit card account of your bookkeep-
ing—not the checking account. Similarly,
enter payments to your credit card and
any finance charges in the credit card
account.
• Repeat this process for all other accounts
your nonprofit has, always taking care to
record every transaction.
• When you get your bank, credit card,
and other statements, it will be easy to
reconcile them against your bookkeep-
ing records one account at a time. Go
through each account statement—from
your bank, credit card company, and
so on—and make sure each item in
those statements is also recorded in the
appropriate account in your bookkeep-
ing. Of course, you should also make
sure that the totals match.
1. Recording Income
It goes without saying that you must carefully docu-
ment all income your nonprofit earns. This section
explains some practices to follow when tracking and
categorizing your income.
a. Restricted and Unrestricted Income
As explained in Chapter 3, some funders may give
your nonprofit money on the condition that it must
be used a certain way—for example, a grant might
stipulate that your nonprofit must use the money
for a certain educational program or that it may not
use the money for administrative expenses. Income
that’s subject to these types of conditions is known
as “restricted income,” while income that you can
use as you wish is known as “unrestricted income.”
You must clearly identify restricted and unre-
stricted income in your financial records for several
reasons. If you have to create any formal financial
reports, your accountant will have to verify that
you kept track of the nature and details of any
restrictions on your income, as well as whether
those conditions were met. (This requirement is a
GAAP standard—see “Generally Accepted Account-
ing Principles,” above, for more information.) Practi-
cally speaking, it is important to distinguish income
that is restricted so that you know which income
you can use for which purposes.
The easiest way to track restricted income is to
make a notation, such as “RESTRICTED,” plus a
description of how that income must be used, in the
“memo” or “notes” area of the bookkeeping entry.
For example, when entering information about a
conditional grant in your books, you might note,
“RESTRICTED: May not be used for administrative
expenses.” Also note how you ultimately used the
income so you can show that you met the condition.
b. Categorize Your Income
You should create categories for the different types
of income you receive. These categories will help
you plan and forecast, showing you clearly which
fundraising activities are the most productive and
which are falling flat. Categorizing your income will
also help you at tax time, because different tax rules
11/ 8 STARTING & BUILDING A NONPROFIT
may apply to different types of income. Even non-
profits that have federal or state tax-exempt status
may have some income that is taxable—known as
“unrelated business income” (discussed in Subsection
c, below).
The income categories you create will depend on
your nonprofit’s activities and sources of income.
Some common income categories include:
• individual contributions
• membership fees
• grants
• corporate sponsorships
• program revenues
• publication and subscription sales
• advertising income (e.g., from selling advertise-
ments in your newsletter or event programs),
and
• loans
c. Track Unrelated Business Income
As discussed in Chapter 6, a nonprofit with 501(c)(3)
tax exempt status (or other types of federal or state
tax exemptions) may still have to pay income tax on
revenues it earns from activities that are not substan-
tially related to its nonprofit mission. Income derived
from such activities is known as “unrelated business
income,” and the tax on this income is known as
unrelated business income tax, or UBIT.
The basic rule is that income derived from busi-
ness activities that you conduct regularly and that
are not substantially related to your mission are tax-
able, unless a special IRS exemption applies. For
example, if a nonprofit dedicated to pollution aware-
ness has an ongoing business selling topographic
maps of national parks at retail prices, the income
from that activity is probably taxable, because it’s
not substantially related to the group’s mission of
pollution awareness. As you can probably imagine,
the IRS has many rules to determine what income is
taxable. For more details, see Chapter 6.
Income earned from selling advertisements is
taxable. Many nonprofits are surprised to
learn that revenue from selling ad space in their
newsletters or event programs is taxable. Similarly, if
you offer ad space on your website or in your news-
letter to businesses that sponsor your group, some
or all of the sponsors’ contributions may be taxable.
The IRS’s rules here are fuzzy, so you may want
to consult an accountant or lawyer to determine
whether your income from sponsors is subject to
unrelated business income tax.
Do your homework before pursuing income
that may be taxable. If you are considering
any business activities that are not substantially
related to your mission, be sure to read IRS Publi-
cation 598, Tax on Unrelated Business Income of Exempt Organizations. You can get this and other IRS publications online at www.irs.gov or by call-
ing the IRS at 800-829-3676. Consult an attorney or
accountant if anything remains unclear.
d. Track Sales Tax Separately
In addition to tracking categories of income, you
also need to keep track of income that is subject
to state sales tax. Whether a sale is subject to state
sales tax is an entirely separate issue from whether
the income you make from the sale is subject to
state or federal income taxes. Sales tax is money you
collect from those who purchase items from your
group, then pass along to the state. Income tax is
money you pay to the IRS out of your nonprofit’s
own pocket.
Not all states impose sales tax. Of those that do,
many offer a sales tax exemption to nonprofits.
States that offer exemptions usually limit them to
certain types of nonprofits—for example, only
groups with 501(c)(3) status, or only groups with
particular nonprofit purposes, such as nonprofit
hospitals or religious organizations. Even if you
meet the state’s criteria for an exemption, you will
still have to submit an application—the exemptions
don’t apply automatically. If your group receives an
exemption, you won’t have to collect sales tax from
your customers, so you won’t have to worry about
remitting that money to the state.
If you are not exempt from state sales tax and you
engage in taxable sales, you’ll need to keep track of
the income you earn from your taxable sales and the
amount of sales tax you collect on the sales separate-
MANAGING YOUR FINANCES 11/ 9
ly. For example, if you sell books for $10 each and
collect a 5% sales tax on each sale ($0.05), don’t just
enter $10.05 for each sale into your records. Instead,
record each sale as $10 in sales income and $0.05 in
sales tax collected.
Chapter 9 offers more detailed information
about sales tax requirements. Refer to that
chapter for information on how to figure out and
comply with sales tax requirements in your state.
Appendix E offers contact information for sales tax
agencies in each state.
e. Track Pledges and Donations
Special rules apply to pledges and donations—cate-
gories of income that only nonprofits receive. These
are GAAP rules (see “Generally Accepted Account-
ing Principles,” above), so you will have to follow
them in your records to allow your accountant to
prepare formal reports and statements.
• Pledges. A pledge is a promise by a contribu- tor to give a certain amount to your nonprofit
at some point in the future. You must record
all unconditional pledges in your accounting
records, even if the pledge has not been
received. A pledge is unconditional if it is not
contingent on some other event, such as the
nonprofit implementing a certain program or
receiving a matching grant.
• Donated goods. You must record most contri- butions of goods (also known as “in-kind con-
tributions”) in your books, just like monetary
contributions. You must record the value of all
goods donated to your nonprofit, with a few
exceptions—for example, galleries, museums,
and other groups with collections of art and
other artifacts are generally exempted from
recording the value of donated works.
• Donated services. Certain types of volunteer time need to be recorded in your books. The
volunteer time must be recorded if either of
the following are true: ■ The volunteer work creates or enhances a
nonfinancial (physical) asset—for example,
your volunteers help build a homeless
health care clinic.
■ The volunteer work involves specialized
skills—for example, lawyers, accountants,
electricians, or other professionals volunteer
their services to your nonprofit.
The IRS has several publications on charitable
contributions and related issues. They include
Publication 526, Charitable Contributions; Publica- tion 561, Determining the Value of Donated Proper- ty; Publication 1391, Deductibility of Payments Made to Charities Conducting Fund-Raising Events; and Publication 1771, Charitable Contributions—Sub- stantiation and Disclosure Requirements. You can get these and other IRS publications online at www.
irs.gov or by calling the IRS at 800-829-3676.
2. Recording Expenses
Of course, your nonprofit won’t just bring in
money—it will spend money as well. Every time
your nonprofit spends money or buys something
on credit, you need to record that expense in your
books. This includes wages to employees, rent,
printing costs, office supplies, computer equipment,
and every other cost of running your nonprofit,
large or small. Make sure to get a written receipt for
every transaction in which you spend money for the
nonprofit, then enter the expenses into your records
on a regular basis. If you have very few transactions,
you may be able to get away with entering receipts
into your books once a month; otherwise, enter
them weekly (or even more often if you have a lot
of expense transactions).
a. Expense Categories
You should organize your expenses by category, just
like your income, for several reasons. First of all, it
will help you prepare your taxes. Even tax-exempt
nonprofits must pay income taxes on any unrelated
business income they earn, so carefully categorizing
expenses will help you claim all of the tax deduc-
tions to which you are entitled. Also, being able to
see your expenses summarized in categories—such
as rent, marketing, office supplies, utilities, and
so on—will help you understand your spending
patterns and make it easier for you to adjust your
11/ 1 0 STARTING & BUILDING A NONPROFIT
expenses when necessary. And carefully tracking
your expenses will help you complete all tax returns
and other necessary financial reports (discussed in
Section C, below) accurately.
b. Regular Expenses Versus Capital Expenses
As discussed in Chapter 3, tax laws and standard
accounting practices treat regular, day-to-day
expenses differently from capital expenses, which
are expenses for things that have a useful life of
more than one year. These items are called “assets”
or “capital assets.” Common regular expenses
include salaries, rent, utilities, postage, and office
supplies. Computers, furniture, and vehicles are
common examples of capital assets.
When categorizing expenses, you should enter
capital expenses into their own subcategories,
separate from regular expenses. In other words, you
should have a number of subcategories for regular
expenses such as rent, salaries, postage, office
supplies, and so on, plus subcategories for capital
assets such as computers, office equipment, and
furniture. Most bookkeeping software has built-in
categories and subcategories for regular expenses
and for assets, which makes it simple to keep them
separate.
Multiple receipts can confuse your book-
keeping. Sometimes, you’ll receive a number
of receipts for just one purchase—a credit card slip,
a register receipt, and an itemized statement, for
example. If you throw all three receipts into your
files to be posted later, you run the risk of counting
them as three separate transactions. You might
think that you’ll remember the transaction or catch
the duplication, but when dealing with dozens of
receipts at the end of a long day, week, or month,
it’s all too easy for mistakes to creep into your paper-
work. To avoid counting transactions more than
once, either discard multiple copies of receipts
immediately after the transaction or staple them all
together.
C. Creating Basic Financial Reports
Financial reports bring together key pieces of infor-
mation about your nonprofit’s income and expenses
to reveal its overall financial health. Two of the most
commonly used reports are income statements and
cash flow forecasts—both of which combine data
from your income and expense records to show you
whether you are bringing in enough income to meet
your expenses. This section takes a closer look at
these two important reports.
1. Income Statement
An income statement compares your revenues to
your expenses on a monthly basis. If you’ve ever
seen a profit and loss statement—ubiquitous in the
for-profit world—you will recognize the function
of an income statement in the nonprofit world. An
income statement shows, month by month, whether
your revenues are higher or lower than your
expenses and by how much. At the year’s end, you
can total the monthly results to obtain your annual
net revenue or loss.
Once you’ve entered income and expense trans-
actions, most accounting software will generate
an income statement with just a few clicks of the
mouse. (Your software may call this statement some-
thing else, like a “profit and loss report” or some-
thing similar.) You can also easily create an income
statement by hand, using spreadsheet software such
as Excel. Starting with the income and expense
data that you’ve entered into your books, enter the
amount you earned or spent in each category in
each month. Then, enter and subtotal your income,
and do the same for your expenses. Finally, subtract
the expenses from the income for each month. It’s
common practice to indicate negative figures by
putting them in parentheses.
Below is a sample income statement for a non-
profit that has been in existence for six months.
MANAGING YOUR FINANCES 11/ 1 1
Six-Month Income Statement
Jan Feb Mar Apr May June Total
Income
Membership fees 500 1,625 250 875 625 750 4,625
Event revenues 0 1,205 0 0 0 0 1,205
Sponsorships 1,500 0 500 0 500 0 2,500
Total Income 2,000 2,830 750 875 1,125 750 8,330
Expenses
Salaries 500 500 500 500 500 500 3,000
Website costs 300 0 0 0 0 0 300
Marketing costs 0 0 275 0 0 0 275
Office supplies 105 0 85 0 35 40 265
Postage 0 0 0 0 111 0 111
State filing fees 25 0 0 0 0 0 25
Telephone service 25 25 25 25 25 25 150
Event costs 0 800 0 0 0 0 800
Professional services 500 0 0 0 0 0 500
Insurance 300 0 0 0 0 0 300
Miscellaneous 50 35 50 35 50 35 255
Total Expenses 1,805 1,360 935 560 721 600 5,981
Total Income/Expenses 195 1,470 (185) 315 404 150 2,349
11/ 1 2 STARTING & BUILDING A NONPROFIT
Your income statement is an absolutely crucial
tool to help you identify what operations, if any,
your nonprofit needs to adjust to stay on budget.
Seeing the totals for all of your expense categories
over the course of several months or quarters allows
you to quickly pinpoint areas in which you may
be overspending—or at least have some room for
belt-tightening. Similarly, accurately tracking income
totals by month is important so you can see whether
you’re bringing in the revenues you predicted in
your budget—and so you can take quick action if
you’re falling short.
2. Cash Flow Projection
Besides tracking your overall financial health with
an income statement, it’s also important for your
nonprofit to know whether it has enough cash at
any given time to pay for its costs of operation.
Having a wealth of contribution pledges and prom-
ised grants is not the same as having money in the
bank to pay your bills. If your cash flow is poor—in
other words, if you do not have enough available
cash when you need it—you can easily face a situ-
ation in which your income statement says you are
in the black, but you cannot actually pay your rent,
salaries, or other key bills on time.
A cash flow projection can help you predict a
future cash shortage, giving you time to take steps
to remedy the situation. A cash flow projection
focuses on the actual dollars your nonprofit pays
out and takes in—also known as cash-ins and cash-
outs, or inflows and outflows. Cash-ins and cash-
outs reflect the cash you actually have on hand,
whereas the revenues and expenses shown in an
income statement might not be paid right away. By
tracking your cash-ins and cash-outs and then using
that information to develop a forecast for upcom-
ing months, you can predict when you might run
short—and take action to avoid emptying your bank
account. Unless you know when a cash shortage
might occur, it may be too late to do anything about
it once it hits, which could force you to pay bills late
or even take drastic action such as cutting programs
or staff.
Your cash flow projection uses most of the same
numbers as your income statement, plus a few
extras. The big difference is that your cash flow
projection includes not only contributions, grants,
and the like, but other sources of revenue as well,
such as loans, interest from investments, and trans-
fers from your personal accounts. That’s because
when it comes time to pay the landlord, the utility
company, and other creditors, the crucial issue is
whether you have adequate funds at the time you
need to pay the bill—not where the money comes
from. For the same reason, your cash flow forecast
will include only income that you’ve actually re-
ceived—not, for example, pledges of future contri-
butions or grant checks that haven’t arrived. Finally,
your cash flow projection must include all money
you’ll pay out of the nonprofit, whether for impor-
tant program costs or for rote things like supplies,
taxes, credit card payments, and so on.
The simple formula for a cash flow analysis is:
Cash in the bank at the beginning of month
+ Actual cash received during the month
– Actual cash disbursements during the month
= Cash in the bank at the end of month
Each month’s cash flow projection starts with the
dollar figure you have in the bank—which should
be the same amount you had when the previous
month ended. Next, add any cash that comes in
during the month in all relevant categories, such as
grants, contributions, loans, interest earned, and any
personal money you put into the nonprofit. These
are your total cash-ins for the month. Next, subtract
all the money you spend during the month—your
cash-outs.
The result is the cash left at the end of the month.
Enter that figure into the beginning of the next
month’s column, and do the same process for the
next month. Accounting software makes generating
a cash flow spreadsheet a snap once you’ve entered
figures for income and expenses.
Now that you know the basic formula behind
cash flow analysis, you can see that the real power
of this tool is not in tracking actual cash-ins and
cash-outs, but in predicting future cash flows.
Periodically—once a month or every few months—
you should use your actual figures to help you make
estimates for upcoming months and complete a cash
MANAGING YOUR FINANCES 11/ 1 3
flow projection for the future, for a time period of
up to one year. Hopefully you will see that your
nonprofit will have adequate cash to cover your
expenses each month, plus a cushion to handle
unexpected bills. If not, don’t panic. First, pat your-
self on the back for doing a cash flow analysis and
figuring out ahead of time that you may soon find
yourself in a crunch. Then come up with a plan:
make some cuts, put off some expenses, or raise
more money, perhaps through a quickly arranged
special event or fundraising drive.
Accurately predicting cash-ins and cash-outs for
future months is not easy, especially when you’re
in the early stages of running your nonprofit and
don’t have much of a financial history on which to
base your projections. Cash-outs tend to be easier to
predict than cash-ins because, with good planning
and tight financial discipline, you have more control
over what you spend than what you bring in. But
there’s no escaping the fact that you’ll need to make
estimates of how much income will come in—a task
that may seem only slightly easier than reading tea
leaves.
The key to making useful cash-in projections
is to be moderately conservative. Accept the fact
that your income estimates will likely be somewhat
optimistic, and discount your estimate by a third or
so. For example, if you have firm pledges totaling
$15,000, you might choose to enter $10,000 in your
cash flow projection. As the months tick by and the
flow of cash into and out of your nonprofit settles
into daily, weekly, and monthly patterns, making
estimates will inevitably become easier and you’ll
find them becoming increasingly more accurate. And,
as the months and years go by and you gain experi-
ence with your community of funders, you’ll be able
to trust that your estimates will be closer to reality.
Below is an example of a cash flow projection
you can do on a simple spreadsheet. In this fictional
example, “real” figures were used for April through
June, and the rest of the figures are projections
based on what happened in those first few months
and on best estimates of future activity.
11/ 1 4 STARTING & BUILDING A NONPROFIT
Cash Flow Projection
April May June July
(projected) Aug
(projected) Sep
(projected) Oct
(projected) Nov
(projected) Dec
(projected) Cash at beginning of month 655 670 175 565 (220) 150 (90) 355 95
Cash-ins
Membership fees 625 500 625 625 500 625 625 500 625
Event revenues 0 1,455 0 0 0 0 0 0 1,205
Sponsorships 500 0 500 0 500 0 500 0 500
Loans and transfers 0 0 0 0 0 0 0 0 0
Total Cash-ins 1,780 2,625 1,300 1,190 780 775 1,035 855 2,425
Cash-outs
Salaries 500 500 500 500 500 500 500 500 500
Website costs 0 0 0 300 0 0 0 0 0
Marketing costs 0 0 100 0 0 100 0 0 100
Office supplies 85 35 40 85 35 40 85 35 40
Printing costs 0 925 0 0 0 0 0 0 250
Postage 0 150 0 150 0 150 0 150 0
State filing fees 0 35 0 0 0 0 0 0 0
Telephone service 25 25 25 25 25 25 25 25 25
Event costs 0 675 0 0 0 0 0 0 655
Professional services 450 0 0 0 0 0 0 0 0
Insurance 0 0 0 300 0 0 0 0 0
Miscellaneous 50 105 70 50 70 50 70 50 105
Total Cash-outs 1,110 2,450 735 1,410 630 865 680 760 1,675
Cash at end of month 670 175 565 (220) 150 (90) 355 95 750
MANAGING YOUR FINANCES 11/ 1 5
As you can see, arranging income and expense
information into a cash flow projection reveals a
lot about the financial workings of a nonprofit. For
example, the sample cash flow forecast above shows
that cash will be tight in several months. The most
pressing concerns are the projected cash shortfalls
in July and September.
Knowing a few months in advance that a shortfall
is likely will help the board or executive director
figure out what to do while there’s still time to take
action. Board members could contribute personal
money to the nonprofit (note that the cash flow
didn’t include any loans or personal transfers to
the group’s coffers), get on the phone and recruit
additional contributions, or decide to pare down
the less-essential expenses, at least until December
when the nonprofit expects to reap some special
event revenue.
To stay on top of cash flow issues, replace your
projections with actual results from your account-
ing system each month. It’s a good way to see how
accurate your projections have been, which will
help you make even more accurate estimates in the
future.
D. Audits, Reviews, and Compilations
While keeping your books in order is always a good
idea, nonprofits sometimes need to prepare more
official financial statements for a funder, tax agency,
or other entity upon request. Fledgling nonprofits
might not need to deal with these statements in their
early days, but you may need to create them in the
future.
Generally speaking, what sets these more official
statements apart from your regular bookkeeping
is that an outside accountant (generally a certified
public accountant, or CPA) should prepare them and
give them some level of review. The types of state-
ments that you should have a CPA or other appropri-
ate professional prepare include audited statements,
reviews, and compilations. (For detailed information
about CPAs and other types of accountants, see
Chapter 12.)
• The most formal document you may need
to prepare is an audited statement, also
known as an audit, in which a CPA closely
examines the nonprofit’s books, conducts
an independent investigation to verify that
your numbers are reliable, and creates reports
based on his or her findings. (Don’t confuse
this with an IRS audit, in which an IRS
investigates your nonprofit to make sure its
tax returns have been accurate.) The CPA
often contacts the nonprofit’s key associates,
such as independent contractors and funders.
If the nonprofit sells a significant amount
of goods, the CPA will actually go to the
warehouse and count the inventory. Audited
statements must conform to FASB guidelines,
which include rules on how to record
contributions, classify assets, and format
financial reports. Government and private
grant givers often require audited statements
from groups applying for funding; exceptions
are sometimes made for very small budget
nonprofits.
• Substantially less formal than an audit is a re-
view, in which a CPA conducts a more limited
analysis of your records and prepares briefer
financial statements. Instead of independently
investigating your operations, the CPA relies
on reviewing your records to verify that the
reports are accurate. A prospective funder
might request a review, or a nonprofit might
decide to conduct a yearly review once its
budget grows to $10,000 or more, to ensure
that the books are in good shape.
• Least formal is a compilation, in which a CPA
puts the nonprofit’s financial data in a stan-
dard financial reporting format but makes no
statement about the accuracy or reliability of
the financial information. In a compilation, the
accountant does not review supporting docu-
ments.
As you probably can guess, an audit is the most
expensive option and a compilation costs the least.
Most nonprofits choose the least expensive option
that meets their needs, whether it be assuring the
board or nonprofit members that the financial house
11/ 1 6 STARTING & BUILDING A NONPROFIT
is in order or satisfying a funder or other entity that
you are accurately keeping track of the money you
spend and bring in.
E. Reporting Requirements
In addition to any financial reports you may need
to provide to funders or other private entities, most
nonprofits will also have to file one or more reports,
returns, or other financial documents with state and
federal tax agencies. Detailed instructions on com-
pleting your tax forms are beyond the scope of this
book, but half of the battle is knowing what forms
you need to file. Here’s a quick overview:
• Form 990: Return of Organization Exempt From Income Tax. This form—your nonprofit’s annual tax return—is due on the 15th day of
the fifth month after the end of your fiscal
year. If your nonprofit is required to file this
return, it also has to maintain a copy of it for
public inspection. Tax-exempt public charities
with gross receipts of less than $100,000
and total assets of less than $250,000 can
use the short form, Form 990-EZ. The IRS
exempts certain types of public charities from
having to file this return, including those that
normally have gross receipts of $25,000 or less
per year.
• Form 990-T: Exempt Organization Business Income Tax Return. You need to file this re- turn if your nonprofit earned $1,000 or more
in gross receipts from an unrelated business.
(See Section B1, above, for more on unrelated
business income taxes.) Like the annual
return, it’s due on the 15th day of the fifth
month after the end of your fiscal year.
• Form 1099MISC: Miscellaneous Income. If your nonprofit paid any single independent
contractor $600 or more in a year, you need
to file a 1099MISC for that contractor. An
independent contractor is anyone you hire
to do work for your nonprofit who is not an
employee of the nonprofit—for example, a
database consultant or the CPA you hire once
a year to complete your taxes. For more in-
formation on determining whether a worker
is an independent contractor or an employee,
see Chapter 5.
• Form 941: Employer’s Quarterly Federal Tax Return, and Form W-2: Wage and Tax State- ment. Nonprofits with employees must with- hold federal income taxes and FICA taxes
(Social Security and Medicare taxes) from
employees’ paychecks and must periodically
report and send these taxes to the IRS. This
requirement applies only for employees—not
for independent contractors, unpaid directors,
or others who volunteer for the nonprofit. If
you have to withhold and pay payroll taxes
for employees, you will also need to report
their wages and tax withholdings to them
(and to the IRS) on Form W-2.
• State payroll taxes. Nonprofits with employees usually are also required to withhold state
income taxes from employees’ paychecks and
deposit them periodically with their state’s
income tax agency. Income tax agencies are
listed by state in Appendix D.
• Form 940: Employer’s Annual Federal Unem- ployment Tax Return. Nonprofits that have employees and do not have 501(c)(3) status
must report and pay federal unemployment
insurance taxes on wages paid (also known as
FUTA taxes). If you have 501(c)(3) status, you
are exempt from these taxes.
Download IRS forms. You can obtain IRS
forms and informational publications from
the IRS website at www.irs.gov or by calling the IRS
at 800-829-3676.
MANAGING YOUR FINANCES 11/ 1 7
Checklist: Managing Your Finances
Gain an understanding of financial manage- ment fundamentals, such as the difference
between bookkeeping and accounting and
between the cash and accrual methods of
accounting.
Choose bookkeeping software, learn how to use it, and set it up to track all of your
nonprofit’s accounts, including your checking,
credit card, petty cash, investment, and other
accounts.
Keep all receipts of income and expenses and enter these amounts into your bookkeeping
software regularly.
Create categories for income and expenses. Some expense categories will be “regular”
expenses like office supplies and rent, while
others will be “capital” expenses for assets
like computers, furniture, vehicles, and real
estate.
Periodically use the information you’ve entered into your books to create income
statements that compare revenues to
expenses and cash flow projections to ensure
that the nonprofit can always pay its bills.
Hire an accountant to help if your nonprofit is asked to provide an audited statement,
review, or compilation to a funder or other
entity.
Become familiar with the tax returns and other reports your nonprofit may have to file
with governmental and other agencies.
■
C H A P T E R
1 Chapter 12
Getting Professional Help
A. Relationships Are Critical ........................................................................................ 12/2
B. Working With Lawyers ............................................................................................. 12/2
1. What to Look For in a Lawyer ........................................................................... 12/2
2. How to Find a Lawyer ......................................................................................... 12/4
3. Using a Lawyer as a Coach ................................................................................ 12/4
4. Dealing With Bills and Payments ..................................................................... 12/5
C. Working With Accountants and Other Professionals ....................................... 12/6
1. Bookkeepers Versus Accountants ................................................................... 12/6
2. Finding Prospects .............................................................................................. 12/7
12 / 2 STARTING & BUILDING A NONPROFITE
I f you’re reading this book, you’re probably a
do-it-yourself type who isn’t usually inclined to
hire pricey professional help. While your can-do
spirit is as commendable as it is sensible, you should
recognize the value in using professionals judiciously.
Hiring a professional—such as a lawyer, tax adviser,
or bookkeeper—for advice or other services is often
the most efficient way to handle particular tasks or
problems. Even though you’ll undoubtedly be able
to cope with most nonprofit tasks and problems
on your own, tackling issues with a steep learning
curve may not be the best use of your time. And, of
course, some situations—for example, a lawsuit by
a former employee—will clearly call for professional
help.
Even when things are running smoothly, virtually
every nonprofit should consult an accountant or
other tax expert at least once a year for help in get-
ting financial records in order and preparing any
necessary tax returns. Making contact with a lawyer
early in your nonprofit’s life is also a sensible step,
even if you don’t have any pressing legal issues.
Establishing a relationship early on will serve you
well if you find yourself in the kind of legal trouble
that requires immediate help.
Once you decide you want to hire a professional,
your next question very likely will be, “How can I
find someone I can trust?” This chapter offers strate-
gies that will help you find and develop relation-
ships with competent professionals.
A. Relationships Are Critical
The key to working well with any professional
is to develop an ongoing relationship. The more
familiar a professional is with your nonprofit and its
activities, the better he or she will be able to advise
you. You’ll generally get better quality services—
often at better rates—from a professional you’ve
worked with before, rather than one you hire out of
the blue to handle a problem.
Sometimes, you’ll simply need some basic advice
or coaching from a professional, to make sure that
you’re handling day-to-day nonprofit tasks correctly.
Other times, you’ll need more extensive services,
such as help preparing a tax return or performing a
financial audit. Ideally, you’ll develop relationships
with professionals who are willing and able to take
on both roles: to act as your coach when asked for
advice, and to handle more comprehensive services
when you need them.
B. Working With Lawyers
Even though the attorney section of the yellow
pages always takes up a good portion of the phone
book, a good lawyer can be hard to find. This
section discusses how to find a lawyer who meets
your needs—and how to make sure you’re getting
the most for your hard-earned money.
1. What to Look For in a Lawyer
There are a number of qualities that are important
for your lawyer to have. You’ll want to find an attor-
ney who has some experience with nonprofit issues,
preferably for your type of nonprofit. You’ll also
want someone who’s intelligent and competent—
two qualities that don’t necessarily go hand in hand
with having a law degree. And of course, you’ll want
a lawyer whom you can trust and work with com-
fortably. Ideally, you’ll find a lawyer with all of these
qualities and establish a working relationship.
In today’s world of ever-increasing specialization,
lawyers often focus their areas of expertise rather
narrowly. For example, an expert negotiator may not
be an effective courtroom lawyer, and vice versa.
Most lawyers also specialize in particular areas
of law, such as tax, business law, or employment
issues. Make sure that your lawyer can handle the
particular type of problem you’re facing, in terms
of both its subject matter and the type of work
involved.
In addition to finding a lawyer with the skills
and experience relevant to your situation, it’s
important that you and the lawyer get along on a
personal level. If an otherwise qualified lawyer is
condescending or rude, you might as well keep
looking for someone with better personal skills.
You won’t be able to develop a good, long-term
relationship with a lawyer unless you can work well
together.
GETTING PROFESSIONAL HELP 12 / 3
You may have to look a bit harder to find a law-
yer who is willing to work with you collaboratively
on matters that you can handle at least partially
on your own. Tackling some routine legal issues,
such as amending your bylaws or executing a con-
tract for services, may be well within your abilities,
though you may be more comfortable having a
lawyer review your work or give you limited advice.
While lawyers traditionally offered their services on
Internet Legal Research
Some of your legal questions may not warrant
an expensive consultation with an attorney but
may be beyond the scope of a self-help book. For
instance, you may need to look up your state’s
rules on fundraising or learn more about the un-
related business income tax. If you don’t want to
call your lawyer every time you have a question,
you might consider doing a little legal research.
The good news is that finding basic legal infor-
mation is usually not too difficult, and plenty is
available free online. The following resources are
a good place to start:
• Most states make their statutes available
online. To find laws governing nonprofits,
look in the corporations code of your
state’s statutes. Bear in mind that some
sites are markedly better than others in
terms of searching and navigating statutes.
If your state statutes aren’t easy to navigate
online, you may be better off just going to
a law library.
• Besides the actual statutes, official state
sites often offer valuable information for
nonprofits, including incorporation proce-
dures, forms, state tax rules, summaries
of the law on volunteer liability issues, and
much more. You’ll usually find this infor-
mation as part of the corporations section,
which is sometimes (but not always) part
of the secretary of state’s website. States
vary greatly in how much information they
make available online, but most states
have been rapidly improving their online
information systems and making their sites
more useful and accessible for citizens.
You’ll find linkable listings of state web-
sites and other nonprofit-related sites on
the CD-ROM that comes with this book.
These files are simple to use with your
Web browser; Appendix A explains how to
use the CD-ROM.
• For general rules and issues regarding
nonprofits, Nolo offers extensive free
information and resources at its website,
www.nolo.com.
• For more information about legal research
both online and off, a thorough reference
is Nolo’s Legal Research: How to Find & Understand the Law, by Stephen R. Elias and Susan Levinkind.
an all-or-nothing basis (and charged fees accord-
ingly), some lawyers are now more willing to act as
coaches for their clients, giving only as much service
as the client wants. If you’d like to be more involved
in your nonprofit’s legal matters and minimize your
attorney’s fees, be sure to ask the lawyer directly
whether he or she is willing to have this kind of
working relationship with you. Legal coaching is
discussed in more detail in Section B3, below.
12 / 4 STARTING & BUILDING A NONPROFITE
2. How to Find a Lawyer
Unfortunately, the easiest and quickest ways to find
a lawyer are usually the least effective. Sure, you’ll
find hundreds of lawyers’ names in the yellow
pages, but how will you choose among them? You’ll
have the same problem if you look in legal news-
papers for attorney ads. Flashy, aggressive advertis-
ing is definitely not a good indicator of quality legal
services. Also, watch out for commercial referral
services—they generally operate on fees collected
from lawyers who sign themselves up for the referral
database. To filter out the lawyers who are wrong
for you, you’ll need to do more research.
Believe it or not, one good place to start looking
for inexpensive legal help is at large law firms. Non-
profits are often attractive clients for lawyers look-
ing to do volunteer legal work (called “pro bono”
work). State bar organizations encourage lawyers
to do pro bono work, and many large firms require
their lawyers to perform a certain number of hours
of pro bono work each year. Many law schools
also provide free or low-cost legal services through
community law clinics run by students, under the
supervision of a law professor. Call any law school
in your area and ask if they offer such services.
Besides exploring pro bono and law school clinic
options, perhaps the most effective way to find a
good lawyer is to get a personal referral, preferably
from someone involved in running a nonprofit. Even
better is a referral from a similar type of nonprofit,
such as an arts or scientific group.
If you can’t come up with a personal referral, try
to find out which lawyers work with nonprofits in
your area. Keep your eyes and ears open for names
of attorneys who have worked on cases in your
field. For example, a local environmental magazine
might run an article about a current lawsuit that
mentions the names of the attorneys involved. Visit
websites that focus on nonprofits or contact organi-
zations directly. They may be able to direct you to
lawyers who have worked in the nonprofit sector.
Once you get some names, call these lawyers and
ask if they’re available for the type of services you
need. If not, they can probably refer you to some-
one else who might be able to help.
Speak with the lawyer personally, not just
the receptionist. You can probably get a good
idea of how the attorney operates by paying close
attention to the way your call is handled. Is the law-
yer available right away? If not, is your call promptly
returned? Is the lawyer willing to spend at least a
few minutes talking to you to determine if he or she
really is the best person for the job? Do you get a
good personal feeling from your conversation? The
way you’re treated during your initial call can be a
good indicator of how the lawyer treats clients in
general.
3. Using a Lawyer as a Coach
In a traditional attorney/client relationship, a client
hires an attorney to take care of a legal problem and
then hands over all responsibility for—and control
over—the matter to the lawyer. While some clients
like it this way, many would rather be more involved
in their legal affairs, both to maintain some control
and to save money on legal fees. But, until recently,
getting limited legal help from a lawyer wasn’t really
an option. Most lawyers wouldn’t take on a legal
matter unless they could handle it on their own,
from start to finish.
But a new model of legal services is finally
emerging. In this approach, sometimes called “legal
coaching” or “unbundled legal services,” a lawyer
provides only the services that a client wants, and
nothing more. For example, a client who wants le-
gal help in drafting a contract can arrange a short
consultation with a lawyer to get answers to general
questions, go home and draft the contract, and then
fax it to the lawyer, who will review it and suggest
changes.
For people running nonprofits, using a lawyer as
a coach can be especially useful. More often than
not, the legal issues that arise in the course of day-
to-day business are relatively simple, and—with a bit
of good legal advice—within the capabilities of most
people to handle. Rather than hiring an attorney
for upwards of $1,000 to deal with an issue, using
a coach might cost $100 and enable the nonprofit
manager to proceed on his or her own.
GETTING PROFESSIONAL HELP 12 / 5
While getting limited help from a lawyer has
become an increasingly popular approach to legal
problems in recent years, it still can take some effort
to find a lawyer who is willing to act as a coach. To
find one, use the same strategies discussed above
(personal referrals, for example), but take the extra
step of asking the lawyer directly whether he or she
is willing to help you in your efforts to solve your
own legal problems. If not, or if you sense that the
lawyer wouldn’t really embrace a coaching arrange-
ment, keep looking. In today’s increasingly com-
petitive legal marketplace, it shouldn’t take you too
long to find a lawyer who is willing to offer flexible
services, including coaching.
4. Dealing With Bills and Payments
One area in which most lawyers have some
expertise is billing for their services. Before you hire
any lawyer, make sure you fully understand how
your fees will be calculated. All too often, clients
are unpleasantly surprised by their bills because
they didn’t pay enough attention to the billing
terms when they hired the lawyer. Make sure you
understand who’s responsible for items like court
fees, copy fees, transcription costs, and phone bills.
These costs aren’t trivial and can quickly send your
otherwise affordable bill into the keep-you-awake-
at-night range.
As described below, lawyers generally use one
of four methods to calculate fees for their services:
hourly fees, flat fees, contingency fees, or retainers.
Hourly fees. This arrangement is fairly straight- forward: You pay the attorney’s hourly rate for the
number of hours he or she works on your case.
Simple as this system is, there are some details to
consider. For example, you’ll want to find out what
hourly increments the lawyer uses for billing. For
instance, if an attorney bills in half-hour increments,
then you’ll be charged a full half-hour even if you
talk for just five minutes. That can easily total $100
or more for a five-minute phone call. You’d be bet-
ter off if your lawyer uses 10- or 15-minute periods,
though not all attorneys break down their time into
such small increments.
Another issue to ask about is whether all time
spent on your legal work is billed at the attorney’s
regular rate—even if the attorney isn’t doing the
work. For example, it’s reasonable to expect a dis-
counted rate for time the attorney’s administrative
staff spends making copies or organizing paper-
work. Make sure that the hourly fee for the attorney
applies only to the work of the actual attorney.
Hourly fees for attorneys range from $100 or so
to more than $400 per hour. Very generally speak-
ing, lawyers that specialize in nonprofit clients
often have rates toward the lower end of that range.
High rates may reflect a lawyer’s extensive experi-
ence—or they might reflect the lawyer’s lavish life-
style. Don’t pay the highest rates unless you feel the
lawyer’s expertise—not his Armani suit—is worth it.
Flat fees. In some situations, attorneys will charge a flat fee for a specific task, such as negotiating a
contract, filing articles of incorporation, or drafting
bylaws. As long as the job goes as expected, you’ll
pay only the price you and the lawyer negotiated,
regardless of how long the job takes. If the lawyer
hits a snag, however, or if the case becomes convo-
luted for some other reason, the price may go up.
Be sure you and the lawyer are on the same page
regarding the situations that may result in a higher
fee—a clear written agreement is essential. Also,
find out if any charges such as copy fees or messen-
ger costs will be added to the flat fee.
Contingency fees. In a contingency fee arrange- ment, you pay an attorney’s fee only if the lawyer
wins money for you through a court judgment or a
negotiated settlement. In that case, the fee is a set
percentage of the monetary award, usually one-
third to one-half. In contingency fee arrangements,
you need to be especially careful of costs like travel
expenses, transcription fees, and phone bills. If you
lose your case, you won’t owe any attorneys’ fees,
but you will often be responsible for the lawyer’s
out-of-pocket expenses on your case.
Nonprofit issues don’t typically require contingency
fee arrangements. This payment method is usually
used in personal injury cases and other situations in
which a plaintiff sues someone in hopes of winning
a large money award.
Retainers. Sometimes you can hire a lawyer to be more or less “on call” by paying a regular fee (usually
monthly) called a retainer. This type of arrangement
is useful when you have regular, ongoing legal
12 / 6 STARTING & BUILDING A NONPROFITE
needs such as contract review or negotiation. Based
upon your expected needs, you and the lawyer set-
tle on a mutually acceptable monthly fee. Then, you
simply have the lawyer take care of any routine legal
matters that arise. If you run into a sudden, complex
legal dispute, or if your problems escalate greatly,
you’ll likely have to make additional payments. For
this type of arrangement to work, you and the law-
yer must have a clear understanding of the routine
services that you expect. Unless your legal needs are
regular and predictable, a retainer arrangement is
probably not your best option.
State laws may require a fee agreement to be
in writing in some cases, such as if your lawyer
estimates the total cost of legal services to be more
than $1,000 or if you have a contingency fee
arrangement. Even if it’s not legally required, it’s
always a good idea to get your fee agreement in
writing. A written agreement will help prevent
disputes over billing and is the best way to avoid
unpleasant surprises.
Want more information on finding and work- ing with a lawyer? For detailed tips on finding the right lawyer, reviewing a lawyer’s written fee
agreement, and developing a successful working
relationship with your lawyer, see The Lawsuit Survival Guide, by Joseph Matthews (Nolo). This indispensable resource explains every step in a civil
lawsuit in detail—and provides lots of information
on hiring a lawyer.
C. Working With Accountants and Other Professionals
Many of the issues nonprofits face can be solved
by professionals other than lawyers. In particular,
accountants and tax professionals are often indis-
pensable in helping you deal with tax laws, which
can have a big impact on your nonprofit. Every
nonprofit should consult with an accountant occa-
sionally, at least once a year. While complicated tax
troubles may call for a tax attorney, many questions
can be answered by an accountant.
1. Bookkeepers Versus Accountants
For routine maintenance of your books, you don’t
need the experience—or expense—of an accoun-
tant (certified or otherwise). An experienced book-
keeper will be able to implement an effective system
of tracking your income and expenses and help
you stay on top of your important bills and report-
ing requirements, including the various taxes your
nonprofit will owe. Depending on the complexity of
your nonprofit’s finances, you may even decide to
do your own bookkeeping—a job that’s undoubted-
ly easier these days with the availability of account-
ing software. As your nonprofit grows, however,
paying for an experienced bookkeeper will likely
become worthwhile.
If you find yourself needing specific tax advice
or facing a tricky financial problem, you may have
to go up a step on the professional ladder and hire
an accountant. The top dogs of the accounting field
are called “certified public accountants” (CPAs) and
are licensed and regulated by the state. Uncertified
accountants, called public accountants, also may be
licensed by your state. The licensing requirements
for CPAs are more stringent, so they are often the
most experienced and knowledgeable type of
accountants—and, accordingly, the most expensive.
In addition to bookkeepers and accountants,
there are other professionals out there who specialize
in tax preparation. Some are licensed and some are
not. An enrolled agent (EA) is a tax professional
licensed by the IRS who can answer tax questions
and help you prepare your returns. Others who
simply use the title “tax preparer” or “tax return
preparer” may not be licensed at all. If a tax
professional doesn’t have a license as an enrolled
agent or as a public or certified public accountant,
it may mean that the “professional” has no official
qualifications whatsoever.
The best strategy in choosing among these
various professionals is to pay for only as much
expertise as you need. Obviously, you shouldn’t
pay a CPA to do simple bookkeeping, but you also
shouldn’t use a bookkeeper to prepare complex tax
returns. You’ll need to decide for yourself what kind
of professional is appropriate for your situation.
GETTING PROFESSIONAL HELP 12 / 7
2. Finding Prospects
Finding a tax professional is a lot like finding a lawyer:
Your goal is to find someone both competent and
trustworthy. The strategies discussed above for
finding a lawyer are equally useful in finding other
professionals. Getting a personal referral is the best
way to find someone you can trust. Referrals from
other nonprofits are particularly valuable. Virtually
every nonprofit will have to consult a tax pro at one
point or another, so it shouldn’t be too hard to get a
decent list of names.
As with attorneys, choose your tax professional
carefully, with an eye to developing a long-term
relationship. Don’t be shy about asking lots of
questions. Find out about the person’s experience
with nonprofits and about his or her knowledge
of bookkeeping methods, the tax code, the IRS, or
anything else that’s relevant to the work you want
the professional to do for you.
Make sure you understand the professional’s
fee structure up front, before he or she does any
work for you. Most professional charge hourly fees,
which vary a great deal depending on what kind
of qualifications the professional has. Like your
attorney fee agreement, your fee agreement with a
tax professional should be in writing—written fee
agreements minimize the possibility of disputes over
the bill.
Checklist: Getting Professional Help
Aim to develop relationships with lawyers, accountants, and other professionals so that
they can help you on an ongoing basis.
Ask associates and friends for recommenda- tions for lawyers, accountants, and other
professionals. Also check trade magazines
and other industry sources.
Try to find a lawyer who is willing to work as a legal coach.
Understand how you will be billed, and get your fee agreements in writing.
Familiarize yourself with online sources of legal information such as Nolo.com, the IRS
website, and your official state website.
■
A. Installing the Form Files Onto Your Computer .................................................... A/2
1. Windows 9x, 2000, Me, and XP Users .............................................................. A/2
2. Macintosh Users .................................................................................................. A/2
B. Using the Word Processing Files to Create Documents .................................... A/2
Step 1: Opening a File .............................................................................................. A/3
Step 2: Editing Your Document .............................................................................. A/3
Step 3: Printing Out the Document ...................................................................... A/3
Step 4: Saving Your Document .............................................................................. A/3
C H A P T E R
1 Appendix A
How to Use the CD-ROM
A / 2 STARTING & BUILDING A NONPROFIT
T he tear-out forms and checklists in Appendix
F are included on a CD-ROM in the back
of the book. This CD-ROM, which can be
used with Windows computers, installs files that
can be opened, printed, and edited using a word
processor or other software. It is not a standalone
software program. Please read this appendix and
the README.TXT file included on the CD-ROM for
instructions on using the Forms CD.
Note to Mac users: This CD-ROM and its files should also work on Macintosh computers. Please
note, however, that Nolo cannot provide technical
support for non-Windows users.
How to View the README File
If you do not know how to view the file READ-
ME.TXT, insert the Forms CD-ROM into your
computer’s CD-ROM drive and follow these
instructions:
• Windows 9x, 2000, Me, and XP: (1) On
your PC’s desktop, double click the My
Computer icon; (2) double click the
icon for the CD-ROM drive into which
the Forms CD-ROM was inserted;
(3) double click the file README.TXT.
• Macintosh: (1) On your Mac desktop,
double click the icon for the CD-ROM
that you inserted; (2) double click on the
file README.TXT.
While the README file is open, print it out
by using the Print command in the File menu.
A. Installing the Form Files Onto Your Computer
Word processing forms that you can open, complete,
print, and save with your word processing program
(see Section B, below) are contained on the CD-
ROM. Before you can do anything with the files on
the CD-ROM, you need to install them onto your
hard disk. In accordance with U.S. copyright laws,
remember that copies of the CD-ROM and its files
are for your personal use only.
Insert the Forms CD and do the following.
1. Windows 9x, 2000, Me, and XP Users
Follow the instructions that appear on the screen. (If
nothing happens when you insert the Forms CD-ROM,
then (1) double click the My Computer icon, (2) dou-
ble click the icon for the CD-ROM drive into which
the Forms CD-ROM was inserted, and (3) double
click the file WELCOME.EXE.)
By default, all the files are installed to the \Non-
profit Startup Forms folder in the \Program Files
folder of your computer. A folder called “Nonprofit
Startup Forms” is added to the “Programs” folder of
the Start menu.
2. Macintosh Users
Step 1: If the “Nonprofit Startup CD” window is not open, open it by double clicking the “Non-
profit Startup CD” icon.
Step 2: Select the “Nonprofit Startup Forms” folder icon.
Step 3: Drag and drop the folder icon onto the icon of your hard disk.
B. Using the Word Processing Files to Create Documents
This section concerns the files for forms and check-
lists that can be opened and edited with your word
processing program.
All word processing forms come in rich text
format. These files have the extension “.RTF.” For
example, the form for the Volunteer Assignment
Agreement discussed in Chapter 10 is on the file
Volunteer.rtf. All forms and their filenames are listed
at the beginning of Appendix F.
RTF files can be read by most recent word pro-
cessing programs including all versions of MS Word
for Windows and Macintosh, WordPad for Windows,
and recent versions of WordPerfect for Windows and
Macintosh.
APPENDIX A: HOW TO USE THE CD-ROM A / 3
To use a form from the CD to create your
documents you must: (1) open a file in your word
processor or text editor; (2) edit the form by filling in
the required information; (3) print it out; (4) rename
and save your revised file.
The following are general instructions. However,
each word processor uses different commands to
open, format, save, and print documents. Please read
your word processor’s manual for specific instruc-
tions on performing these tasks.
Do not call Nolo’s technical support if you have
questions on how to use your word processor.
Step 1: Opening a File
There are three ways to open the word processing
files included on the CD-ROM after you have in-
stalled them onto your computer:
• Windows users can open a file by selecting
its “shortcut” as follows: (1) Click the Windows
“Start” button, (2) open the “Programs” folder,
(3) open the “Nonprofit Startup Forms” sub-
folder, and (4) click on the shortcut to the
form you want to work with.
• Both Windows and Macintosh users can open
a file directly by double clicking on it. Use My
Computer or Windows Explorer (Windows 9x,
2000, Me, or XP) or the Finder (Macintosh) to
go to the folder you installed or copied the
CD-ROM’s files to. Then, double click on the
specific file you want to open.
• You can also open a file from within your
word processor. To do this, you must first
start your word processor. Then, go to the
File menu and choose the Open command.
This opens a dialog box where you will tell
the program (1) the type of file you want to
open (*.RTF) and (2) the location and name of
the file (you will need to navigate through the
directory tree to get to the folder on your hard
disk where the CD’s files have been installed).
If these directions are unclear you will need
to look through the manual for your word
processing program—Nolo’s technical support
department will not be able to help you with
the use of your word processing program.
Where Are the Files Installed?
Windows Users • RTF files are installed by default to a folder
named \Nonprofit Startup Forms in the \Pro-
gram Files folder of your computer.
Macintosh Users • RTF files are located in the “Nonprofit Start-
up Forms” folder.
Step 2: Editing Your Document
Fill in the appropriate information according to the
instructions and sample agreements in the book.
Underlines are used to indicate where you need
to enter your information, frequently followed
by instructions in brackets. Be sure to delete the
underlines and instructions from your edited
document. You will also want to make sure that
any signature lines in your completed documents
appear on a page with at least some text from the
document itself. If you do not know how to use your
word processor to edit a document, you will need to
look through the manual for your word processing
program—Nolo’s technical support department will
not be able to help you with the use of your word
processing program.
Step 3: Printing Out the Document
Use your word processor’s or text editor’s “Print”
command to print out your document. If you do not
know how to use your word processor to print a
document, you will need to look through the manual
for your word processing program—Nolo’s techni-
cal support department will not be able to help you
with the use of your word processing program.
Step 4: Saving Your Document
After filling in the form, use the “Save As” command
to save and rename the file. Because all the files are
“read-only,” you will not be able to use the “Save”
A / 4 STARTING & BUILDING A NONPROFIT
command. This is for your protection. If you save the
file without renaming it, the underlines that indicate
where you need to enter your information will be
lost, and you will not be able to create a new docu-
ment with this file without recopying the original file
from the CD-ROM.
If you do not know how to use your word
processor to save a document, you will need to
look through the manual for your word processing
program—Nolo’s technical support department will
not be able to help you with the use of your word
processing program.
■
C H A P T E R
1 Appendix B
State Secretary of State or Other Corporate Filing Offices
Alabama ......................... B/2
Alaska .............................. B/2
Arizona ........................... B/2
Arkansas ......................... B/2
California ........................ B/2
Colorado ........................ B/2
Connecticut ................... B/2
Delaware ........................ B/2
District of Columbia .... B/3
Florida ............................. B/3
Georgia ........................... B/3
Hawaii ............................. B/3
Idaho ............................... B/3
Illinois ............................. B/3
Indiana ............................ B/3
Iowa ................................. B/3
Kansas ............................. B/3
Kentucky ........................ B/4
Louisiana ........................ B/4
Maine .............................. B/4
Maryland ........................ B/4
Massachusetts ............... B/4
Michigan ........................ B/4
Minnesota ...................... B/4
Mississippi ..................... B/4
Missouri .......................... B/4
Montana ......................... B/4
Nebraska ........................ B/5
Nevada ............................ B/5
New Hampshire ............ B/5
New Jersey ..................... B/5
New Mexico ................... B/5
New York ........................ B/5
North Carolina .............. B/5
North Dakota ................. B/5
Ohio ................................ B/5
Oklahoma ...................... B/6
Oregon ........................... B/6
Pennsylvania .................. B/6
Rhode Island ................. B/6
South Carolina .............. B/6
South Dakota ................. B/6
Tennessee ...................... B/6
Texas ................................ B/6
Utah ................................. B/6
Vermont .......................... B/7
Virginia ........................... B/7
Washington ................... B/7
West Virginia ................. B/7
Wisconsin ...................... B/7
Wyoming ........................ B/7
B/ 2 STARTING & BUILDING A NONPROFIT
T his list shows you where to go for incorpora-
tion information and forms. The state website
is the first place to look. In most states, you’ll
find a downloadable articles form with instructions
to form your nonprofit corporation. You’ll also see
links to your state tax agency where you can check
for state forms for applying for and obtaining a state
income tax exemption. If the state website is sparse,
you can call or write to your state filing office for
nonprofit forms and information. The list below
includes the name and address of the secretary of
state or other corporate filing office, along with a
phone number for the corporate filing office or for
general corporate information.
Alabama Secretary of State
Corporations Division
P.O. Box 5616
Montgomery, AL 36103
www.sos.state.al.us/business/corporations.cfm
Phone number of Corporations Division:
334-242-5324
Alaska Department of Commerce & Economic
Development
Division of Banking, Securities, and Corporations
P.O. Box 110808
Juneau, AK 99811-0808
www.dced.state.ak.us/bsc/corps.htm
Phone number of corporations section:
907-465-2530
Arizona Arizona Corporation Commission
Corporation Filing Section
1300 West Washington
Phoenix, AZ 85007
www.cc.state.az.us/corp/index.htm
Phone number of corporate filing section:
800-345-5819 (in AZ only) or 602-542-3135
Corporate filings and phone calls are also handled
by the Tucson office: 520-628-6560
Arkansas Secretary of State
Corporations Division
Arkansas State Capitol
Little Rock, AR 72201-1094
www.sosweb.state.ar.us/corp_ucc_business.html
Phone number of corporations section:
888-233-0325
California Office of the Secretary of State
Corporations Unit
1500 11th Street
Sacramento, CA 95814
www.ss.ca.gov/business/business.htm
Phone number of corporate filing section:
916-657-5448
Corporate filings and phone calls are also handled
by Fresno, Los Angeles, San Diego, and San
Francisco branch offices of the Secretary of State.
Colorado Secretary of State
Corporations Office
1560 Broadway, Suite 200
Denver, CO 80202
www.sos.state.co.us/pubs/business/main.htm
Phone number of corporate filing section:
303-894-2200
Connecticut Connecticut Secretary of State
30 Trinity Street
Hartford, CT 06106
www.sots.state.ct.us
Phone number of Secretary of State’s office:
860-509-6001
Delaware State of Delaware
Division of Corporations
P.O. Box 898
Dover, DE 19903
www.state.de.us/corp
Phone number for general information:
302-739-3073
APPENDIX B: STATE SECRETARY OF STATE OR OTHER CORPORATE FILING OFFICES B/ 3
District of Columbia Dept. of Consumer and Regulatory Affairs
Corporations Division
941 North Capitol Street, NE
Washington, DC 20002
http://dcra.dc.gov/services/busresource/index.shtm
Phone number for general information:
202-442-4432
Florida Department of State
Division of Corporations
Corporate Filings
P.O. Box 6327
Tallahassee, FL 32314
www.dos.state.fl.us/doc/index.html
Phone number of Division of Corporations:
850-245-6052
Georgia Secretary of State
Corporations Division
Suite 315, West Tower
2 Martin Luther King Jr. Drive
Atlanta, GA 30334
www.sos.state.ga.us/corporations
Phone number of corporate filing section:
404-656-2817
Hawaii Dept. of Commerce and Consumer Affairs
Business Registration Division
335 Merchant Street
Honolulu, HI 96813
www.businessregistrations.com
Phone: 808-586-2744
Idaho Secretary of State
Corporations Division
700 W. Jefferson Street
P.O. Box 83720
Boise, ID 83720-0080
www.idsos.state.id.us/corp/corindex.htm
Phone number of Secretary of State’s office:
208-334-2300
Illinois Secretary of State
Department of Business Services
Corporations Division
Michael J. Howlett Building
501 S. 2nd Street, Room 328
Springfield, IL 62756
www.cyberdriveillinois.com/departments/
business_services/home.html
Phone number for corporate information:
800-252-8980
Corporate filings and phone calls are also handled
by the Chicago Department of Business Services,
Corporations Division Office: 312-793-3380
Indiana Secretary of State
Corporations Division
302 W. Washington Street, Room E018
Indianapolis, IN 46204
www.in.gov/sos/business/index.html
Phone number of Corporations Division:
317-232-6576
Iowa Secretary of State
Corporations Division
Lucas Building, 1st Floor
321 East 12th Street
Des Moines, IA 50319
www.sos.state.ia.us/business
Phone number of Corporations Division:
515-281-5204
Kansas Secretary of State
Corporation Division
First Floor, Memorial Hall
120 SW 10th Avenue
Topeka, KS 66612
www.kssos.org/main.html
Phone number of Corporation Division:
785-296-4564
B/ 4 STARTING & BUILDING A NONPROFIT
Kentucky Secretary of State
P.O. Box 718
Frankfort, KY 40602
www.sos.state.ky.us
Phone number of corporate filing section:
502-564-3490
Louisiana Secretary of State
Corporations Division
P.O. Box 94125
Baton Rouge, LA 70804
www.sos.louisiana.gov/comm/corp/corp-index.
htm
Phone number of corporate filing section:
225-925-4704
Maine Secretary of State
Bureau of Corporations, Elections, and
Commissions
101 State House Station
Augusta, ME 04333-0101
www.state.me.us/sos/cec/cec.htm
Phone number of Bureau of Corporations:
207-624-7740
Maryland Maryland Department of Assessments & Taxation
Charter Unit
Room 809
301 West Preston Street, Room 801
Baltimore, MD 21201
www.dat.state.md.us/sdatweb/charter.html
Phone number for corporate inquiries:
410-767-1184 or 888-246-5941 (toll free)
Massachusetts Secretary of the Commonwealth
Corporations Division
One Ashburton Place, 17th Floor
Boston, MA 02108
www.state.ma.us/sec/cor
Phone number of corporate filing section:
617-727-9640
Michigan Commercial Services & Corporations
Corporation Division
P.O. Box 30053
Lansing, MI 48909
www.michigan.gov/cis
Phone number of Corporation Division:
517-241-6470
Minnesota Secretary of State
Business Services Division
180 State Office Building
100 Rev. Dr. Martin Luther King Jr. Boulevard
St. Paul, MN 55155-1299
www.sos.state.mn.us/business/index.html
Phone number for corporate information:
877-551-6SOS (6767)
Mississippi Secretary of State
Corporate Division
P.O. Box 136
Jackson, MS 39205
www.sos.state.ms.us
Phone number of Corporate Division: 601-359-1350
or 800-256-3494 (toll free)
Missouri Secretary of State
Corporation Division
P.O. Box 778
Jefferson City, MO 65102
www.sos.mo.gov
Phone number for general corporate information:
573-751-4153 or 866-223-6535 (toll free)
Montana Secretary of State
Corporation Bureau
P.O. Box 202801
Helena, MT 59620
http://sos.state.mt.us/css/index.asp
Phone number of Business Services Bureau:
406-444-3665
APPENDIX B: STATE SECRETARY OF STATE OR OTHER CORPORATE FILING OFFICES B/ 5
Nebraska Secretary of State
Corporate Division
P.O. Box 94608
Lincoln, NE 68509
www.sos.state.ne.us//corps/corpform.htm
Phone number of Corporate Office: 402-471-4079
Nevada Office of the Secretary of State
New Filings Section
202 N. Carson Street
Carson City, NV 89701
http://sos.state.nv.us/comm_rec/index.htm
Phone number of Secretary of State’s office:
775-684-5708; Las Vegas office: 702-486-2880
New Hampshire Secretary of State
Corporation Division
Department of State
107 North Main Street, Room 204
Concord, NH 03301
www.state.nh.us/sos/corporate/index.htm
Phone number for general corporate information:
603-271-3244
New Jersey Department of State
Division of Revenue/Corporate Filing Unit
P.O. Box 308
Trenton, NJ 08625
www.state.nj.us/njbgs/index.html
Phone number for general corporate information:
609-292-9292
New Mexico Public Regulation Commission
Corporations Bureau
Chartered Documents Bureau
P.O. Box 1269
Santa Fe, NM 87504
www.nmprc.state.nm.us/corporations/corpshome.
htm
Phone number of Corporation Commission:
800-947-4722
New York Department of State
Division of Corporations
41 State Street
Albany, NY 12231
www.dos.state.ny.us/corp/corpspub.html
Phone number of Corporations Division:
518-473-2492
North Carolina Department of the Secretary of State
Corporations Division
P.O. Box 29622
Raleigh, NC 27626-0622
www.secretary.state.nc.us/corporations
Phone number of Corporations Division:
919-807-2225 or 888-246-7636 (toll free)
North Dakota Secretary of State
Corporations Division
Main Capitol Building
600 East Boulevard Avenue
Bismarck, ND 58505-0500
www.state.nd.us/sec/Business/
businessinforegmnu.htm
Phone number of Corporations Division:
800-352-0867, ext. 84284
Ohio Secretary of State
Business Services Division
P.O. Box 670
Columbus, OH 43216
www.state.oh.us/sos/business_services_
information.htm
Phone number of corporate filing section:
877-SOS-FILE (877-767-3453)
Corporate filings and phone calls are also handled
by the Cleveland office: 216-622-3260
B/ 6 STARTING & BUILDING A NONPROFIT
Oklahoma Secretary of State
2300 N. Lincoln Boulevard, Room 101
State Capitol Building
Oklahoma City, OK 73105
www.sos.state.ok.us/business/business_filing.htm
Phone number of Secretary of State’s office:
405-521-3912
Oregon Secretary of State
Corporation Division
255 Capitol Street NE, Suite 151
Salem, OR 97310-1327
www.sos.state.or.us/corporation
Phone number of Corporation Division:
503-986-2200
Pennsylvania Department of State
Corporation Bureau
P.O. Box 8722
Harrisburg, PA 17105-8722
www.dos.state.pa.us/corps/site/default.asp
Phone number for general corporate information:
717-787-1057
Rhode Island Secretary of State
Corporations Division
100 North Main Street, First Floor
Providence, RI 02903
http://155.212.254.78/corporations.htm
Phone number of Corporations Division:
401-222-3040
South Carolina Secretary of State
Corporations Department
P.O. Box 11350
Columbia, SC 29211
www.scsos.com/Corporations.htm
Phone number of Corporation Department:
803-734-2158
South Dakota Secretary of State
State Capitol
500 East Capitol Avenue
Pierre, SD 57501
www.sdsos.gov/corporations
Phone number of Secretary of State’s office:
605-773-4845
Tennessee Secretary of State
Division of Business Services
Corporations Section
312 Eighth Avenue North
6th Floor, William R. Snodgrass Tower
Nashville, TN 37243
www.state.tn.us/sos/service.htm#corporations
Phone number for general corporate information:
615-741-2286
Texas Secretary of State
Statutory Filings Division
Corporations Section
P.O. Box 13697
Austin, TX 78711
www.sos.state.tx.us/corp/index.shtml
Phone number for general corporate information:
512-463-5583
Utah Utah Division of Corporations and Commercial
Code
160 East 300 South, 2nd Floor
Box 146705
Salt Lake City, UT 84114-6705
www.commerce.state.ut.us/corporat/corpcoc.htm
Phone number of corporate filing section:
801-530-4849 or 877-526-3994 (toll free)
APPENDIX B: STATE SECRETARY OF STATE OR OTHER CORPORATE FILING OFFICES B/ 7
Vermont Secretary of State
Corporations Division
81 River Street, Drawer 09
Montpelier, VT 05609-1104
www.sec.state.vt.us/corps/corpindex.htm
Phone number of Corporations Division:
802-828-2386
Virginia Clerk of the State Corporation Commission
P.O. Box 1197
First Floor
Richmond, VA 23218
www.state.va.us/scc/division/clk/corp.htm
Phone number of corporate filing section:
804-371-9733 or 1-866-SCC-CLK1 (toll free)
Washington Secretary of State
Corporations Division
801 Capitol Way South
P.O. Box 40234
Olympia, WA 98504
www.secstate.wa.gov/corps
Phone number for general corporate information:
360-753-7115
West Virginia Secretary of State
Corporations Division
Building 1, Suite 157-K
1900 Kanawha Boulevard East
Charleston, WV 25305-0770
www.wvsos.com
Phone number of corporate filing section:
304-558-8000
Wisconsin Department of Financial Institutions
Corporations Section, 3rd Floor
P.O. Box 7846
Madison, WI 53707-7846
www.wdfi.org/corporations/default.htm
Phone number of corporate filing section:
608-261-7577
Wyoming Secretary of State
Corporations Division
The Capitol Building, Room 110
200 W. 24th Street
Cheyenne, WY 82002-0020
soswy.state.wy.us/corporat/corporat.htm
Phone number of Corporations Division:
307-777-7311
■
Alabama .......................... C/2
Alaska .............................. C/2
Arizona ........................... C/2
Arkansas ......................... C/2
California ........................ C/2
Colorado ........................ C/2
Connecticut ................... C/2
Delaware ........................ C/2
District of Columbia .... C/2
Florida ............................ C/3
Georgia ........................... C/3
Hawaii ............................. C/3
Idaho ............................... C/3
Illinois ............................. C/3
Indiana ............................ C/3
Iowa ................................. C/3
Kansas ............................. C/3
Kentucky ........................ C/3
Louisiana ........................ C/3
Maine .............................. C/3
Maryland ........................ C/3
Massachusetts ............... C/4
Michigan ........................ C/4
Minnesota ...................... C/4
Mississippi ..................... C/4
Missouri .......................... C/4
Montana ......................... C/4
Nebraska ........................ C/4
Nevada ............................ C/4
New Hampshire ............ C/4
New Jersey ..................... C/4
New Mexico ................... C/4
New York ........................ C/4
North Carolina .............. C/5
North Dakota ................. C/5
Ohio ................................ C/5
Oklahoma ...................... C/5
Oregon ........................... C/5
Pennsylvania .................. C/5
Rhode Island ................. C/5
South Carolina .............. C/5
South Dakota ................. C/5
Tennessee ...................... C/5
Texas ................................ C/5
Utah ................................. C/5
Vermont .......................... C/5
Virginia ........................... C/6
Washington ................... C/6
West Virginia ................. C/6
Wisconsin ...................... C/6
Wyoming ........................ C/6
C H A P T E R
1 Appendix C
State Charitable Solicitation Registration Offices
C/ 2 STARTING & BUILDING A NONPROFIT
Alabama Office of the Attorney General
Consumer Affairs Division
11 S. Union Street, 3rd Floor
Montgomery, AL 36130
334-242-7335
www.ago.state.al.us
Alaska Note: Alaska requires organizations soliciting funds
to register with the state but does not accept the
Unified Registration Statement (URS). You must
use the state’s specific form.
Department of Law
Attorney General
1031 W. 4th Avenue, Suite 200
Anchorage, AK 99501
907-269-5100
www.law.state.ak.us
Arizona Note: Arizona requires organizations soliciting
funds to register with the state but does not accept
the Unified Registration Statement (URS). You must
use the state’s specific form.
Secretary of State
Business Services Division
Charitable Organizations
14 N. 18th Avenue
Phoenix, AZ 85007
602-542-6187
800-458-5842 (in Arizona)
www.azsos.gov
Arkansas Office of the Attorney General
Public Protection Department
323 Center Street, Suite 200
Little Rock, AR 72201
501-682-1109
www.ag.state.ar.us
California Office of Attorney General
Registry of Charitable Trusts
1325 Jay Street
Sacramento, CA 94203
916-445-2021
www.ag.ca.gov/charities
Colorado Note: Colorado requires organizations soliciting
funds to register with the state but does not accept
the Unified Registration Statement (URS). You must
use the state’s specific form.
Office of the Secretary of State
Charitable Solicitations Program
Denver Post Tower, 10th Floor
1560 Broadway, Suite 1000
Denver, CO 80202
303-894-2200
www.sos.state.co.us
Connecticut Office of Attorney General
Public Charities Unit
55 Elm Street
Hartford, CT 06141
860-808-5030
www.cslib.org/attygenl
Delaware Does not require organizations soliciting funds to
register.
District of Columbia Department of Consumer & Regulatory Affairs
941 N. Capitol Street NE
Room 7211
Washington, DC 20002
202-442-4400
www.dcra.dc.gov
APPENDIX C: STATE CHARITABLE SOLICITATION REGISTRATION OFFICES C/ 3
Florida Note: Florida requires organizations soliciting funds
to register with the state but does not accept the
Unified Registration Statement (URS). You must use
the state’s specific form.
Division of Consumer Services
2005 Apalachee Parkway
Rhodes Building
Tallahassee, FL 32399
800-435-7352 (in Florida)
850-488-2221
www.800helpfla.com
Georgia Securities and Business Regulation
2 Martin Luther King Jr. Drive SE
Suite 802, West Tower
Atlanta, GA 30334
404-656-3920
www.sos.state.ga.us
Hawaii Does not require organizations soliciting funds to
register.
Idaho Does not require organizations soliciting funds to
register.
Illinois Office of the Attorney General
Charitable Trust and Solicitations Bureau
100 West Randolph Street, 3rd Floor
Chicago, IL 60601
312-814-2595
www.illinoisattorneygeneral.gov
Indiana Does not require organizations soliciting funds to
register.
Iowa Does not require organizations soliciting funds to
register.
Kansas Secretary of State
Memorial Hall, 1st Floor
120 SW 10th Avenue
Topeka, KS 66612
785-296-4564
www.kssos.org
Kentucky Office of Attorney General
Consumer Protection Division
1024 Capital Center Drive
Frankfort, KY 40601
502-696-5389
http://ag.ky.gov
Louisiana Department of Justice
Public Protection Division
Livingston Building
1885 N. 3rd Street
Baton Rouge, LA 70802
225-326-6465
www.ag.state.la.us
Maine Office of Licensing and Registration
Charitable Solicitation Registration
122 Northern Avenue
Gardner, ME 04345
207-624-8624
www.state.me.us/pfr/olr
Maryland Secretary of State
Charitable Organizations Division
State House
100 State Circle
Annapolis, MD 21401
410-974-5534
www.sos.state.md.us
C/ 4 STARTING & BUILDING A NONPROFIT
Massachusetts Office of the Attorney General
Division of Public Charities
100 Cambridge Street
Boston, MA 02108
617-727-2200, ext. 2101
www.ago.state.ma.us
Michigan Attorney General
Charitable Trust Section
6th Floor, Williams Building
525 W. Ottawa Street
Lansing, MI 48933
517-373-1152
www.michigan.gov/ag
Minnesota Office of Attorney General
Charities Division
Suite 1200, NCL Tower
445 Minnesota Street
St. Paul, MN 55101
651-296-9412
www.ag.state.mn.us
Mississippi Secretary of State
Charities Registration
700 North Street
Jackson, MS 39202
601-359-1633
www.sos.state.ms.us
Missouri Office of the Attorney General
Charitable Registration Division
207 W. High Street
Jefferson City, MO 65102
573-751-3321
www.moago.org
Montana Does not require organizations soliciting funds to
register.
Nebraska Does not require organizations soliciting funds to
register.
Nevada Does not require organizations soliciting funds to
register.
New Hampshire Department of Justice
Attorney General
Charitable Trust Division
33 Capitol Street
Concord, NH 03301
603-271-3658
http://doj.nh.gov
New Jersey Office of the Attorney General
Division of Consumer Affairs
Charities Registration Section
124 Halsey Street, 6th Floor
Newark, NJ 07102
973-504-6215
www.state.nj.us/lps/ca
New Mexico Office of Attorney General
111 Lomas Boulevard NW, Suite 300
Albuquerque, NM 87102
505-222-9090
www.ago.state.nm.us/divs/spcons/spcons.htm
New York Department of Law
Charities Bureau
120 Broadway
New York, NY 10271
212-416-8400
www.oag.state.ny.us/charities/charities.html
APPENDIX C: STATE CHARITABLE SOLICITATION REGISTRATION OFFICES C/ 5
North Carolina Department of Secretary of State
Charitable Solicitation Licensing Section
2 S. Salisbury Street
Old Revenue Building
Raleigh, NC 27601
919-807-2214
888-830-4989 (in North Carolina)
www.secretary.state.nc.us/csl
North Dakota Secretary of State
600 East Boulevard Avenue, Dept. 108
Bismarck, ND 58505
701-328-3665
www.state.nd.us/sec
Ohio Office of the Attorney General
Charitable Law Section
150 East Gay Street, 23rd Floor
Columbus, OH 43215
614-466-3180
www.ag.state.oh.us
Oklahoma Secretary of State
2300 N. Lincoln Boulevard, Room 101
Oklahoma City, OK 73105
405-521-3912
www.sos.state.ok.us
Oregon Department of Justice
Charitable Activities Section
1515 SW 5th Avenue, Suite 410
Portland, OR 97201
503-229-5725
www.doj.state.or.us
Pennsylvania Department of State
Bureau of Charitable Organizations
207 N. Office Building
Harrisburg, PA 17120
717-783-1720
www.dos.state.pa.us
Rhode Island Department of Business Regulation
Securities Division
Charitable Organizations Section
233 Richmond Street
Providence, RI 02903
401-222-2246
www.dbr.state.ri.us
South Carolina Secretary of State
Public Charities Section
1205 Pendleton Street, Suite 525
Columbia, SC 29201
803-734-1790
www.scsos.com
South Dakota Does not require organizations soliciting funds to
register.
Tennessee Division of Charitable Solicitations
312 Eighth Avenue North
8th Floor, William R. Snodgrass Tower
Nashville, TN 37243
615-741-2555
www.state.tn.us/sos/charity.htm
Texas Does not require organizations soliciting funds to
register.
Utah Department of Commerce
Division of Consumer Protection
160 East 300 South
Salt Lake City, Utah 84114
801-530-6601
www.commerce.utah.gov/dcp
Vermont Does not require organizations soliciting funds to
register.
C/ 6 STARTING & BUILDING A NONPROFIT
Virginia Department of Agriculture & Consumer Services
Office of Consumer Affairs
1100 Bank Street
Richmond, VA 23219
804-786-1343
www.vdacs.state.va.us
Washington Secretary of State
Charities Program
801 Capitol Way South
Olympia, WA. 98504
360-753-0863
800-332-GIVE (in Washington)
www.secstate.wa.gov/charities
West Virginia Secretary of State
Charities Division
Building 1, Suite 157-K
1900 Kanawha Blvd. East
Charleston, WV 25305
304-558-6000
www.wvsos.com
Wisconsin Department of Regulation & Licensing
1400 E. Washington Avenue
Madison, WI 53703
608-266-5511
http://drl.wi.gov
Wyoming Does not require organizations soliciting funds to
register.
■
C H A P T E R
1 Appendix D
State Tax Agencies
Alabama ..........................D/2
Alaska ..............................D/2
Arizona ...........................D/2
Arkansas .........................D/2
California ........................D/2
Colorado ........................D/2
Connecticut ...................D/2
Delaware ........................D/2
District of Columbia ....D/2
Florida .............................D/2
Georgia ...........................D/2
Hawaii .............................D/3
Idaho ...............................D/3
Illinois .............................D/3
Indiana ............................D/3
Iowa .................................D/3
Kansas .............................D/3
Kentucky ........................D/3
Louisiana ........................D/3
Maine ..............................D/3
Maryland ........................D/3
Massachusetts ...............D/4
Michigan ........................D/4
Minnesota ......................D/4
Mississippi .....................D/4
Missouri ..........................D/4
Montana .........................D/4
Nebraska ........................D/4
Nevada ............................D/4
New Hampshire ............D/4
New Jersey .....................D/4
New Mexico ...................D/4
New York ........................D/4
North Carolina ..............D/5
North Dakota .................D/5
Ohio ................................D/5
Oklahoma ......................D/5
Oregon ...........................D/5
Pennsylvania ..................D/5
Rhode Island .................D/5
South Carolina ..............D/5
South Dakota .................D/5
Tennessee ......................D/5
Texas ................................D/5
Utah .................................D/5
Vermont ..........................D/6
Virginia ...........................D/6
Washington ...................D/6
West Virginia .................D/6
Wisconsin ......................D/6
Wyoming ........................D/6
D/ 2 STARTING & BUILDING A NONPROFIT
Alabama Department of Revenue
Gordon Persons Building
50 N. Ripley Street
Montgomery, AL 36132
334-242-1170
www.ador.state.al.us
Alaska Department of Revenue-Tax Division
State Office Building, 11th Floor Side B
333 W. Willoughby Avenue
P.O. Box 110420
Juneau, AK 99801
907-465-2320
www.revenue.state.ak.us
Arizona Department of Revenue
1600 W. Monroe
Phoenix, AZ 85007
800-352-4090
602-255-3381
www.revenue.state.az.us
Arkansas Department of Finance and Administration
P.O. Box 3278
Little Rock, AR 72203
501-682-2242
www.arkansas.gov/dfa/taxes/new_bus.html
California Franchise Tax Board
P.O. Box 942840
Sacramento, CA 94240
800-852-5711
www.ftb.ca.gov
Colorado Department of Revenue
1375 Sherman Street, Room 204
Denver, CO 80261
303-238-7378
www.taxcolorado.com
Connecticut Department of Revenue Services
Taxpayer Services Division
25 Sigourney Street
Hartford, CT 06106
800-382-9463
860-297-5962
www.ct.gov/drs
Delaware Department of Finance—Division of Revenue
Carvel State Office Building
820 N. French Street
Wilmington, DE 19801
302-577-8205
www.state.de.us/revenue/obt/obtmain.htm
District of Columbia Office of Tax and Revenue
Customer Service Center
941 N. Capitol Street NE, 1st Floor
Washington, DC 20002
202-727-4829
www.cfo.dc.gov
Florida Department of Revenue
Tax Information Services
1379 Blountstown Highway
Tallahassee, FL 32304
800-352-3671
850-488-6800
http://sun6.dms.state.fl.us/dor/taxes
Georgia Department of Revenue
1800 Century Center Boulevard, NE
Atlanta, GA 30345
404-417-4900
www2.state.ga.us/departments/dor
APPENDIX D: STATE TAX AGENCIES D/ 3
Hawaii Department of Taxation
Taxpayer Services
830 Punchbowl Street
P.O. Box 259
Honolulu, HI 96809
808-587-4242
808-587-6515 (Jan. to Apr. 20)
800-222-3229
www.state.hi.us/tax/tax.html
Idaho State Tax Commission
800 Park Boulevard, Plaza IV
Boise, ID 83712
800-972-7660
208-334-7660
http://tax.idaho.gov
Illinois Department of Revenue
James R. Thompson Center
Concourse Level
100 W. Randolph Street
Chicago, IL 60601
312-814-5232
www.iltax.com
Indiana Department of Revenue
100 N. Senate Avenue
202 State Office Building
Indianapolis, IN 46204
317-233-4018
www.in.gov/dor
Iowa Department of Revenue and Finance
Taxpayer Services
Hoover Building
1305 Walnut, 4th Floor
Des Moines, IA 50319
800-367-3388
515-281-3114
www.state.ia.us/tax/business/business.html
Kansas Department of Revenue
Taxpayer Assistance Center
Docking State Office Building
915 SW Harrison Street, Room 150
Topeka, KS 66612
785-368-8222
www.ksrevenue.org
Kentucky Revenue Cabinet
Division of Tax Administration
200 Fair Oaks Lane
Frankfort, KY 40620
502-564-4581
http://revenue.state.ky.us
Louisiana Department of Revenue
617 N. Third Street
Baton Rouge, LA 70821
225-219-7318
www.rev.state.la.us
Maine Revenue Services
24 State House Station
Augusta, ME 04333
207-287-2076
www.state.me.us/revenue
Maryland State Comptroller
Taxpayer Registration Assistance Center
301 W. Preston Street, Room 206
Baltimore, MD 21201
800-492-1751 (within Maryland)
410-767-1313
http://business.marylandtaxes.com
D/ 4 STARTING & BUILDING A NONPROFIT
Massachusetts Department of Revenue
Customer Service Bureau
200 Arlington Street
Chelsea, MA 02150
800-392-6089
617-887-6367
www.mass.gov/dor
Michigan Department of Treasury
Lansing, MI 48922
517-373-3200
www.michigan.gov/iit
Minnesota Department of Revenue
Harold Stassen Building
600 N. Robert Street
St. Paul, MN 55146
651-296-3781
www.taxes.state.mn.us
Mississippi State Tax Commission
1577 Springridge Road
Raymond, MS 39154
601-923-7390
www.mstc.state.ms.us/regist.htm
Missouri Department of Revenue
Division of Taxation & Collection
301 W. High Street, Room 330
Jefferson City, MO 65101
800-877-6881
www.dor.mo.gov
Montana Department of Revenue
Attn: Business Tax
125 N. Robinson
Helena, MT 59620
406-444-6900
www.discoveringmontana.com/revenue
Nebraska Department of Revenue
301 Centennial Mall S
P.O. Box 94818
Lincoln, NE 68509
800-742-7474 (within Nebraska)
402-471-5729
www.revenue.state.ne.us
Nevada Department of Taxation
1550 E. College Parkway, Suite 115
Carson City, NV 89706
775-684-2000
http://tax.state.nv.us
New Hampshire Department of Revenue Administration
45 Chenell Drive
P.O. Box 457
Concord, NH 03302
603-271-2191
www.nh.gov/revenue
New Jersey Division of Taxation
Taxation Building
50 Barrack Street, 1st Floor
Trenton, NJ 08695
609-292-6400
www.state.nj.us/treasury/taxation
New Mexico Taxation & Revenue Department
1100 S. St. Francis Drive
P.O. Box 630
Santa Fe, NM 87504
505-827-0700
www.state.nm.us/tax
New York Department of Taxation & Finance
W. Averill Harriman Campus
Albany, NY 12227
800-972-1233
www.tax.state.ny.us/sbc/default.htm
APPENDIX D: STATE TAX AGENCIES D/ 5
North Carolina Department of Revenue
501 N. Wilmington Street
Raleigh, NC 27604
877-252-3052
www.dor.state.nc.us
North Dakota Office of State Tax Commissioner
State Capitol
600 E. Boulevard Avenue
Bismarck, ND 58505
701-328-2770
www.state.nd.us/taxdpt/index.html
Ohio Department of Taxation
Taxpayer Services Division
800 Freeway Drive N
Columbus, OH 43229
614-387-1801
www.ohio.gov/tax
Oklahoma Tax Commission
2501 N. Lincoln Boulevard
Connors Building, Capitol Complex
Oklahoma City, OK 73194
405-521-3160
www.oktax.state.ok.us/oktax/busreg.html
Oregon Department of Revenue
955 Center Street NE
Salem, OR 97301
800-356-4222 (within Oregon)
503-378-4988
www.dor.state.or.us
Pennsylvania Department of Revenue
Strawberry Square
Fourth and Walnut Streets Lobby
Harrisburg, PA 17128
717-783-1405
www.revenue.state.pa.us
Rhode Island Division of Taxation
One Capitol Hill
Providence, RI 02908
401-222-3050
www.tax.state.ri.us
South Carolina Department of Revenue
Columbia Main Office
P.O. Box 125
Columbia, SC 29214
803-898-5000
www.sctax.org
South Dakota Department of Revenue
445 E. Capitol Avenue
Pierre, SD 57501
800-829-9188
www.state.sd.us/revenue
Tennessee Department of Revenue
500 Deaderick Street
Nashville, TN 37242
800-342-1003
615-253-0600
www.tennessee.gov/revenue
Texas Comptroller of Public Accounts
Lyndon B. Johnson State Office Building
111 E. 17th Street
Austin, TX 78774
800-252-5555
512-463-4600
www.cpa.state.tx.us
Utah State Tax Commission
210 N. 1950 West
Salt Lake City, UT 84134
800-662-4335
801-297-2200
www.tax.utah.gov
D/ 6 STARTING & BUILDING A NONPROFIT
Vermont Department of Taxes
Taxpayer Services Division
109 State Street
Pavilion Office Building
Montpelier, VT 05609
802-828-2505
www.state.vt.us/tax/index.htm
Virginia Department of Taxation
3600 W. Broad, Suite 160
Richmond, VA 23230
804-367-8037
www.tax.state.va.us
Washington Department of Revenue
2101 4th Avenue, Suite 1400
Seattle, WA 98121
800-647-7706
206-956-3002
www.dor.wa.gov
West Virginia State Tax Department
1206 Quarrier Street
Charleston, WV 25301
304-558-3333
800-982-8297
www.state.wv.us/taxdiv
Wisconsin Department of Revenue
2135 Rimrock Road
Madison, WI 53713
608-266-2772
www.dor.state.wi.us
Wyoming Department of Revenue
Herschler Building, 2nd Floor W
122 W. 25th Street
Cheyenne, WY 82002
307-777-7961
http://revenue.state.wy.us
■
Appendix E
State Sales Tax or Seller’s Permit Agencies
Alabama ........................... E/2
Alaska ............................... E/2
Arizona ............................ E/2
Arkansas .......................... E/2
California ......................... E/2
Colorado ......................... E/2
Connecticut .................... E/2
Delaware ......................... E/2
District of Columbia ..... E/2
Florida .............................. E/2
Georgia ............................ E/2
Hawaii .............................. E/3
Idaho ................................ E/3
Illinois .............................. E/3
Indiana ............................. E/3
Iowa .................................. E/3
Kansas .............................. E/3
Kentucky ......................... E/3
Louisiana ......................... E/3
Maine ............................... E/3
Maryland ......................... E/3
Massachusetts ................ E/4
Michigan ......................... E/4
Minnesota ....................... E/4
Mississippi ...................... E/4
Missouri ........................... E/4
Montana .......................... E/4
Nebraska ......................... E/4
Nevada ............................. E/4
New Hampshire ............. E/4
New Jersey ...................... E/4
New Mexico .................... E/4
New York ......................... E/4
North Carolina ............... E/5
North Dakota .................. E/5
Ohio ................................. E/5
Oklahoma ....................... E/5
Oregon ............................ E/5
Pennsylvania ................... E/5
Rhode Island .................. E/5
South Carolina ............... E/5
South Dakota .................. E/5
Tennessee ....................... E/5
Texas ................................. E/5
Utah .................................. E/5
Vermont ........................... E/6
Virginia ............................ E/6
Washington .................... E/6
West Virginia .................. E/6
Wisconsin ....................... E/6
Wyoming ......................... E/6
E/ 2 STARTING & BUILDING A NONPROFIT
Alabama Department of Revenue
Sales, Use, and Business Tax Section
Taxpayer Service Center
1021 Madison Avenue
Montgomery, AL 36104
334-242-1490
www.ador.state.al.us/salestax/index.html
Alaska No state sales tax.
Arizona Department of Revenue
Transaction Privilege (Sales) and Use Tax
1600 W. Monroe
Phoenix, AZ 85007
800-843-7196
602-255-2060
www.revenue.state.az.us
Arkansas Sales and Use Tax
Department of Finance and Administration
Joel Ledbetter Building, Room 1340
1800 7th Street
Little Rock, AR 72205
501-682-7104
www.state.ar.us/salestax
California Board of Equalization
3321 Power Inn Road, Suite 210
Sacramento, CA 95826
800-400-7115
916-227-6700
www.boe.ca.gov
Colorado Department of Revenue
1375 Sherman Street, Room 204
Denver, CO 80261
303-238-7378
www.taxcolorado.com
Connecticut Department of Revenue Services
Taxpayer Services Division
25 Sigourney Street
Hartford, CT 06106
800-382-9463
860-297-5962
www.ct.gov/drs
Delaware (No state sales tax, but state gross receipts tax.)
Department of Finance—Division of Revenue
820 N. French Street
Wilmington, DE 19801
302-577-8780
www.state.de.us/revenue/obt/lic_gr.htm
District of Columbia Office of Tax and Revenue
Customer Service Center
941 N. Capitol Street NE, 1st Floor
Washington, DC 20002
202-727-4829
www.cfo.dc.gov
Florida Department of Revenue
Registration Information
5050 W. Tennessee Street
Tallahassee, FL 32399
800-352-3671
850-488-6800
http://sun6.dms.state.fl.us/dor/taxes/sales_tax.html
Georgia Department of Revenue
Sales and Use Tax Division
1800 Century Center Boulevard NE, Suite 8214
Atlanta, GA 30345
404-417-6678
http://www2.state.ga.us/departments/dor/salestax/
index.shtml
APPENDIX E: STATE SALES TAX OR SELLER’S PERMIT AGENCIES E/ 3
Hawaii Taxpayer Services Branch
830 Punchbowl Street
Honolulu, HI 96813
800-222-3229
808-587-4242
www.state.hi.us/tax/tax.html
Idaho State Tax Commission
800 Park Boulevard, Plaza IV
Boise, ID 83712
800-972-7660
208-334-7660
www2.state.id.us/tax/home.htm
Illinois Department of Revenue
James R. Thompson Center
Concourse Level
100 W. Randolph Street
Chicago, IL 60601
312-814-5232
www.iltax.com
Indiana Department of Revenue
100 N. Senate Avenue
Indiana Government Center N, Room N105
Indianapolis, IN 46204
317-233-4015
www.in.gov/dor
Iowa Department of Revenue and Finance
Taxpayer Services
1305 E. Walnut
Des Moines, IA 50319
800-367-3388
515-281-3114
www.state.ia.us/government/drf/educate/78539.
html
Kansas Department of Revenue
Docking State Office Building, Room 150
915 SW Harrison Street
Topeka, KS 66612
877-526-7738 (outside Topeka)
785-368-8222
www.ksrevenue.org
Kentucky Revenue Cabinet
Division of Tax Administration
200 Fair Oaks Lane
Frankfort, KY 40620
502-564-4581
http://revenue.state.ky.us
Louisiana Department of Revenue
8549 United Plaza, Suite 200
Baton Rouge, LA 70809
Sales Tax Division Taxpayer
Assistance Section:
225-922-2300
www.rev.state.la.us
Maine Revenue Services
Sales and Use Tax Division
P.O. Box 1065
Augusta, ME 04332
207-624-9693
www.state.me.us/revenue/salesuse/homepage.html
Maryland State Comptroller
Taxpayer Registration Assistance Center
State Office Building
301 W. Preston Street, Room 206
Baltimore, MD 21201
800-492-1751 (within Maryland)
410-767-1300
http://business.marylandtaxes.com/taxinfo/
salesanduse/default.asp
E/ 4 STARTING & BUILDING A NONPROFIT
Massachusetts Department of Revenue
Customer Service Bureau
200 Arlington Street
Chelsea, MA 02150
800-392-6089
617-887-MDOR
www.mass.gov/dor
Michigan Department of Treasury
Sales, Use, and Withholding Taxes Section
Treasury Building
Lansing, MI 48922
517-373-3200
www.michigan.gov/treasury
Minnesota Department of Revenue
Mail Station 6330
St. Paul, MN 55146
651-296-6181
www.taxes.state.mn.us/taxes/sales/forms.shtml
Mississippi State Tax Commission
1577 Springridge Road
Raymond, MS 39154
601-923-7015
www.mstc.state.ms.us
Missouri Department of Revenue
Taxation and Collection
301 W. High Street, Room 330
Jefferson City, MO 65101
573-751-2836
www.dor.mo.gov
Montana No general sales tax.
Nebraska Department of Revenue
301 Centennial Mall S
P.O. Box 94818
Lincoln, NE 68509
800-742-7474 (within Nebraska)
www.revenue.state.ne.us/index.html
Nevada Department of Taxation
1550 E. College Parkway, Suite 115
Carson City, NV 89706
775-684-2000
http://tax.state.nv.us
New Hampshire No state sales tax.
New Jersey Division of Taxation
Taxation Building
50 Barrack Street, 1st Floor
Trenton, NJ 08695
609-292-6400
www.state.nj.us/treasury/taxation
New Mexico Taxation & Revenue Department
1200 S. St. Francis Drive
P.O. Box 630
Santa Fe, NM 87504
505-827-0700
www.state.nm.us/tax
New York Department of Taxation & Finance
Sales Tax Registration
W. Averill Harriman Campus
Albany, NY 12227
800-972-1233
www.tax.state.ny.us/nyshome/stidx.htm
APPENDIX E: STATE SALES TAX OR SELLER’S PERMIT AGENCIES E/ 5
North Carolina Department of Revenue
Sales and Use Tax Division
501 N. Wilmington Street
Raleigh, NC 27604
919-733-2151
www.dor.state.nc.us/taxes/sales
North Dakota Office of State Tax Commissioner
State Capitol
600 E. Boulevard Avenue
Bismarck, ND 58505
701-328-3470
www.ndtaxdepartment.com
Ohio Department of Taxation
Sales and Use Tax Division
30 E. Broad Street, 20th Floor
Columbus, OH 43215
888-405-4039
www.ohio.gov/tax
Oklahoma Tax Commission
2501 N. Lincoln Boulevard
Connors Building, Capitol Complex
Oklahoma City, OK 73194
405-521-4321
www.oktax.state.ok.us/oktax/busreg.html
Oregon No state sales tax.
Pennsylvania Department of Revenue
Strawberry Square
Fourth and Walnut Streets Lobby
Harrisburg, PA 17128
888-PATAXES
717-787-1064
www.revenue.state.pa.us
Rhode Island Division of Taxation
One Capitol Hill
Providence, RI 02908
401-222-2950
www.tax.state.ri.us/info/synopsis/1.htm
South Carolina Department of Revenue
P.O. Box 125
Columbia, SC 29214
803-898-5000
www.sctax.org
South Dakota Department of Revenue
445 W. Capitol Avenue
Pierre, SD 57501
800-829-9188
605-773-3311
www.state.sd.us/revenue/businesstax/bustax.htm
Tennessee Department of Revenue
500 Deaderick Street
Nashville, TN 37242
800-342-1003
615-253-0600
www.tennessee.gov/revenue
Texas Comptroller of Public Accounts
111 E. 17th Street
Austin, TX 78701
800-252-5555
512-463-3961
www.window.state.tx.us/taxinfo/sales/new_
business.html
Utah State Tax Commission
210 N. 1950 West
Salt Lake City, UT 84134
800-662-4335
801-297-2200
www.tax.utah.gov
E/ 6 STARTING & BUILDING A NONPROFIT
Vermont Department of Taxes
Taxpayer Services Division
109 State Street
Pavilion Office Building
Montpelier, VT 05609
802-828-2551
www.state.vt.us/tax/index.htm
Virginia Department of Taxation
3610 W. Broad
Richmond, VA 23230
804-367-8031
www.tax.state.va.us
Washington Department of Revenue
2101 4th Avenue, Suite 1400
Seattle, WA 98121
800-647-7706
206-956-3002
www.dor.wa.gov
West Virginia State Tax Department
1206 Quarrier Street
Charleston, WV 25301
800-982-8297
304-558-3333
www.state.wv.us/taxdiv
Wisconsin Department of Revenue
2135 Rimrock Road
Madison, WI 53713
608-266-2772
www.dor.state.wi.us/faqs/index-b.html
Wyoming Department of Revenue
122 W. 25th Street
Cheyenne, WY 82002
307-777-5200
http://revenue.state.wy.us
■
Appendix F
Forms and Checklists
File Name Title
Checklist: Naming and Structuring Your Nonprofit ....................... 01-Structure.rtf
Checklist: Developing Your Strategic Plan ........................................ 02-Plan.rtf
Checklist: Developing Your Initial Budget ........................................ 03-Budget.rtf
Checklist: Your Board of Directors ..................................................... 04-Directors.rtf
Checklist: Your Workforce: Staff and Volunteers ............................ 05-Workforce.rtf
Checklist: Fundraising ........................................................................... 06-Fundraising.rtf
Checklist: Risk Management and Insurance .................................... 07-Insurance.rtf
Checklist: Understanding Contracts and Agreements .................. 08-Contracts.rtf
Checklist: Marketing Your Nonprofit ................................................. 09-Marketing.rtf
Checklist: Publishing Informational Materials ................................. 10-Publishing.rtf
Checklist: Managing Your Finances ................................................... 11-Finances.rtf
Checklist: Getting Professional Help ................................................. 12-Professionals.rtf
Contractor Work-for-Hire Agreement ............................................... Work-for-Hire.rtf
Volunteer Assignment Agreement ..................................................... Volunteer.rtf
Nonprofit’s Initial Budget ..................................................................... BudgetSpread.rtf
Checklist: Naming and Structuring Your Nonprofit
Do some research before choosing a name for your nonprofit. Be sure to choose a name that
does not infringe on anyone else’s trademark
rights. Also consider domain name availability
when picking your nonprofit name.
Don’t jump into incorporating—and assuming the responsibilities of nonprofit corporate
management—without considering whether
it’s really necessary to incorporate. Consider
whether incorporating will reduce your
liability risks, offer tax benefits, or help estab-
lish your nonprofit’s credibility or financial
accountability.
Understand the different types of federal tax exemptions available to nonprofits, and
decide whether tax-exempt status will be a
benefit to your nonprofit. If you plan to apply
for grants, find out whether 501(c)(3) status is
required for the grants you’ll seek.
If you decide that you will pursue tax-exempt status now or in the future, decide which type
of status you plan to seek, and make sure you
set your nonprofit up so it will be eligible for
that type of exemption.
Decide whether your nonprofit will have members with voting rights or whether you
want only directors to be able to vote in
corporate affairs.
Checklist: Developing Your Strategic Plan
Decide who will participate in the strategic planning process—typically the founders
of an unincorporated group or the board of
directors of an incorporated nonprofit. Con-
sider others who might have valuable input,
including community activists or professionals
in your field.
Draft a concise and compelling mission state- ment describing your nonprofit’s overarching
goals.
Outline your nonprofit’s specific goals, objectives, planned activities, and program
areas.
Assess your nonprofit’s current and potential resources—including both tangible items,
such as cash and computer equipment, and
intangibles, such as expertise and community
support.
Identify strategies and practical ideas for how your nonprofit will best use its resources to
achieve its goals. Use a “SWOT” analysis, in
which you evaluate your nonprofit’s strengths,
weaknesses, opportunities, and threats.
Have someone you trust from your community look over your plan and make edits or sugges-
tions.
Edit your plan and assemble its various sections into a final document.
Checklist: Developing Your Initial Budget
Tackle your initial budget early in the life of your nonprofit—ideally, right after you finish
your strategic plan.
Set up your budget to list expenses for indi- vidual programs and expenses for ongoing
administration in separate columns.
If you expect some income to be restricted to certain programs, track it in your budget.
Otherwise, put all income in your administra-
tion column.
List your estimated expenses in three cat- egories: (1) day-to-day expenses, (2) capital
expenses, and (3) start-up expenses.
If you need to buy assets to get your nonprofit started, such as a computer or office furniture,
list them as capital expenses, not as start-up
expenses.
If your budget shows that you’ll be short on funds, focus on stretching existing resources
rather than increasing estimates of income.
Checklist: Your Board of Directors
Aim to build a board of directors made up of individuals who are committed to your
mission and connected to a wide range of
communities.
Understand the legal duties of care and loyalty that board members owe to the nonprofit.
If board members will also help with the day- to-day tasks of the nonprofit, as either paid
staff or unpaid volunteers, make sure every-
one understands the distinction between
their “board” roles and their “staff/volunteer”
roles.
Define board specifics in your bylaws, includ- ing the number of board members you will
have, any term lengths and/or term limits
applicable, and the responsibilities of the
board members and officers.
Establish performance expectations and removal policies for board members. In-
clude these in a board guidebook. Deal with
problem board members when necessary.
Educate board prospects and incoming board members about board responsibilities as well
as your organization’s mission and activities.
Hold regular, efficient, focused board meet- ings. Draft solid meeting agendas and stick to
them. Give advance notice of meetings, and
start meetings on time.
Create board committees to focus on specific tasks and activities when necessary. These
committees may contain both board members
and other, nonboard, members who are part
of your nonprofit (for example, staff or volun-
teers).
Checklist: Your Workforce: Staff and Volunteers
Decide what type of management strategy will work best for your nonprofit. In general,
the more activities and workers you have, the
more structure you’ll need to manage them.
Outline the tasks that need to be done, group them into logical sets, and create staff posi-
tions.
Write out a job description for each position.
Outline a hierarchy of positions within the or- ganization, indicating who reports to whom.
Create policies for performance reviews.
Create a user-friendly handbook for your staff and volunteers containing information about
the nonprofit and all important workplace
policies.
Orient new workers soon after hiring them.
Familiarize yourself with the legal differences between employees and independent con-
tractors. Don’t avoid the obligations of having
employees by misclassifying your workers as
independent contractors.
Make sure you’re ready to take care of all the legal, bureaucratic, and tax requirements that
apply to employers before you hire your first employee.
Checklist: Fundraising
Focus on relationships with ongoing contribu- tors. Relationships with supporters are the
lifeblood of any nonprofit group.
Fundraise from the inside out. Those closest to the nonprofit should be first on your
prospect lists. Ask all volunteers, staffers, and
board members to come up with ten or more
prospective donors, and you’ll be well on
your way to a solid donor base.
Use early accomplishments to strengthen your appeals for support. Potential donors will
be more inclined to give you money if they
see what you have accomplished.
Invest some time and money in an effective database program so you can keep careful
track of whom you have asked to donate,
who has given money, who asked not to
be contacted again, and other important
information.
If you choose to solicit paid memberships, your members will expect to feel included in
your group. Create ways to build a sense of
involvement among your members, which can
be a much more valuable benefit than a tote
bag or coffee mug.
Be thrifty. Don’t model your fundraising mate- rials on the expensive methods used by larger,
well-established nonprofits. Keep your mate-
rials simple to show your potential supporters
that you are counting your pennies.
Train your fundraising team. Make sure your telephone or in-person solicitors are comfort-
able talking about your nonprofit and that
they demonstrate enthusiasm for its mission.
Robotic script-readers do not reflect well on
your group and will not inspire the public to
contribute.
Be sure you understand the tax rules gov-
erning unrelated business income, which is
income you earn through activities not sub-
stantially related to your nonprofit mission.
Comply with substantiation and disclosure rules. Provide your donors with all necessary
notices, such as what portion of their dona-
tion is tax-deductible.
Your mother was right: Thank you notes do matter! Recognizing your supporters and
letting them know how much you appreciate
their support helps build strong relationships.
Thank you notes are powerful tools—use
them.
Checklist: Risk Management and Insurance
Treat liability issues seriously. Take active steps to protect your organization and its
people.
Understand the common types of lawsuits— contract disputes, employment claims, and
personal injury lawsuits—in order to recog-
nize where your nonprofit might be at risk.
Understand who can be held liable in different situations: your board members,
staff, volunteers, and/or the organization
itself.
Use risk management strategies to minimize the possibility of a lawsuit against your non-
profit. Anticipate what can go wrong, and
focus on prevention.
Operate your organization conscientiously and implement effective workplace policies.
Obtain appropriate property, liability, auto- mobile, and other types of insurance for your
nonprofit.
If seriously threatened with a lawsuit, obtain legal advice specific to your situation.
Checklist: Understanding Contracts and Agreements
Familiarize yourself with the legal basics of contracts, especially the rules for what makes
a contract valid and binding.
Put all your agreements into writing whenever possible.
When you need to create a contract, start by looking for a standard form contract. Modify-
ing a standard contract will be much easier
and will likely yield a more solid contract than
drafting one from scratch.
Keep your contract language clear and to the point, and don’t be tempted to use legalese.
Be detail-oriented in your contracts. Make sure that any points of potential conflict are
spelled out clearly.
Checklist: Marketing Your Nonprofit
Focus on marketing strategies other than advertising—such as networking, media
relations, and listing your organization in
directories—that are usually less expensive
and just as effective.
Have an efficient, organized operation in place before you start your marketing efforts.
Learn basic marketing terminology, approach- es, and goals.
Focus on getting the word out about your nonprofit’s events and activities, rather than
about the nonprofit in the abstract.
Network by cultivating relationships with other nonprofits, community leaders, and
others interested in your mission.
Develop relationships with reporters and editors and pitch newsworthy stories about
your nonprofit to them.
Maintain at least a simple website, with content that helps achieve your nonprofit’s
mission.
Checklist: Publishing Informational Materials
Decide whether to publish. Do you have substantive information to convey? Do you
have the necessary resources?
Create a publishing plan that defines your publishing goals, the information you want to
convey, and your audience.
Evaluate your publishing resources. Consider publishing alliances with similar publications
or groups.
Decide on publishing vehicles, formats, and distribution strategies that fit with your
publishing plan.
Become familiar with the basics of copyright law and copyright agreements.
Checklist: Managing Your Finances
Gain an understanding of financial manage- ment fundamentals, such as the difference
between bookkeeping and accounting and
between the cash and accrual methods of
accounting.
Choose bookkeeping software, learn how to use it, and set it up to track all of your
nonprofit’s accounts, including your checking,
credit card, petty cash, investment, and other
accounts.
Keep all receipts of income and expenses and enter these amounts into your bookkeeping
software regularly.
Create categories for income and expenses. Some expense categories will be “regular”
expenses like office supplies and rent, while
others will be “capital” expenses for assets
like computers, furniture, vehicles, and real
estate.
Periodically use the information you’ve entered into your books to create income
statements that compare revenues to
expenses and cash flow projections to ensure
that the nonprofit can always pay its bills.
Hire an accountant to help if your nonprofit is asked to provide an audited statement,
review, or compilation to a funder or other
entity.
Become familiar with the tax returns and other reports your nonprofit may have to file
with governmental and other agencies.
Checklist: Getting Professional Help
Aim to develop relationships with lawyers, accountants, and other professionals so that
they can help you on an ongoing basis.
Ask associates and friends for recommenda- tions for lawyers, accountants, and other
professionals. Also check trade magazines
and other industry sources.
Try to find a lawyer who is willing to work as a legal coach.
Understand how you will be billed, and get your fee agreements in writing.
Familiarize yourself with online sources of legal information such as Nolo.com, the IRS
website, and your official state website.
www.nolo.com Volunteer Assignment Agreement Page 1 of 1
Volunteer Assignment Agreement
I, ,
am a volunteer with . It is my intent that any
Work I create in my capacity as a volunteer for ,
will become the property of ,
which will own full copyright in all such Work(s). To the extent that any Work(s) I create for
is not a work for hire, I assign and transfer to
all worldwide copyright interests in
the Work(s), for the life of such copyright interests.
In assigning all right, title, and interest in the Work(s) to ,
I intend to transfer to the full ownership in and
of the Work(s), including all rights of reproduction, distribution, display, and adaptation, and the right to
create derivative work(s). All such rights apply without limitation to any print, electronic, multimedia, or other
formats including HTML format for websites, distribution online by email, and all other methods of creating
and distributing media. I agree to sign and deliver to ,
either during or subsequent to the term of this Agreement, such other documents as
considers desirable to evidence the assignment
of copyright.
In consideration of this agreement, agrees to
(check all that apply):
allow me to include the Work or a reproduction of the Work in my portfolio or other such compilation,
to be shown to my prospective employers or clients, and no other commercial or noncommercial use. All
such portfolio uses must include a notice of ’s
copyright ownership.
acknowledge my transfer of the Work to
as a charitable contribution
give full and complete credit in all versions of the Work(s)
other:
I warrant that any Work(s) I create pursuant to this agreement are original and do not infringe any intellectual
property rights or violate any laws related to libel, privacy, or otherwise. I agree to indemnify and hold harm-
less in any
action arising out of, or relating to, these representations and warranties.
Volunteer Signature:
Volunteer Name:
Volunteer Address:
Date:
© n
o lo
Contractor Work-for-Hire Agreement
This Work-for-Hire Agreement (the “Agreement”) is made between
(“Nonprofit”), and
(“Contractor”).
Services
In consideration of the payments provided in this Agreement, Contractor agrees to perform the following
services:
.
Payment
Nonprofit agrees to pay Contractor as follows:
.
Works for Hire—Assignment of Intellectual Property Rights
Contractor agrees that, for consideration acknowledged in this Agreement, any works of authorship
commissioned pursuant to this Agreement (the “Works”) shall be considered works made for hire as that
term is defined under U.S. copyright law. To the extent that any such Work created for Nonprofit by Con-
tractor is not a work made for hire belonging to Nonprofit, Contractor assigns and transfers to Nonprofit all
rights Contractor has or may acquire to all such Works. Contractor agrees to sign and deliver to Nonprofit,
either during or subsequent to the term of this Agreement, such other documents as Nonprofit considers
desirable to evidence the assignment of copyright.
Contractor Warranties
Contractor warrants that the Work does not infringe any intellectual property rights or violate any laws related
to libel, privacy, or otherwise, and that the work is original to Contractor. Contractor agrees to indemnify
Nonprofit and hold it harmless in any action arising out of, or relating to, these representations and warranties.
Miscellaneous
This Agreement constitutes the entire understanding between the parties and can be modified only by
written agreement. The laws of the State of
shall govern this Agreement. In the event of any dispute arising under this agreement, the prevailing party
shall be entitled to its reasonable attorney fees.
Contractor Signature:
Contractor Name:
Contractor Address:
Contractor Tax ID #:
Date:
Nonprofit Authorized Signature:
Name and Title:
Address:
Date:
www.nolo.com Contractor Work-for-Hire Agreement Page 1 of 1© n
o lo
Nonprofit’s Initial Budget
Program 1 Program 2 Program 3 Administration (Unrestricted) Total
INCOME
Individual contributions
Membership revenues
Grants/Institutional donors
Special events revenues
Sponsorships
Income-producing activity 1
Income-producing activity 2
Total Income
EXPENSES
Program costs
Program cost type 1
Program cost type 2
Program cost type 3
Program cost type 4
Program cost type 5
Program cost type 6
Program cost type 7
Miscellaneous
Program Costs Subtotal
Fixed costs
Office rent
Salaries
Utilities
Telephone service
Office supplies
Postage
Website hosting
Fundraising costs
Insurance
Professional services (accountant, etc.)
Other fixed costs
Other fixed costs
Other fixed costs
Miscellaneous
Fixed Costs Subtotal
www.nolo.com Nonprofit’s Intitial Budget Page 1 of 2© n
o lo
Nonprofit’s Initial Budget (continued)
Program 1 Program 2 Program 3 Administration (Unrestricted) Total
Capital expenses
Computer equipment
Telephone/fax equipment
Office furniture
Vehicle
Capital Expenses Subtotal
Start-up costs
Printing—brochures, business cards, etc.
Website development
Telephone set-up
State fees (incorporation, etc.)
Other start-up costs
Other start-up costs
Start-up Costs Subtotal
TOTAL INCOME
Program Costs Subtotal
Fixed Costs Subtotal
Capital Expenses Subtotal
Start-up Costs Subtotal
TOTAL EXPENSES
NET ANNUAL REVENUES
www.nolo.com Nonprofit’s Intitial Budget Page 2 of 2© n
o lo
Index
501(c)(3) status, 1/18–21
advantages of obtaining, 1/15, 1/16
corporate sponsorships and, 6/27–28
defined, 1/16
do-not-call rules and, 6/17
filing rules, 1/11, 1/15, 1/21
grants and, 1/5, 1/12–13, 1/16, 1/23–24, 1/26,
6/25, Appendix F
information resources, Intro/6
IRS criteria, Intro/5–6, 1/11–12, 1/18, 1/21, 6/28
mission statements and, 2/7
Nonprofit Standard Mail rate and, 6/20
organizational test, 1/18, 1/21
state tax exemptions, 1/22, 11/8
for unincorporated associations, Intro/5, 1/5
VPA protections and, 1/8, 7/11
501(c)(4) status, 1/21
501(c)(7) status, 1/18, 1/19
501(c)(10) status, 1/18, 1/19
501(k) status, 1/18, 1/20
A Accountants, 12/6–7
billing procedures, Appendix F
CPAs, 11/4, 11/15, 12/6
distinguished from bookkeepers, 12/6
establishing relationships with, 11/2, 12/2,
12/6–7, Appendix F
fundraising issues, 6/28
hiring, 11/17, Appendix F
how to find, 12/7, Appendix F
tax professionals, 12/6, 12/7, Appendix F
Accounting
board member roles, 4/8, 4/14, 11/2
cash vs. accrual, 11/5
distinguished from bookkeeping, 11/3, 11/17,
Appendix F
financial accountability of nonprofits, 1/12–13
fundraising, flexible rules, 6/8
GAAP rules, 11/6
overview, 11/2–4
terminology, 11/17, Appendix F
See also Bookkeeping
Accounting periods (fiscal or tax year), defined, 11/6
Accounts, 11/3, 11/7
Accounts payable, defined, 11/3
Accounts receivable, defined, 11/3
Accrual accounting method, 11/5, 11/17, Appendix F
Activities of organization
based on mission, 2/5
educating new board members about,
Appendix F
income from, tax considerations, 1/11, 1/17, 1/18,
1/21, 1/22–24
outlined on website, 9/11
related vs. unrelated activities, 6/23
resources to support, 3/8, 5/3, 5/19, Appendix F
risk-management strategies, 1/7, 1/10–11
in strategic plan, 2/10–12, Appendix F
See also Unrelated business income tax
Administration, distinguished from programs, 3/3
Administrative contacts, domain name, 9/17
Administrative expenses (fixed costs or overhead),
3/4, 3/6, 3/10
I/2 STARTING & BUILDING A NONPROFIT
Advertising
defined, 9/4
distinguished from marketing, 9/3
as unrelated business income, 6/24, 6/27–28, 11/8
Agendas, board meetings, 4/17–19, Appendix F
Agreements. See Contracts and agreements
Alternative dispute resolution, 7/15
Articles of association, 1/11
Articles of incorporation
for 501(c)(3) status, Intro/5–6
in board guidebook, 4/12
board of directors specifications, 4/10
educating board members about, 4/15
filing fees, 1/15
filing procedures, Intro/3–4, 1/11, 1/12, 1/14–15
forms, downloading, 1/15
rejection of, 1/4–5
Assets (capital assets), 1/8, 11/10
Associations, defined, Intro/4
See also Nonprofit unincorporated associations
Attachments to contracts, 8/11
Attorneys. See Lawyers
“At will” employment, 7/3, 7/14
Audited statements (audits), 11/15–16
B Backup withholding, for independent contractors,
5/18
Board committees
board member roles, 4/8
function and makeup, 4/21, Appendix F
outlined in board guidebook, 4/12
reports at board meetings, 4/18–19
role of, 4/19, 4/20, 4/21, Appendix F
standing vs. ad hoc, 4/20
unnecessary, 4/20
Board guidebooks, 4/12, 4/21, Appendix F
Board meetings
agendas, drafting, 4/17–19, Appendix F
attributes of effective, 4/8, 4/16–20, 4/21,
Appendix F
decision-making methods, 4/19
duration of, 4/16
executive directors at, 4/16–17, 5/9
failure of board members to attend, 4/11, 7/9
inviting staff and outsiders to, 4/16–17
meeting regularly, 4/16
minutes of, 4/17, 4/18
notification of, 4/17
rules of order, 4/18
special meetings, 4/16
starting on time, 4/19
Board of directors/board members, 4/3–21
acceptance of strategic plan, 2/4, 2/5
checklist, 4/21, Appendix F
as donors, 6/4
educating new and prospective, 4/14–16,
Appendix F
as executive directors, 5/7
executive directors as, 5/9
failure to attend board meetings, 4/11, 7/9
as legal requirement, Intro/3, Intro/4, 1/12
liability insurance, 1/7, 7/9–10, 7/18
liability issues, 1/6–7, 4/6–7, 7/8–10, 7/19,
Appendix F
listed in directory, 4/12
number of, 4/9–10
performance-enhancing strategies, 4/11
removal policies, 4/11–12, 4/20–21, Appendix F
self-managing, 5/3
terms and term limits, 4/10–11, Appendix F
troublesome, dealing with, 4/19–20
UUNAA protections, 1/8, 1/9, 7/7, 7/10
voting rights, 1/26, Appendix F
VPA protections, 7/10, 7/11–12
See also Volunteers
Board of directors/board members, duties
accounting/bookkeeping, 4/8, 4/14, 11/2
activities, typical, 4/8
collaborative management, Intro/6
committee membership, 4/20
distinguished from staff roles, 4/7, Appendix F
executive director hiring and evaluation, 5/7–8,
5/9–10
fiduciary duty, 4/7, 7/8–9
fundraising, 4/3, 4/5, 4/8, 4/14, 6/4–5, 6/9, 6/16
job descriptions, 4/11
legal duties, Intro/3, 1/12, 4/3, 4/6–7, 4/12, 4/21,
Appendix F
marketing, 9/3
networking, 4/5–6
performance expectations, 4/11–12, 4/14, 4/21,
Appendix F
risk management, 7/14
INDEX I/3
strategic planning, 2/4
Board of directors/board members, selecting
articles of incorporation specifications, 4/10
board candidate FAQs, 4/15
bylaws specifications, 4/10, 4/21, Appendix F
diversity, 4/5–6, Appendix F
elected by members, 1/24, 4/16
passion and commitment of, 4/3–4, 5/5
recruiting strategies, 4/13–16
Board officers, 4/8–9
electing, 1/24, 4/16
liability insurance for, 7/9–10, 7/18
president, 4/9, 4/17–19, 4/20, 5/7, 8/9
secretary, 4/9, 4/17
terms and term limits, 4/10–11, Appendix F
treasurer, 4/9, 6/8
vice president, 4/9
VPA protections, 7/11–12
Board of trustees. See Board of directors/board
members
Booking agreements, 8/15–16
Bookkeepers, 11/2, 12/6
Bookkeeping
board member roles, 4/8, 4/14, 11/2
distinguished from accounting, 11/4, 11/17,
Appendix F
double- vs. single-entry, 11/4
overview, 11/2–4
software programs, 3/2, 11/2, 11/4, 11/7, 11/17,
Appendix F
terminology, 11/17, Appendix F
See also Accounting
Budget/finance committees, 4/19
Budgets, initial, 3/2–11
adjusting, 3/10
assembling, 3/8
board member roles, 4/8
checklist, 3/11, Appendix F
example, 3/9
form, Appendix F
goals, 3/3
importance of, 3/2
tracking with strategic plans, 3/2, 3/6
See also Expenses, estimated; Income, estimated
Budgets and budgeting
board member roles, 4/8
defined, 3/2
function, 11/2
for fundraising efforts, 6/5, 6/7–8
for graphic design, 9/5
for membership drives, 6/13
for publishing, 10/3–6, 10/9, 10/17, Appendix F
software to create, 3/2
See also Financial management
Business (organizational) structures
acceptance by staff and volunteers, 1/7
associations, Intro/4
checklist, 1/26, Appendix F
LLCs, Intro/4, Intro/5
membership vs. nonmembership, 1/24
partnerships, Intro/4, Intro/5
personal liability differences, Intro/4
reflected in business name, 1/5
sole proprietorships, Intro/4, Intro/5, 5/18
state requirements, Intro/3
taxation differences, Intro/4
See also Corporations; Nonprofit corporations;
Nonprofit unincorporated associations
Business directories. See Listings or directories
Bylaws
authority to sign contracts, 8/9
in board guidebook, 4/12
board of directors specifications, 4/10, 4/11, 4/21,
Appendix F
drafting, 1/15
giving to new board members, 4/15
special meetings, procedures, 4/16
state requirements, 1/15, 1/24
voting rules specified in, 4/19
C Capital assets (assets), 1/8, 11/10
Capital campaigns, 6/14
Capital expenses, estimating, 3/7, 3/9–11, Appendix F
Cash accounting method, 11/5, 11/17, Appendix F
Cash-flow projections, 11/12–15
CD-ROMs, how to use, Appendix A/2–4
Certified Public Accountants (CPAs), 11/4, 11/15, 12/6
Charitable immunity, for nonprofits, 7/6
Charitable solicitation registration and reporting
disclosure to donors, 6/17, 6/28–29, 6/32,
Appendix F
quid pro quo contributions, 6/28–29
state registration offices, Appendix C/2–6
I/4 STARTING & BUILDING A NONPROFIT
state regulations, 6/29–31
Unified Registration Statement, 6/30
Checklists
board of directors, 4/21, Appendix F
contracts and agreements, 8/17, Appendix F
financial management, 11/17, Appendix F
fundraising, 6/32, Appendix F
initial budget development, 3/11, Appendix F
marketing strategies, 9/19, Appendix F
naming and structuring nonprofits, 1/26,
Appendix F
professional help, 12/7, Appendix F
publishing informational materials, 10/17,
Appendix F
risk management and insurance, 7/19,
Appendix F
staff and volunteers, 5/19, Appendix F
strategic-planning process, 2/15, Appendix F
Childcare organizations, 501(k) status, 1/18, 1/20
Civic leagues, 501(c)(4) status, 1/21
Collaborative management, Intro/6
Compilations, financial, 11/15–16
Conferences, seminars, events, 6/22, 9/3, 9/5, 9/19,
Appendix F
Consensus-building, 4/19
Consideration (thing of value), defined, 8/4
Contractor Work-for-Hire Agreements, 5/18, 10/6,
10/12–14, Appendix F
Contracts and agreements, 8/2–17
agreement between parties, 8/2–4
attachments, 8/11
checklist, 8/17, Appendix F
compliance by nonprofits, 8/2
contract disputes, 7/2–3, 7/19
Contractor Work-for-Hire Agreements, 5/18, 10/6,
10/12–14, Appendix F
copyright, understanding, Appendix F
exchange of promises or things of value, 8/4–5
fee agreements with lawyers, 12/6, Appendix F
fee agreements with tax professionals, 12/7,
Appendix F
formality requirements, 8/6
implied/written employment contracts, 7/4
modifying signed agreements, 8/9
obfuscation, avoiding, 8/9, 8/17, Appendix F
oral vs. written, 8/5–7, 8/17, Appendix F
other party’s contracts, 8/8
risk-management strategies, 7/19
signing, 8/9, 8/15
standard contracts, 8/7–8, 8/17, Appendix F
terminating contracts, 8/13–14
venue-booking issues, 8/15–16
Volunteer Assignment Agreements, 10/6,
10/15–16, Appendix F
Contracts and agreements, clauses, 8/9–15
applicable law, 8/15
background descriptions (recitals), 8/10
contract title, 8/10
dispute resolution, 8/14
duration of contract, 8/13
indemnity, 8/13
material breach, 8/12
names and addresses of parties, 8/10
payment arrangements, 8/12
price, 8/11–12
schedules and deadlines, 8/11
service or product descriptions, 8/10–11
time is of the essence, 8/11, 8/12
warranties and representations, 8/12
Contributions. See Donations and contributions
Contributors. See Donors and contributors
Cooperatives, nonprofits as, 1/5
Copyright law
basics, understanding, 10/11–13, 10/17,
Appendix F
Contractor Work-for-Hire Agreements, 10/6,
10/12–14, Appendix F
ownership and works for hire, 10/6, 10/12–13
public-domain works, 10/11
rules for volunteers, 10/6, 10/13, 10/15
Volunteer Assignment Agreements, 10/6,
10/15–16, Appendix F
Corporate sponsorships, 6/27–28
Corporations, Intro/3–5
characteristics, chart, Intro/5
liability issues, Intro/4, Intro/5, 1/6–7, 1/10–11,
7/2
piercing the corporate veil, 1/6
state name requirements, 1/4–5
taxation, Intro/4, Intro/5
See also Incorporation; Nonprofit corporations
Counteroffers, 8/4, 8/8
CPAs (Certified Public Accountants), 11/4, 11/15, 12/6
Credit card pledges, 6/15
INDEX I/5
D D&O insurance policies, 7/18
Defamation disputes, 7/5
Desktop publishing software, 6/21
Direct mail, as fundraising tool, 6/19–22
Directories. See Listings or directories
Directors. See Board of directors/board members
Disclosure rules, for charitable donations, 6/17,
6/28–29, 6/32, Appendix F
Discrimination disputes
board members, 7/9
liability insurance, 7/18
staff members, 7/3, 7/4, 7/10
volunteer protections, 5/15, 7/6
Dispute resolution, 7/15, 8/14
Domain names
administrative contacts, 9/17
availability of, 1/3–4, 9/16
registering, 9/16–17
suffixes for, 1/4
technical contacts, 9/17
trademark conflicts, 1/3
Donations and contributions
charitable solicitation regulations, 6/28–32,
Appendix F
disclosure rules, 6/17, 6/28–29, 6/32, Appendix F
donated goods and services, 1/22, 11/9
establishing systems to manage, 9/3, 11/9
information resources, 11/9
membership fees as, 1/17
pledges, 6/15, 11/9
quid pro quo, 6/28–29
strategic-planning considerations, 2/4–5
substantiation rules, 6/29, 6/32, Appendix F
tax deductions on, 1/15–16
as unrestricted income, 3/4, 3/5
See also Fundraising
Donors and contributors
board members as, 4/3, 4/5, 4/8, 4/14, 6/4–5, 6/9
budget concerns of, 3/3, 6/8, 6/22
building relationships with, 6/3, 6/32, Appendix F
to capital campaigns, 6/14
to fund drives, 6/13–14
individuals as, 6/8
to planned-giving programs, 6/14
prospect lists, 6/8, 6/10–11, 6/21, Appendix F
staff members as, 6/8–9
targeting most-likely supporters, 6/3–4, 6/5,
6/8–11, 6/21
understanding what motivates, 6/11
as volunteers, 6/3
volunteers as, 6/8–9
Do-not-call rules for nonprofits, 6/17
Door-to-door canvassing, 6/19–22
Double-entry bookkeeping, 11/4
Duty of care, of board members, 4/7, Appendix F
Duty of loyalty (fiduciary duty), of board members,
4/7, Appendix F
E Economic reality test, employees vs. volunteers, 5/15
Elections, board officers, 1/24, 4/16
Email, 6/18–19, 9/7, 9/8
Employee associations, 501(c)(4) status, 1/21
Employees. See Staff members
Employer identification numbers (EINs), 5/18
Employment contracts, 7/4
See also Contractor Work-for-Hire Agreements
Employment-related disputes, 7/3–5
board member roles, 7/9
D&O policies and, 7/18
defamation, 7/5
discrimination, 7/3, 7/4, 7/9, 7/10, 7/18
employer liability concerns, 7/8
EPL coverage, 7/18
information resources, 7/5, 7/14, 7/15
retaliation, 7/3, 7/4
risk-management strategies, 7/14–15, 7/19,
Appendix F
sexual harassment, 7/4, 7/9, 7/10, 7/14, 7/18
wage and hour disputes, 7/4
wrongful termination, 7/3, 7/9, 7/18
Enrolled agents (EAs), tax professionals, 12/6
EPL (employment practices liability) coverage, 7/18
Errors and omissions (professional liability/
malpractice) insurance, 7/18
Estate planning, planned-giving programs, 6/14
Events. See Conferences, seminars, events
Executive directors, 4/3, 5/8
board meeting attendance, 4/16–17, 5/9
dual directorships, 4/7
fundraising role, 6/16
hiring, 4/8, 5/7–10
job descriptions, 5/7–8
I/6 STARTING & BUILDING A NONPROFIT
orientation for, 5/14, 5/19, 7/14, Appendix F
review procedures, 4/8, 5/9–10
risk-management role, 7/14
staff- and volunteer-management role, 5/2, 5/4
strategic-planning role, 2/5
voting rights, 5/9
when one is needed, 5/7–8
Expenses
categories, 11/9–10, 11/17, Appendix F
receipts, retaining, 11/10, 11/17, Appendix F
regular and capital, 11/10, 11/17, Appendix F
tracking, 11/2
Expenses, estimated, 3/2, 3/5–7, Appendix F
capital, 3/7, 3/9, 3/10, 3/11, Appendix F
checklist, 3/11, Appendix F
examples, 3/6, 3/8, 3/9, 3/10
keeping fixed costs low, 3/7
program costs, 3/3, 3/6, 3/10, 3/11, Appendix F
program vs. administrative, 3/3, 3/4, 3/10
regular, 3/5–6, 3/9, 3/10, 3/11, Appendix F
start-up, 3/7–11, Appendix F
stretching existing resources, 3/11, Appendix F
F Fair Labor Standards Act, 5/17
Federal Unemployment Tax (FUTA), 5/17–18, 7/15
Fictitious business names (FBNs), 1/3
Fiduciary duty (duty of loyalty), of board members,
4/7, 7/8–9
Financial Accounting Standards Board (FASB), 11/6,
11/15
Financial management, 11/2–17
audits, reviews, and compilations, 11/4,
11/15–16
bookkeeping and accounting, overview, 11/2–6
budget/finance committees, 4/19
cash-flow projections, 11/12–15
checklist, 11/17, Appendix F
common financial terms, 11/3
expenses, recording, 11/2, 11/9–10
income, recording, 11/2, 11/7–9
income statements, 11/10–12, 11/17, Appendix F
mismanagement of funds, avoiding, 11/3
tax reporting requirements, 11/3, 11/16
See also Accounting; Bookkeeping; Budgets and
budgeting
Fiscal year (tax year), defined, 11/6
Fixed costs (administrative expenses or overhead),
3/4, 3/6, 3/10
Foundation Center, 6/25–27
Founderitis, diagnosing and curing, 5/6
Founders of nonprofits, 5/5–7
Fraternal societies, 501(c)(10) status, 1/18, 1/19, 1/21
Fund drives, 6/13–15
Funders, corporate and governmental. See Donors
and contributors; Grants and grant-giving
organizations
Fundraisers, professional, 6/8, 6/14, 6/30
Fundraising, Intro/7, 6/3–32
board member roles, 4/3, 4/5, 4/8, 4/14, 6/4–5,
6/16
budgets for, 6/5, 6/7–8
building a compelling case, 6/4
capital campaigns, 6/14
checklist, 6/32, Appendix F
corporate sponsorships, 6/27–28
defining campaign, 6/11–14
defining goals, 6/6–7, 11/3
executive director’s role, 6/16
focusing on big picture, 6/5
fund drives, 6/13–14, 6/15
information resources, 6/3
networking role, 6/3, 6/9, 6/11
nonprofit accounting rules, 6/8
planned giving, 6/14
pledges, 6/15, 11/9
productive vs. nonproductive activities, 11/7–8
targeting potential donors, 6/3–4, 6/5, 6/8–11, 6/21
tax issues, 6/23–25
See also Charitable solicitation registration and
reporting; Donations and contributions; Grants
and grant-giving organizations; Marketing
nonprofits; Membership drives; Unrelated
business income tax (UBIT)
Fundraising plans, 6/5–6
Fundraising tools
choosing tactics, 6/6
direct mail, 6/19–22
do-not-call rules for nonprofits, 6/17
door-to-door canvassing, 6/19
email appeals, 6/18–19
in-person appeals, 6/15–16
printed materials, 6/16
selling products or services, 6/22–23
INDEX I/7
solicitation tips, 6/15
solicitors, training, 6/15, 6/32, Appendix F
special events, 6/22
telephone solicitations, 6/16–18
G Generally accepted accounting principles (GAAP),
11/6
Gift-planning programs (planned giving), 6/14
Gift premiums, disclosures, 6/28–29
Gifts vs. pledges, 6/15
Google, submitting websites to, 9/19
Grants and grant-giving organizations, 6/25–28
501(c)(3) status and, 1/5, 1/12–13, 1/23–24, 1/26,
6/25, Appendix F
board member roles, 4/14, 6/5
budget concerns of, 3/3
Foundation Center, 6/25
fundraising budget expectations, 6/8
proposal writing, 6/26–27
researching available, 6/6, 6/11, 6/25–26
strategic-planning considerations, 2/4–5
tax-exempt status requirements, 1/15, 1/16, 1/17
Graphic designers, 6/21, 9/5
Guidebooks. See Publishing informational materials
H Handbooks, for staff and volunteers, 5/13–14, 5/19,
Appendix F
Hate crimes, groups engaged in, 7/11
HTML (Hypertext Markup Language) code, 9/15
I Income
categories, 11/7–8, 11/17, Appendix F
of nonprofits, IRS definition, 1/16
receipts, retaining, 11/17, Appendix F
restricted, 3/3–4, 11/7
unrestricted, 3/3, 3/4, 3/5, 11/7
See also Taxes; Taxes, sales; Tax-exempt status;
Unrelated business income tax (UBIT)
Income, estimated
checklist, 3/11, Appendix F
for each program, 3/3
examples, 3/5, 3/9, 3/10
in initial budget, 3/2, 3/4–5, Appendix F
restricted vs. unrestricted, 3/3–5
Income statements (profit and loss reports), 11/10–12,
11/17, Appendix F
Incorporation
board of directors specifications, 4/10
financial accountability requirements, 1/12–13
legal information, online, 12/3
liability insurance, 1/7, 1/8
liability issues, Intro/4, Intro/5, 1/6–7, 1/10–11
overlap with similar groups and, 1/14
pros and cons, 1/5–15, 1/26, Appendix F
risk assessment/management, 1/7
Secretaries of State, state offices, Appendix B/2–7
state rules, Intro/4
tax-exempt status and, 1/5
See also Articles of incorporation; Bylaws;
Nonprofit corporations
Indemnity clauses in contracts, 8/13
Independent contractors
backup withholding, 5/18
Contractor Work-for-Hire Agreements, 5/18, 10/6,
10/12–14, Appendix F
distinguished from employees, 5/14–17, 5/19,
Appendix F
nonprofit liability for, 7/8
penalties for misclassification, 5/16
for publishing operations, 10/5–6, 10/12–13
rules for hiring, 5/18–19
Social Security or EIN numbers, 5/18
Infringement, trademark, 1/2–4
In-person solicitors, training, 6/32, Appendix F
Insubstantial benefits, IRS definition, 6/29
Insurance, 7/15–19
auto, 7/17
caring for policies, 7/15
checklist, 7/19, Appendix F
D&O, 7/9–10, 7/18
general liability, 7/16, 8/16
homeowners’ or renters’, 7/17
investigating and purchasing policies, 7/18
lacking, 7/19
liability, incorporation and, 1/7, 1/8
product liability, 7/16
professional liability, 7/18
property, 7/16–17
unemployment, 5/17–18, 7/15
workers’ compensation, 5/17, 7/7, 7/15
Intellectual property, publishing and, 10/6
I/8 STARTING & BUILDING A NONPROFIT
Internet, 1/2, 1/3, 1/4
See also Email; Websites
Invoices, defined, 11/3
IRS
articles of incorporation or association, filing,
1/11, 1/12, 1/15
charitable donation rules, 6/28–30
employees vs. independent contractors, criteria,
5/15–17
insubstantial benefits, definition, 6/29
See also 501(c)(3) status; Tax-exempt status
IRS Form 940, Employer’s Annual Federal
Unemployment Tax Return, 5/18, 11/16
IRS Form 941, Employer’s Quarterly Federal Tax
Return, 11/16
IRS Form 945, Annual Return of Withheld Federal
Income Tax, 5/18
IRS Form 990 and 990-EZ, Return of Organization
Exempt from Income Tax, 11/16
IRS Form 990-T, Exempt Organization Business
Income Tax Return, 11/16
IRS Form 1023, Application for Recognition of
Exemption Under Section 501(c)(3), 1/21
IRS Form 1099, for independent contractors, 5/18
IRS Form 1099MISC, Miscellaneous Income, 11/16
IRS Form SS-8, Determination of Employee Work
Status, 5/17
IRS Form W2, Wage and Tax Statement, 5/17, 11/16
IRS Form W-9, Request for Taxpayer Identification
Number, 5/18
IRS Publication 15-A, Employer’s Supplemental Tax
Guide, 5/16
IRS Publication 526, Charitable Contributions, 11/9
IRS Publication 557, Tax-Exempt Status for Your
Organization, 2/7
IRS Publication 561, Determining the Value of
Donated Property, 11/9
IRS Publication 598, Tax on Unrelated Business
Income of Exempt Organizations, 11/8
IRS Publication 926, Household Employer’s Tax
Guide, 5/18
IRS Publication 1391, Deductibility of Payments
Made to Charities Conducting Fund-Raising Events,
11/9
IRS Publication 1771, Charitable Contributions--
Substantiation and Disclosure Requirements, 11/9
IRS Publication 1779, Independent Contractor or
Employee, 5/16
J Job descriptions
for board members, 4/11
for executive directors, 5/7–8
for staff members, 5/10–11, 5/19, Appendix F
for volunteers, 5/10–11, 5/19, Appendix F
L Labor laws, 5/17–19, Appendix F
sexual harassment, 7/4, 7/9, 7/10, 7/14, 7/18
wages and hours, 5/17, 7/4
workers’ compensation insurance, 5/17, 7/7, 7/15
workplace discrimination, 5/15
workplace safety, 5/15, 5/17, 7/14–15
See also Employment-related disputes
Law school clinics, for legal advice, 12/4
Lawsuits and legal problems, 7/2–7
common types of, 7/19, Appendix F
contract disputes, 7/2–3, 7/19, 8/14
dispute resolution, 7/15, 8/14
incorporation to minimize, Intro/4, Intro/5,
1/6–7, 1/10–11, 7/2
personal injury lawsuits, 7/6–7, 7/18
risk-management strategies, 7/19
VPA and, 1/8, 7/10, 7/11–12
who is at risk, 7/7–12
See also Employment-related disputes; Risk
management
Lawyers, 12/2–6
501(c)(3) fund creation, 1/21
contract issues, 8/6
employment issues, 5/16, 7/4
establishing relationships with, 12/2, 12/7,
Appendix F
how to find, 12/4, 12/7, Appendix F
as legal coaches, 12/3, 12/4–5, 12/7, Appendix F
pro bono and law school clinics, 12/4
risk-management role, 7/2, 7/19, Appendix F
selecting, 12/2–3
Lawyers’ fees
billing procedures, Appendix F
contingency fees, 12/5
fee agreements, state laws, 12/6
INDEX I/9
to file articles of incorporation, 1/15
flat fees, 12/5
hourly fees, 12/5
for legal coaching, 12/3, 12/4–5
retainers, 12/5–6
Ledgers (registers), defined, 11/3
Legal coaching (unbundled legal services), 12/3–5,
12/7, Appendix F
Legally binding, defined, 8/2
Legal research
employment issues, 7/5
online resources, 12/3, 12/7, Appendix F
personal liability laws, 7/11
Liability, personal, 7/7–12
balancing considerations, 1/10–11
for board members, 1/6–7, 4/6–7, 7/8–10, 7/19,
Appendix F
as business structure criteria, Intro/4
for corporations, Intro/4, Intro/5, 1/6–7, 1/10–11,
7/2
for employees, 5/11, 7/10, 7/19, Appendix F
for LLCs, Intro/5
for partnerships, Intro/5
for sole proprietorships, Intro/5
UUNAA protections, 1/8, 1/9, 7/7, 7/10
venue booking and, 8/16
for volunteers, 1/6–7, 5/11, 7/10–12, 7/19, 12/3,
Appendix F
VPA protections, 1/8, 7/10, 7/11–12, 12/3
See also Insurance; Risk management
Liability waivers, 1/7
Limited liability companies (LLCs), Intro/4, Intro/5
Listings or directories
for corporate name searches, 1/5
defined, 9/4
as marketing tools, 9/3, 9/11
online, 9/18
for trademark searches, 1/3
M Macintosh users, using CD-ROM forms, Appendix
A/2–4
Mailing lists, for fundraising, 6/2
See also Prospect lists
Majority rule, for board decisions, 4/19
Malpractice (professional liability/errors and
omissions) insurance, 7/18
Management strategies, 5/2–7
See also Staff management; Volunteer
management
Marketing, 9/3–4
Marketing nonprofits, Intro/7, 9/2–19
approaches and goals, 9/4–5, 9/19, Appendix F
board member roles, 4/8
checklist, 9/19, Appendix F
event marketing, 9/5
general marketing, 9/5
importance of effective organization, 9/3, 9/19,
Appendix F
listings or directories, 9/3, 9/11
mass mailings, 6/13
media coverage/relations, 9/2, 9/7
membership drives, 6/13
networking role, 9/2, 9/3, 9/6–7, 9/19, Appendix F
niche marketing, 9/5
press releases, 9/2, 9/3, 9/8–10, 9/19, Appendix F
promotional strategies, 9/3
websites, 6/18, 9/2–3, 9/7, 9/11–19, Appendix F
See also Fundraising; Fundraising tools;
Publishing informational materials
Marks (trademarks), 1/2–3
Material breaches, defined, 8/12
Media coverage/relations
defined, 9/4, 9/7
as marketing tool, 9/2, 9/7
press releases, 9/2, 9/3, 9/8–10, 9/19, Appendix F
Mediation, contract disputes, 8/14
Members and membership
fund drives and, 6/13–14
legal issues, 6/12
managing membership, 1/25
membership benefits, 6/12, 6/13
soliciting members’ comments, 6/12
voting rights, 1/24–26, 6/12, Appendix F
Membership drives, 6/11–13
budgets for, 6/13
defining targets, 6/7
executing, 6/13
for nonmembership nonprofits, 6/12
Membership fees, 1/16, 1/17, Appendix F
I/1 0 STARTING & BUILDING A NONPROFIT
Meta tags, 9/18–19
Minimum wage, 5/17
Minutes, of board meetings, 4/17, 4/18
Mission and mission statements, 2/5–10, 2/15,
Appendix F
in board guidebook, 4/12
board member roles, 4/6, 4/8
defined, 2/5
defining mission, 2/7–8, 2/10
to distinguish for-profits from nonprofits, Intro/6
educating new board members on, 4/21,
Appendix F
examples, 2/9, 2/11
importance of, 2/2, 2/5–7
outlined on website, 9/11
publishing role, 10/3, 10/4
state requirements, Intro/3
N Naming nonprofits, 1/2–5
checklist, 1/26, Appendix F
domain-name availability considerations, 1/3–4
reserving names, 1/5
state requirements for corporations, 1/4–5
tax-exempt status and, 1/5
trademark conflicts, avoiding, 1/2–3
National Conference of Commissions on Uniform
State Laws, website, 1/9
Networking
fundraising role, 6/3, 6/9, Appendix F
marketing role, 9/2, 9/3, 9/6–7
publishing alliances, 10/4
relationships with professionals, 12/2
umbrella groups, 1/7
to understand donor behavior, 6/11
Network Solutions website, 1/3, 1/4, 9/16
Newcomers, attracting, 4/20
Newsletters. See Publishing informational materials
Nongovernmental organizations (NGOs). See
Nonprofit organizations
Nonowned auto liability insurance, 7/17
Nonprofit, defined, Intro/3
Nonprofit corporations, Intro/3, Intro/5
assets, protecting, 1/6–7
financial accountability, 1/12–13
membership nonprofits, 1/24
nonmembership (directorship) nonprofits, 1/24
personal liability, Intro/4, Intro/5, 1/6–7, 1/10–11
procedures for forming, Intro/4
reserving names, 1/5
state name requirements, 1/4–5
tax exemptions, Intro/4, Intro/5, 1/11–13, 1/15–24
See also Incorporation
Nonprofit organizations
charitable immunity protection, 7/6
cultivating relationships with other, 6/9,
Appendix F
defined, Intro/3
domain-name suffixes for, 1/4
do-not-call rules for, 6/17
vs. for-profit business, 1/12–13
groups engaged in hate crimes, 7/11
home-based, insurance for, 7/17
liability concerns, 7/8, 7/12
membership vs. nonmembership, 6/12
motivations for starting, Intro/2
overlap among similar groups, 1/14
pacing growth, 11/3–4
state organizational structure requirements,
Intro/3
umbrella groups, 1/7
volunteer-driven vs. business models, Intro/2
Nonprofit Risk Management Center, 7/11
Nonprofit Standard Mail rate, 6/19–20
Nonprofit unincorporated associations, Intro/3
501(c)(3) status eligibility, Intro/5, 1/5
articles of association, filing, 1/11
financial accountability, 1/12
tax exemptions, 1/11
UUNAA protections, 1/8, 1/9, 7/7, 7/10
O Occupational Safety and Health Administration
(OSHA), 5/15, 5/17
Offers, in contracts
counteroffers, 8/4, 8/8
defined, 8/2
duration of, 8/3
options, 8/3, 8/4
revocation of, 8/3–4
Options, in contracts, 8/3, 8/4
Oral agreements, legal status, 8/5–7, 8/17,
Appendix F
Organizational test for 501(c)(3) status, 1/18, 1/21
INDEX I/1 1
Orientation, for new staffers or volunteers, 5/14,
5/19, 7/14, Appendix F
Overhead (administrative expenses or fixed costs),
3/4, 3/6, 3/10
P Pamphlets. See Publishing informational materials
Parliamentary procedures (rules of order), for board
meetings, 4/18
Partnerships, Intro/4, Intro/5
Pass-through taxation, Intro/4
Patent and Trademark Depository Library (PTDL),
1/3
Performance expectations and review
for board members, 4/11–12, 4/14, 4/21,
Appendix F
for executive directors, 4/8, 5/9–10
for staff members, 5/13, 5/14, 5/19, Appendix F
for volunteers, 5/3–5, 5/13, 5/19, Appendix F
Periodicals. See Publishing informational materials
Personal injury lawsuits, 7/6–7, 7/18, 7/19
Personal injury protection (PIP), 7/17
Phone directories, to research trademarks, 1/3
Planned giving (gift-planning programs), 6/14
Pledges, 6/15, 11/9
Postage rates, for nonprofits, 6/19–20
Presidents, board, 4/9
authority to sign contracts, 8/9
dealing with troublesome board members, 4/20
drafting agendas, 4/17–19
as executive directors, 5/7
Press releases
elements of strong, 9/8
follow-up, 9/8
how to write, 9/8
as marketing tool, 9/2, 9/3, 9/19, Appendix F
sample, 9/9
sending, 9/8
Privacy, of email recipients, 6/18–19
Pro bono legal work, 12/4
Professionals. See Accountants; Lawyers; Tax
professionals
Profit and loss reports (income statements),
11/10–12, 11/17, Appendix F
Programs
board member roles, 4/8
cost of, 3/4, 3/6, 3/10, 3/11, Appendix F
distinguishing from administration, 3/3
evaluating progress of, 4/16
outlined in board guidebook, 4/12
outlined in strategic plan, 2/2, 2/15, 5/3,
Appendix F
resources to conduct, 5/3
Prospect lists
databases, 6/10, 6/32, 10/9, Appendix F
mailings and mailing lists, 6/21, 10/9
organizing and updating, 6/10
targeting most-likely supporters, 6/3–4, 6/5,
6/8–11, 6/21
PTDL (Patent and Trademark Depository Library), 1/3
Public-domain works, 10/11
Publicity, defined, 9/4
See also Marketing nonprofits; Press releases;
Publishing informational materials
Public relations, defined, 9/4
Publishing informational materials, 10/2–17
checklist, 10/17, Appendix F
coordination and follow-up, 10/9–11
distribution, 10/9
editorial mission, defining, 10/4–5
features, defining, 10/5
frequency of publication, 10/8–9
as marketing tool, 9/2, 9/3, 10/2, 10/9
online, 9/11, 10/6–8
print vs. digital formats, 10/6–8, 10/17,
Appendix F
pros and cons, 10/2–4, 10/17, Appendix F
publishing alliances, 10/4, 10/17, Appendix F
publishing plans, 10/4–11, 10/17, Appendix F
resource evaluation, 10/3–6, 10/9, 10/17,
Appendix F
See also Copyright law
Q Quid pro quo contributions, 6/28–29
R Reasonable care, defined, 4/7, 7/10
Recreational groups, 501(c)(7) status, 1/18, 1/19
Registers (ledgers), defined, 11/3
Registrants, domain name, 9/17
Registries, distinguished from registrars, 9/16
Regular expenses, estimating, 3/5–6, 3/9–11,
Appendix F
I/1 2 STARTING & BUILDING A NONPROFIT
Removal procedures, for board members, 4/11–12,
4/20, 4/21, Appendix F
Rental property, property insurance, 7/16–17
Representations, contract clauses, 8/12
Resource assessment
in initial budget, 3/8, 3/11, Appendix F
in strategic plan, 2/2, 2/12–13, Appendix F
Retaliation disputes, 7/3, 7/4
Reviews, financial, 11/15–16
Risk assessment, 1/7
Risk management
alternative dispute resolution, 7/15
checklist, 7/19, Appendix F
defined, 7/12
liability-minimizing strategies, 1/7, 7/12–19,
Appendix F
Nonprofit Risk Management Center, 7/11
See also Insurance; Lawsuits and legal problems;
Liability, personal
Robert’s Rules of Order, 4/18
RTF files, Appendix A/2–4
Rules of order (parliamentary procedures), for board
meetings, 4/18
S Search engines
fee-based, 9/17
meta tags, 9/18–19
placement concerns, 9/18
submitting site to, 9/19
Secretaries, board, 4/9, 4/17
Secretaries of State
articles of association, filing, 1/11
articles of incorporation, filing, 1/14–15
corporation name searches, 1/4–5
personal liability information, 7/11
state offices, locations, Appendix B/2–7
state trademark registries, 1/3
Self-dealing, rule against, 4/7
Seller’s permits, 6/24–25, Appendix E/2–6
Seminars. See Conferences, seminars, events
Sexual harassment disputes, 7/4, 7/9, 7/10, 7/14,
7/18
Single-entry bookkeeping, 11/4
Social groups, 501(c)(7) status, 1/18, 1/19
Social welfare organizations, 501(c)(4) status, 1/21
Software programs
for bookkeeping, 3/2, 11/2, 11/4, 11/7, 11/17,
Appendix F
to create Web pages, 9/15–16
for desktop publishing, 6/21
Sole proprietorships, Intro/4, Intro/5, 5/18
Staff management, 5/2–7
board member roles, 4/7, 4/14
checklist, 5/19, Appendix F
employment contracts, 7/4
executive director’s role, 5/2, 5/4
finding and keeping qualified staff, Intro/6–7
founders and, 5/5–6
hiring strategies, 5/12
job descriptions, 5/10–11, 5/19, Appendix F
liability insurance, 1/7
liability issues, 5/11, 7/8, 7/10, 7/19, Appendix F
marketing role, 9/3
new-worker orientation, 5/14, 5/19, 7/14,
Appendix F
number of activities and, 5/3
performance expectations and reviews, 5/4–5,
5/13, 5/19, Appendix F
reporting hierarchies, 5/13, 5/19, Appendix F
roles distinguished from board roles, 4/7,
Appendix F
sustainability strategies, 5/7
task outlines, 5/19, Appendix F
See also Employment-related disputes; Labor
laws; Taxes, employment
Staff members
acceptance of organizational structure, 1/7
accounting role, 11/2
on board, state laws, 5/9
capital campaign role, 6/14
distinguished from independent contractors,
5/14–17, 5/19, Appendix F
as donors, 6/8–9
fundraising role, 6/6
invited to board meetings, 4/16–17
for publishing operations, 10/5–6, 10/9, 10/12,
10/13
reasonable care exercised by, 7/10
to replace board members, 4/9
risk-management role, 7/14
UUNAA protections, 1/8, 1/9, 7/7, 7/10
volunteers as, 5/11
VPA protections, 7/11–12
INDEX I/1 3
Start-up costs, estimating, 3/7–11, Appendix F
State laws
boards of directors, 4/6–7, 4/10, 4/12, 5/9
charitable immunity protection, 7/6
charitable solicitation regulations, 6/30, 6/31
corporations, Intro/4, 1/15
disability insurance, 7/7
do-not-call rules for nonprofits, 6/17
employees vs. independent contractors, criteria,
5/17
fee agreements with lawyers, 12/6
implied employment contracts, 7/4
membership rights, 1/24–25
name requirements for nonprofit corporations,
1/4–5
online resources, 12/3
organizational structure requirements, Intro/3
seller’s permits, 6/24–25, Appendix E/2–6
statutes of frauds, 8/5
UUNAA protections, 1/8, 1/9, 7/7, 7/10
volunteer protections, 1/8, 5/15, 7/10–11
voting rights, 1/25, 6/12
wage and hour laws, 5/17, 7/4
See also Taxes, sales; Taxes, state
Statements, defined, 11/3
State offices
charitable solicitation registration offices,
Appendix C/2–6
corporate filing offices, 1/14–15, Appendix B/2–7
sales tax/seller’s permit agencies, Appendix E/2–6
Secretaries of State, 1/4–5, 1/11, 1/14–15, 7/11,
Appendix B/2–7
tax agencies, Appendix D/2–6
Statutes of frauds, 8/5–6
Strategic-planning process, 2/2–15
activities, 2/2, 2/10–12, 2/15, Appendix F
checklist, 2/15, Appendix F
choosing a time frame, 2/4
as circular, 2/12
editing and finalizing plans, 2/14–15
goals, 2/2, 2/10–12, 2/15, Appendix F
initial budget role, 3/2, 3/6
keeping it simple, 2/3–4
mission statements, 2/2, 2/5–10, 2/11, 2/15,
Appendix F
objectives, 2/2, 2/10–12, 2/15, Appendix F
as ongoing, 2/2
participants, selecting, 2/4–5, 2/15, 6/12,
Appendix F
programs, outlining, 2/2, 2/15, 5/3, Appendix F
resource assessment, 2/2, 2/12–13, 2/15,
Appendix F
SWOT analysis, 2/13–14, 2/15, Appendix F
Straw votes, 4/19
Substantially related activities, defined, 6/23
Substantiation rules, 6/29, 6/32, Appendix F
SWOT analysis, 2/13–14, 2/15, Appendix F
T Taxes
as criteria for selecting business structure, Intro/4
failure to pay, 7/13
on income-producing activities, 1/15
pass-through, Intro/4
planned-giving programs and, 6/14
reporting requirements, 11/3, 11/16
rules for corporations, Intro/4, Intro/5
rules for LLCs, Intro/5
rules for nonprofit corporations, Intro/4, Intro/5
rules for partnerships, Intro/5
rules for sole proprietorships, Intro/5
state tax agencies, locations, Appendix D/2–6
who should complete forms, 11/4
See also Unrelated business income tax (UBIT)
Taxes, employment
failure to pay, 7/13
FICA, 5/17, 11/16
for staff members, 5/14–17, 5/19, Appendix F
state, income, 5/17, 11/16
unemployment, 5/17–18, 7/15, 11/16
Taxes, local, 1/22
Taxes, sales
exemptions, for nonprofit organizations, 1/22,
11/8
failure to pay, 7/13
seller’s permits, 6/24–25, Appendix E/2–6
Taxes, state
employee income-tax withholding, 5/17
failure to pay, 7/13
online resources, 12/3
tax-exempt status, Intro/3, Intro/6, 1/11–12, 1/22
unemployment, 5/18, 7/15
Tax-exempt status
advantages and disadvantages of, 1/15–16, 1/18,
I/1 4 STARTING & BUILDING A NONPROFIT
1/22–24, 1/26, Appendix F
business names and, 1/5
creating separate funds, 1/21
defined, 1/16
do-not-call rules and, 6/17
incorporation and, 1/5, 1/11–13
IRS categories, 1/18, 1/19–20
Nonprofit Standard Mail rate and, 6/20
public trust role, 4/3
for sales tax, 11/8
state and federal, for nonprofit organizations,
Intro/3
for state taxes, Intro/6
taxes avoided by, 1/16, 1/18
See also 501(c)(3) status; Unrelated business
income tax (UBIT)
Tax penalties, avoiding, 11/4
Tax preparers, 12/6
Tax professionals, 12/6, 12/7, Appendix F
Tax returns, filing, 11/17, Appendix F
Tax year (fiscal year), defined, 11/6
Technical contacts, domain name, 9/17
Telemarketing
do-not-call rules for nonprofits, 6/18
professional solicitors, disclosures, 6/17
strategies, 6/16, 6/18
training solicitors, 6/32, Appendix F
Time is of the essence clauses, 8/11, 8/12
Trademark databases, 1/3
Trademark infringement, 1/2–4
Trademarks (marks), 1/2–3
Trade publications, to research trademarks, 1/3
Treasurers, board, 4/9, 6/8
Trusts, nonprofits as, 1/5
U UBIT. See Unrelated business income tax
UCC (Uniform Commercial Code), 8/5–7
Umbrella groups, risk-management strategies and,
1/7
UM/UIM (uninsured/underinsured motorist)
coverage, 7/17
Unbundled legal services (legal coaching), 12/3–5,
12/7, Appendix F
Unemployment insurance, 5/17–18, 7/15, 11/16
Unified Registration Statement (URS), 6/30, 6/31
Uniform Commercial Code (UCC), 8/5–7
Uniform Unincorporated Nonprofit Association Act
(UUNAA), 1/8, 1/9, 7/7, 7/10
Uninsured/underinsured motorist (UM/UIM)
coverage, 7/17
Unrelated business income tax (UBIT), 6/23–25
corporate sponsorships and, 6/27–28
defined, 6/32, 11/8, Appendix F
exemptions from, 6/23–24, 11/8
minimizing taxes on, 11/4
paid advertising as, 6/24, 6/27–28, 11/8
related vs. unrelated activities, 6/23
tax rules governing, 1/15, 1/17–18, 1/22–23, 6/32,
Appendix F
tracking, 11/8
URLs (website addresses), 9/11, 9/18
URS (Unified Registration Statement), 6/30, 6/31
U.S. Department of Labor, Small Business
Compliance section, 7/14
U.S. Patent and Trademark Office (PTO), 1/2, 1/3
U.S. Postal Service
Form 3624, Application to Mail at Nonprofit
Standard Mail Rates, 6/20
Nonprofit Standard Mail rate, 6/19–20
Publication 28, Postal Addressing Standards, 6/20
Publication 353, Designing Reply Mail, 6/20
Publication 417, Nonprofit Standard Mail
Eligibility, 6/20
V Venue booking, contract issues, 8/15–16
Vice presidents, board, 4/9
Videos. See Publishing informational materials
Volunteer Assignment Agreements, 10/6, 10/15–16,
Appendix F
Volunteer management, 5/2–7, 5/10, 5/11
acceptance of organizational structure, 1/7
board member roles, 4/7, 4/14
checklist, 5/19, Appendix F
executive director’s role, 5/2, 5/4
founders and, 5/5–6
handbook of workplace policies, 5/13–14, 5/19,
Appendix F
job descriptions, 5/10–11, 5/19, Appendix F
labor laws to protect, 5/15, 5/19, Appendix F
legal status, 5/15
liability insurance, 1/7
liability issues, 1/6–7, 5/11, 7/10–12, 7/19, 12/3,
INDEX I/1 5
Appendix F
liability waivers, 1/7
misconduct by volunteers, 7/12
new-worker orientation, 5/14, 5/19, 7/14,
Appendix F
number of activities and, 5/3
performance expectations and reviews, 5/3–5,
5/13, 5/19, Appendix F
reporting hierarchies, 5/19, Appendix F
sustainability strategies, 5/7
task outlines, 5/19, Appendix F
time as donated service, 11/9
UUNAA protections, 1/8, 1/9, 7/7, 7/10
Volunteer Protection Act (VPA), 1/8, 7/6, 7/10,
7/11–12, 12/3
Volunteers
income from activities conducted by, 1/22
misconduct by, 7/11
as non-cash assets, 2/12
recruiting, Intro/7, 5/11, 9/2
volunteer-hour statistics, 5/11
VPA definition, 7/11–12
works created by, copyright issues, 10/6, 10/13,
10/15–16
Volunteers, roles
accounting, 11/2
capital campaigns, 6/14
donors, 6/3–4, 6/8–9
fundraising, 6/6, 6/19, 6/24
graphic designers, 9/5
marketing, 9/3
membership drives, 6/13
publishing operations, 10/5–6, 10/9, 10/12, 10/13
staff members, 5/11
Voting rights
deciding who will have, 1/24–25, 1/26, 6/12,
Appendix F
of executive directors, 5/9
as membership benefit, 6/12
state requirements, 1/25, 6/12
Voting rules, for board meetings, 4/19
W Wage and hour issues, 5/17, 7/4
Warranties, contract clauses, 8/12
Web hosts, 9/15–17
Website addresses (URLs), 9/11, 9/18
Website designers, 9/5, 9/12, 9/13
Websites
creating, 9/11–19
defining and developing content, 9/13–15
domain-name availability, 1/3–4
domain-name registration, 9/16–17
information resources, 9/11–12
as marketing tool, 6/18, 9/2–3, 9/7, 9/19,
Appendix F
meta tags, 9/18–19
navigation concerns, 9/13, 9/14
online publishing, 9/11, 10/6–8
vs. printed formats, 10/6–8, 10/17, Appendix F
promoting sites, 6/18, 9/7, 9/17–19
purposes served by, 9/12–13, 10/7
submitting to search engines, 9/19
suffixes for nonprofits, 1/4
time-sensitive materials, including, 9/13
trademark conflicts, 1/2, 1/3
uploading Web pages, 9/17
Websites, specific
Financial Accounting Standards Board, 11/6
Foundation Center, 6/26
IRS, 5/18, 12/7, Appendix F
National Conference of Commissions on Uniform
State Laws, 1/9
online legal information, Appendix F
OSHA, 5/17
Postal Service’s Postal Explorer, 6/20
state, information on nonprofits, 12/3, 12/7,
Appendix F
U.S. Department of Labor, 7/14
Whistleblowing, employees fired for, 7/3
Windows users, using CD-ROM forms, Appendix
A/2–4
Workers’ compensation insurance, 5/17, 7/7, 7/15
Workforce. See Staff members; Volunteers
Workplace safety, 5/15, 7/6, 7/14–15, 7/19, Appendix F
Works for hire, copyright ownership, 10/12,
10/13–14
Wrongful termination disputes, 7/3, 7/9, 7/14, 7/18
Y Yahoo!, submitting websites to, 9/19
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- Table of Contents
- Introduction: Doing Good and Doing It Well
- A. Who Should Read This Book
- B. Nonprofit Basics
- C. Running a Nonprofit
- 1 Naming and Structuring Your Nonprofit
- A. Choose a Name for Your Nonprofit
- B. Should You Incorporate?
- C. Do You Want Tax-Exempt Status?
- D. Should You Have Voting Members?
- 2 Developing Your Strategic Plan
- A. Components of a Strategic Plan
- B. Decide Who Will Participate
- C. Develop Your Mission Statement
- D. Outline Specific Goals, Objectives, and Activities
- E. Assess Your Resources
- F. Identify Strategies
- G. Edit and Finalize Your Plan
- 3 Developing Your Initial Budget
- A. Set Up Your Budget
- B. Estimate Income
- C. Estimate Expenses
- D. Assemble Your Budget
- 4 Your Board of Directors
- A. What Makes a Good Board
- B. The Board’s Duties and Tasks
- C. Board Policies and Procedures
- D. Recruiting Board Members
- E. Holding Effective Board Meetings
- F. The Role of Committees
- 5 Your Workforce: Staff and Volunteers
- A. Developing a Management Strategy
- B. Hiring an Executive Director
- C. Hiring and Managing Staff and Volunteers
- D. Employees and Independent Contractors
- E. Required Paperwork, Filings, and Taxes
- 6 Fundraising
- G. Funding From Grants
- H. The Law of Fundraising
- I. Working With Professional Fundraisers
- 7 Risk Management and Insurance
- A. Common Legal Problems
- B. Who Is at Risk?
- C. Managing Your Nonprofit’s Risks
- 8 Understanding Contracts and Agreements
- A. Contract Law Basics
- B. Using Contracts in the Real World
- C. Typical Contract Terms
- 9 Marketing Your Nonprofit
- A. Marketing and Public Relations at Work
- B. Fundamental Marketing Tools
- C. Creating a Website
- 10 Publishing Informational Materials
- A. Decide Whether to Publish
- B. Create a Publishing Plan
- C. Copyright Basics for Nonprofit Publishers
- 11 Managing Your Finances
- A. Bookkeeping and Accounting Overview
- B. Tracking Income and Expenses
- C. Creating Basic Financial Reports
- D. Audits, Reviews, and Compilations
- E. Reporting Requirements
- 12 Getting Professional Help
- A. Relationships Are Critical
- B. Working With Lawyers
- C. Working With Accountants and Other Professionals
- Appendices
- A How to Use the CD-ROM
- B State Secretary of State or Other Corporate Filing Offices
- C State Charitable Solicitation Registration Offices
- D State Secretary of State or Other Corporate Filing Offices
- E State Sales Tax or Seller’s Permit Agencies
- F Forms and Checklists
- Checklist: Naming and Structuring Your Nonprofit
- Checklist: Developing Your Strategic Plan
- Checklist: Developing Your Initial Budget
- Checklist: Your Board of Directors
- Checklist: Your Workforce: Staff and Volunteers
- Checklist: Fundraising
- Checklist: Risk Management and Insurance
- Checklist: Understanding Contracts and Agreements
- Checklist: Marketing Your Nonprofit
- Checklist: Publishing Informational Materials
- Checklist: Managing Your Finances
- Checklist: Getting Professional Help
- Volunteer Assignment Agreement
- Contractor Work-for-Hire Agreement Warranties
- Nonprofit’s Initial Budget
- Index