6 Things To Know If You Want To Rock At Running A Nonprofit
I got a call from a colleague the other day, referring a friend who wanted to start a nonprofit. She, of course, was asking about grants and how a new nonprofit would go about getting them. So, my friend connected us so I could help provide insight into nonprofits and the funding process.
We spoke over the phone for about an hour. I asked a few questions, only to realize she had no idea what she was getting into! Someone told her all she had to do was get three people on her board, and those could be people from her family—and she could start a nonprofit. She could get some grants, which is Free money she didn’t have to pay back, and bam! She’d be good to go.
Family, it’s never that easy.
Nonprofit organizations are businesses. The only difference between a nonprofit and a for-profit is that the revenue generated from the nonprofit business HAS to go back into the business. But because Founders start nonprofits with good intentions instead of good information, they get sucked into a black hole that could leave them penniless if they don’t course-correct right away.
The number one reason why nonprofits fail is that Founders have no idea all that goes into running them—or all that comes with being an Executive Director.
The very first thing you should know if you’re considering starting a nonprofit and becoming an Executive Director/CEO of a nonprofit organization is that the nonprofit organization is NOT your company. You may be the Founder, but that organization belongs to the IRS.
When you go through the process of becoming a nonprofit, you are agreeing in your articles of incorporation—the documents that prove to donors you are a public charity—that the organization belongs to no one. That in fact, the sole purpose of the organization is for the public good. As the Founder, all it means is that you started the organization. That’s it.
This is very important to know and understand because if you decide to function as the Executive Director/CEO, your role in the organization could very well be terminated. And you would have no legal cause to undo the decision.
The second thing you should know is that the most powerful position in a nonprofit organization is the Board President. The President governs the Board of Directors, which is responsible for creating the vision and fundraising. The Executive Director is responsible for bringing that vision to fruition. The Executive Director reports to the Board, which is also responsible for hiring and firing them. But the President is a volunteer role unlike the Executive Director position, This is why most Founders take on the ED role—because they want to receive a salary.
So you see…you have to determine what’s most important to you: running the nonprofit (President) or getting paid (Executive Director). Whatever your decision, go in knowing the facts. Regardless of who you are (the fact that you are the organization’s Founder, how much of your personal funds you’ve invested in the organization, and how long you’ve run it), the nonprofit is not your company. You don’t own it. It is a public charity and must be run as such.
The third thing you should know is that running a nonprofit requires business skills. Often, Founders start nonprofits because they are passionate about a cause and want to make a difference. But that, sadly, is not enough. Nonprofits have to file taxes, comply with IRS rules and regulations, and operate according to Generally Accepted Accounting Principles (GAAP).
If there is a staff, there are basic labor relations and human resource management principles the organization must abide by. There are several types of insurance a nonprofit organization must have: Directors and Officers and Liability. If there are company vehicles, you will need commercial auto insurance. If your nonprofit provides services to children, it will need to perform background checks on your employees and volunteers. I can go on and on, but the bottom line is that as a business, your organization needs to have a solid infrastructure built on policies and procedures, and processes by which to implement them.
Needless to say, these infrastructural requirements will cost you. Payroll, insurance, marketing, materials and supplies, rent, utilities, and consulting services (IT, Accountant, Grant writer, Web designer, etc.) are all basic necessities a business has to have in order to operate. Yet, many Founders are caught off guard when it comes time for them to put these things in place in order for their nonprofits to function.
There is a lot of misinformation about what a nonprofit is, what it takes to make it successful, and what the Founder’s role is in making it all come together.
Point Number four (Let me simplify it for you): The Founder’s role is to create the infrastructure so that the nonprofit can run effectively and efficiently to serve the public good. If the Founder decides to function as the Board President s/he will continue to provide governance, guidance, direction, oversight, and leadership to the organization by ensuring funds are raised to support its goals and objectives. If the Founder decides to function as the Executive Director, s/he will be responsible for the day-to-day operations, ensuring that the organization meets the goals established by the Board of Directors.
My hope is that with this knowledge, Founders will make more informed decisions when it comes to starting nonprofits. Knowing all that it entails will help Founders powerfully set nonprofits up for success. Going into the role knowing the time, cost, and expectations will help reduce the time spent trying to figure it out. Going into the role equipped will help Founders position their nonprofits so that they can make the impact they were established to make.
The fifth, and I think very important point Founders should know prior to starting a nonprofit, is that in order to obtain a consistent salary, several things need to be in place:
A seasoned, well-connected board of directors (who understand it’s their role to fundraise to ensure funding to cover salaries)
A process for sustaining salaries: fund development plan, diverse funding streams, and skilled people who can implement the plan
Hope is not a strategy. And one fundraiser will likely not yield enough return to sustain an annual payroll. Intentionality (a plan) and process (action) are required by a group of skilled individuals (not just the Founder) in order to create a long-term strategy to fund salaries consistently.
That’s why, as the Founder, it is important that s/he understands point number four, which is that the Executive Director is responsible for all things Operations. The board is the visionary group. Paid staff are responsible for implementing that vision (programs, projects, services, events, day-to-day operations) and the Executive Director is ultimately responsible for all of it.
That’s human resources, programs, outreach, volunteer, marketing, fiscal management, and fundraising. All of it. It’s a lot, and if you don’t have the skills going in, it’s going to be a huge undertaking. One that, unfortunately, is overwhelming and the reason why the statistics are so high for startup nonprofits closing their doors (40%) within 2 years of incorporation.
And finally, number six, although the Board of Directors is legally responsible for fundraising for the nonprofit, the Executive Director is usually the main driver. This is because s/he oversees the day-to-day operations and has an in-depth understanding of the needs of the organization. So, even though the Executive Director will not be a voting member of the board, it is important that s/he is actively engaged—I would go so far as to say, the driver—in creating fundraising strategies that help strengthen and sustain the organization.
Passion and commitment may be the reason why you want to start a nonprofit, but they can’t be the reason why you do it. As the Founder, you should really go into starting a nonprofit with the same process you would if you were starting a for-profit company:
Doing a market analysis
Creating a business plan
Raising the necessary capital needed for the first 2-5 years of operations
Identifying key leaders/roles of the organization
Mapping out a plan for program impact
Going into the role informed, understanding how much work it takes, what the IRS expects, and what it means to function as the ED (paid position) is the first step in ensuring a successful nonprofit organization.
If you are certain the ED role is for you, go in powerfully. Set up your nonprofit in a way that makes running it easier on you.
Check out ”How to Start a Nonprofit, the right way! in 90 Days or less.” In it, you get the foundational pieces you will need to help set up and run your nonprofit organization.