Starting a nonprofit is intimidating—but what’s scarier is seeing it go. Between rules and complications, it might seem like the odds are stacked against your organization. With a dose of helpful knowledge, though, you can be equipped for whatever comes your way.
To give you a hand in the process, we’ve identified four main problems that fading nonprofits have encountered. These are the big dogs of nonprofit obstacles, but with a little bit of education and insight, you’ll discover that their bark is worse than their bite.
Proper Reporting
Make sure your organization looks as good on paper as it does in person. There is a set of four basic financial reports that your nonprofit should be prepared to come across. Although these set the basic framework, be mindful of your organization’s reporting requirements in case your organization requires the use of other statements.
As a first step, expect to understand and report on the following:
- Statement of financial position. This form, also known as your balance sheet, offers a glimpse at the financial state of your nonprofit. It lists all of the assets, liabilities and net assets within your organization.
- Statement of activity. The statement of activity serves as the income and expense statement. This report keeps track of your profits and losses, which can help your NPO react, alter and prepare for the future.
- Statement of cash flow. Along with the statement of activity, this report can assist in the supervision of your organization’s financial future. It also offers a helpful analysis of your nonprofit’s current resources by tracking the income and expenses that are flowing in and out of your establishment.
- Statement of functional expenses. This statement splits your organization into its separate functions (like management or fundraising), then lists the subsequent expenses for each.
Insurance
It’s hard to break out the pocketbook for things that aren’t for certain. When it comes to insurance though, nonprofits are better off playing it safe than having to pick up the pieces. General liability insurance is a good place for nonprofit organizations to start. This coverage oversees injuries or property damage that occurs in your office or locations where you might hold courses and events.
Apart from general liability, there’s insurance to cover anything under the sun. Plans like property, fidelity or accident insurance are all types that your organization may want to consider depending upon your budget and whether or not they will be a potential concern.
Your board members should also be held responsible for supervision over your nonprofit’s insurance. Make sure that you have a strategy in place for oversight of potential risks and how to reduce them along with a regular checkup on your insurance coverage.
Board Governance
Kick off a successful start with your nonprofit’s board of directors by teaching them about their role. Before getting into the game, board members should have an accurate understanding of their job description and how it operates.
Some obligations will change depending on the organization, while others are standard for boards all across the nonprofit sector. Legally, your board members are held to these three responsibilities:
- Duty of due care. Board members are held accountable for making sure that the organization is sensibly using its resources in order to maintain the nonprofit’s values and success.
- Duty of obedience. Nonprofits are accountable for following both internal and external laws and ethical practices. Board members should have a commitment to ensure that their organization is abiding by the rules and their stated mission.
- Duty of loyalty. Board members shouldn’t act in self-interest. Bottom line: decisions should be made to benefit your nonprofit, not for individual gain.
Compliance
Unfortunately, there are more than a handful of things to keep in mind to maintain compliance. Don’t get overwhelmed though—you don’t have to be an expert on every issue. Focus your research on the potential problems that could arise for your nonprofit.
Here are ways to dodge the most prominent areas of concern:
- Private benefit. Always make decisions for the benefit of your nonprofit, never for personal gain.
- Lobbying. If your nonprofit is involved with lobbying, you should be performing frequent “expenditure tests.” These can help you avoid losing your tax-exempt status due to excessive lobbying activity.
- Political activity. Nonprofits are barred from activities that reward the causes of one political candidate over another. As an alternative, your organization can look into possibilities for boosting voter education and participation.
- Unrelated income. Be aware of your nonprofit’s income and its connection with your organization’s purpose. Some problems commonly arise with advertising space and selling merchandise unrelated to a nonprofit’s purpose.
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Throwing caution to the wind has left more than a few nonprofits in the dust. Following the rules can be easy, though—you just have to know what the rules are. With an adequate understanding of how to keep your organization in check, you can continue what you do best without having to fear the worst.
