Today, you might feel there are few things you have control over. Fortunately, taking control of your nonprofit finances is not one of them.

Since the novel COVID-19 pandemic has forced the world into a remote economy, nonprofits face a time of financial transition.

91% of global nonprofit organizations suffered operational damage in the crisis. This 91% is an improvement from the 96.5% recorded in March.

Waiting for normalcy is only a long-term solution that many organizations can’t afford. However, learning how to transition into a new normal can help your organization get back on its feet.

Understanding how to manage your finances is the best path to regaining stability. Here’s how you can start taking control of your nonprofit finances sensibly and effectively.

Taking Control of Your Nonprofit Finances

It’s important to consider how money transfers through different hands within your organization.

A board of directors should oversee general operations. An added financial branch of operation can still go a long way. Delegate financial tasks to a specific individual or group of individuals. That way, you centralize the information handled in the accounting process.

Along with financial managers, you can outsource your accounting tasks. Getting professional advice is a much more efficient way to get your finances in order.

Nonprofits that manage finances internally can appoint at least 2 or 3 people to manage. They can be direct points of contact between the organization and the finances.

You can also assign different functions to those in your financial branch. One member can manage executive functions while supporting members manage secondary tasks. This structure promotes organization, accountability, and transparency within your financial branch of operation.

Multiple Streams of Funding

Adding more streams of funding to your organization is essential to financial balance. Receiving support from more than a few sources adds to the revenue to collect.

It also adds more financial security. Instead of relying on one funding source, you open up more opportunities.

Collective revenue from various sources adds up and gives you more stability. If one stream dries up, you’ll still have the flexibility to focus on others in times of need.

Relevant Streams of Funding

While you grow more streams of funding, you should also make your sources relevant to the times. Prior to the pandemic, common sources of funding for nonprofits included:

• Sponsorships
• Grants
• Programs tuition
• Fundraising Events
• Donations
• Subscriptions

Nonprofits that focus more on in-person fundraising should consider more reliable funding sources.

Instead, there are more reliable, contactless methods of funding. These include sponsorships, grants, donations, and subscriptions.

Sponsorships and grants often involve some research and individual outreach. The scope of their awarding processes also requires waiting periods and gaps. Still, they’re useful sources to consider for long-term operations.

Tracking Expenses and Profits for Taking Control of Your Nonprofit Finances

Multiple streams of funding ensure that money flows into the organization.

This is a two-way stream. It’s possible for cash to flow out of an organization at a high rate.

Tracking the expenses shows you funds entering and exiting the budget. Your financial branch tracks expenses and two-way cash flow. The board of directors advises the active spending goals and habits.

The board and financial managers should meet on a regular basis. Your budget and the size of your organization should determine how often you meet.

It’s also helpful to automate some of the tracking process through software. You can use tools like Quickbooks or GetApp. Tools like these will allow you to begin taking control of your nonprofit finances.

These have specialized features for nonprofit organizations. They can also help you with the distinction between nonprofit and commercial operations. Many softwares also include tax forms and documents. You can use these to help your organization with legal compliance guidelines.

Basic Budgeting

Your organization should use budgeting to inform the other areas of financial management. Here are two basic budgeting tips to follow.

Budget Structures

Each nonprofit should have monetary goals relative to their operational goals. There are three main budgeting structures every nonprofit should know:

• Surplus budget
• Balanced budget
• Deficit budget

These structures are often used in government or commercial spending. They’re useful guidelines to help you estimate profit margins and losses.
When your fundraising efforts exceed expectations, you have a surplus budget.

A balanced budget indicates the expenses are expected to meet profits. In contrast, a deficit budget means that expenses exceed profits. So, there’ll be a margin of lost funds to recover.

Your total budget operates within these structures. As you continue to fundraise, you can determine which type of budget your organization currently operates on.

Budget Timelines

A budget should also include a realistic timeline for specific goals. Be sure to include important landmarks in the year where you need to measure performance.

You can split the fiscal and calendar years into quarters to make goals more realistic. Then expand to an annual timeline to measure more long-term growth.

Board meetings should also align with your timeline of goals. Or, you can increase their frequency to keep up with constant changes.

Taking Control of Your Nonprofit Finances: Outlining Policies

The most important step in financial management is documentation. This includes recording tangible copies of your budget, funding sources, and financial goals.

However, you should also consider implementing or updating your operational policies. This includes spending and investment policies.

Updating your policies may crossover with budgeting. Typically, a budget tends to represent your organization in numbers. A policy shows the larger investment potential.

The content in your policy may also intersect with legal guidelines. For nonprofits, these guidelines often determine eligibility for certain funding opportunities or methods.

Manage Your Nonprofit Finances Now

Financial health is an essential part of any nonprofit organization. We can show your organization how to weather the storm and become financially resilient.

With our team of experts, you can get professional accounting and bookkeeping services. We’ll tailor your financial services to the needs of your organization.

To begin taking control of your nonprofit finances today, contact us, and request a meeting.

Episode 1 of A Modern Nonprofit Podcast tells listeners how their nonprofits can be diverse and inclusive.

Are you looking to hire a freelancer as a non-profit?

If so, you probably have a lot of questions. You want to hire someone who will be a good fit for your business and produce high-quality work.

Indeed, there are many qualified freelancers out there. But there are also those who won’t be as great a fit for your company.

How do you tell the difference? We’ll go into some tips below.

Keep reading to learn more!

Why Hire a Freelancer?

If you’re a non-profit, you know the struggle of trying to decide when to hire a full-time member of staff.

The advantages of hiring a freelancer are well documented. It could help you save money, reduce your risk, and access specialized talent and skill sets that you wouldn’t be able to afford otherwise.

After all, you want as much money as possible to be able to go to your cause. In addition, most donors don’t give to your office administration fund. This often doesn’t leave you with endless funds to add people to your payroll.

Yet, you still need to get the work done. If it’s not something you can do yourself, you might find yourself at a bit of a loss.

This is when you should hire a freelancer.

What Are Freelancers?

Freelancers use their professional expertise to help a variety of clients.

Yet, instead of working for a company, they work for themselves, setting their own hours and prices.

This can have a variety of advantages. For one, freelancers offer you the flexibility to only pay for the services you need, when you need them. Frequently, freelancers and companies develop long-term working relationships.

Yet, you are under no obligation to use a freelancer more than once. This means you don’t have to keep them on your regular payroll when you’re finished using their services.

Are There Any Cons to Hiring a Freelancer?

For all of the positives there are to working with a freelancer, quite a few negatives also exist.

Chiefly, these pertain to variances in professional experience. These days, anyone can create a profile on places like Upwork or ProBlogger and market themselves as a freelancer.

So, how do you ensure you’re finding a true professional who will work well with your company?

Follow the steps below for a better freelancer hiring experience!

1. Identify Your Needs

A successful hiring process always begins with you.

Before you start searching for freelancers, identify what type of work you need done. There are many different types of freelancers, and you don’t want to hire a freelance social media manager when you really need a freelance writer.

Be as specific as possible, outlining the length and any other pertinent details.

Work out a budget as well. Do some research into what the average freelancer charges for this service and make sure you can afford it.

Compile all of these aspects into a list and allow anyone who will be over the freelancer or their project to contribute to it. The clearer you can be with yourself and your team, the higher the chances of hiring well.

2. Create a Job Ad

Using the information you just gathered, write a compelling job ad.

In order to attract freelancers, tell them as much information about the project as possible. For instance, if you want to hire a WordPress freelancer to help you with your website, emphasize how they’ll play a crucial role in your web development.

Then, inform them of any benefits they may receive, including what you’re willing to pay or the possibility for continued work. If you’re willing to discuss pay with them, take note of that as well.

Last, if your project is urgent, write that in as well. This will let the freelancer know that they should have a decent chunk of time in their schedule if they plan on working for you.

Require your applicants to send you their resumes and references. That way, you can see their professional experience and ask previous clients if they were satisfied with their work.

After you’ve finished creating your job ad, post it on a job site! Freelancers often visit certain sites, such as Fiverr, Upwork, and ProBlogger, to look for jobs, so make sure yours is there!

3. Search Freelancer Websites

As mentioned above, many freelancers go on freelancer job boards quite often.

Did you know that many of them also have profiles on these sites?

Usually, these profiles contain information on the types of work they do, how to contact them, as well as client reviews. If you’re looking for a specific type of freelancer, simply go on one of these sites and search for a particular service.

This should pull up a list of top-rated workers. Peruse through their profiles until you find a person you believe would be a great match. Then, reach out to them and pitch your project.

4. Pay Them for a Test Service

Do you have a specific freelancer in mind but don’t know whether or not they’d be right for you?

Offer to pay them for a test service. This test can be anything you’d like it to be as long as it showcases the skills necessary to complete your project. To save yourself money, make it shorter than your actual work order.

Once they return the test to you, evaluate it and see what you think of their work.

5. Ask to See a Portfolio

Most freelancers keep portfolios of their work to show potential clients.

Before hiring someone, ask to see their portfolio or other examples of their finished past work. This will give you an idea of what this person sees as a professional level of quality.

Want to Take Control of the Money You’re Spending?

If you decide to hire a freelancer, you are making a very good financial choice for your non-profit.

After all, freelancers often get the work done without giving you the additional burden of putting a full-time staffer on your payroll. They also often provide professional-level experience for a lower price.

Want to better manage your non-profit’s finances? See how we can help!

Events are one of the most popular fundraising techniques for charities and nonprofits. Unfortunately, quarantine enforcement led to the cancellation of most events for the foreseeable future.

Many nonprofits are now wondering how to meet their budget goals without hosting charity events. If this is you, keep reading for our best event ideas on how to raise money using virtual events.

Virtual Runs And Walks

Charity runs and walks were a staple way to raise funds before the stay at home directives started. But you can still hold successful virtual runs and walks for your organization. What is even better is that you will have fewer logistics to track.

There won’t be a need for costly overhead and time-consuming tasks like hiring a venue or recruiting volunteers. You also don’t have to worry about clearing roads, providing water and restroom facilities, or printing branded material. All you would need to do is recruit participants by promoting the event to your social media followers and email lists.

People that sign up would then need to pay a joining fee and then fundraise for you by getting donations from their network. On the day of the event, the participants can then pick a place to complete their run. They could choose to run on a treadmill at home or around their home or neighborhood.

Facebook Watch Party

One of the best ideas for how to raise money on Facebook is to hold a virtual watch party on the platform. If you have an in-house documentary or talk that you would like to share with the world then a watch party is the perfect way to do so.

You would raise funds by selling tickets, snacks, and merchandise in advance. Towards the end of the watch party, you could also ask for donations from the attendees.

Virtual Tour

Showing your charity’s need for funds is usually an effective way of getting donations. So, you can raise funds by hosting a virtual tour of your projects or facilities.

You would show how previous donations have been used and the areas that still need work. For instance, if you run a children’s home you can show places that need renovations. You could also do interviews with children that need funds to cover their basic needs.

To encourage participation, you could encourage followers to ask questions as you do the tour. When donors see the work you are doing and the amount of need there is, they will be willing to donate at the end of the tour when you ask for funds.

Online Game Night

Another great virtual event idea for how to raise money is to host an online game night. Figure out how many teams you would be able to host and how much the participation fee should be for you to reach your fundraising goal.

Try reaching out to several companies for prize donations that would attract many participants. Your game night should also include several different types of questions and challenges to attract a diverse audience.

Online platforms like Zoom or Discord are great for hosting your game night as there are options for people to answer questions in the chatbox. You can also host several people at once. If you are at a loss for what questions to ask you can buy game packages online or rent games from sites like Gamefly.

Virtual Contests

Another spin to online games would be to host an online contest. Participants would need to pay to enter and voters would also need to pay to vote or view the event. The winner would get a lucrative prize while contributing to a worthy cause.

Some examples of contests you could hold are essay contests, online talent shows, photography contests, costume contests, or art contests. The theme of the contest could be tailored to meet your charity’s focus.

Online Auctions

Auctions have always been a guaranteed method for how to raise money for charities. A well-organized online auction event could raise even more funds than traditional auctions. This is because you can invite bidders from all over the world.

To hold a successful online auction event, you will need to host it on an online bidding platform such as charityauctionstoday.com and 501auctions.com. You can choose to host a private auction or public auction. The private auction requires all attendees to have an auction link.

Public auctions would be open to anyone that finds out about it. You could advertise the auction event on social media and encourage your followers to share the event. You could also ask your network and email list to donate items to be auctioned off.

One Day Social Media Sharing And Fundraising Event

A great idea for how to raise money fast is to organize a fundraising blitz on a special day that is relevant to the organization. For example, a charity dealing with domestic abuse could choose Valentine’s day to run the fundraising blitz.

Send out emails and social media posts a few days before the event. This helps to make your donors and followers aware of the fundraising event. You could also look for a company to sponsor the event and match whatever donations you receive.

On the day of the event, send out emails and social media posts to your followers about the impact your charity is making. Remind them why it’s important for them and their network to donate. You should also have several updates telling them how much you’ve received in donations and encouraging them to donate more.

An online counter showing the funds received would also be a great visual motivator. Encourage your followers to share any posts, emails, or stories that you post to increase awareness about your charity.

Learn How To Raise Money For Charity Online

The internet has become a vital part of our lives as most of us spend hours of every day online. So it is no surprise that charity fundraising is now popularly done over the internet. The COVID-19 pandemic has also forced non-profits to hold virtual events to raise funds.

Some popular fundraisers include virtual runs, virtual auctions, and Facebook watch events. Virtual events and fundraising are here to stay so all charity organizations should master how to raise money online. If you need assistance managing your charity’s finances, contact us today.

Bookkeeping includes invoicing, employee payroll, financial reporting, and more. Is your nonprofit interested in using bookkeeping services? You’re in the right place.

Affordable bookkeeping services for nonprofits are crucial for ensuring financial stability and accuracy. Keep reading to learn exactly how nonprofits can benefit from outsourcing bookkeeping.

What Are Bookkeeping Services?

Bookkeeping and Accounting may be used interchangeably, but they’re very different. Bookkeeping is focused on cash flow for an institution while accounting is basically analyzing all of that data. This helps assess the overall financial health of the organization.

Nonprofit organizations have many financial needs like any business. They have to file complicated taxes, certify for tax-exemption status, and report out. They also have to track donations! This can be a lot for a small staff to handle.

Bookkeeping services are handled by a team of professionals who have experience in the field with nonprofits. Many of these experts have worked with religious organizations, foundations, and even museums. They use software and knowledge of financial trends to help your nonprofit succeed.

Why Should I Use Bookkeeping Services?

There are many reasons to outsource bookkeeping. In addition to being safer and more secure, it enables you to focus on your organization’s mission.

Get Auditing Assistance

Nonprofits typically undergo an annual audit, unlike many other industries. This is time-consuming for the bookkeepers and accountants at the institution.

Save time and money by using bookkeeping services. These services can ensure that your organization is reporting accurate information to the Internal Revenue Service. They can also ensure that your institution is in a state of financial health.

Auditing involves a complex analysis. It also involves finding records of all transactions and donations for an organization. Some nonprofits choose not to do this because of the workload. However, completing annual audits shows donors that your staff is committed to transparency. This can help secure future funds and help with grant applications.

Avoid Fraud

No one wants to talk about the possibility of fraud, but it can happen within the nonprofit world. Embezzlement is also a risk, especially with multiple employees in the finance department. If there aren’t checks and balances in place, tracing money can be difficult.

Luckily, outsourcing bookkeeping services can ensure integrity for your nonprofit. These highly-skilled bookkeepers know exactly what to look for to avoid fraud and can easily identify issues. That way, the issues are caught before they become harmful to the organization.

For example, bookkeepers can see double payments or cash from a new vendor. Maybe they see a sudden increase in payments. They can even comb through documents that appear to be backdated or have questionable signatures. These can be indicators that something fishy is going on at the organization.

Since they manage all documents, data, and cash flow, professional bookkeepers add a level of security to the institution. As a third-party entity, bookkeepers can help your organization stay safe. This ensures security for your nonprofit.

The typical organization loses 5% of it’s annual revenue to fraud. That can be a lot if your organization is a multi-national nonprofit. Avoid lost revenue by using an outsourced bookkeeper.

Get Tax Filing Assistance

For nonprofits to earn their 501(c)(3) status and tax exemption, they have to be transparent. This means complete accuracy with the IRS on all financial matters. This includes strategic and accurate bookkeeping to provide easy filing when it is needed.

Nonprofits can have many revenue streams, including tax-deductible donations, membership dues, and even ticket admissions. Getting everything organized for tax season can be really complicated.

Bookkeeping services are useful because they use software that organizes all records perfectly. These professionals can also help identify areas to lower expenses for your organization. That way, you can reap the most benefits of the money your organization receives.

Using a dedicated bookkeeper absolutely makes this a seamless experience. This reduces stress during tax time for the nonprofit staff. Instead, it gives you the time to work on your mission and serve the community.

Save Time and Money

Instead of spending time organizing receipts, invoices, and payroll, handoff those duties to an expert. Your staff can then spend more time executing your mission.

In 2013, nonprofits paid $634 billion in wages. Hiring and training new employees, even if they’re very talented bookkeepers and accountants, can take a lot of time and energy. Instead, spend that manpower and resources on finding an outsourced financial services business.

Once your outsourced bookkeeper is set up, it requires very little management on the nonprofit’s side.

Bookkeeping Software Is More Accurate

Your organization might not have the funds to have a full-time bookkeeper and bookkeeping software. Luckily, an outsourced bookkeeping service has those resources for you to benefit from.

Bookkeeping software makes everything much more accurate. There is so much room for error when a team handles financials by hand or in a simple Excel sheet.

Avoid that hassle by investing in affordable financial services.

Ready to Outsource Bookkeeping Services?

Now that you know the many benefits of using an outside service, request a meeting with us to get started.

Pretty soon, your nonprofit’s bookkeeping services will be a breeze.

Our dedicated and experienced team works with an array of nonprofits. Many of our clients have been able to expand their impact on the community due to our financial help.

Check out our blog for more information on how our nonprofit financial services could work for your organization.

There are many nonprofit fundraising moves you can make to set your 501c3 up for success. In the following article, we’ll show you how.

Want your non profit to be a success? Well, while getting to success can be a journey, it is attainable. Follow our steps for the best results.

According to the National Center for Charitable Statistics, the number of nonprofits in the US increased by 4.5% from 2006 to 2016. The total now hovers around 1.5 million. While this is a good sign for charitable progress, it does create a bit of a bind for individual nonprofits. How do you find the right candidates when the pool for nonprofit work is deepening? The truth is that the nonprofits hiring process is different than any other industry.

Culture fit is of the utmost importance and competitive pay isn’t always a viable option. Fortunately, there are solutions to finding the perfect fit for your nonprofit. Read on to find out our top tips for the nonprofits hiring process.

Sort Out Your Budget First

Before you open up new positions, make sure you have a strong understanding of your nonprofit’s financial standing. Not only will this help you to set realistic expectations for compensation but it will show your candidates that your nonprofit is organized and professional.

The Charity CFO provides a number of financial services from specialized reporting for stakeholders to transaction documentation. We apply our financial expertise to your nonprofit so that you can focus on both the day-to-day and big picture goals. With our help, you and your present and future employees can maximize your ability to serve your community.

Understand What You Offer Besides Pay

Most of your candidates will understand that working in the nonprofit sector doesn’t always guarantee a massive paycheck. After all, your goal is to give as much back to your community as possible!

If you can’t offer competitive pay, take stock of any other benefits to working with your nonprofit. Perhaps you offer opportunities for professional development or room for advancement. Maybe you value the work-life balance more than most or put in extra work to create a fun and positive workplace culture.

Talk to your current employees and coworkers to find out what they enjoy most about their position. This can provide you with a bird’s eye view of what makes your nonprofit both special and appealing to any newcomers.

Go Outside the Traditional Nonprofits Hiring Pool

In previous years, most experts would have recommended that the top candidates should always have prior experience in the same field. In other words, you would have wanted candidates who had been working for a nonprofit organization for three, five, or even ten years. 

There are two problems with this method. The first is that it alienates those who are fresh to the job market and simply haven’t had the opportunity to work at a nonprofit yet. The second is that it rules out candidates who are coming from other fields—and bringing valuable expertise with them.

For example, consider a candidate with a background in retail. While the work, itself, was quite different, there are certain skills they developed in the service industry that will translate well to nonprofit work. They’re likely good with people, capable of fielding questions and finding real answers, and overall hard workers. 

In fact, you’re more likely to end up with an employee who has motivation, energy, and fresh ideas if you open up your hiring pool. Remember that you’re looking for someone who has a strong work ethic and believes in your cause. What they’ve done in the past isn’t quite as important.

Make Sure the Position Is Clear

When you’re creating your job listing, try to make the role and expectations as clear as possible. A recent LinkedIn survey uncovered what employees want most from their employers. Clear expectations and goals made the top of the list!

Most candidates are put off by job listings that focus more heavily on qualifications than the job, itself. This tends to send the message that your expectations of them get to be higher than their expectations of you. While this may seem logical, it simply doesn’t appeal to younger employees who want to feel like their role matters. 

Include a title as well as clear bullet points regarding the role. Do you expect this employee to work behind the scenes with their coworkers or out in public with the community? Are there specific projects they will work on or will they wear many hats?

The more direct and transparent your job listing is, the more candidates you’ll have to choose from.

Get in Touch With Your Top Candidates

You may have a few people in mind that would be perfect for the job. You may also receive applications from candidates who have great credentials but are likely applying to several different places.

If you want your top candidates to seriously consider your nonprofit, let them know! Send them a personalized email or give them a call. This will show them right off the bat that you will value their skills and provide them with individualized feedback if they accept the position.

Stand Out from Other Nonprofit Companies Who Are Hiring

The nonprofit sector is growing at a steady rate, making it more and more difficult to stand out from the pack. If you want to make it through the nonprofits hiring process with the best fit for the job, you’ll have to show what makes your organization different from the rest.

Let us help you boost your nonprofit by taking care of all of your accounting needs. To find out more about our services and pricing, contact us to schedule a meeting and we’ll get back to you as soon as possible.

There are currently over 1.5 million nonprofits registered in the United States.

Many of these are largely dependent on fundraising efforts such as public collections and sponsored events. While this might seem straightforward, the fundraising rules for nonprofit organizations can be quite strict.

If you’re in charge of a nonprofit, you’ll want to keep up with these rules to avoid getting on the wrong side of the law.

Read on as we tell you everything you need to know.

What Qualifies as a Nonprofit Organization?

You might think that any organization can set up, start donating money to noble causes, and call itself a charity. Unfortunately, from a legal standpoint, it’s not quite so simple as that.

Nonprofits enjoy very favorable treatment in terms of taxation compared to regular companies. This means that there are a lot of barriers to registration as a nonprofit. Otherwise, many companies would abuse the system to benefit from a lower tax burden.

In order for a company to qualify as a nonprofit, it has to pass what is known as the public support test. This means that it must receive a considerable portion of its income from the general public through one means or another.

However, the acquisition of this money is governed by many different rules. 

Fundraising Rules for Nonprofit Organizations

There are certain key areas in which fundraising rules must be closely attended to. Some of these relate to the ways in which no nonprofits collect money while others pertain to the tax situation of donors and whether a donation is deductible.

Below are some of the most important areas to consider.

Gambling

Many charities raise funds through various gambling events, such as bingo, raffles, and casino nights. This is permitted, but there are rules that govern this type of fundraising.

Most importantly, expenditure on such a gambling event is not considered a donation. Therefore, participants cannot write it off as a tax deduction.

There are also strict reporting and payment requirements that the charity itself must adhere to.

Registration

If you’re just starting up as a nonprofit, you will face certain restrictions until you become fully registered.

The most important of these relate to solicitation. In 40 of America’s 50 states, a charity cannot approach potential donors for money until they become registered as a nonprofit.

Registration requirements vary from state to state. 

Donor Names

Charitable donors reserve the right to anonymity. You should not publish their name in relation to their donation without their express permission.

Doing Charitable Work to the Letter of the Law

Fundraising rules for nonprofit organizations may be frustrating at times. However, they preserve the integrity of the charitable system and allow donors to be confident that the money they donate is going where they intend it to.

Ultimately, this results in a more productive system that sees more funds going to worthy causes.

If you’d like to know more about these rules or any other accounting requirements for nonprofit organizations, schedule a meeting with us today.

Is there a social cause you’re passionate about? Do you want to help the homeless population in your community find affordable housing? Are you passionate about caring for abandoned animals?

If you’re trying to find the best way to pursue your passion and do good, you might be considering starting a nonprofit organization. But why start a nonprofit if you can just volunteer or donate?

There are a variety of reasons to consider nonprofit status as you pursue helping your cause. For example, in 2017 alone, Americans donated over $410 billion to charities. 

Even a sliver of those donations could help you make a big impact. So, what do you need to know about starting a nonprofit organization?

Read on to learn about not for profit status and how you can get started. 

Understanding Nonprofit Status

First, what does it mean to be a nonprofit? Does that mean you can’t get paid?

You know that nonprofits are charities, usually looking to help solve a world social problem. But officially, they aren’t called charities, instead are nonprofits.

Becoming a nonprofit is actually an IRS status and has to do with taxes. There are a few different classifications to consider. 

501(c)(3)

A 501(C)(3) is a charitable organization like you are familiar with. They do charitable work, solving societal problems. 

This status means you will not pay federal income tax, you become exempt. If a nonprofit becomes a 501(C)(3), it also means they will be able to be exempt from paying their state and local taxes too as those often mirror the federal qualifications.

Another benefit of this status is the ability for donors to donate and get tax deductions. It incentivizes donors because they can get tax deductions from donating. Many donors won’t make donations to charities if they can’t get the tax deduction. 

The IRS says to maintain a 501(C)(3) status the nonprofit must remain true to its mission. So, if you start with the intent of feeding the homeless, then want to add helping underprivileged children go to college, you need to notify the IRS of your change in focus. 

It’s important to get legal advice and do your research. Getting this status can be complicated with many hoops to jump through. 

Don’t assume the IRS will be okay with you wanting the status and focus on the charity without actually having done all the appropriate documentation.

Not for Profit Vs. For-Profit

Again, let’s go back to the question of why your organization exists. 

A business is started to provide goods and services for profit. People pay a business and they make profits which they can use to operate, pay employees, and keep profits for themselves. This is called a for-profit model.

In a charitable nonprofit, the organization can make a profit. It can appropriately cover its expenses and employee costs, then all of the remaining profits can go back to the cause associated with the charity. Hence, the not for profit status. 

It should be noted that nonprofits must still remove taxes from employee wages, they are not exempt, only the nonprofit becomes exempt from corporate taxes. 

Advantages of Having Nonprofit Status

While it can be challenging to get a nonprofit status because of the documentation required, it is worth it. And while you might prefer to focus on your cause, do the good work, going through the steps to get the nonprofit is important for the success of your charitable organization.

Let’s consider some of the advantages of becoming a nonprofit. 

Tax-Exempt

One of the biggest advantages already touched on is becoming exempt from paying federal taxes. As a charitable corporation, you can avoid paying those corporate taxes. 

Many large for-profit companies will negotiate with cities and states to get a lower corporate tax rate. As a small organization, you don’t have that negotiating power. 

The charitable status allows you to avoid the corporate tax altogether. 

It’s essential to work with an accounting service that understands the unique features of a charitable organization so you protect your tax-exempt status. 

Public and Private Grants

When you have a formal charitable organization status, you will become eligible for more public and private grants. There are many philanthropic organizations that won’t give their grants to a group that doesn’t have nonprofit status. 

Formal Organization

While certainly you are passionate about your cause or you wouldn’t be delving into this nonprofit world, you need to separate yourself from it legally.

You want your organization to have its own status separate from you as an individual. 

When you become a formal organization, it puts the mission of your charity out in the forefront instead of this being about your interests. 

Create a board of directors who share your passion and bring something to the table that will benefit the charity. They might have social influence, contacts, or even resources they can offer the charity that helps it to achieve success. 

The old adage many hands make lighter work applies here because you use what they bring to help support the focus of the charity. 

Liability Limits

Again, while the ball may have started rolling as your passion project, you need to protect yourself. When you become an organized and official charity, you limit your personal liability. 

This is huge to protect and separate yourself from a potential legal dispute for the charity. Nobody imagines someone suing a charity until something unexpected goes wrong. You must protect yourself from liability. 

Creditors and courts would only have access to the profits under the charity window, instead of your personal assets with formal charitable status. 

If times get tough, it also protects you from being liable for the debts of the organization too.

Why Start a Nonprofit?

Doing charitable work is noble. If you feel passionate about your cause and want to pursue it as a charity that terrific. 

But why start a nonprofit? It not only helps your cause legally and financially but it protects you too. 

If you would like help getting started with the finance-related questions and organization for your charity, contact us today.