What You Need to Know to Organize Your Nonprofit

Are you starting or organizing your nonprofit?  Any business needs a setup to operate effectively, and nonprofits are no different. A basic organization may be a no-brainer for some people, but may not be that obvious many as well.

As in any business sector, there is a need for an effective infrastructure working behind the scenes to keep things running smoothly. This is especially true in the nonprofit sector where operations support the organization in a number of functional areas, including:

·   office management,

·   accounting and finance,

·   administration,

·    human resources,

·   information technology,

·   marketing and development.

Across all of these functional areas, there is one objective: to make sure the organization is operating efficiently at its full potential in providing goods and services to a community.  If a bill needs to be paid, people within the organization will know where the bill should go to, not just into a pile that once in awhile someone looks at.  Having a well and clear organization where functions are performed in accordance with a plan is a must for any nonprofit to survive and flourish.

One of the challenges of nonprofits is to create and manage a structure that works well. Many founders of nonprofits are not managers and do not have a background in management. They are “program” people. They created the nonprofit to fulfill a goal, a dream that they are familiar with, but management is not their expertise.  Knowing the basic structure of a nonprofit can only help in setting up an organization that is functional.

It is important for founders and boards of directors to realize this issue and to find proper personnel or volunteers to fill out the needed spots. I have seen new, small organizations fail to follow their mission statements because they didn’t have a basic infrastructure, management, personnel to deal with proper insurance, and other risk factors.

A common structure is for nonprofit operations to be divided into three areas,  all supervised  by the board  of directors that could have an executive director to manage the daily operations.

  • Programs/ Services — MOST IMPORTANT 
  • Management and General — usually overhead
  • Fundraising

Identification of the three main areas of nonprofit operations is crucial in having proper accounting systems, internal controls, reporting, and management.  If you have an area of operations, it must follow this setup. Sometimes it’s not that obvious.  For example, someone working in contract compliance is most likely part of management, even though the work relates to programs as well.

BEWARE>>> Note that tax returns and most financial reports are classified by these three areas.

 

Check out the book “Nonprofit Finance: A Practical Guide” –– Nominated for the McAdam Book Award

 

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