Blog

Donation Details Matter– Some Pointers

Donors want to give, members want to renew memberships, but sometimes they cannot. It can be a real problem for an organization, which may have spent a lot of money and energy in development, but then, somehow it doesn’t receive the funds.  What could be the problem?  It’s on the details…  which some may consider to be a no-brainer, but still, they deserve a second look because they are so common problems.Below are a couple of details to pay attention to:

Detail 1– Links should work

Recently, I received an invoice as an attachment to a nice email. All was well done and professional until I clicked on the link for online payment. Then, I was taken to an error page on the nonprofit website.  Now it’s up to me to figure out how to pay the organization. Do I look around the website for a link? Write a check?  Maybe leave this alone for now…and the organization may never see any donation or membership payment. Some prospective donors may never contact the nonprofit with this issue, and the bad link detail will go on undetected.

*** Pointer —  Check regularly on the invoice or email master text to make sure it’s still valid.  Usually, changing only one invoice or email doesn’t work well, since most systems use a master file that populates all the communications with donors.

Detail 2 – Take information over the phone easily

Have everybody in the organization trained in handling payments over the phone. Not just accounting folks. All the information and forms should be easily accessible and ready to be used, including online forms. When donors or others call to make a payment, get it done, which may be easier said than done. I have seen people transfer donors from one person to another– don’t do that. Don’t frustrate the person on the other end of the line.  Everyone should know how to handle the calls, help and get any payment.

***Pointer — The nonprofit could have a phone setup for people who want to pay so that they can do it so easily. The message could be,  “If you want to make a donation or a payment, please press 1 and someone will get the information right away.”

Detail 3 — Process donations quickly

Money should be in the bank, not sitting in someone’s drawer or safety box. The longer a nonprofit waits to process a donation, the more likely it is for it to have issues with bounced checks or charge backs. Online donations take care of most of these issues, but part of processing donations should also include who, how and when you want to thank donors.  Maybe a donation over a certain amount would receive a different type of acknowledgment than those that give only $10.

***Pointer — Develop policies and procedures regarding donation processing with specific people in charge of sending thank you notes, using autopen and when to actually obtain a real signature.
Nonprofits are competing with other organizations for every cent they get. Sometimes the day-to-day activities cloud the importance of making donations easy and stress-free. Sorry, but if I’m put on hold for a bit too long or get attitude or cluelessness, I hang up and give my money to someone else. So it’s important to make donating an easy, pleasant experience, not one where donors get error messages on the computer or an aggravating phone person. Details matter.
 

 

Check out the book “Nonprofit Finance: A Practical Guide” –– Nominated for the 2016 McAdam Book Award

 

Special Events– Pick up All Costs

 

Planning your next fundraising event? Now it’s the time to consider pesky financial issues that can derail your best efforts. Many fundraisers, focused on the tasks to make the event a success, end up forgetting some crucial activities and costs, such as the items discussed next.
1- Create a Budget for the Event

Be sure to create a budget with all costs way before the event takes place. I have seen an event budget for a gala where the cost of drinks was forgotten. So, it’s easy to miss important items and underestimate the event expenses. A way to avoid this problem is to have someone from accounting or finance department look at the budget numbers. Another way to prevent this issue is for development people to use a template budget form that contains common line items. Not every event is the same, but they usually have many expenses in common.

2- Consider Insurance Issues

Oftentimes events involve certain activities, such as a petting zoo that may require an insurance rider to be sure the event is covered. These riders are usually not expensive, but they are part of the overall costs of an event. Nonprofits can also ask insurance documents from the third-party to be sure all is covered and a rider is not necessary. Be sure to have this cost as part of the template budget form.

3- Look out for Sales Taxes

Many states, such as California, tax specific items within a fundraising event, such as certain auction items. Check your state and other government agencies to verify what is taxed in your jurisdiction. Tax rates may vary by state, county and city, so double-check this issue and consider it in your budget because it can take an unexpected bite of your proceedings. In California, the sales tax rate can be as high as 9.00% +of gross sales.  This tax may change, so double check with your state to make sure you’re OK.  Ask about sales tax waivers, if available.

4- Don’t Forget Overhead

Overhead costs are those that are not directly associated with the event. For example, an event carried on at the premises may involve rent or mortgage, fire insurance, maintenance, utilities and other administrative costs. These expenses are easily ignored because the event organizers don’t have to pay for those; they are often considered to be costs of the organization in general. To account for this “hidden: cost, some nonprofits charge a fee as rent to the event, while others charge a percentage of direct costs. The point is to note all costs associated with the fund-raising event.

5- Don’t Leave Wages out

Wages paid, including any overtime, to employees involved with the event should be part of the event budget, especially when dealing with large events where a lot of time is spent on planning and organizing. For instance, if someone is paid $30K in wages and works three months on an event, about $7,500 ($30,000 x 3/12) should be considered an event cost. Usually, a percentage, such as 20% is added to the gross wages to account for payroll taxes and benefits.

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

Four Quick Financial Tips for Nonprofit Board Members

Confused about what to look for when reviewing financial statements? Maybe a bit intimidated by all the numbers? Well, you are not alone. Many board members don’t really have a framework to evaluate financial reports and may miss important details. You don’t need to have an accounting background or to understand debits and credits to be able to focus on relevant areas. Below are four important areas to look for:

1 – Approve budgets that show most expenses in programs.

Programs are the most important part of a nonprofit and should be the main focus on any budget. If most of the expenses are allocated to administration or fundraising, it may mean that the organization will be launching a new program, or it could mean that the nonprofit lost its focus and needs to re-think its budgets as it relates to programs. If the focus is not on programs, something is wrong.

2 – Always look at the cash on the Balance Sheet/ Statement of Financial Position.

Many boards only review revenues and expenses, but not the cash balances. Cash is indeed king and should be evaluated carefully, as revenues and expenses may or may not show cash transactions, depending on the accounting basis used. If you see $10,000 in income and $1,000 in expenses, but only $100 in the cash balance, you should start questioning how the nonprofit is paying its bills.

3 – Pay attention at variances between actual and budget numbers cumulatively.

As budget vs. actual reports are presented, you should look for small variances in revenues and expenses that may end up becoming large differences after a few months. If revenues, for instance, are below budget by 5% every month, at the end of three months, the cumulative difference could be 15%, and the nonprofit may not have the resources to pay for its expenses as time passes. So, be sure to review cumulative variances as well as monthly ones.

4 – Review tax returns before they are filed.

The IRS promotes the idea of boards of directors reviewing tax returns before they are filed, as the 990, the nonprofit tax form, specifically asks if the board had reviewed the returns. The point here is to make the board accountable. Whether they like it or not, board members are responsible for the 990 information filed.

Check out the book “Nonprofit Finance: A Practical Guide- Second Edition” –– First Edition nominated for the McAdam Book Award

Tax Forms Nonprofits Need

It may come as a shock that nonprofits may be tax-exempt, but they may need to file tax returns and even pay taxes on certain income, including those at local, state, and federal levels. If nonprofits fail to file the forms, they may lose their tax exemption,  be liable for penalties and interest, making tax compliance a priority to many organizations. This article focuses on federal and California tax forms and requirements.

Below are some tax issues and forms nonprofits should mind:

Sales Tax

States and local authorities may collect sales tax on fundraising efforts, including proceeds from auctioned items. Some states allow for exemptions if the nonprofit files an exemption form before the event.

In California, sales taxes are applied to certain auction items, and the nonprofit must remit the tax using the form BOE401a2. Depending on the case, you may need to file the taxes online and pay using a regular check, e-check or another method.

Payroll Taxes

Nonprofit organizations must follow the law when it comes to payroll taxes, including withholdings and paying their share of Social Security tax unless the nonprofit has its own approved retirement plan.

Nonprofits file the same payroll forms, as for-profit business do, such as the form941, Employer’s Quarterly Federal Tax Return, and form 940- Employer’s Annual Federal Unemployment Tax Return. Also, a nonprofit distributes tax forms W-2 to employees in the beginning of the following year with summaries of salaries and withholding.

Note that states have their own payroll taxes that nonprofit must comply with and pay. California has the form DE1NP Registration Form for Nonprofit Employers and DE-9 Quarterly Contribution Return and Report of Wages.

Annual Information Tax Returns

Except for religious organizations and a few others, nonprofits are required to file a form within the 990 tax series a few months after their year-end. Small organizations may file online the e-card 990-N, giving the IRS basic information, such as name and address of the nonprofit. Larger organizations file the forms 990 Return of Organization Exempt from Income Tax, or the 990-EZ, which are more detailed, requiring specific numbers for revenues and expenses along with information on programs and board of directors. If the nonprofit doesn’t file taxes for 3 years, its tax-exemption may be revoked, including smaller organizations.

In addition, states like California have their own reporting and paying system. In California, for instance, requires annual reporting – FTB 199N of smaller organizations, with larger ones filing longer, more detailed form 199.

Unrelated Business Income Tax

There are instances where nonprofit may compete unfairly with for-profit businesses, such as a nonprofit opening a restaurant with no connection to its mission. Many exceptions apply, but if the organization is deemed to have unrelated business income, it must file form 990-T with the IRS and pay the proper tax, also known as UBIT.

Note that California requires that nonprofits with taxable income to fill out the form 109 Exempt Organizations Business Income Tax Return.  Other states may have their own reporting and paying requirements.

>>Be sure to double check the requirements for these forms at least once a year, since things change often and you don’t want to be out of compliance. For instance, Obamacare has requirements for businesses, including nonprofits, to provide health insurance for employees if the organization has a certain number of employees.  It also may be possible for smaller nonprofits to get the Small Employer Tax Credit.  Since Obamacare may change in the future, keep an eye of this and other issues.

 

Check out the book “Nonprofit Finance: A Practical Guide- Second Edition” –– First edition Nominated for the 2016 McAdam Book Award

What you need to organize a nonprofit well – Article-Blog

Prevent Volunteer Liability

If you’re around nonprofits, you know that many rely on volunteers for operations, special events, and programs.  According to the U.S. Bureau of Statistics, “about 62.6 million people volunteered through or for an organization at least once between September 2014 and September 2015.”

Usually, these people are good-hearted and do very good jobs.  However, we also have bad apples and those who misbehave or have incidents in the name of the organization. This creates a huge liability for the nonprofit that is counting all pennies to provide goods and services to the community.  It doesn’t matter that volunteers are not paid, they can still do damage that the nonprofit may be held liable for.

Actually,  “Good Samaritan” laws exist for volunteers in the case of personal liability, such as the Volunteer Protection Act of 1997. However, that doesn’t mean that the nonprofit is also covered under this act automatically. Better be safe than sorry.

Training

Usually, when things go wrong, the issue of proper training and oversight of volunteers is often questioned.  So, proper training and supervision is a must in any volunteer situation, including making sure they get an appropriate education and are placed in situations where they are qualified to be.  For example, if you run a swimming class, make sure the lifeguards are properly certified and trained to identify problems and take care of them. Swimming instructors should also have minimum qualifications for the job.  Just because it’s a volunteer situation doesn’t mean that standards can to be lowered.

Policies and procedures manual

Helping to maintain standards, many nonprofits use manuals to clarify policies and procedures, very similar to those created for employees.  Be sure that such manuals include sections about prevention of sexual harassment, safety and proper behavior in the workplace.  Also, consider policies and procedures about volunteer disciplinary actions when warranted.

Background check

One way to avoid unpleasant surprises is to do a background check on all volunteers, even if they cost a bit. It doesn’t mean that everybody should be perfect, but if someone has a riskier background with problems with the law, they may need to be more closely supervised and placed in jobs that don’t compromise the organization.  Also, many insurance companies require such background checks when they cover volunteer activities.

Insurance

Nonprofits must consider getting volunteer insurance policies to protect the organization from volunteers behaving badly or accidents.  Beware that because volunteers are unpaid, they are NOT usually covered by worker’s compensation insurance, and if something happens to them, the nonprofit may be on the hook for it. So, consider adding a rider or a separate policy to include volunteer while they work for the organization.

Volunteers are often wonderful and many organizations wouldn’t be able to offer their programs if it was not for them. However, they also present a liability to nonprofits that must be addressed. Since protecting nonprofits against these risks can be expensive, be sure to include these costs when preparing budgets, grant proposals or gift requests so that you have the required funds to protect the organization against any losses.

Check out my book “Nonprofit Finance: A Practical Guide- Second Edition” –– First edition Nominated for the 2016 McAdam Book Award

Quick Tips on Nonprofit Financial Planning

Each organization is different, but every one of them is likely to face  challenges when planning for the future. Cash flow is crucial –no business, including a nonprofit, can survive without proper funding. However, many times people are concerned about the day-to-day activities of an organization and don’t pay attention to planning ahead. This issue has become even more important now that FASB released a new guideline requiring nonprofits to show how they can pay their bills in the next 12 months.

Check out 5 ideas that nonprofit managers may consider when conducting financial planning for an organization:

1- Use a budget

Budgets should be prepared before the year starts. Small organizations could use the prior year’s income and expense numbers as budget numbers for the following year. Once a budget is set up, then income and expenses should be compared to the numbers to be sure the organization is on target financially. Running a nonprofit without a budget is like shooting in the dark. It’s too easy to forget details and to end up with no money at the end of the year.

2- Pay attention to the timing of your cash flow

Cash is king in the nonprofit world. Without cash, an organization cannot pay its bills and must close or merge with another nonprofit. Timing is crucial, not just the amount of funding. For example, if an organization has a big bill to pay in August, but the money to cover this expense will be received in November, the nonprofit must deal with this shortage and start planning for it months in advance.

3- Consider getting a line of credit BEFORE you need it

Since funding can be cut or reduced with not much prior notice, nonprofits should get a line of credit from its bank. The best time to apply and get such line of credit is before the nonprofit needs it. This money could be used if funding is delayed or to cover a planned short-term cash shortage. Inquire about special lines of credit for nonprofits, which may have a lower interest rate and more favorable terms.

4- Educate your board of directors on financial literacy

Many organizations have very involved directors and officers, but they may not have the financial knowledge required to run a nonprofit. Therefore, such leaders should get a basic understanding of finance to evaluate reports and to hire and staff the accounting department properly. Some boards hire an outside consultant to come in a few hours a month or a week to supervise staff and resolve any problems before they become major. It’s an option, but the board must understand what is going on.

5- Allow for surplus

When planning, be sure to consider a cushion for the unexpected. This could be 2-10% of the total budget for a year, or an amount or percentage agreed by the board. This surplus, also known as “reserve,” is to be used for emergencies or unexpected costs, and is usually replenished once used up. The plan should be NOT to use these funds, but to have them, “just in case.”

Financial planning for a nonprofit can be a bit of a challenge, but it should be done to maximize the chances for survival and growth of a nonprofit. Without planning, small organizations may get by, but may not be ready for unexpected funding cuts. Making financial planning a priority can help your nonprofit to go in the right direction and make a difference in the community.

See more:

Nonprofit Finance: A Practical Guide – Second Edition– First edition was nominated for the 2016 McAdam Book Award

What you need to organize a nonprofit well – Article-Blog

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