Kindle Version Available

Nonprofit Finance: A Practical Guide is available now as a kindle book on Amazon:

http://amzn.to/2GF2E8W

 

Tips on Managing Consultants

Don’t let consultants run amok.  Nonprofits usually have limited budgets and should use consulting services wisely to get the most of it.  Remember that consultants are there temporarily to solve a problem or to create a software, create documentation for an audit, or…the possibilities are endless. These people should be managed well even though they are not regular employees and may be there short-term only. Below are some tips to keep things straight:

Identify a specific project for a consultant to work on — Select a particular area for the consultant to work on. The more specific, the better. Have a plan and don’t wait for the consultant to define his or her work. Give the consultant a place to work and all resources for the person to succeed and get the job done. If you have many goals, prioritize it and give the consultant the more important one to work on. When the consultant seems scatter-brained, he/she may be working on too many things at the same time, so clarify the primary goal and help the person focus.

Set up timelines and deliverables — Determine a reasonable schedule and get reports and updates regularly, at least once a week. Double check that the project and goals set for the consultant are being met and worked on. It’s very easy to get side-tracked and to focus on something else. Be sure the consultant is on target and not just following someone else’s ideas or requests, which is easy to do. Consultants want to be accepted and liked, and while they do that, they may be too willing to work on areas that are not that important.

Take advantage of the consultant’s “fresh eyes” — One of the main advantages of a consultant is to give nonprofits the benefit of his/her experience and background. This person is not supposed to agree with you all the time. Expect and consider ideas, processes, and recommendations made by a consultant, especially when he/she is new and hasn’t been “tainted” by group-think or politics. In addition, after a while, it gets easier to accept things that at one point seemed odd or non-functional. If you see this going on, ask about ideas from the person’s past that could be used, and remind the consultant about his/her value as “fresh eyes.”

Value your employees — Last, but not least, listen to your employees. It’s too easy to assume consultants are “all that” and forget that the employees should also be considered. Don’t take the consultant’s side right away if there is a conflict with one of the employees. Remember that employees will be there after the consultant leaves, and they need to show that you have their backs. I have seen executives lose good people because of this problem — just because someone is an outsider, doesn’t mean that he/she is a god.  Get some perspective here.

Finally, consider consultants as helpers that can do a lot of good to many nonprofits when utilized properly.  Beware of consulting firms that start to hire your employees — the idea may be to make you so dependent on them so that they never leave.  Don’t fall for that. I have seen this happening in the IT department of a large nonprofit that slowly kept losing employees to the point that the consulting firm became the IT department and that was not a good thing. Remember — you’re the boss.

 

Check out the second edition of the book”Nonprofit Finance A Practical Guide”– First Edition nominated for a McAdam Book Award.

Nonprofits Pay Income Taxes

It may come as a surprise to many, but nonprofits can have taxable income, known as Unrelated Business Taxable Income (UBTI).  Even if they get a tax exemption from the IRS.

If an organization has UBTI of $1,000, it must submit 990-T Unrelated Business. You can check out his form at the IRS website –https://www.irs.gov/pub/irs-pdf/f990t.pdf

The government defines taxable income as income not substantially related to the organization’s tax-exempt purposes or activities. The idea is to prevent nonprofit organizations from competing with for-profit firms unfairly. The tax due is known as Unrelated Business Income Tax (UBIT), and it conforms to the corporate tax rate. Often, an activity generates unrelated business income if it meets three requirements:

  1. It’s a trade or business
  2. It’s regularly carried on, and
  3. It’s not substantially related to furthering the exempt purpose of the organization.

For example, an organization runs a pizza parlor selling pizza to the public. The nonprofit’s mission and programs don’t relate to the parlor’s business. The nonprofit pays employees to run the pizza place. All this information points to the pizza parlor generating unrelated business income that’s taxable.

On the other hand, a humanitarian-service organization holds a bake sale. While the sale is unrelated to the mission, It’s likely to be tax-exempt if not “regularly carried on.” Nonprofit’s activities are considered regularly carried on if they show a frequency, continuity, similarity to comparable commercial activities of for-profit businesses.

Some unrelated business activities may not be taxed. For instance, if an organization sells donated items, or if volunteers perform all the labor involved in the business, proceeds are exempt from taxes.

Note that if the IRS notices too much UBTI, it may revoke the tax-exempt status, which can spell disaster for a nonprofit. To avoid this potential risk, organizations should consider the following:

  • Resources and volunteers must spend most of the time on the mission, not business activities
  • Most of the revenue must come from the public and mission-related programs. The percentage of business income should be minimal

 

Interested on CPE credits regarding nonprofits?  Online Practical CPE Courses

You can also check out my books:

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

15 Quick Tips on Becoming a Great Consultant  — Free on Kindle Unlimited