Posts Tagged ‘Profit Status’

There’s no question about it: we are seeing the most challenging economic times since the Great Depression. Every day, we read about lost jobs at this company or that, but when was the last time you heard about lost jobs and closing doors at a non-profit organization?

Well, it’s true; it’s actually happening. The non-profit sector is struggling in a big way. The timing could not be worse: we rely on so many non-profits to provide their services – from soup kitchens to health care – and the prospect of scaling back (or closing their doors) is happening when they are more desperately needed than ever in communities, both large and small, all over the country. As a point of reference, we must remember that an organization receives its IRS non-profit status only after proving its charitable benefit to the constituency it serves.

If we review the series of key events over the past months, several specific issues have combined to form that so-called ‘perfect storm’ – we have just completed the most expensive presidential campaign in the history of our country (and, before Obama could deliver his acceptance speech on election night in Chicago, many people were already very seriously concerned about the economy), state budgets have been squeezed, many of the failing private-sector organizations (even Freddie and Fannie) were large contributors to the non-profit sector, and individual donors have seen their savings drop more than any other time in their lifetime.

Let’s face it; the magnitude of the current financial situation – and its effects on the non-profit sector – is huge.

But, the purpose of this article is to provide some positive steps to help proactive non-profits achieve success (survival?) even during difficult times. True, just as in the for-profit sector, not all non-profits will survive. We cannot change that fact in a capitalistic society. However, we can encourage non-profits to exude excellence and compete successfully among their peers for precious funding dollars.

I received an email on March 26, 2009 from a group, whose information I try to follow, known as “IT Solution Journal.” The subject line read as follows: “Compliance Rules: Tools, Policies and Best Practices That Are Cost Effective”

Wow! That’s the subject near and dear to my heart: non-profit compliance in the areas of ethics, governance, and accountability. As I have stated in previous articles, I believe that pro-active compliance is a sure way for a non-profit, charitable organization to signal its commitment to excellence.

So, in part, here is what that email had to say:

“Organizations of all types and sizes, industries and professions have long been mindful of the need for legal and regulatory compliance. In the current economic environment, however, forward-thinking organizations now are shifting their focus somewhat. Mere adherence to laws and regulations is no longer enough. Thanks to tight economic conditions and a fiercely competitive business environment, proactive managers and executives are committed to implementing strategic email and Hosted Service management…”

The good news: My experience has been that non-profit organizations have been extremely resilient over the years. And, my belief is that non-profit organizations are better-suited to address a number of our most pressing problems than either the government-sector or the private-sector organizations.

And, the bad news: I am concerned that most non-profits have not been as diligent as they should with their regulatory compliance. To date, the critical document for a non-profit, charitable organization has been the IRS Form 990, filed annually. It is my opinion that this will begin to change more and more (as I have mentioned in previous articles regarding the focus that Congress has placed on non-profit compliance and the increased scrutiny it has mandated to the IRS.

Foundations are watching their endowments drop, thereby making the case for less grant funding and their boards struggle with eroding investment portfolios. The same is true with individual donors. So, how does a struggling non-profit gain an edge?

I have five suggestions:

1. Don’t panic. Now is the time for calm, cool, collected thinking.

2. Make necessary changes. If there are board members or staff members who are not serving the organization adequately, replace them. Now is the time to rally your best and brightest minds and your most ardent supporters.

3. Review your IRS compliance requirements. Make sure you have your policies in place – and, make sure you are following them. Ethics, governance, and accountability measures will speak volumes.

4. If you are fortunate to have an endowment, use it. Avoid watching the stock market numbers every day. Keep your mind focused on the future.

5. Talk to your donor base, membership base, and continue to seek grant funds. This time, however, do it from a position of excellence. Don’t be reluctant to tout the professionalism of your organization over your peers.

In conclusion, this is a time of tremendous challenge; however, it is also a time of exciting opportunities. It’s time for non-profits to compete like never before (not in petty terms) but in all things that exude excellence, confidence, and strong business acumen.

Rob Glenn is the founder and president of The Center for Ethics, Governance, and Accountability (CEGA). His organization seeks to provide non-profit organizations with compliance policies that will provide a competitive edge for grant writing, donations, and charitable support. More information about CEGA can be found at http://www.centerega.com

Author: Rob Glenn
Article Source: EzineArticles.com
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When we look beyond an organization’s Internal Revenue Service (IRS) non-profit status as reported on their IRS 990 Form, many of the distinctions between For-Profit and Non-Profit corporations become operationally meaningless. As Peter Drucker states, “The differences between managing a chain of retail stores and managing a Roman Catholic Diocese are amazingly fewer than retail executives or bishops realize. The differences are mainly in the application rather than the principles.” Many of the timeless principles that produce sustained financial and non-financial performance in high-performing For-Profit companies can also be applied to Non-Profit corporations, as described by Collins in his monograph, Good to Great and the Social Sectors. In fact, contrary to the view taught in many business schools, recent studies such as Collins and Porras’ Good to Great have shown that profit and wealth are not the driving force or primary objective of truly visionary For-Profit companies. Rather, For-Profit companies have a larger purpose in life, and this purpose becomes the focal point on the business horizon, guiding every decision they make. Generating revenue becomes a means to an end for truly visionary For-Profit companies, not an end in itself.

The Breckenridge Institute has identified two kinds of Non-Profit organizations that powerfully shape and define an organization’s culture based on how they generate the majority of their revenue. This includes:

• Type 1 Non-Profits
• Type 2 Non-Profits.

While Type 1 Non-Profits may generate some of their financial resources through endowments, fund-raising, membership dues, and gifts from donors, most of their revenue comes from providing products and services to customers and work performed for funding agencies and grantee organizations; e.g., the results of clinical trials, applied R&D, basic research, or the development of new technologies. Operationally, they function much like their For-Profit counterparts – they have standard business and work processes, proposal writing functions, marketing and sales goals, suppliers, inventory, customers or clients to satisfy, and competitors in both the Non-Profit and For-Profit arenas. Examples of Type 1 Non-Profit organizations include: hospitals, medical clinics, convalescent care facilities, agricultural organizations, retail operations (Goodwill has over 1,900 stores), some contract research organizations, research institutes that do applied R&D, and educational organizations.

While Type 2 Non-Profits may generate some of their financial resources by providing products and services to those outside of their organization, most of their revenue comes from grants, awards, funding agencies, endowments, fund-raising, membership dues, and gifts from donors. Operationally and culturally, these organizations are more complex than their For-Profit counterparts and function very differently. For example, rather than customers or clients in the traditional sense of the words, Type 2 Non-Profits serve two major constituencies: a) the needs of the public and society at large, academia and furthering the arts and sciences as a legacy for future generations, and b) the demands of funding agencies, grantors, sponsors, members, and donors for fiscal and programmatic responsibility. Ultimate responsibility for compliance with federal, state, and local requirements, public relations, fund-raising, and overall fiscal and programmatic effectiveness and stewardship lies with the Type 2 institution and/or with a Board of Directors. The institution’s administrative staff uses standard business and work processes to support a scientific, technical, or artisan staff that often has joint appointments with other institutes or collaborating universities, so the people who produce the core contribution to the Type 2 organization’s purpose and strategic objectives may not be full-time employees of that institution. Examples of Type 2 Non-Profit organizations include: a) institutes and universities that conduct research in the physical, biological, ecological, political, social, and computing sciences, b) organizations that distribute food and medical care to the needy, and c) museums, art institutes, and schools of music that create and sustain artistic expression and culture.

The revenue for most government organizations at the federal, state, county, and municipal levels comes from appropriations granted by legislative bodies (like the U.S. Congress), and this appropriated revenue stream powerfully shapes and defines the culture of government organizations. This is because the basis for increasing or decreasing revenue from appropriated funds is driven largely by political issues, not the actual performance of the government organization. One of the best ways to characterize these differences is to compare the key elements that drive For-Profit companies in industry, with government entities. More specifically, there are four drivers in For-Profit organizations: a) business results, b) customer satisfaction, c) consequences for performance (good and bad), and d) the leadership and management needed to enact and energize the first three. Like the wind in the sails of a boat, business results and customer satisfaction are the driving forces that link For-Profit companies to the business environment outside the organization. Consequences for performance are the indispensible drivers that enable managers to oversee day-to-day operations within the context of the organization’s structures, systems, and culture. Consequences are the equivalent to accountability and authority.

Our experience of working with government organizations up to the Under Secretary level has shown that there are no real equivalents to business results, customer satisfaction, and consequences for performance (good or bad) in most government agencies. The notable exception is “hybrid” organizations that receive a portion of their revenue from providing products and services to customers. For example, in industry, if a company is not profitable it goes out of business. In government agencies, organizations and projects sometimes continue to exist long after their purpose is questionable, often for political reasons. In industry, customer satisfaction is a bulwark of business results and process improvement. If customers are not satisfied, they buy elsewhere, the company’s profits decline, and eventually the company goes out of business. In many government agencies, managers and staff members have endless debates about whether they even have customers other than the ephemeral “taxpayer” or “future unborn generations.” In industry, if a worker’s performance is exemplary they are rewarded, and if performance is inadequate, the company can fire them. There are consequences for performance – good and bad. In most government agencies, the difference between the raises and rewards given to high-performers and those given to low-performers is often a few dollars a month. An unwritten cultural norm in many government agencies is that it’s not appropriate for managers to give marginal ratings for fear that even the most incompetent workers will take retribution by filing grievances against a manager who dares to tell the truth about their level of performance. More importantly, even the remaining industry-type driver of leadership and management is undermined when top managers cannot openly demonstrate that there are consequences for performance because the system within which they are embedded does not provide them with accountability and authority.

Assessors should note that in the absence of revenue streams that are linked to an organization’s actual performance, the currency that “trades” in government organizations is power-through-visibility. In other words, if a government organization or a manager is involved with an “initiative” or “program” that is well received by the agency leaders, the media, or the public; this creates the currency of positive visibility. If the organization or manager is associated with actions and interactions that are frowned on by agency leaders, the media, or the public; this creates the currency of negative visibility. As a general rule, all sectors of government are increasingly under pressure to demonstrate the applicability and value-added results of their services to meet public needs and this scrutiny generates either positive or negative currency in visibility. But when an organizational unit within a government entity is responsible for the active enforcement of laws and regulations, their purpose, strategic objectives, goals and day-to-day interaction with the public are often subject to more intense scrutiny by the public and the media so the issues associated with power-through-visibility are more intense because these constituencies function more like actual customers. Government entities are also under constant pressure to demonstrate that their operations are efficient and that they are using publicly generated funds responsibly, despite the absence of the four drivers mentioned above, which increases the importance of creating the currency of positive visibility. The tacit, unexamined, taken-for-granted currency of power-through-visibility is one of the most powerful forces in the world of government entities, and it’s important to recognize this reality and actively manage it through key performance indicators.

The bottom line when trying to create an Intended Culture in for-profit, non-profit, and/or government organizations is to focus on its revenue streams and governance structures. Gaining a clear understanding of: a) the nature, viability, and sustainability of an organization’s revenue and funding streams; b) the expectations and pressures that are exerted on the organization by customers, competitors, suppliers, regulators, taxpayers, and other forces in the external environment; and c) the nature of its governance structure are the key elements of creating an Intended Culture.

Mark Bodnarczuk is the Executive Director of the Breckenridge Institute, a research center for the study of organizational culture based in Boulder, Colorado. He is an author, researcher, consultant, teacher, and facilitator with more than twenty years of experience working with companies in the area of high-tech, basic and applied research, pharmaceuticals, health care, retail as well as government and non-profit organizations. Mark has published widely in the areas of corporate culture and leadership development and is the author of two books, Diving In: Discovering Who You Are In the Second Half of Life and Island of Excellence: 3 Powerful Strategies for Building Creative Organizations. He has a BA from Mid-America University, an MA from Wheaton College, and an MA from the University of Chicago.

Mark can be contacted at:

Breckenridge Institute
PO Box 7950
Boulder, Colorado 80306-7950
http://www.breckenridgeinstitute.com/

Author: Mark Bodnarczuk
Article Source: EzineArticles.com
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Many people are involved with helping small, non-profit organizations, in a variety of roles. Organizations range from semi-organized children’s sports teams, to local chapters of professional societies, to well-established charitable service providers. The range of organization and management varies as well, from seat-of-the-pants, one or two people overwhelmed from doing the bulk of the work, to professionally managed with paid staff, and everything in between. Here are some tips to help you and your organization become more effective and successful.

Defining Non-profit

Many people are confused about the concept of a non-profit organization. The terms Non-profit, Not-for-Profit, or Tax-exempt, all mean the same thing and is simply a special type of business entity. An organization that is recognized by the Internal Revenue Service (IRS) as a non-profit, or tax-exempt, business is treated differently than a regular for-profit business for tax purposes. Meaning a non-profit generally doesn’t pay taxes. Some of the tax issues can be complex, so if you have any questions or doubts, contact an accounting professional familiar with non-profit tax issues. Generally, though, if you are a small organization, have received your non-profit status from the IRS (you have to apply for it), and adhere to your defined mission, you’re fine.

The most important thing to remember is that non-profit does not mean for-loss. You still have to make money. The only real difference between a non-profit and a for-profit business is where any extra money goes. For any organization to remain viable, you have to have more money coming in than you have going out. What happens to that excess between what comes in and what goes out is what makes the difference between a non-profit and a for-profit business. In a non-profit, the excess stays in the organization to help it achieve its mission. In a for-profit business, the excess (the profit) is distributed to the owners of the business. It’s that simple.

So, remember, you still have to make money. You have to have more money coming in than you have going out. You just use all the money to help the organization do what it was set up to do.

Planning

One of the most helpful and least used tools for any organization is planning. Instead of just starting to do things, sit down first and plan what you’re going to do. Then on an ongoing basis, sit down for regular planning sessions. The benefits are enormous.

The level of detail of your plans, and the amount of time spent planning, will depend on the size of your organization and what it is you do. If you’re helping with your children’s sport team, and you’re doing the bulk of the work yourself, you might have just a short to-do list that you put together in 15 minutes. More likely, though, you’ll need to sit down with the other board members or volunteers for an hour or two, in several sessions, to develop a plan with enough detail that will give you clear direction and help you guide the organization.

When planning, always start with the end goal in mind. Set the target. Identify specific goals that you want to reach. Again, depending on your size and the nature of your organization, your planning time frame will vary. If you’re just getting started with planning, your time horizon will be shorter. As you become more experienced with the planning, you can extend your time horizon out a little further. For your child’s sports team, your plan might just cover the length of the season, maybe even just three or four months. Most organizations, however, will want to plan two or three years out. Any longer than that, you’re generally talking about larger, well established, and more complex organizations.

So what’s in these plans that you’re making? There’s going to be two parts to the plan; the goals you want to achieve, and how you’re going to reach them. If your working on a two year plan, the goals will define where you want to be, what you want to be doing, two years from now. Say you’re a service type organization that helps homeless people. Your goals might include that two years from now you’re going to be providing two meals a day to 500 individuals a day, up from one meal a day to 100 individuals. Maybe you’re a rugby club, and your goals might include that in two years you’re going to have a paid coach on staff, two full sets of team owned game jerseys, or the funds to begin building your own clubhouse. OK, that might be a stretch for most clubs, but you get the idea.

Once you set these goals, you have to identify how you’re going to achieve them. If you’re going to increase from one meal a day to two meals a day, or go from no team owned game jerseys to two full sets, how are you going to do that? What are the intermediate steps? Who is responsible for doing what? If you’re going to provide more meals, you need more food. You might need larger or better equipped facilities. You might need more volunteers. If you determine that you’ll need 20 volunteers a day, but you now only have 5, you have to determine how you’ll get the additional volunteers. Maybe you advertise more, apply for more grants, or hire a volunteer coordinator. Whatever the steps are to reach those goals, write them down so everyone knows what needs to be done and who’s responsible for doing it.

When you plan, you have to monitor your progress against that plan. You don’t want to wait until the end of the plan’s defined time period to see whether you achieved the goals that you were aiming for. You want to monitor progress along the way, so that if things aren’t going as expected you can make adjustments to get back on track. Or, if things are going as planned, you can focus on the other areas that need more attention, and not waste time on things that are working well.

Another benefit of planning is that you have something to evaluate new or unexpected opportunities against, rather than just trying to figure out on they’re own if they’re a good idea or something you should pursue. Something that sounds like a good idea might not be something you want to pursue when it’s evaluated against your plan. Of course, if it is a good idea, and has been properly analyzed and evaluated, you can change your plans. It’s always better to plan, and change the plan when called for, than not to plan at all. Planning helps you focus, and that’s what you need.

Board of Directors

The board of directors, or the people who are going to run, guide, and direct your organization, is always a fun and interesting topic. Except for the tiniest of organizations, you should have an official board of directors whose job it is to guide and set the direction of the organization. Many times, these are the same people who do all the work, but not always. Again, it depends on your size and the nature of your organization.

The big question is who should be on the board. This can be difficult because the people, or type of people, who should be on the board are not necessarily the people who actually will be on the board, for a variety of reasons. Many times it is difficult, if not impossible, to actually attract the people that you want on the board. One reason is that the people who make the best board members are already on other boards, and they only have so much time. Also, many people may not know about your organization, and many people just aren’t interested in what your organization does. So, what to do?

I always like to start with stating what I want. Identify the people, or types of people, you want on the board. If you don’t start with what you want, you’ll never get them. You might have to take what you can get, but at least identify what you want. If you identify the type of people you want, you can then target them and work towards getting them to help you. If you don’t, you’ll always be stuck with whatever comes your way. Identify the skills and attributes of your ideal board members. Do you need specific skill sets, individuals with lots of contacts in the community, or maybe wealthy individuals who will contribute to your cause? Whatever you need or want, be specific. You can even identify specific individuals you want on your board.

Why would anyone want to be on your board? It’s often a thankless and time-consuming job, so you have to really market it. Don’t lie, or overly sugarcoat it, but state the benefits of being on your board and tell the people why you want them to help you. If you’re passionate about your organization, potential board members will pick up on that and that might be incentive enough to get them to help you. Other benefits include making new contacts, helping a worthy cause, and the fact that it looks good on their resume. Of course, the people who do not need these benefits will be a tougher sell, but a lot of times people will help just because you ask them. You’d be surprised how often people are just waiting to be asked.

One thing you absolutely have to do is define the roles and responsibilities of the board members, and communicate these to your board members. Even if they’re pretty simple, and seem obvious, this is vital to your success. Everyone needs to know why they’re on the board and what they’re supposed to do. You can’t afford to have dead weight on your board. Be tough, and hold the board members to their agreements of their duties.

Meetings

You’re going to have meetings, probably different types. Your board will have board meetings, and you might have staff meetings, volunteer meetings, general members meetings, or some other type of meeting. Many people dread meetings, and for good reason. Poorly run meetings not only do no good, they can do harm. So, run good meetings.

Always, always, always, have a defined agenda. Distribute the agenda prior to the meeting so everyone knows what is going to be discussed. Stick to the agenda. Set a defined meeting length, and assign a time to each agenda item. Stick to the time limits.

Along with the agenda, define the expected results of the meeting, meaning define what will be accomplished at the meeting. A simple expectation is to discuss each agenda item and vote on all items that need to be voted on. Depending on the reason for the meeting and the agenda items under discussion, you may have other expectations of what is to be accomplished.

Board of directors meetings are inherently different than most other types of meetings. The board sets high level policy and direction, so the board meetings are similarly high level. Most of the work of the board is done outside of the board meetings. The board meetings are generally fairly simple. Information and results of outside activities is presented, in synopsis, final discussions of important topics are made, and items are voted on. There should be few surprises at a board meeting. Most of the information should have already been distributed, analyzed, and discussed. Items are clarified, discussions that are best made face-to-face are made, and votes are held. If you’re doing the bulk of your work in the board meetings themselves, you can immediately become more effective as an organization by making the changes outlined above.

Volunteers

For most small non-profit organizations, volunteers are the backbone that allows you to continue operating. Without quality volunteers, you won’t exist as an organization for very long. At least you won’t be able to accomplish what you set out to do. So be sure to take care of your volunteers.

All volunteers should have defined roles, no matter how simple their tasks. Be sure to train all your volunteers, no matter how simple the tasks. Training should include the specific tasks the volunteers will be undertaking, as well as the mission, philosophy, and policies of the organization. Again, no matter how simple the tasks, mission, and policies.

Always assign tasks, rather than just letting the volunteers do what they think is best. You should be flexible, of course, but in order to keep the organization moving in the direction that is defined by the board, the volunteers must be assigned tasks that support the defined goals.

Recognize and reward your volunteers. Some organizations are very good at this, but others take their volunteers for granted and fail to offer the necessary recognition and rewards. This is not usually by design, just from neglect. No matter how busy you are, take the time to praise your volunteers for all the hard work they’re doing.

Don’t overwhelm your volunteers. Some people can’t say no. Don’t let them take on more work than they should. Some people are driven to help, and are almost impossible to hold back. Hold them back. They’ll be more valuable to you over the long term, and their health, mental and physical, is of paramount importance.

Make new volunteers feel welcome. Again, some organizations are good at this, while others assume since they volunteered they’ll figure out what’s going on and find their own way. This is not true. Every single new volunteer should be formally welcomed, told that they are appreciated, and told where they fit in with the organization. The training mentioned above should follow.

Accounting and Record Keeping

Keep records. Keep good records. Protect your self, protect your board members, volunteers, clients, members, and customers, and protect your organization. Don’t rely on your, or anyone else’s, memory. Have proof of what you’ve done. This is especially important with everything having to do with money. As with everything else, your record keeping system will depend on the size and complexity of your organization. You might just have a notebook, receipt book, and bank statements, or you might need a full-blown management system that includes accounting and financial information, sales and customer relations systems, and manufacturing, warehousing, and inventory systems. Use what is appropriate for you.

If necessary, hire people just like any other business. Some of the smallest non-profit organizations hire part-time administrative help. In today’s modern world, you might even find it appropriate to hire virtual administrative help.

Set up controls. This is another area where it is especially important for everything having to do with money. Setting up controls means putting in systems to prevent or detect any sort of wrongdoing or impropriety. For example, if your organization has a checkbook, you want to limit the number of people who have access to the checks and who can write the checks. It’s a good idea to have different people who control the checkbook and have the authority to sign the checks. Or, you might want the bank to send the account statement to someone other than the person who writes the checks or makes deposits. Other controls include separating duties or having one person check the results of another person. Basically, you want to remove temptation and make it difficult for anyone to do anything improper.

Even if you set up good controls, you should regularly conduct audits and check up on things. Not only does this help prevent anything nefarious from happening, it helps to keep the organization on-track and moving in the direction you want to go.

Conclusion

Go out and do good things. Put a little effort into the planning and infrastructure of your organization and you’ll reap the rewards in the long run. Keep the level of effort and complexity appropriate to your organization, and try to keep sight of when it’s time to add more formality to your systems. Best of luck to you and your organization.

Steve Novak is the founder and President of PPR Management Services. An independant consultant specializing in Business Operations and Strategic Planning, Steve helps organizations improve their performance by improving their operations. Working in a variety of industries, from manufacturing to non-profit, Steve helpls organizations define their goals, develop plans to reach those goals, and execute their plans and measure their progress. Find out more at http://www.pprmanagementservices.com

Steve is the author of the book The Small Manufacturer’s Toolkit, and is a frequent speaker and seminar leader in a variety of Business Operations and Strategic Planning related topics. Steve is the author of the Let’s Talk Business! blog, which can be found at http://letstalkbusinessblog.blogspot.com

Author: Steve Novak
Article Source: EzineArticles.com
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