Steward Leaders: [Non-profit Myths 6] Founders Control Boards

Posted by Matthew Thomas

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Since the end of September, we have been talking about the non-profit economy, and common myths operate within the public perception of non-profits. We've looked at the "free" business model as not just pertaining to non-profits. We have looked at six big myths: We have looked at "making money", and non-profits' responsibility for taxes. We've looked at how a non-profit can own a for-profit business. We looked at the deductibility of donations to non-profits. Last time around, we talked about how non-profits aren't the only organizations that can be designed to make the world a better place: "regular" businesses can, too.

Today, we address the sixth, and final, myth of this series. This myth is the myth of the permanent founder. Let's look at an example to see where this comes in to play.

A small group of colleagues and friends get together to form a non-profit to bring attention and solutions to a cause they care about. The most vocal spokesperson for the group becomes the Executive Director (ED); the rest become members of the Board. All of them contribute funds, time, and expertise to the non-profit. In compliance with best practices for non-profits, the ED is not a member of the Board, but present at all board meetings, with voice, but without vote.

Like what you're reading? Subscribe Now! All goes well for the first five years. By that point, the non-profit is up and running, and some of the original board members have begun to rotate off the board, bringing on new voices.

One of the new members of the Board sees an opportunity that they think the non-profit should take advantage of; the ED sees things otherwise - that this would be mission creep, a loss of priorities, etc.  A disagreement breaks out between the Board and the ED. 

The ED believes he is right, and because he gave of his own money to start the non-profit, feels slighted that the Board would de-prioritize one of the key aspects of the original vision, and move in a different direction. He pushes back on the board by talking to the remaining original members, and tries to get the new measure voted down.

The new measure passes, but the ED isn't done. He says this is a mistake, and that this violates the founding principles of the non-profit. (He had helped to select some of the very board members who now oppose him.) He urges those who disagree with him to step down. One does, and the board reverses course.

A few more years pass, and a similar situation emerges: this time, though it's the other way around. The ED has a new opportunity he wants to press. The Board sees things otherwise - that this would be mission creep, a loss of priorities, etc.  A disagreement breaks out between the Board and the ED. The ED believes he is right, and because he gave of his own money to start the non-profit, and continues to give heart and soul, underpaid, for the cause, feels slighted that the Board doesn't see this new opportunity as the natural result of the expanding vision. Once again, the ED pushes the board to see things his way. Most just put their heads down. Others drag their feet. One person begins active opposition to the ED.

The conflict drags on, and eventually a conflict management mediator is called in. They develop a set of mutually-agreed-upon priorities and procedures. But the founding ED sees this as appeasement, and begins to push back. The board, now emboldened by the mediation work, chooses to end their relationship with the ED and fire him - with a generous severance package (after all, they still like and respect him). They have decided it is time for a fresh start.

The ED is stunned. Never in a million years, he says, would he have thought this would have happened. The board is grieved, the cause is set back, and the ED, chastened, finds a new job eventually.

 

The myth that a founder can control a board, and therefore, dictate the terms of his or her own position, as well as who can be on the board and how they will vote, is built upon the experience of many when they deal with newly-established non-profits. Oftentimes, these are the dynamics that emerge. The founder is such a strong personality (as entrepreneurs must have) that the conflict seems all but inevitable. Most times, the board ends up getting more-or-less handpicked by the founder, and things maintain a sort of quasi-stasis for a long time. The founder outlasts many cycles of board members.

 (Related: Organizational Governance and the Bully in the Boardroom)

In the heady days of establishing a new organization to fill a need and promote a cause, it's hard to take the time to step back and get all the organizing documents and structures right. Design is not at the top of the mind, as form follows function. Nevertheless, good design from the outset can help dispel this myth that the founder can control a non-profit (much like the founder of a business might).

Designing roles into the first days of a non-profit reminds everyone that they are stewards of the cause, rather than owners. No one individual may privately gain from, or control a non-profit. Even when the founding board members and Executive Directors give deeply of themselves, that does not create the entitlement to control down the road. That just means they gave more than they were willing to give freely in those early days. Or perhaps they gave it freely in those days, but then began to feel used as the giving kept on going, perhaps with less enthusiasm. Whatever the case, good accountability and boundaries from the outset, designed into practices, attitudes, procedures, vision, and alignment can help avoid the rough scenario outlined above. That way, founders can do what they are good at: start things. Boards can do what they are good at: steadying things.

No one owns a non-profit; all are stewards. The myths we discussed over the past few weeks, we hope, will help steward leaders understand the dynamics of non-profits, whether they are part of one or view them from the outside.

 


 

What's your organization's story? I'd love to hear it. Feel free to call me at 1.877.771.3330 x20 or e-mail me by clicking the button.

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Topics: nonprofit sector, Matthew Thomas, Nonprofit Organization, steward leadership

Steward Leaders: [Non-profit Myths 5] Making the World a better place

Posted by Matthew Thomas

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One of the most significant myths we often encounter is that people who want to make the world a better place have to find work in the non-profit or public sectors of the economy.

 

Over the past several weeks, we have looked at some myths that operate within the public perception of non-profits. We've looked at how the "free" business model does not just pertain to non-profits. We have looked at "making money", and non-profits' responsibility for taxes. We've looked at how a non-profit can own a for-profit business. Last time around, we looked at the deductibility of donations to non-profits.

 

Like what you're reading? Subscribe Now! So do people who want to make the world a better place have to work in the non-profit or public sectors of the economy? Are careers in businesses and corporations somehow incapable of doing so, or work at cross-purposes to bettering our communities?

 

Increasingly, we are seeing businesses and corporations driven by mission and purpose beyond profit. These businesses seek to make the world a better place, invest in their communities, and contribute to causes that share their values - even while doing well for themselves. Some even establish their own non-profits to carry out some of their charitable work.

 

(Related: Non-profits that own for-profit businesses.)

 

The main difference between non-profits and businesses with this social enterprise bent is where the profits go on an annual basis or at the winding down of the company. Regular businesses deliver profits to their shareholders and are responsible to do so within the terms of the company's operating agreement. Non-profits are required to reinvest any surpluses into the non-profit for the furtherance of its mission.

 

Both types of company - "regular" businesses and non-profits - can benefit their communities through the way they treat their employees, customers, clients, vendors, and the resources they acquire and sell. Both types of company can express their values by what sorts of work they do (and won't do), and how they respond to the challenges they face.

 

So why choose a non-profit structure for business, versus a "regular" business or corporation?

 

Non-profits do well when any, or a combination of the following are in play:

 

  1. The business model to deliver services requires donor funding.
  2. The business model fits within one or more of the charitable purposes for which non-profits may be organized.
  3. The organization will be able to leverage more resources toward its cause by not providing profits to shareholders and by reinvesting surpluses into the continued mission of the organization.
  4. The perception or reality that making money off of providing a particular service or product is somehow unethical, even though that product or service is needed to further a charitable cause.

 

Alternatively, a business that has a social end in mind might want to organize as a "regular" business instead of a non-profit if any, or a combination of the following are in play:

 

  1. In order to achieve the social or charitable ends, the company must develop assets that could provide more resources to the cause if they could be profitably monetized. For instance, the patent royalties received for selling medical devices in Western Europe might provide the funding for charity medical care in medically underserved areas in Europe or on other continents, while also funding further research and development. (See also this article from Harvard Business Review.)
  2. The cause is not explicitly charitable, even if it will still make the world better (do a job, solve a problem, cause people to gain something intrinsically valuable), and even if it will strengthen charitable causes.
  3. The owners need to realize their investment in order to make a living and/or move the cause forward.

 

Note that these contrasting points say nothing about "just in it for the money" over against altruism or holy-mindedness. Both approaches can provide ways for people who desire to steward resources and better the world to go about achieving those ends.

 

What kind of world-bettering organization are you in? How is it set up? I'd love to hear your story.

 

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Topics: nonprofit sector, Matthew Thomas, Nonprofit Organization, steward leadership

Steward Leaders: [Non-profit Myths 4] Tax-Deductible Donations

Posted by Matthew Thomas

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Not every dollar given to a non-profit is necessarily tax-deductible.

 

Over the past few weeks, we have looked at some myths that operate within the public perception of non-profits. We've looked at the "free" business model as not just pertaining to non-profits. We have looked at six big myths. We have looked at "making money", and non-profits' responsibility for taxes. We've looked at how a non-profit can own a for-profit business.

 

Today we turn to a myth that is, perhaps, less complicated than the rest.

 

Not every dollar given to a non-profit is necessarily tax-deductible.

 

Like what you're reading? Subscribe Now! Essentially, there are two cases where donor dollars aren't entirely tax-deductible:

 

  1. Funds will be used for political lobbying purposes; and
  2. The value of a contribution for which goods and/or services are received.

 

For instance, if a donor attends a dinner to raise funds for a cause, typically the receipt will say that the value of the meal is a specific price, and the remainder of the ticket price is a contribution to the cause.

 

These are really the only two cases people commonly encounter. As long as one or both of those two things aren't in play, every dollar contributed to a non-profit is eligible for a tax deduction by the donor.

 

Nevertheless, contributions of $250.00 or more by cash or check still require contemporaneous documentation by the charity to the donor for to maintain an adequate IRS-valid paper trail for the deduction. Non-profits do well to keep their receipts regular and timely so that donors for whom the deduction is valuable continue to give.

 

(Related: Why clean financial reports are essential.)

 

As a donor, how do you handle tax deductions? As a non-profit leader, how do you manage donor deductions? I'd love to hear your story. Click the button below and we can set up a time to talk.

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Topics: nonprofit sector, Matthew Thomas, Nonprofit Organization, steward leadership

Steward Leaders: [Non-Profit Myths 3] For-Profit Business

Posted by Matthew Thomas

Yes, your non-profit can own a business.

 

Over the past several weeks, we've talked about some myths that operate within the public perception of non-profits. We've looked at the "free" business model as not just pertaining to non-profits. We have looked at six big myths. We have looked at "making money", and non-profits' responsibility for taxes.

 

Today we look at how a non-profit can own a for-profit business. This is the third myth we talked about previously.

 

The fact is that non-profits with funds invested in mutual funds or stocks are already part-owners of for-profit businesses. Most non-profits (particularly those with endowments) have an investment portfolio that includes stocks (either individual stocks or stock-based mutual funds, which are baskets of individual stocks balanced to achieve some investment objective, such as tracking an index). Holding stock in a company is an ownership stake. This ownership gives rights to profits and a percentage of assets if the business closes or sells (and has remaining assets).

 

Like what you're reading? Subscribe Now! Beyond stocks and mutual funds, non-profits can own an entire business (or a significant share) of even a privately held company. Some non-profits actually start their own businesses and own the entire business! It's entirely legal. And it happens regularly.

 

So the question is not whether it's legal or appropriate for a non-profit to own a for-profit business - since most do. The question is why a non-profit would want to own a business in the first place. What is the value to a non-profit?

 

While a few non-profits might own businesses that are unrelated to their mission, merely to use them as an income stream, most non-profits that own for-profit businesses develop those enterprises to benefit the overall mission through parallel or complementary activity. These are known as non-profit/for-profit hybrids.

Get the   Five Types of Governance   resource today!

 

Here are five reasons why a non-profit might consider doing this hybrid activity:

 

  1. Liability. Some of the activities that act as a revenue stream, activity, resource, or channel through which customers/clients/stakeholders are reached creates some form of liability for the non-profit that would best be handled in a legally separate manner from the main business.
  2. Something that is saleable that has a market (supporting mission). A non-profit's mission often fills a need where those receiving the services cannot pay full market rate (or even cover basic costs). In order to deliver the service, the non-profit develops another product or service that does have market value. Because of economies of scale, it is more beneficial to the non-profit to sell the service where the market can bear it and give it away where the market cannot, in two different target market segments. This allows for the need to be met and those who can afford to pay based on value help to carry the cost for those who cannot.
  3. Revenue stream from an under-utilized resource. Sometimes the non-profit has an under-utilized resource that has certain fixed costs to maintain. Creating a for-profit business to use the resource, while creating a revenue stream for its maintenance, offsets costs while increasing exposure for the non-profit. Organizations with under-utilized buildings put coffee shops or other retail space in part of their storefront or office in order to help offset building costs.Financial Roles Get the map!
  4. Branding. Sometimes, a non-profit's mission is narrow enough that adding a for-profit arm, while helpful from a revenue standpoint, or from an economy of scale standpoint, is desirable, but some degree of separation is required from the main brand. A for-profit business (rather than just a single non-profit with unrelated business income) makes more sense.
  5. Clarity of mission. The same thing applies when looking at things from a cost perspective - costs in time, personnel and finances. Having a separate business clarifies what is core mission and what is supporting core mission. That way, the non-profit can focus on its work, while the for-profit business becomes more distinct and required to stand on its own feet, rather than drawing down resources from the non-profit to stay in business.

Is your business considering forming a non-profit? Is your non-profit considering forming a business? I'm interested in hearing your story! Click the button below to set up a time to talk.

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Topics: nonprofit sector, Matthew Thomas, Nonprofit Organization, steward leadership, non-profit/for-profit hybrid

Steward Leaders: [Non-profit Myths 2] Taxes

Posted by Matthew Thomas

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Over the last two weeks, we have looked at non-profit basics and dug in to one of the six myths that are common confusions for non-profit leadership.

 

The first myth is about non-profits that make money.

 

Today, we look at the second myth: that non-profits don’t pay taxes.

 

Where does this myth come from?

 

The myth that non-profits don’t pay taxes is based on the well-founded fact that non-profits do not pay federal corporate income taxes in the United States. In other words, unlike regular businesses, non-profits do not pay the (as of 2015) 15% to 35% on the net of revenues over expenses. Businesses call this "profit" while non-profits call this "surplus". In other words, if a non-profit takes in $1 Million and spends $990,000.00, then their surplus is $10,000, which would be taxable to a business, but is not to a non-profit.

 

Like what you're reading? Subscribe Now! Non-profits are also exempted from FUTA (and the state equivalents): Federal Unemployment Taxes.

 

So no, non-profits don't pay those taxes.

 

However, those aren't the only taxes that affect non-profits. In many cases, these other taxes can be waived, but some get paid no matter what.

 

Income taxes on "unrelated business income": non-profits can still pay some form of income taxes if a non-profit engages in what the IRS deems to be "unrelated business." Once again, this isn't a tax on the total revenues, but only on the net revenues less expenses for the portion of the non-profit considered to be "unrelated business."

 

Property Taxes: Property taxes are levied by municipalities, and administered by the counties and the states to which the municipalities belong. School boards, cities, townships, park districts, etc., all typically have taxing authority based on the value of real estate owned by individuals and corporations, including non-profits. Different exemptions from property taxes apply for some organizations. For instance, most churches holding regular services of worship are exempted. However, other religious organizations often pay property taxes. Since taxes are assessed by real estate parcel, sometimes one parcel of land is tax-exempt, while another parcel is not, depending on usage.

 

Payroll Taxes: FICA and Medicare. For non-profits with employees that are not exempt from FICA and Medicare (and pay Self-Employment Tax instead), employers pay half of the FICA and Medicare taxes due based on the employee's compensation. Employers are also responsible to deposit taxes withheld from their employees' compensation - and subject to penalties and interest if they do not. So while the employer is only responsible to pay 6.2% of employees' compensation for FICA (up to a dollar limit) and 1.45% for Medicare, employers, even non-profit employers, are responsible to deduct payroll taxes from employees' paychecks, file an employer payroll tax return (typically quarterly, or at least annually) and deposit all their employees' deducted taxes.

 

Sales Taxes: Since sales taxes are administrated locally, most non-profits can receive exemptions from sales taxes, but must fill out a form at each vendor to receive tax-exempt status. Sales taxes are typically collected by the vendor on behalf of the purchaser, so each vendor must keep a file of those non-profits who have exempt status.

 

Excise Taxes: Taxes on gasoline, beverage alcohol, tobacco, etc., are levied per unit (e.g., 25 cents for each gallon of gasoline), and embedded in the retail price. Therefore, non-profits pay excise taxes regularly in the course of business. Unless these things are purchased at "duty free shops", no one is exempt from them. And crossing an international border to be free from them is probably not worth the hassle for most of us.

 

So do non-profits pay taxes? Most do - in some form. Non-profits certainly pay less in taxes than other businesses. No non-profit pays income taxes on its charitable work. So while grounded in truth, it is a myth to say that a non-profit never pays taxes ever at any time. For some non-profit leaders, this comes as a surprise, and often at a time when it has grown to a place where penalties and interest are already involved.

 


 

Financial Roles Get the map! Design Group International provides a tool to help determine what financial roles your organization has covered, and where it may have some gaps. Click the button to the left to get your free roles tool today!

 


 

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Topics: nonprofit sector, Matthew Thomas, Nonprofit Organization, Tax-Exempt, steward leadership

Steward Leaders: [Non-profit Myths 1] Making Money

Posted by Matthew Thomas

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Last week, we defined non-profits using the basic legal definition, and outlined six myths that exist around non-profits.

 

Today we are going to take a look at the first myth in a little more depth: that non-profits can't make money. We're going to cover four basic things: where this myth comes from, how it gets expressed, what it does to non-profits and their leaders who believe it, and what is possible when the myth is debunked.

 

Where does the myth come from?

 

Like what you're reading? Subscribe Now! The myth that non-profits can't make money comes from the basic definition of a corporation-not-for-profit: that no one can personally benefit from their investment in the company. There are no shareholders who receive dividends, nor can the non-profit be sold or dissolved to benefit anyone other than another non-profit (or governmental entity).

 

So in that sense, of course, non-profits can't make money. No one is to gain personally from the success of the non-profit. By the same token, no one is required to absorb losses from the failure of the non-profit.

 

The myth comes in when this whole concept gets a bit twisted, as we will see.

 

How does this myth get expressed?

 

Some believe that since non-profits aren't supposed to make money, they can never do some basic things that all businesses can do - even charitable or religious organizations.

 

  • Some believe that non-profits cannot retain surplus cash or reserves, or have "money in the bank."
  • Some believe that a non-profit should not invest its own funds to make a return in stocks, bonds, real estate, commodities, and so forth.
  • Some believe that non-profits cannot charge money for any particular item or service above its cost (this is known as margin), even if other items or services are being delivered below cost.
  • Some believe that non-profit employees should not be paid the same rates as employees in a "regular business" for similar work, education, expertise, and experience, since "people aren't supposed to benefit from a non-profit." Others even believe that having to pay salaries at all in a non-profit setting is somehow a waste of resources. But not just salaries - fringe benefits are also often non-standard.

 

What does the myth do to non-profits?

 

These beliefs put non-profits at a serious disadvantage to accomplishing their mission:

 

  • No reserve cash means they are always hand-to-mouth, making it more likely that an emergency (or even day-to-day operations) will put the non-profit out of business.
  • No investing means that the money the non-profit has that does sit in the bank makes a negative return, since most deposit accounts make less interest than the rate of inflation. (A dollar this year buys 98 cents' worth next year with 2% inflation…)
  • No marginal sales means that non-profits cannot engage in activities that have a market value to support activities that do not - thus requiring more donor funds than they otherwise would need. This reduces the size and scope of the mission they can take on.How can we help?   Connect with Matt Thomas!
  • Non-profits have trouble recruiting and retaining the top talent they need when the average person has to weigh the cost-benefit of family finances vs. calling/vocation/passion. And in many cases, what ends up happening is that donors with means are calling others to a life of poverty. Of course this is not universal, or even intentional, but happens all too often.

 

What is possible when the myths are debunked?

 

  • Non-profits can stabilize their cash flow and therefore handle revenue fluctuations and emergencies with aplomb.
  • Non-profits can invest in markets that allow a return that creates an additional income stream in the long run. Most non-profits should check in to socially-conscious investing, though, to make sure the companies they benefit from aren't working counter to their mission.
  • Non-profits can find products, services and events that make money and leverage dollars that would never be donated but since a service is performed or product sold, the mission capacity grows.
  • Non-profits can attract and retain top talent when they pay them comparably to others in their field. Of course, IRS non-profit rules dictate that salaries must be "reasonable", but casting a broad net can help strengthen that case.

 

None of this changes the basic structure of how a non-profit is to operate: the money just doesn't go back to shareholders, board members, or employees at the end of the year. In all these things, the assumption is that surplus funds are plowed back into the non-profit's overall mission to stabilize, sustain, and grow it so it can bring its vision to reality.


 

Financial Roles Get the map! Design Group International provides a tool to help determine what financial roles your organization has covered, and where it may have some gaps. Click the button to the left to get your free roles tool today!

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Topics: nonprofit sector, Matthew Thomas, Nonprofit Organization, steward leadership

Steward Leaders: Defining Non-Profit - Myths Revealed

Posted by Matthew Thomas

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Last week, we asked how we define non-profits in an age when some of the largest for-profit companies base their business model on giving something away for free.

 

How do we define non-profits?

 

Like what you're reading? Subscribe Now! Non-profits are companies where no one personally benefits from the company's income. No individual owns stock in the company. No one person controls the company. In other words, these companies are led by steward leaders.

 

Generally, this structure is available only to companies who have a purpose for the benefit of others:

 

In the words of the Internal Revenue Service:

 

charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.  The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.

 

From <http://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations/Exempt-Purposes-Internal-Revenue-Code-Section-501(c)(3)>

 

Since no one can personally benefit from the non-profit, salaries for employees (including executives) must be reasonable. Moreover, all non-profits (with the exception of churches) must file form 990 with the IRS and make it available to the public.

 

To help further explain how non-profits are structured, let's look at six examples to counter some of the myths that exist about non-profits.

 

  1. Non-profits can make money: just not for shareholders. Non-profits can sell product at margin and retain funds after expenses, as long as that income goes back into furthering the company's mission.
  2. Most non-profits pay some taxes - just not typically on income.
    1. Unless the non-profit is a church, with only ordained, licensed, or commissioned clergy as the only employees, the non-profit pays payroll taxes (FICA and Medicare).
    2. Some non-profits pay property taxes, others pay sales taxes, depending on local statutes.
    3. Almost all non-profits pay excise taxes (such as gasoline tax, beverage alcohol taxes, etc.).
    4. Non-profits that run businesses not directly related to their charitable purpose pay income taxes (corporate income tax) on the portion of their net profits on that business - even though the rest of the profits go back to support the overall mission of the organization.
  3. Non-profits can own regular businesses as shareholders. Nearly every non-profit with an endowment invests in stocks, bonds, (either directly or through mutual funds/ETFs), and so forth. Holding a stock portfolio is an investment in, and an ownership stake in another company. Non-profits typically do not pay taxes on interest/dividends and capital gains on those investments. An increasing number of non-profits are connecting their non-profit work to for-profit businesses and vice-versa.
  4. Not every dollar contributed to a non-profit is a tax-deductible contribution. Any portion of the contribution for which the contributor receives goods and/or services in return is not tax-deductible.
  5. Many for-profit businesses have a "making the world a better place" mission beyond solely delivering profits to its investors. Businesses make choices all the time as to what they morally and ethically will and will not do as a business and why they do what they do. Nevertheless, for-profit businesses are still responsible for benefitting shareholders even while expressing their values, while non-profit businesses are responsible to reinvest profits to further their mission.
  6. Even if a person founds a non-profit and sets up a board of directors, that person can still be removed by the board of directors. No one individual can control a non-profit, founder or not - even if they gave some of their own money to the non-profit to get it started.

 

What other beliefs and myths have you heard about non-profits? I'd love to hear them. Click the button below and we can talk about them.

 

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Topics: nonprofit sector, Nonprofit Organization, steward leadership

Steward Leaders: Non-profits and the why of "Free"

Posted by Matthew Thomas

In the age of Google, how do we define non-profits?

 

We know the legal definition - that a corporation not-for-profit does not create financial benefits for its shareholders, but instead reinvests any surpluses to promote its charitable purpose.

 

That's not what most people think of, though, when they think of non-profits.

 

Like what you're reading? Subscribe Now! Most people think of a non-profit entity as an organization that uses donated funds to achieve some charitable purpose. Typically, someone is receiving something for free based upon the generosity of someone else. Moreover, the perception is that they aren't supposed to make money. One then draws the conclusion that nonprofits are supposed to be poor and not pay well. Oh, and, people may add, they don't pay taxes.

 

Related: What are the messages we send when we ask for money?

 

That's the working understanding I see in the minds of many people I encounter. The primary emphasis, though, is that someone is getting something for free that is being paid for by someone else.

 

But non-profits aren't the only entities out there offering something for free which someone else is paying for. Think about it: Google's business model looks very similar. Most people Google things for free - and use gmail, Google maps, and so on. But Google is an advertising company. So advertisers bid on keywords at auction to place text ads where you will most likely see them when you look up specific words. So in this case, Google and many non-profits have a similar-looking "Free" model for business.

 

There are two big differences, however:

 

  1. Google is responsible to provide profits to its shareholders after retaining enough capital to continue to innovate and spur more business. Non-profits are responsible to sow that money back into the organization's mission.
  2. The why of the funding is different: advertisers on Google's search pages are expecting a return on their investment for their company; non-profit donors have, at least in theory, more charitable purposes.

 

Ok, that may seem obvious to many non-profit executives. Why is this so essential to understand?

 

Non-profits actually have a wide variety of business models that support the work they do. The most common form of non-profit works on a donation basis. Nevertheless, there can be other models out there for steward leaders to consider. Leaders looking to innovate consider how new business models might help them fulfill their mission effectively. Moreover, those seeking donor funds remember that the donors are looking for some sort of payoff in mission fulfilled or purpose promoted.

 

How does your non-profit see its business model? I'd love to hear your story. Click the button below, and let's chat!

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Topics: Matthew Thomas, Nonprofit Organization, steward leadership

Steward Leadership: Combating Anxiety in Declining Organizations

Posted by Matthew Thomas

If the organization you serve is old enough to have had "glory days," and those days aren't now, then you probably serve an organization that has experienced decline (even if it is currently plateaued or growing). 

Decline creates a potent draught of emotions that, among other things, has a strong component of anxiety. Fear for a positive future often sets in when people realize that there aren't as many people as before, isn't as much money as there was in previous budgets, or the building doesn't look quite as fresh as it used to be.

Setting aside for now the denial and blame that often crop up when these things become, for the first time, obvious to the organization, anxiety often rules organizations that see their best days as behind them. They have trouble seeing a positive outcome and future that does not involve loss, pain, and grief.

Anxiety often leads to control mechinisms that move the focus off of mission and onto management. This tends to compound the problem, although it looks like people are taking steps to deal with the situation.

So what can we do?

Here are four options:

  • Acknowledge the anxiety and the reality of what drives it. This allows it to come out in the open, and then people can begin to deal with it. This may involve breaking a few eggshells that people are walking on, so do this with grace.
  • Be decisive. Clear-headed confidence (without hubris or overconfidence) can often bring security to people who are ruffled by anxiety. Dragging out decisions and waffling will increase anxiety.
  • Create a plan. Be strategic, looking for big-picture capacity to change. Don't just solve the immediate problem.
  • Give people something to do. Large or small, when people are working on something, they don't have as much chance to go around in mental circles.

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Topics: church, Matthew Thomas, Organizational Leadership, Nonprofit Organization, Design Group International, steward leadership

Non-Profit Organizations: Tax Filing Due 31 July 2013

Posted by Matthew Thomas

As explained in a previous post, while non-profits are typically tax-exempt, they still must file certain regular forms with the IRS to maintain their tax-exempt status.

On July 31, non-profit organizations that pay wages, tips or other compensation to employees must file Form 941 or 944 for compensation earned during April, May and June 2013.

Non-Profit organizations that are not 501(c)(3) tax-exempt organizations must also make a FUTA deposit for the 2nd quarter of 2013 if the deposit exceeds $500.00.

See IRS Publication 15 and Publication 15a for more information.

Design Group International can assist your organization with tax and other financial questions. Click on the link below to contact us about how we might work together.

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Topics: Matthew Thomas, Nonprofit Organization, Design Group International, Tax-Exempt