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Let me explain. I was serving as Executive Director of a small town historical society which manages a historic home. I was the only employee, and was paid hourly for 30 hours per week. Then the Shelter at Home order hit.
We had initial discussions at our April 2020 Board Meeting about needing to cut costs based on the effects of the pandemic. If you remember the timing of the pandemic, we had no idea then what was going to happen. Some thought the Shelter at Home order was crazy; others were fully bought in. Employers were trying to find ways to stay on task with business needs while parents had to become home schoolers almost overnight. It was a crazy time.
I told our Board of Directors I would do some research, using our budget for the year and revising it to anticipated pandemic effects. We would then have solid information for our May meeting for basing any financial decisions. I think it was three days later that I e-mailed financial information to my Board Chair, including a “pandemic revised budget”, and told her they needed to lay me off asap.
My Board Chair said no way. Two days later she called and we discussed how to handle laying me off.
The reality was, my salary was by far the greatest expense of the nonprofit, and, there was a definite chance we would not be able to run our summer fundraisers at community festivals – by far our greatest source of income. We also would not be able to run tours at the historic house.
At our May Board meeting I was furloughed, with the Board set to revisit the furlough on August 1st. That deadline has now been extended to January 1st of next year.
I am now a pandemic statistic.
How could I do this, you ask? The logic is easy. My job as the Executive Director was to put the needs of the nonprofit first, even in front of my own personal needs. That is also the job of a Board of Directors. As difficult as losing my income was, and as difficult as it has been for the Board of Directors to pick up my job duties, the logic to do it was easy.
The upside of this? I now have the time to get my website and classes up and running.
It’s my hope that by sharing my nonprofit knowledge with others, I will be expanding the effect I have on the nonprofit sector exponentially. If I can make 100 people better able to make a difference in their own nonprofits, I will have made a difference in 100 nonprofits instead of just the one I am working for.
I invite you to come along and join this cause.
Should a Nonprofit Make a Profit?
When I was in my Master’s Program, we discussed the topic of whether or not a nonprofit should “make a profit”. Somehow that just doesn’t sound right, does it? After some discussion we (students) came up with this answer: Nonprofits have to make money, but all the money they make should be spent on services, so you’re really not making a profit. Therefore, no, nonprofits should not make a profit. Boy were we wrong.
I was in my Master’s Program during the “Great Recession”, or from 2008 – 2010. It wasn’t dissimilar from being in the current pandemic. Money was tight everywhere. Donations to nonprofits were dropping significantly. Yet, the need for services was going up. We were all so worried about people receiving services that we never took into consideration the need to keep the nonprofit up and running.
Shortly after this I was part of a state nonprofit brainstorming group working to define “best practices” for nonprofits and whether or not nonprofits should hold money in reserve. We looked at what happened to nonprofits during the recession and came up with the following recommended best practice for nonprofits.
Nonprofits should have between 6 months and 2 years of operating capital reserved to be able to successfully manage changes in challenging times. The greatest determining factor to this is in where your funding comes from, and what services you provide. If you get $X per client served from a guaranteed source (like the government), and this can fluctuate as more or less clients seek your services, you will need less reserves. If 100% of your funding comes from local donations, and you run a local food shelf which will have increased need during difficult times, you should have more reserves. All in all, it is up to the individual nonprofit to decide what their reserve level should be.
Should a nonprofit be able to make a profit? The answer is yes, providing they keep a good balance in mind when determining what to spend for client services, and what to keep in reserve.
Founder's Syndrome
Hmmm, Founder’s Syndrome. Many people have heard of it, but to give a general definition to it, Founder’s Syndrome is where a Founder of a nonprofit will want to proceed as the
Founder sees fit, instead of doing what is in the best interest of the nonprofit as decided by the Board of Directors. And let me tell you, this creates a distinct issue between the Founder and the Executive Director (ED) if the ED proceeds as the Board has directed, which s/he should. Let me give you an example.
Years ago, I took on my first ED position. I was still very new to my position, not even a month in yet, and it was my first paid position with a nonprofit. I had a Founder who wanted me to sign a contract to work with a school as they had in the past; however, they had not met the requirements needed (i.e., had not yet raised enough funds) to enter the contract. When I would not sign the contract and explained this to the Founder, he argued that that’s how it is always done. When I would not give in and sign the contract, he got angry with me and said that we were going to the Board Chair’s office right now and he will have you sign the contract.
When we got to the Board Chair’s office, my Founder took over the conversation and explained everything to the Board Chair and said we had always signed the contract anyway, whether the funding was in place or not, and that I should just sign it again. I hardly needed to be there because I could not get in a word edgewise.
I was incredibly surprised when the Board Chair said something like, “(Founder), remember we talked about this when we made the decision to hire a full time ED. The Executive Director will make these decisions so that they do not need to come back to the Board of Directors or to the Executive Committee. And, we have policies in place for the ED to follow and she is correct that you have not met the requirements for her to sign the contract. We should be very appreciative that she is following the rules and regulations we put into place. Remember we discussed that you’re going to have to step back a bit now and allow her to do her work.”
The Board Chair handled the situation perfectly. And here I was thinking I might get fired.
Ultimately, they did not get the funds raised in time, I did not sign the contract, and because of that we lost the work.
However difficult this was for me as a new ED being new in my position, I seemed to gain some respect from the Founder for standing my ground. We came to be good friends after this and were particularly good at bouncing ideas off each other up until the day I left.
Silly as it may be, I still miss (the Founder) to this day, and that was well over 10 years ago.
Horse of a Different Color:
Strategic Planning During the Pandemic
Every nonprofit should do strategic planning, whether it’s an informal discussion of what to do the upcoming year, or a more formalized three year strategic plan. So, how does strategic planning look different during something like our current pandemic? Let’s take a look.
Generally I recommend nonprofits conduct a three year strategic plan. During normal years, the most defined plan is for the upcoming year, or the first year. Most nonprofits will look at this prior to the beginning of the new fiscal year, and it includes very specific activities which will help you achieve short term goals. In addition, nonprofits should look two years out, with less defined activities which are still in alignment with short term goals, but that also include a start on intermediate goal activities. The third year of the strategic plan is more of an idea plan that continues short term and intermediate goal activities, but also starts new activities aligned with your long term goals.
Generally, however, this isn’t viable during something like the COVID-19 pandemic.
I would recommend the following as a structure for strategic planning during the pandemic: first, look at the challenges you are facing because of the pandemic. Are your income sources threatened? If so you have two option: increase your income elsewhere or decrease your expenses. Will you have more people needing your services? Maybe you will choose to give less to more people; maybe you will serve only existing clients. You may need to, or already have had to lay off staff. How will you work through this? Your strategic plan’s first year must get you through the immediate challenges so you can continue to operate into your second year.
Second, what immediate challenges will be continuing to affect you down the road? If your income is going to continue to be less, you need a more long term plan of how to deal with it. It may be the same plan as year one. Or it may be different because you now have the time to implement longer term activities. This is your strategic plan’s second year plan, dealing with ongoing effects of the pandemic.
Third, take a best guess at what your new “normal” will be after the pandemic subsides. Now, put together rough plans to move into your new normal. You will probably have some of your first and second year activities continuing, but you in essence want to be defining your new role as a nonprofit in the changed world. This new position in your community needs to align itself with your nonprofit’s mission. This is the third year of your new strategic plan.
Also remember, strategic plans are not set in stone. They are guides. If you find the changes you adopt are not meeting your needs, make additional changes. The second and third year of your strategic plans are guesses and you will likely be revising them as needed.
This is called Situational or Contingency Strategic Planning. There is more information on this process available through a short course posted on the web site on the "Courses" page. Good luck!
New Requirements for the IRS Form 990
The IRS requires a Form 990 be submitted by nonprofits every year. It feels like the nonprofit equivalent of an income tax form, but the form is really about transparency. It includes information like numbers of board members, if you have a Conflict of Interest policy for your nonprofit, and also your finances and details of where your money is spent. It is intended, in part, to help potential donors understand how their donations might be spent.
There are three different IRS Form 990s. The forms for nonprofits running on a calendar year are due May 15th (unless it has recently been changed) if you do not request and receive an extension.
The 990 Postcard is for nonprofits whose income for the previous fiscal year is less than $50,000. It is a very simple form, just fill in a few blanks and you are done.
The second form is the IRS Form 990EZ. Nonprofits who have total receipts of $50,000 but less than $200,000 – and – total assets of $500,000 or less may file the EZ form. If you are new to filing this form, I recommend allowing yourself ample time as it takes some time to work through.
The IRS Form 990 (long form) is for any nonprofit with a yearly income of $500,000 and over, or with assets of $500,000 and over. Private foundations, regardless of financial status, must file the long form. If your nonprofit falls into this category, you most likely work with an accountant for auditing (at least), and your accountant should be filing out the form on your behalf.
New for 2021 and then moving forward is this: the forms now MUST be submitted electronically. In the past you could submit a paper copy. No more.
And remember, if you are interested, you have the capability of pulling up recent 990s on the IRS web site for any nonprofit who submits them, which should be every registered nonprofit.
For more information on IRS Form 990s, including instructions and information on where to submit them electronically, can be found at https://www.irs.gov/charities-non-profits/form-990-series-which-forms-do-exempt-organizations-file-filing-phase-in.
Ever Fire Yourself? I Did.