Non Profit Organizations: Eleven to Heaven
An Ocean’s Eleven Approach to Nonprofit Team Composition
Imagine for a moment that you’re planning a heist. Actually, let’s reframe this. Imagine you’ve set out to accomplish something in the world that requires overcoming the standard structure of operations. Maybe you’ve decided to work with a non profit organization and help take it to the next level? Imagine this goal demands copious attention to detail and unflinching dedication to a given cause. Most importantly, recognize this goal cannot be accomplished alone. How would you structure your team?
1) The Executive Director: Find Your Clooney
Before proceeding with this Ocean’s Eleven-esque mission, you need to find someone to navigate the tricky landscape that is the Executive Directorship. Your non profit organization needs a Clooney.
Complexly, this position treads a fine line between leadership and management. While wearing their leadership helmet, your executive director will interact with the board and focus on the greater scope of your non profit’s problems and goals. Then, without missing a beat, they need to slip on their management cap and take a close look at the day to day operations of the organization.
If that wasn’t enough whiplash, the executive director must also keep their fundraising and communications fedora at the ready. They need to manage and maintain relationships with current and prospective donors. At the end of the day, the duties of the Executive Director boil down to engagement. Be it the board, staff, or donors, you need someone with the command and charisma of a Clooney to keep people focused and dedicated to the cause.
2) Avoiding Board Authority Confusion
After you’ve found your Clooney, a strong board is the next major component. The most important trap to avoid is authority confusion. You’ll never pull off your heist to better society if you have multiple agents with conflicting orders. Although your executive director is meant to partake in both leadership and management, the same cannot be said for your board. The easiest mistake non profit organizations make is letting their board get bogged down in day to day management. Keep your board focused on the high-level goals of the organization; Clooney can deal with implementation.
3) Keeping Your Staff Engaged and Matt Damon Out of Trouble
A board of Brad Pitts with Clooney at the helm is a great start for any not-for-profit, but Ocean’s Eleven is nothing without its supporting cast. In the world of non profit organizations, this means having a strong and enthusiastic staff. Of course this is in part accomplished by a thorough interview process and finding people with a passion for the mission. After you find that spectacular staff though, how do you keep them?
Matt Damon had a passion for the mission. Trouble only came when he didn’t feel like a unique contributor to the heist. Your staff functions the same way. People don’t get into the nonprofit world for the money, and those that do should be filtered out in the interview process. People join a non profit organization to affect change in an arena that matters to them. Make your supporting staff feel needed or they’ll surely leave for somewhere that does.
4) Assessment: The Optimization of Eleven
The final piece to the composition puzzle is the most important, a defined assessment process. There are many tools available to non profits to help them formulate an assessment that would work for their particular organization. Examples of areas that should be periodically assessed include Board of Governance, the culture of the organization, fundraising and revenue generation and volunteer management, to name just a few.
By implementing and assessing an assessment tool, you will be helping to increase your effectiveness and advance your mission by identifying strengths as well as areas to improve. The information obtained can help determine how well you are accomplishing your mission and how you are progressing towards your goals.
The Financial Side of Things
We’ve assembled our eleven (or however many people it takes to effectively run your non profit). Now, it’s time to revisit the original schematic for the plan. As painful as it is to hear, a great heist team is nothing if they’re not prepared for an audit. It might be a good time to drop the metaphor now. In this section, we’ll dive into accounting work that has to be done before you and your team can get to doing what you set out to do in the first place.
As discussed in one of our previous articles, transparency involves some of the first major steps to a financially stable and healthy non profit organization. There are two sides to this coin: the required and the recommended. You are required by law to display some components of your business like your IRS Form 990 and your application for tax exemption; however, you don’t start seeing the benefits of transparency until you go above and beyond these requirements. Perhaps you make your application for tax exemption easily accessible on your website! You may also develop a conflict of interest policy to further signal to donors just how seriously you take their time and donations. This is just the tip of the iceberg for what transparency can do for you.
6) Financial Statement Stability
Although there’s far too much complexity and nuance to cover here on step six, let us at least equip you with a cheat sheet for the road ahead. At a high level, you need to get your house in order when it comes to your nonprofit’s Financial Statement of Position as well as its Financial Statement of Activities.
You can think of the Financial Statement of Position as the non profit organization equivalent of the Balance Sheet. Although we go into this in greater detail in a previous post, at a glance, there is one major difference between a for-profit’s and a non profit organization’s approach: donor restrictions. This was enforced with the latest FASB update discussed here. This really just boils down to the liquidity of your assets. It’s up to you and your accounting team, to keep track of which assets were used where and for what purpose.
Similarly, the Financial Statement of Activities also has a for-profit analogue: the Statement of Income. It’s at this point you might ask the question, “What is a nonprofit organization’s income?”. Ultimately, a nonprofit’s income is its outcome on society. This still needs to be represented quantitatively though.
Net Assets (final) = Revenues – Expenses + Net Assets (initial)
This isn’t too scary, but don’t let its simplistic facade fool you. You need to recognize that non profit revenues typically take the form of donations that come with a variety of restrictions. Further, expenses may be broken down into program functions and supporting functions (and supporting even further). We go over this in greater detail here, but this is all to say, you need a strong accounting team to stay on top of these tricky financial statements.
7) Who Do You Call?
All of this is to say that non profit organizations have unique accounting needs. Now if you followed step three of this post, you very well may have a flock of optimistic volunteers banging down your door to help in any way they can. Do not fall into the trap of abdicating accounting responsibilities to an untrained volunteer. Setting aside the legal risk of avoidable accounting mistakes, your in-house accounting bandage will lack one invaluable quality: communication.
At the heart of effective nonprofit accounting is your active engagement. This is why having an accounting solution that can communicate not only what you’re doing but why it needs to be done is so crucial to your operation. This why will only ever come from experts experienced with accounting for non profit organizations.
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Developing Your Non profit Organization’s Blueprint: Policies
Although, all of these tips and rules of thumb can do wonders for non profit organization, they risk being temporary without active attention and care. This is also when having formalized policies and operational guidelines can help avoid future problems.
8) Conflict of Interest Policy
A non profit organization’s conflict of interest policy is typically born out of two stimuli: Form 990 and good sense. In this IRS form, there are questions asked regarding an organization’s conflict of interest policy. More than merely having one (a legal requirement), it is good practice to develop your policy with these questions in mind. In addition to being able to give good answers to these questions, you can also rest easy knowing you’ve developed a thorough policy.
Legality aside, there are some major benefits to having a conflict of interest policy. First, the mere act of creating your own conflict of interest policy will give you and all involved an edge for detecting violations. Further, policies such as these, when displayed appropriately, signal to donors and financial partners that ethics is something your non profit organization values. Even though it may seem like just one more legal obligation, putting a little bit of effort into policy work can pay dividends for your non profit, and it doesn’t end there.
9) Donor Policy
As you may have read in our post, donor restrictions can make things quite complicated. Consequently, it serves your organization well to standardize this process with a donor policy. A donor policy can benefit your non profit organization in two major ways. First, establishing a policy by which donations come in can radically reduce errors and oversights made. These errors are particularly tricky because they don’t usually become a problem until you go to make a withdrawal which may be quite some time after the initial donation. This is why it’s important to develop a thorough pre-flight checklist so to ensure a smooth landing later.
In addition to a general improvement in donation processing, it can also help with your donor relationships. Not only does having a well-developed policy signal to your donor that you take their donation seriously, but it also lets them know that they aren’t being singled out. By the very nature of non profit accounting, it’s never as simple as donor gives and nonprofit spends. There’s a wealth of conversation, agreement, and paperwork between those two events. Assure your donors that all this rigmarole is standard for everyone. They’ll hate the paperwork but appreciate the respect and sentiment.
10) Spending Policy
Now that you have the receipt of funds standardized, it’s time to discuss their consequent usage. Developing a thoughtful and thorough spending policy can produce both direct and indirect advantages for your non profit organization. Most clearly, a spending policy gives your current and future boards a tool by which to allocate funds. This ensures consistency through board turnover. In addition to internal benefits, a developed and proudly displayed spending policy broadcasts to donors exactly where their gift is going while boosting donor confidence.
11) Long Term Strategy
Given the wide array of topics covered here, you probably have quite the todo list in front of you. Depending on the status of your non profit organization, you may be thinking that you need to take a look at some of your financial polices, implementing a self-assessment, or if you’re really early on, hire an accountant.
Before diving into everything that needs to be done, ask yourself, “What is the mission of my non profit?”. Maybe you want to reduce homelessness by 3% in a given area. Maybe you intend to lower the toxicity levels of a local river. Whatever it may be, define it. Then, functionally decompose that big problem into its component parts. Chances are, some of the accounting challenges mentioned above end up being a component of a component of a component. It’s when we get to this third order of removedness that we get frustrated with the task at hand and lose sight of that original question. It’s then that you again need to ask, “What is the mission of my nonprofit?”.
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