02.26.2016

For Not-for-Profit Organizations

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Throughout my career in public accounting, I have been fortunate to serve a large number of not-for-profit organizations of all types and sizes. I have tremendous respect and appreciation for the men and women who devote their careers to roles that advance valuable causes within these great organizations. Some of the most talented and visionary leaders I have worked with are the executive directors, board members, and other management team members in the not-for-profit sector. I commend all of these individuals for the positive difference their organizations are making in our communities!

As an advisor to not-for-profits, I am keenly aware that not-for-profit organizations face a significant amount of competition for the limited resources available to support the accomplishment of their missions. Much of this competition comes not only from for profit entities, but also from other not-for-profits. The Urban Institute’s publication entitled “The Nonprofit Sector in Brief 2015” notes that there were approximately 1.41 million nonprofits registered with the Internal Revenue Service (IRS) in 2013. Over 950,000 of these organizations were classified as public charities by the IRS in 2013, meaning that someone contributing to such organizations is able to record a charitable donation for income tax purposes when a donation is made. Even within the state of Utah there are a very large number of not-for-profit organizations competing for limited resources. Competition for funding is compounded by the fact that a large number of newly organized not-for-profit organizations are approved by the IRS each year. With so much competition, it is easy to see why many donation and grant funded not-for-profits feel continual pressure to secure the next dollar of funding.

Over the years, I have heard a number of individuals express an interest in forming a not-for-profit organization. Quite often, these individuals, a family member, or a friend have been impacted or witnessed something in their lives that causes them deep feelings of sorrow or concern. This then leads to a sincere desire to do something to make a positive difference in the area of concern identified. This is very commendable and has led to the creation of many of the most well-known and respected not-for-profits in the United States. However, because of the significant competition among not-for-profits for donations and grants, I suggest the following steps be taken before a new not-for-profit entity is created:

  • Conduct research to determine whether other organizations in your area are already addressing, either partially or fully, the area of concern you have identified. For those with passion to make a difference, it is often very exciting to think about forming a new not-for-profit organization through which the identified area of concern will be addressed. However, if another organization or organizations are already providing services in a chosen area, the potential impact for good can often be even greater by simply joining the cause. This also results in financial efficiency simply from not duplicating administrative and overhead costs.
  • Evaluate whether donors/grantors will likely consider your cause worthy of funding. Only if you conclude that adequate funding will likely be available should you continue down the path of possibly creating a new not-for-profit.
    Consider other important factors such as who will manage the organization, who will serve on the board of directors, and how you will stay in compliance with tax and other laws and regulations. There are a number of good resources available to provide guidance on additional steps to be taken to organize a not-for-profit.

For an existing not-for-profit competing for relatively scarce donations and grants, here are a few things to consider.

  • Collaborate – Other not-for-profit organizations serving in the same or complementary areas can often be seen as adversaries; however, a synergistic relationship can often exist between two organizations which could result in less redundancy of effort and even the expansion of services that are provided. Do not rule out the possibility that two not-for-profits may be able to do even more good by merging the organizations into one legal entity and benefiting from the potential reduction of duplicate costs. I have known of several mergers of complementary not-for-profits over the years that have been very successful.
  • Differentiate your organization – Since each organization may be competing against dozens or even hundreds of others for the limited funds available from a donor or grantor, it is absolutely critical that an organization find ways to differentiate itself. One important way to do this is to measure and communicate an organization’s social impact. Simply stated, can an organization prove to the world that it is really making a difference in the area or areas defined in the organization’s mission? An important starting point is to ensure that a not-for-profit organization’s mission is defined in such a way that metrics can be developed to truly measure the success the organization is having.
  • Go beyond the basics – In developing the dashboard type metrics an organization plans to use to measure and communicate impact, go beyond simply measuring the basics, such as how many people were counseled, how many meals were served, or how many individuals were taught. Although sometimes more difficult to quantify, metrics that measure, at least indirectly, the impact of the services provided by a not-for-profit are a great supplement to other data. For example, suppose your organization provides educational services to the preschool children of disadvantaged families to improve the children’s later success in the traditional classroom setting; perhaps there is a way to obtain data to allow a comparison of the average test scores in traditional elementary schools of children who completed the not-for-profit’s program to those who did not. Some of the data to communicate could come from surveys or interviews of the teachers or administrators in the schools the children transition to. Other important metrics would be to simply measure the tested improvement in knowledge from the time a child enters the not-for-profit’s program until the program is completed and the child enters a traditional elementary school. This type of data conveys a much stronger message of impact than simply reporting the number of students enrolled in a program or similar metrics.
  • Keep it simple – The dashboard information provided to outside funding sources should focus on a few key metrics that clearly demonstrate impact rather than on providing substantial amounts of data. Individuals making funding decisions are busy, so the quicker they are able to assess your not-for-profit’s true impact for good, the better.
  • Tell your story – Using real life examples of the positive impact your program has had on the people you serve is very meaningful. Similar to the use of metrics, try to communicate your organization’s story in the most powerful, yet concise way possible.

We have a lot of wonderful not-for-profit organizations in Utah. I wish all of them success in their efforts to accomplish their missions and in obtaining the essential funding that makes this possible.

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