1. Nonprofit 101
FOR 501 COMMONS CONSULTANTS

2. Nonprofits exist to pursue a mission
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provides nutritious food to hungry people statewide
in a manner that respects their dignity, while fighting
to eliminate hunger.

3. Evaluating Success: For Profit vs. Non Profit
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 A sustainable for-profit  A sustainable nonprofit
should be socially and should make a financial
environmentally profit, but to be
responsible, but to be a successful it must
success it must deliver deliver on its social or
a financial profit environmental mission
Photo credit: Craig Maccubbin

4. Profit Management: For Profit vs. Non Profit
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 For-profits can pass  Nonprofits must
along profits, reinvest profits in
property, or shares to pursuing the
individuals who organization’s
manage or govern the mission
organization or invest  Passing
profits in the profits, property or
organization shares to individuals
is illegal
Photo credit: Nick Wheeleroz

5. What makes a nonprofit a nonprofit?
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 Pursue a community benefit
 Nonprofits adhere to corporate law & regulations
unique to this sector
Names and Acronyms for Nonprofits
Non-governmental Organizations (NGOs)
Nonprofit Organizations (NPOs) Not for profits
Voluntary sector Social sector
Photo credit: Chuck Coker
Additional Resources
Citizen Media Law Project: What is a nonprofit?
Idealist: Who can benefit from a nonprofit‟s activities?
Idealist: Nonprofit Regulations

6. Organizations are deemed „nonprofit‟ by state
government, „tax exempt‟ by federal government
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Nonprofits with
federal tax-
Nonprofit exempt status
Informal Groups (incorporated in state) (incorporated in state
(not incorporated) AND meets additional
federal requirements)
WA Secretary of State -
Nonprofit Incorporation IRS - Nonprofits
Simplest Most Complex

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Examples: Community groups, Coalitions,
Neighborhood associations, etc.
Informal
Legal Responsibilities: minimal
Groups
Legal Privileges: no group privileges
A small group of
Advantages: Accomplish a shared goal with minimal
individuals who come
requirements
together to pursue
joint goals, but do not
Limitations: Informal groups can NOT -
register as an
• Have a group bank account,
organization
• Ask for contributions
• Win grants or contracts
• Hire staff
• Earn income
Photo Credit: John Spooner

8. 8
Examples: most neighborhood groups, professional
organizations, new organizations that haven‟t received
federal tax-exempt status yet.
Nonprofits Legal Responsibilities: Must provide social or
community benefit, follow charitable solicitation rules in
fundraising, pay state, local and federal taxes, have a
A group that registers board of directors.
as a nonprofit with the
Secretary of State Legal Privileges: Can enter into business dealings,
form contracts, own property, similar to state-
incorporated businesses, plus can:
• Ask for contributions (if registered for
charitable solicitation with Secretary of State)
• Receive grants or contracts from some funders
Advantages: Earns business privileges with moderate
need for extensive recordkeeping and reporting
Limitations : Contributions are not tax-deductible,
Ineligible for some grants or contracts

9. 9
Examples: most nonprofits you can think of! 501
Commons, Goodwill, YMCA, UW, churches, etc.
Tax-exempt
Legal Responsibilities: All responsibilities of a state
Nonprofits nonprofit, plus must file IRS 990 financial reporting form
annually
A nonprofit that Legal Privileges: Exempt from federal corporate taxes
registers with the (but may pay state and local taxes), additional privileges
Secretary of State and depends on specific type of tax-exempt designation
applies for and earns
IRS tax exemption
Advantages: Tax exemptions, eligible for more grants
status
and contracts
Limitations: Must follow complex reporting and
recordkeeping rules
Photo credit: Valentin Ottone

10. Common Challenges of
Nonprofits
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11. Nonprofit Board Governance
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 Board powers are  Family members of staff
defined in should not be on the
 Articles of Incorporation Board (conflict of
 Bylaws interest)
 Board is directly  Board must have at least
accountable for actions 4 people and meet at
and policy of least 4 times a year
organization  Most Boards have about
 Board members can be 15 people
held financially liable for  Board may limit the
the actions of the number of years a
organization member can serve

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 Lack of clarity on which decisions
made by the Board and which are
Challenges made by the Executive Director
with the (ED.)
Board  If lack of clarity leads to a passive
board, the Board might not challenge
the ED enough.
“Very competent
individuals can come
 On the other hand, a very involved
together to form a very Board, may not give the ED the
incompetent board.” freedom to make day-to-day decisions
without consulting the board.
John Carver
Boards that Make a
Difference
Nonprofit Executive Director = CEO

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 Boards should decide the end results
What is the or long term goals a nonprofit should
Board’s Job? pursue
 Executive Director is responsible for
achieving those goals
 Boards should define any limits on the
Board Executive executive. Examples:
Director  Don‟t do anything illegal or unethical
ENDS/
GOALS MEANS  Don‟t treat clients, volunteers or staff
unfairly
 Don‟t get into debt
501 Commons‟ Board Best Practices

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 Similar to small business, nonprofit
staff wear many hats
Challenges  Executive director often has program
with staffing and management responsibilities and is
the chief fundraiser
Staffing is typically
 Office manager is often responsible for
a nonprofit‟s
biggest expense, finances, HR, technology, facilities, etc.
but understaffing  Staff may not have special knowledge
is common or training for some aspects of their job
 Unique to nonprofits
 Program staff may be primarily
volunteers or AmeriCorps members
with time-limited terms
Nonprofit Program = For Profit Lines of Business

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 Grants and contracts are often for one
Challenges
year only
with money  Donors can restrict contributions to a
certain program
Nonprofits have limited
access to capital and  Contracts and grants restrict the
face restrictions on how
money is spent.
percentage that can be use for
administration
 Impact:
 Significant staff resources spent
tracking spending of donor funds
 Funding restrictions can make it
difficult for a nonprofit to invest in
technology, staff training, and other
capacity building projects
Getting what we pay for: How low overhead limits nonprofits effectiveness

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 Limited staff resources, constant
Challenges fundraising, and lack of investment in
with time administrative systems leads to
Knowing when to say burnout
“enough”  Staff are driven to achieve the mission
despite limited resources
 Measures of success are often
unreachable
 How can the food bank manager go
home, at the end of the day if there‟s
still a line around the block?

17. How important are volunteers
to nonprofits?
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Myth: Volunteers do only low
value tasks

18. Reality: Volunteers are a critical resource
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 All nonprofits are required to have Boards of Directors who
are volunteers
 Volunteers help nonprofits serve more clients
 In homeless organizations, it‟s estimated that 40% of services
are provided by volunteers
 Volunteers extend the reach of the staff
 For example, the Girl Scouts use their network of 928,000
adult volunteers to serve 2.4 million girls
 Volunteers are much more likely to donate than non-
volunteers

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 501 Commons Web Site Tools and
Best Practices
Want to  501 Commons Best of the Web
learn  Other recommended Websites
Idealist.org‟s Nonprofit FAQ
more? 
 Seattle University Executive Master of
Nonprofit Leadership Helpful
Resources Ten Websites All Nonprofits
Could Use

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501 Commons Intranet
Want to  Log in from www.escwa.org/intranet
learn  User name: volunteer
 Password: washington
more ?  Practice Areas
 Topical list of articles, sample
documents, templates and online
resources
 Consultant Tools
 Project management templates and
tools

21. Appendix
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Facts and figures about the
n o n p r o f it s e c t o r

22. 501 Commons works mostly
with 501c(3) organizations
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501c(3) organizations can ask for
contributions & donors can take
tax deductions
More information on Federal Tax Exemptions
http://www.irs.gov/pub/irs-pdf/p557.pdf

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Most Common
Distribution of 1,536,134
Tax Exempt Federally Tax Exempt US
Statuses Nonprofits (2008 data)
501c)3 : religious,
educational, charitable,
scientific, and literary Other
organizations 501c's
22%
501c)4: civic leagues,
social welfare 501c(4)
organizations, and 7%
professional 501c(3)
associations 71%
Data Source: Urban Institute

24. How Many Nonprofits in Washington? How Big?
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Number of Nonprofits in  Most nonprofits are
Washington State (2009) small
60,000
 Median budget size -
50,000
$100,000
40,000  90% reported revenues of
30,000
302,000 or less
20,000
10,000
0
All Nonprofits 501c)3
Data Source: Nonprofits in Washington 2009 Data Source: Nonprofits in Washington 2008

25. How do Nonprofits earn
money?
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Myth: Most nonprofit revenue is
from charitable contributions

26. Reality: Most contributions come from individuals
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2008 Charitable Contributions $308 Billion by Source ($ in
Billions rounded)
Bequests
$23
8%
Foundations
$41
13%
Corporations
$15
5%
Individuals
$230
74%
Data Source: Giving USA

27. Reality: Most revenue is from earned income
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Sources of Revenue for Reporting Public Charities, 2005 data
Other income Investment
3% income
5%
Private
contributions
12%
Government
grants
9% Fees for services
and goods from
Fees for services private sources
and goods from 51%
government
20%
Data Source: Urban Institute