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Posts Tagged ‘business plan’

We’ve discussed a number of topics related to developing your idea to address a need in your community and ways to organize your efforts to achieve your goals.  It is my hope that these topics have been helpful to you as you begin and/or proceed on your journey.  I may not have been as exhaustive in my information as you may need; however, these entries can be used as a launching pad to help guide you in your search for more information.

I readily admit that there are many professionals in this field that are more experienced that I am, but I have a passion for this work and this blog was one way to share my thoughts and more than 15 years of experience.  If there are other related subjects you would like for me to cover, please let me know and I will do my best to create more “launching pads”.  If you want a particular subject to be covered more thoroughly, let me know.  Otherwise, I thank you for taking this journey with me and I pray that all of your efforts are successful.

And speaking of “your efforts”…are you ready to take the plunge?  What’s stopping you from moving forward?  Nothing stops an idea better than inaction.  Just go for it!!

Be strong and be blessed!

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When it comes to nonprofits and their tax-exempt status, faith-based organizations (FBOs) must be especially careful when they decide to go beyond “having church” to providing services that benefit the community overall.  For example, when a FBO decides to go from developing Sunday School curriculum for its own use to developing and selling biblical children’s stories to be used by the general public…or when a FBO expands its transitional housing efforts from housing the homeless in their multi-purpose building to providing shelter in homes the FBO has purchased…or when a FBO intends to purchase land not just for a new church building but for other uses such as senior housing and small-shop retail…and the list can go on.

Even though the examples given above can be deemed as extensions of the FBOs overall mission, these “extensions” may be viewed by the Internal Revenue Service differently.  In fact, there are many recent examples of FBOs and their leaders being investigated by the federal government questioning their tax-exempt status.  Ultimately, these investigations were dropped, but the fact remains that as budgets tighten at the federal and state levels, government bodies will continue to aggressively seek additional sources of revenue and FBOs will continue to be potential targets as the line blurs between their charitable and auxiliary activities.

One way to address this possibility is for FBOs to establish independent organizations that can facilitate these activities without jeopardizing the FBOs tax-exempt status.  For example, using the “bible children’s stories” example from above, I would recommend that the FBO create a separate entity (e.g., a publishing company) that would develop, market and sell the products so that the tax-exempt status of the FBO would not be put into question – especially when the income of the publishing company begins to increase substantially.  In addition, if the FBO intends to secure grants for various charitable activities that will benefit the community as a whole, many philanthropic organizations cannot award grants directly to FBOs, but can make awards to non-profit organizations that facilitate these charitable activities.

The examples given above are merely for illustration and not intended to be definitive.  Case law is constantly evolving in this area, so please consult with a local attorney or CPA who can help you wade through these waters.  If you have questions or comments that would help broaden this discussion, please respond.

Be strong and be blessed!

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“An idea that is developed and put into action is more important than an idea that exists only as an idea.” – Gautama Buddha

You’ve noticed a great need in your community (e.g., teen unemployment, crime, obesity, etc.) and have come up with a great idea to address that need or would like to implement an existing program in your neighborhood.  As you proceed, make sure that you begin with a firm foundation in creating the organization through which your idea will be implemented.  If you plan to, for example, raise funds from outside sources, the decisions made at this stage will determine where you can go to raise needed funds.

Organization Type – There are two primary choices for organization type: for-profit and non-profit.  As the names suggest, each type is driven by its primary objective.  For-profit organizations exist to maximize profits (revenues minus expenses) for its owners and/or shareholders.  In contrast, non-profits are not PRIMARILY motivated by profits, but rather by fulfilling its charitable mission.  However, there are incidences where you can find both types of organizations mutually benefitting each other (e.g., a for-profit organization creating a related non-profit organization to perform charitable work such as the Ford Foundation).  Keep in mind that foundations and some government programs can only award grants to tax-exempt non-profit organizations (we’ll talk about becoming tax-exempt soon).

Organization Name – It has been said that “words have meaning and names have power”[1].  Don’t underestimate the importance of choosing a name for your organization that communicates who you are, what you do, and/or who you serve (e.g., American Cancer Society).  In choosing a name, you will need to make sure that the proposed name is not being used by another organization.  Various sources you can use to check on the availability of a name include your secretary of state and/or your local registar.

In order to become an official organization, you would submit an application or articles of incorporation to your secretary of state or similar entity.  In addition, you may be required to apply for a business license from your local jurisdiction.  Check with your state and local governments for their specific requirements for creating your organization.

Be strong and be blessed!

[1] – Author unknown (Source: http://www.quotegarden.com/names.html)

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With all of the detailed steps that have been discussed regarding operating and financing your nonprofit organization, we don’t want to dismiss the importance of starting up properly.  Just as “blocking and tackling” is to football, building a firm foundation in starting your organization will allow you to proceed more confidently in meeting the needs of your community.

Over the next few weeks we’ll discuss various topics pertaining to your organization’s start-up activities, including:

  • Obtaining a tax-exempt status designation
  • Becoming an “official” organization
  • Resources that can assist you
  • What faith-based organizations should consider

If there are other topics you want us to cover or have other questions, feel free to send me your comments or contact me.

Be strong and be blessed!

Postscript: Join me in praying for those individuals and families who were and continue to be affected by the tragic events of September 11, 2001.

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After you’ve developed the budget for your organization, you will be in a better position to determine the type(s) of funding you will need.  There is a tendency to only focus on the different SOURCES of funding that are available (which we’ll cover in the near future) rather than recognizing and focusing on funding the different TYPES of needs you have.

In general, there are three primary expense types that require fundraising – operational, capital and programming.  As mentioned in a previous blog, operational expenses are expenditures that a business incurs as a result of performing its normal business operations.  Examples of operational expenses include salaries, office space, and supplies.  Capital expenses are expenditures creating future benefits – for example, fixed assets such as a building, property or equipment [1].  One primary difference between operational and capital expenditures is how they are treated for tax purposes.

As you begin to research funding options, you’ll discover that there are many more opportunities to secure funding for programs than there are for funding operations or capital purchases.  This is because many funders are eager to support the functions that directly impact those whose needs are being met (i.e., programming) and place less of an emphasis on the “indirect” functions that support programming (e.g., salaries and buildings).  However, as one who has been on both sides of the funding table, it is recognized that financial support for the people and assets that support programming is vital for long-term sustainability (there’s only so much that volunteers can or would be willing to do!).

To address this need for financial support for operations, many funding sources allow for a percentage of the grant to be used for this purpose (typically, 10% of the grant amount).  There are a few grantmakers that provide funding specifically for operational expenses (e.g., NC Community Development Initiative in North Carolina); however, most of them are housed within city and county governments where resources are scarce and needs are high.  You may find that this amount is insufficient to cover all operational expenses, thus the need to identify additional funding sources.

We will discuss in the near future more details about sources of funding and how to determine which ones to concentrate on for your particular funding needs.

Be strong and be blessed!

[1] – Source: Wikipedia.com

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We’ve all heard the expression “if you fail to plan, you plan to fail” …and this is certainly true when it comes to the operations of your nonprofit organization.  As in your personal life, planning for your organization’s fiscal health is a vital element in making sure that, for example, your expected revenues exceed your expenses.  In addition to determining how much money you REALLY need, a budget can help you in the execution of your organizational plan in general (e.g., how many employees do I need, should I buy or rent office space, etc.).

Before going further, it would be good to highlight some general terms that are often used [1]:

  • Fund Accounting – Nonprofit organizations aren’t in the business of making a profit (thus, it’s name :)), so they use an accounting system called fund accounting.  Fund accounting groups financial data together into funds or accounts that share a similar purpose.
  • Revenue – The amount of money that is brought into a company by its “business” activities (e.g., grants, income from programming, contributions, etc.).
  • Expense – Any expenses incurred in the ordinary course of business (e.g., salaries, office space rental fees, taxes, etc).
  • Operating expenses – A category of expenditure that a business incurs as a result of performing its normal business operations.
  • Non-operating expenses – An expense incurred by activities not relating to the core operations of the business (e.g., interest charges or other costs of borrowing funds).
  • Cash-flow – The cash generated from the operations of a company, generally defined as revenues less all operating expenses, but calculated through a series of adjustments to net income.  NOTE: It’s cash flow that pays the bills (“cash is king”)!

The financial statements for nonprofits relate to for-profit statements in the following way [2]:

Business Financial Statement Equivalent Nonprofit Statement
Income Statement Statement of Activities
Balance Sheet Statement of Financial Position
Cash Flow Statement of Cash Flows

Back to developing your budget…   It is recommended that the following steps be taken to methodically develop your budget [3]:

  1. List your monthly nonprofit operational expenses.
  2. List your monthly salaries and wages for each employee (if applicable).
  3. Identify and list your monthly expenses for your specific programs.
  4. Identify your monthly revenues.
  5. Assess the difference between your monthly revenue and expenses.

Please make sure that you are realistic and practical in your planning so that expectations are not set too high.  As with a for-profit business, sometimes an organization can get overwhelmed if it grows too fast too soon!

For more help in developing your budget, contact me or click here.

Be strong and be blessed!

[1] Source: Investopedia.com
[2] Source: http://tinyurl.com/3vyre8h
[3] Source: eHow.com

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In the starting phase of your organization, you may be able to provide services with little or no cost – primarily with board contributions and volunteers.  However, as demand for your services increases, you will find that additional financial resources are needed to buy equipment, to hire professional help, to rent office space, and for other necessary expenses.  At this point, a “resources development” plan is recommended to organize your fund raising efforts.

There are a number of issues to consider as you develop your plan, including:

  • What type of funding do I need (e.g., capacity-building, programming, etc.)?
  • Where can I find the type of funding I need (e.g., foundations, government, corporations, etc.)?
  • How much money do I need (i.e., budgeting)?
  • What expertise do I need to manage these resources?

Over the next few weeks, we will discuss these and other issues surrounding the process of securing financial resources for your organization.  If there are related issues you would like to see covered or have specific questions, please let us know and we’ll do our best to address them.

Be strong and be blessed!

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