Tuesday, September 14, 2010

Common Myths Concerning Nonprofits

There are thousands of nonprofits that are started in the United States every year.  Most are started for excellent reasons, someone finds a need and establishes a nonprofit to meet that need.  The nonprofit or civil society sector accounts for between 5% to 7% of the Gross Domestic Product of eight countries studied by John Hopkins University.  This is as much (or in some cases more) than the banking, insurance, financial services, construction and utilities industries individual share of GDP.  However, as well meaning as founders of nonprofits can be, there are persistent mythologies surrounding nonprofit management.  Greg McRay of the Foundation Group takes on a few.  I would love for people to send me their favorite myths!  Bunnie

Common Myths Concerning Nonprofits
by Greg McRay, EA

Just yesterday, I was interviewing a new student intern candidate in my office. During the course of our wide ranging discussion, the conversation turned to some of the interesting misconceptions we encounter with clients. I made the comment that we often feel like the crew of the Discovery Channel show, Mythbusters. There is a never-ending supply of well-entrenched myths and misconceptions in the nonprofit world…and dispelling them is part of our job! In this article, let’s take a look at a few of the more common ones.

MYTH: Build it and the grants will come.

FACT: Uh, good luck with that.

We get to burst this balloon a lot. Many who are starting nonprofits for the first time are convinced the government is waiting with bated breath for them to get going so they can cut them a check. Given the drunken sailor spending spree in Washington, it’s certainly understandable, isn’t it? Jokes aside, this is too often the by-product of a less-than-ethical fringe of the fundraising profession. Whether it is over-hyping the latest grant writing workshop or selling books on late night infomercials, this mindset doesn’t just come by accident. Here’s a newsflash: Startups are rarely grant funding recipients! The typical startup is much better served by focusing its efforts on building a fanbase of committed donors and only later looking to grants to help them expand what they have proven they can do.

MYTH: Nonprofit means you must zero-out at the end of the year.

FACT: Great plan…assuming you’ve got a pot of money waiting for you New Year’s Day!

Just a couple of weeks ago, a good friend approached me at church. She was recently elected to serve on the board of a small charity and at her first meeting, several of the existing board members were discussing their dilemma: The organization was quickly approaching the end of the fiscal year, but still had money left over. The conversation revolved around how they could spend down this money before the clock ran out. Well, her instincts told her this didn’t sound right. Good for her! And even better that she asked me about it.

I suspect the origins of this myth might be in the corporate world where departmental budgets are often use-it-or-lose-it. Anyone who has worked for a large corporation may be familiar with the race to spend down the budget in years of surplus. Combine that mindset with the notion of nonprofit, and you’ve got a myth in the making. I certainly hope your nonprofit is not sitting on $0 when the ball drops in Times Square!

MYTH: If our nonprofit’s purpose is not panning out, we’ll just shift gears and go in another direction.

FACT: Not so fast. You might want to make sure Uncle Sam is OK with that.

This sort of thing happens all the time. For example, ABC Charity was formed to raise money for cancer research. After a couple of years of disappointing results, the board sees the devastation from the latest disaster and decides to retool their organization as a disaster-relief charity. They make plans to travel to Haiti/New Orleans/Wherever and provide shelter and hot meals to those impacted.

Don’t get me wrong…there is nothing wrong with that in principle. In practice, it is not so simple. When the IRS granted tax-exempt status to this nonprofit, it was on the basis of its proposed program: fundraising for cancer research, not disaster relief. A serious change in purpose and program requires that the IRS be notified in detail on the next Form 990 that is due. Even then, it is highly probable that your case will be transferred to Cincinnati for further review and questions before approval is granted.

This list could go on and on and on. Sometime soon, we’ll share some more common myths and their corresponding realities. Here’s to facts!

You can contact Greg at the Foundation Group, http://www.501c3.org/

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