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Your Budget is Your Friend

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If it’s time to create your budget for the upcoming year, congratulations. Your nonprofit budget is your best friend and the source of direction for all of your operations during the year. I know working on the budget may feel like torture, but it is one of the most important documents to support your nonprofit organization. It can actually be exciting to create.

Here are three reasons the annual budget is your best friend.

 

  1. Budgets provide a view of operations through numbers.

For some, numbers are scary, but budgets don’t need to be. Similar to your personal or home budget, your organization budget creates a guide to manage your finances each month. It lets you project how much income you need for operations during the year and identify the source of that income. For instance, you can list income sources as grants, donations, events, or other fundraising. Depending on your organization, you might project income generated from membership, services, or programs fees. After determining your projections for the year, allocate that income to various expenses needed to operate the nonprofit business. These expenses include salaries and benefits (don’t forget all mandatory employee benefits), rent, supplies, costs associated to operate your programs, services, and insurance and so on. Include as many expense categories as necessary to prevent underestimation of overall expenses. In general, it’s best to estimate income conservatively and estimate expenses generously.

 

  1. Budgets are a working document for financial controls.

Once you create your budget, you have to manage it. Each month the budget should be a part of your financial reports which include your Statement of Activities (Profit and Loss statement), Statement of Financial Position (Balance Sheet) and the Statement of Cash Flow. Compare the amounts you budgeted for each account shown on these statements to the actual monthly amounts to understand your current financial position. Hopefully you’ll meet or exceed your income projections while keeping the expenses in range or lower than projected. You might also get the opposite, that is, less income than projected or higher expenses, but you’ll be able to make adjustments to the budget to keep your operations on path. Your board treasurer and bookkeeper should be your helpers in these areas.

 

  1. Budgets guide the strategic operations of the organization.

Use your nonprofit budget to guide your strategic operations. Having determined the goals that will drive your mission for the year, you now have a projected dollar amount to support those goals. Use the budget and current financial statements to monitor your finances and determine if you can meet the goals or if you need to make adjustments. For example, you might have projected adding another employee position. If you find you’re meeting the projected income goals for the new employee, you can move ahead with that goal. However, if the income is not there (or not foreseeable), you might need to adjust the goal. (This doesn’t mean you can’t get the position filled in some manner. For example, you might seek a volunteer to get the help you need. Sometimes, that person might be the one to help you reach the financial projections for the year.) Another example of how your budget guides your strategic operations occurs when you analyze if you have enough income to manage your programs or services, or if you need to seek more private donations and grants. Your budget can even help you project if a fundraising event is feasible or if you should look for money in a different manner. Reviewing budget results each month lets you know how much you’re spending in each expense category and where you might have enough or need to cut back on expenses.

If you need help in the budgeting process with your best foot forward, here are the following resources:

For smaller nonprofits that are entirely volunteer-run, the Virginia Society of Certified Public Accountants offers this handy guide to help you address the budgeting challenges unique to your organization and resources. Budgeting for Small NPOs

For larger organizations, nonprofit consultant and author Joan Garry outlines an innovative strategy to creating a budget that is meaningful and realistic for all the stakeholders within your organization – board, fundraising staff/volunteers, and program staff/volunteers: https://www.joangarry.com/budgeting-for-nonprofits/

These tips are certainly not all of the uses for your annual budget, but you can see how important the budgeting process is. Like a good friend, treat it well, pay attention to it, and it will be your guide to successful operational planning.

Is it Legal to Have an Ex Officio Director on Your Board?

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Do you have an Ex Officio Director on your board? Do you allow honorary directors on your board but don’t require (or allow) them to vote? If you answered “yes” to either of these questions, then you may be operating out of compliance with an important nuance found in California’s Nonprofit Corporations Code.

Fortunately, there are simple solutions to clear up these issues. Let’s explore the rules and steps to ensure that your organization is in compliance:

Non-voting board members cannot serve on California nonprofit boards.
Gene Takagi states, “any person entitled to attend board meetings without a vote is not a board member at all.” Non-voting board members can lead to confusion (do they count towards a quorum?) and can mislead other board members (do their opinions matter if they can’t vote?).

 To fix it: Move non-voting board members onto an Advisory Committee. Or, if you’d like to extend voting rights to these individuals, review your bylaws to make sure you have room for more board members and revisit the process of electing new board members. Your board can vote to bring them on as regular board of directors. If your bylaws state that non-voting board members are allowed, contact Spokes for a Bylaw Review to correct your bylaws today!

Ex Officio Directors automatically hold a position on your board because of a position that they hold outside of the board.
It’s rare to need Ex Officio Director positions in 501c3s. This position is more common in 501c6s, such as Chambers of Commerce, where the CEO /Executive Director often holds a position on the board. For further clarification, the NEO Law Group outlines many scenarios where this arrangement might make sense. However, if your organization labels non-voting board members as Ex Officio, you’ll want to correct this immediately.

 To fix it: Either (1) move non-voting members onto an Advisory Committee, or (2) invest them with the same voting rights and responsibilities of every other board of director serving your organization. To stay in compliance, ensure that your board policies, bylaws, and culture do not limit the actions of Ex Officio board members.

Honorary Director, Director Emeritus, and Advisory Director are misleading titles.
The term “director” is a legal definition that sets forth duties of care, loyalty, and obedience specifically for board members.

 To fix it: Identify new terms to honor these special advisors in your organization. To stay clear on the roles of your organizational volunteers, be certain not to use the word “director” for anyone who doesn’t serve on your board of directors.  

Advisory Boards are actually Advisory Committees.
Only one board can exist in your organization, and that is the board of directors.

 To fix it: Simply update your bylaws and policies so all advisory bodies are labeled as committees.

Staying in compliance with the Nonprofit Corporations Code is critical to your organization’s success. Your board of directors and advisory committees will function more efficiently once you clarify and adhere to these important regulations. If you have questions about board of directors versus advisory or honorary roles, reach out to Spokes for support at 805-547-2244 or [email protected].

Common Legal Pitfalls for Nonprofits (and How to Avoid Them)

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Event season is rapidly approaching, and committee members are busy preparing and planning raffles, selling tickets, and collecting items for silent and live auctions. Unfortunately, many nonprofits overlook common legal pitfalls. Spokes wants to help you avoid this costly mistake. Read this article to learn about registering for raffles, incorporating disclosure statements, and being prepared to pay sales tax.

RAFFLES
Did you register your last nonprofit raffle with the State Attorney Generals’ office? If not, then you broke the law…and you’re not alone. Many nonprofits don’t realize that unregistered raffles can result in hefty fines. In 2017, CalNonprofits conducted a survey and found that 38% of the nonprofit respondents said they were “unfamiliar” with raffle requirements. Only 51% who held raffles filed the required annual reporting form.

The good news is that it’s easy to conduct a raffle legally. Before your next fundraiser, follow this raffle checklist to:
• Submit application CT-NRP-1, your IRS 501c3 determination letter, and a $20 check at least 60 days prior to the event.
• File the Nonprofit Raffle Report no later than October 1 the following registration year.
• Report earnings to the IRS.
• Invest 90% of all funds raised into mission-related projects.

Following raffle compliance guidelines can feel like a lot of extra work, and there is a movement to simplify the requirements. If you want to help, sign CalNonprofits’ petition to support Assembly Bill 2347 to decriminalize small raffles. This bill seeks to:
• Eliminate post-raffle reports for nonprofits that hold small raffles.
• Allow nonprofits to hold 50/50 cash raffles if a single raffle raises small amounts of money and all raffle activity is below a similarly small dollar threshold. (Currently, all 50/50 cash raffles are illegal except for charities affiliated with major league sports teams.)

DISCLOSURE STATEMENT
Every time a donor purchases a ticket for an event, the nonprofit is required to let them know how much of their payment is tax-deductible. For instance, imagine a nonprofit is charging $100 for a gala ticket.
$100.00 = Ticket
$45.00 = Food and entertainment costs
$55.00 = Tax-deductible amount

It is mandatory to disclose the tax-deductible amount. On fundraising solicitations and tickets, add the statement: “The tax-deductible portion of each ticket is $55.00 and considered a donation in support of [organization], EIN # ___-______”

SALES TAX
There is a common belief that “tax-exempt” means that nonprofits don’t pay sales tax. In reality, every time a nonprofit sells or purchases an item – something tangible that you can touch – it must charge or pay sales tax.

Think of it this way: when a donor “buys” a tangible item, the nonprofit is “selling” it to the donor. Therefore, the item transfer qualifies as a sale and is taxable. After the sale, the nonprofit must pay sales tax to the State Board of Equalization (BOE). The nonprofit may charge the donor sales tax or it may deduct the appropriate sales tax amount from the donors’ payment and pass it on to the BOE. Please note that there is extra tax consideration for selling food; for more clarification, read this article: When does a nonprofit organization operating in California need to pay sales tax? or contact the BOE.

We know all these rules and regulations are intimidating. We’re here to help! Spokes has resources and tips for staying in compliance with the law. We will gladly take your calls and emails if you have questions about registering for raffles, incorporating disclosure statements, being prepared to pay sales tax, or other regulations: call (805) 547-2244 or email [email protected] for support.

Is Your Nonprofit Risk-Aware?

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Life moves fast. In our haste to manage and innovate, we can overlook potential risks. Sometimes while we’re racing to keep up, accidents happen. Spokes is here to remind you to slow down and take a thorough inventory of who and what you need to protect.

Nonprofit board of directors are legally responsible for managing risks that could affect stakeholders and nonprofit property. These risks fall into a few distinct categories:

  • Governance risks – Is the board diligently overseeing the organization? Are they making reasonable decisions?
  • Financial risks – Is the board utilizing financial best practices to prevent fraud and ensure accurate bookkeeping?
  • Legal risks – Is the board adhering to laws and regulations regarding human resources, donations, and grants?

It’s in everyone’s best interest to make a plan for a deep and lasting commitment to safety, reputation and mission-protection. So where do you start?

Know your risks.
We sign up for risks anytime we host an event or launch a new program. Challenges and obstacles are inevitable; some come as surprises, while others can be assumed. Per the SAFE: Sound Advice for Functions and Events booklet, “Good prior planning, which includes safety and emergency procedures, appropriate documentation, and adequate staffing and security can both mitigate risk and reduce insurance costs. Not planning ahead can have a huge impact on both your reputation and your financial stability.” Click here to download.

Also, make a plan to watch Spokes video series Best Practices in Nonprofit Governance at your next board meeting. This short and information-packed series offers practical tips and strategies for protecting yourself and your organization. You can access the videos through your Member Benefits page after logging in to Spokes member portal.

If you’re a fan of checklists, the Free Management Library offers a Checklist of Nonprofit Organizational Indicators so your entire board or committee can track organizational goals and accomplishments.

Are you adequately insured?
Directors and Officers Liability, Volunteer/Participant Accident Insurance, General Liability…there are a wide variety of insurances available to nonprofits. A wise nonprofit will weigh innovative programming and supportive community services with a clear understanding of potential risks. The Nonprofits’ Insurance Alliance of California and Alliance of Nonprofits for Insurance has handy brochures that you can pick up at Spokes for details.

Do you have updated policies in place?
Policies protect and steer the board and staff as they fulfill the organizational mission. They are a reference tool for appropriate action, ethical decision making, and for dealing with potential or actual conflicts. Spokes has templates available for board-related policies, personnel policies, and financial policies. Examples include whistleblower policy, conflict of interest policy, and a gift acceptance policy. Contact us for details.

Competitive Nonprofit Wages Are Important

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Legislation just passed that prohibits employers from asking job candidates for their salary history. This is great news. In the nonprofit sector, employers can no longer base their salary offers on how much the candidate previously made; in contrast to other sectors, these numbers are notoriously low.
But, how is an employer supposed to know fair compensation rates?

The answer lies in the Center for Nonprofit Management’s Compensation and Benefits Report. Every year, approximately 400 nonprofit organizations in Southern California participate in the survey to define comparable compensation data for various staff positions respective to an organization’s budget, responsibilities assigned, and geographic location.

Unfortunately, recent survey results have not provided a clear picture of benefits and compensation in San Luis Obispo or Kern Counties due to low participation among nonprofits in those regions. CNPM states, “The strength of the C+B Report survey is the diversity and volume of participants.” Toward that end, CNPM is urging Central Coast and Central California nonprofits to complete the survey prior to February 16, 2018. So, Spokes Members, let’s contribute our data to the C+B report for the survey’s benefit – and ours!

Completing the survey requires one individual from your organization to complete two questionnaires – one specific to compensation and bonuses paid to your organization’s employees, and another specific to employee benefits. The questionnaires are online and no more than 20 minutes is required to complete both of them. The most appropriate person to answer the survey is typically the Executive Director or CEO as s/he will need to know your organization’s operating budget, the salary and related job responsibilities for each staff position, and your organization’s personnel policies specific to health/retirement benefits, time off, paid leave and telecommuting practices.

The deadline to participate in the survey is February 16, 2018.

Once it’s published Spokes will have a copy of the 2018 C&B Report in our resource library to share with all of you. Thank you, in advance, for contributing your data to ensure that this resource is as valuable and relevant as it can be to our local nonprofit sector!

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