Updated: Oct 14, 2019
By; Gina Bongiovi
Repeat after me: "Nonprofit" is a tax status, not a business plan.
Keep that tenet in the back of your mind as you read on. Nonprofit organizations are
permitted to make a profit. With approval from the IRS, they are exempt from paying taxes. Better stated: "nonprofit" = "tax-exempt."
Too many nonprofits struggle because their donors, volunteers, or leaders forget how crucial it is to run the organization like a business. When extraordinarily passionate people come together in pursuit of a common philanthropic mission, it's easy to let emotions cloud rational decision making.
As of November 2018, there were over 19,000 nonprofits in the state of Nevada.
All rely heavily on just over 3 million Nevada residents for their support. Though it's a silly proposition which ignores the fact that many of those residents are themselves served by nonprofits, if you divided our population by the number of organizations, each nonprofit could call dibs on about 158 residents. Could you run your business with only 158 clients? I could…for about three months.
Let's talk more about mission. To file a tax-exempt application, you'll have to articulate your charitable purpose. This shouldn't be an off-the-cuff thing but should be informed by the same depth of research involved in a for-profit venture's business plan. Resist the belief that everyone in the world shares your passion because that simply won't be the case. With that in mind, you'll want to first confirm you can recruit board members, a veritable army of dependable volunteers, and declare a purpose that interests enough donors so you can keep the lights on. A mission supporting the repopulation of the threatened African Pangolin might be a bit too narrow while one that "helps women" is far too broad.
This is only one reason among many why I strongly encourage people wanting to start their own nonprofit to instead search the market for an existing organization with a similar mission with which they can align. As an example, I helped establish Vegas Shepherd Rescue. They rescue, rehabilitate, and rehome orphaned German Shepherds. If someone asked for my help in setting up a nonprofit that only rescued white German Shepherds or only German Shepherd puppies, I'd do my darndest to talk them out of it. If you have an idea that might jibe with the efforts of another organization, volunteer to lead a task force to bring that vision to reality. Most nonprofits would welcome the diversity and extra pairs of hands.
Another reason to reconsider setting up your own nonprofit - it's complicated. Registering at the state level might be easy, but the IRS 1023 application is no joke, at around 28 pages. The IRS, not surprisingly, is primarily concerned with where your revenue will come from and how you'll spend it. To that end, the 1023 application requires an invasive yet mostly clairvoyant examination of your budget, mission, messaging, fundraising efforts, donor channels, governing documents, board participation, employees, independent contractors, policies and procedures…the list goes on. Once you submit the application, the IRS takes months to process.
I also helped found Dress for Success Southern Nevada; we waited nine months for our tax-exempt approval, even with a request for faster processing from our global headquarters. Vegas Shepherd Rescue's application was approved in only three months. Maybe we got lucky and our application landed on a dog lover's desk. It's the IRS – there's no way to tell.
Interestingly, a few years ago the IRS introduced the 1023EZ form for certain eligible applicants that don't take much to complete and has a pretty short turnaround time. "Eligible" applicants must be able to (honestly) answer "no" to 30 - count 'em - 30 questions. This process is directed toward smaller nonprofits whose annual gross receipts don't exceed $50,000. Also, fight the temptation to go this route rather than exploring ways to collaborate with an existing organization. Just because it's easy to file doesn't mean it's easy to run.
Between submitting your application and receiving your approval, you must be careful about accepting money. It's important to disclose that your tax-exempt status is pending and that donations are not guaranteed to be tax-deductible to the donor. If you are eventually approved, the contributions are tax-deductible to the donor as of the approval date. Let's pause for a second because it's important to note that registering a nonprofit with the Nevada Secretary of State is NOT the end of the process. You must apply to the IRS for tax-exempt status. A few years back I was introduced to a client who had completed step 1 but not the crucial step 2. They had been sending letters to thank donors for their "tax-deductible" donations for, oh, about 15 years before they hired a competent CPA who informed them they hadn't been a tax-exempt organization ever.
Whether you qualify to file the EZ form or must file the long form 1023, you still need a board, volunteers, donors, and supporters, and you must skillfully manage all those people and their often vastly differing personalities. Human nature dictates that some people will be more committed to the organization than others. Especially where those people are unpaid, that disparity can be drastic and can have a significant impact on your operations. A strong volunteer base is crucial and it's also important to cultivate leaders among those volunteers. Many nonprofits employ a board matrix which shows the skillsets needed on the board and among the volunteers to move the mission forward. Sound like an organizational chart? It is. Remember the mantra? "Nonprofit" is a tax status, not a business plan.
Speaking of differing personalities, the nonprofit world can be surprisingly cutthroat. I've seen organizations report their competitors to the IRS for noncompliance, which was appropriate in some instances and simply vindictive in others.
I may have successfully discouraged you from forming your own nonprofit, but do strongly encourage you to serve one or more. Don't get carried away, though. Some people (looking in the mirror) have a hard time saying no and can quickly find themselves overextended. So how can you best serve a nonprofit? Though I (somewhat) jokingly suggested a drinking game of taking a shot each time someone says "time, talent, or treasure" during a nonprofit board meeting, it's the best catchphrase for ways you can help.
First, it's important to understand the mission and to ensure the organization's efforts are aligned with it. Some organizations can veer off track and lose sight of the mission. It might be an intentional pivot or it might be the result of distracted or ineffective leadership. Ask lots of questions of current and former board members to ferret out any problems. Next, determine how you might be able to help - time, talent, and/or treasure.
"Treasure" is easy. Provided you have the funds, writing a check is the path of least resistance and provides the thing almost every nonprofit needs most - money.
"Talent" means bringing your unique skill set to an organization. While there are roles based on a day job - a CPA chairs the Finance Committee or a lawyer chairs the Governance Committee - there are myriad less obvious ways to contribute if you don't have expensive letters after your name. One is by leveraging your resources to help the mission. If you work at a TV station, fill last-minute guest appearance cancellations with plugs for the organization. If you own an event planning company, lend your expertise on setup, decorations, and maybe donate centerpieces. If you're a photographer, serve on the Marketing Committee and take photos of events that are watermarked with your company name.
Relationships are resources too, so if you happen to know a lot of influential people, facilitate introductions to the organization's leadership. Keep in mind there are a limited number of very wealthy families in Southern Nevada and they are on every nonprofit's radar. If you are bold enough to join the chorus, make sure your message is unique and compelling and that the organization has its act together. Not that I'd know (yet), but if I were a major donor, I'd want to see my money used wisely.
That said, also recognize and honor your weaknesses. I can barely ask for extra ranch, so I am the furthest thing from a fundraiser. However, I have found other ways to contribute that isn't just squawking about bylaws and reviewing contracts.
Time. Even if you don't have the money and believe, incorrectly I'd argue, that you don't have the talent, you might find the time. While nonprofits need leaders and donors, they also ALL need volunteers - people who are committed, dependable, and trustworthy.
If you aren't ready to commit to a board role, serve on a committee. If that's too much, simply volunteer. We live in an amazing community with a staggering number of generous people and ways to get involved. If you aren't sure where to start, give me a call. I have relationships with a ton of nonprofits in the valley and am happy to make suggestions and introductions.
"The best way to find yourself is to lose yourself in the service of others." - Mahatma Gandhi
Managing Partner of Bongiovi Law Firm, Gina is a Las Vegas native and holds a JD/MBA from UNLV. The company, which just celebrated its tenth year in business, serves as outside counsel to small and medium-sized businesses.
Gina is a recurring speaker at a legal technology conference on topics such as Process Automation and Technology Planning.rtups and small businesses.
To read more, please visit Infinity Business Magazine