Free Nonprofit Micro-eMBA Module #2

Starting and Understanding Your Nonprofit

© Copyright Carter McNamara, MBA, PhD, Authenticity Consulting, LLC.

Much of this program is based on materials adapted from the Nonprofit Capacity Building Toolkit(SM) particularly the guidebook, Field Guide to Developing and Operating Your Nonprofit Board of Directors.

This learning module is in the nonprofit organization development program. However, this module can also be used by anyone as a self-study exercise to learn more about starting and understanding a nonprofit organization.

Sections of This Module Include the Following

Introduction
Outcomes
Materials for Review
Suggested Topics for Reflection and Discussion
Activities to Build Systems and Practices
Assessments
Tracking Open Action Items



INTRODUCTION

This module is useful to entrepreneurs who are thinking about starting a nonprofit, or have already started their nonprofit and what to understand more about what they're really doing. The module also will be useful to practitioners/consultants who want a broader understanding about nonprofit organizations, including how they are started. This understanding for practitioners/consultants can help them provide more effective services to clients and establish stronger credibility with leaders and managers in the nonprofit workplace.

Starting a nonprofit organization requires careful thought and planning about your new organization. However, you can't effectively manage an organization if you can't effectively manage yourself. So in this module, you are first guided through some careful examination about yourself as an entrepreneur (and you are an entrepreneur if you are starting an organization). If you decide you still want to start a nonprofit, then you'll consider various options to "jump start" your organization, including fiscal sponsorship and using an incubator service. Next, you are guided through a variety of checklists to help you legally register your nonprofit in the particular form you desire, for example, as a nonprofit corporation, as a nonprofit that is exempt from paying federal and other taxes, etc.

Maintaining a healthy nonprofit organization requires healthy practices in governance and management. This nonprofit organization development program is geared to develop those healthy practices in your nonprofit. To truly understand and be effective at these practices, it helps greatly if board members, executive directors and staff have some basic understanding of the overall organizational "system" of their nonprofit organization, including its common traits, dimensions, "personality" and life cycles. This is not just an academic exercise. Too often, people don't really understand the overall structures in their nonprofit. When problems occur, they only see the specific events, and not the larger structures that cause the behaviors that cause the events. To effectively resolve problems, you have to change the structures -- not just react to events.

The importance of this understanding of organizations is evident when you realize that many graduate business training programs start out with an overview of the organizational system, often in a course called, for example, "Organizational Theory".



OUTCOMES

Learners who complete this module will achieve the following outcomes:

Starting Your Nonprofit:

  1. Clarify What You Mean by "Nonprofit"
  2. Decide if You Are an Entrepreneur
  3. Decide If There Really is a Need for New Nonprofit
  4. Decide If You Should Start with Fiscal Sponsorship
  5. Get Guidelines to Incorporation and Tax-Exemption

Understanding Your Nonprofit:

  1. Know How to Classify Your Nonprofit With the IRS
  2. Recognize Key Roles in Your Nonprofit
  3. Learn Basic Structures in Your Nonprofit
  4. Recognize the Life Cycle of Your Nonprofit
  5. Classify the Culture of Your Nonprofit
  6. Verify Your Nonprofit Meets Regulations


MATERIALS FOR REVIEW

The following materials will help you address each of the topics and learning activities in this module. If your time is very limited, then you can still benefit from scanning the resources and questions referenced from the following links.

Starting Your Nonprofit (optional to those in already established nonprofits)

Considerations About You

Are You Really an Entrepreneur? (read several articles in "What is an Entrepreneur?" and in "Are You An Entrepreneur?")
Have You Considered Alternatives to Starting an Organization, Product or Service? (review the questions)
Are Your Personal Finances in Shape? (do some of the quizzes)
How Will You Manage the Stresses Involved? (do "What Are Your Stress Levels Now?")

Considerations About Your Idea for a New Nonprofit Organization or Service/Program

Is There Really a Need for the Product or Service in Your Organization?
What Type of New Organization, Product or Service Will You Be Starting? (for-profit? nonprofit? what name? how organized?)
What Are the Risks Involved?
What Planning and Financial Skills Do You Need?
What Are Your Initial Plans?
What Human Resources Will Your New Organization, Product or Service Need?
What Facilities and Equipment Will You Need?
How Much Money Will You Need?
Write a Strategic Plan or Business Plan Document?
If You're Still Going to Start a New Organization, Product or Service ...

Getting On to Starting Your Nonprofit

Consider Fiscal Sponsorship
Do You Need a Lawyer to Start Your Nonprofit?
Nonprofit Incubators (help new nonprofits by sharing facilities, equipment, etc.)
Checklists to Help You Register Your New Nonprofit (do review these!)
Table of Reminders for Registering Your New Nonprofit (do review these!)

Understanding Your Nonprofit Organization

Basic Definition of Organization (see "Basic Definition" and "Organizations as Systems")
Various Ways to Look at Organizations
Two Basic Types of U.S. Business Organizations
Legal Forms and Traditional Structures of U.S. Businesses
Common Dimensions in Organizations
Key Concepts in the Design of an Organization
Organizational Culture (the "personality" of the organization)
Life Cycles of Organizations
Future of Organizations -- A New Paradigm?
- - - Characteristics of the Future Organizations
- - - New Structures (networks, self-managed teams, learning org, self-designing org)

Basic Overview of Nonprofit Organizations -- particularly the sections:
- - - What is a Nonprofit?
- - - Key Roles
- - - Three Major Sections of Personnel
- - - Management Skills Generally Unique to Nonprofits
- - - Current Major Challenge: Devolution
- - - Revenue: Fees and Fundraising
- - - Unique Nature and Struggles of Traditional Small Nonprofits

/organizations/nonprofits.htm#anchor247079

http://managementhelp.org/organizations/index.htm#anchor247079


SUGGESTED TOPICS FOR REFLECTION AND DISCUSSION

  • Learners are strongly encouraged to discuss the following questions with peers, board members, management and staff, as appropriate.
  • If you are operating in an already established nonprofit, you can skip to the subsection titled "Understanding the Nonprofit Organization" included below.

Considerations About You

1. What are at least 3 characteristics of successful entrepreneurs? Are you an entrepreneur? How did you conclude that about yourself? (See Are You Really an Entrepreneur?)

2. Are your finances in shape to begin planning and starting a new organization? Are you sure? (See Are Your Personal Finances in Shape?)

3. How will you manage the stresses involved in planning and starting a new organization, product or service? (See How Will You Manage the Stresses Involved?)

Considerations About Your Idea

1. Is there really a need for your new organization, product or service? How do you know? (See Is There Really a Need for the Product or Service in Your Organization?)

2. What type of organization would you start, if it's a new organization? (See What Type of New Organization, Product or Service Will You Be Starting?)

3. What are at least 3 of the risks involved for you? (See What Are the Risks Involved?)

4. What planning and financial skills do you have? Where might you need to improve? (This eMBA has upcoming modules about planning and finances.) (See What Planning and Financial Skills Do You Need?)

5. So what is a summary of your plans for your new organization, product or service? (See What Are Your Initial Plans?)

6. What expertise, or human resources, will you need? How might they be organized? (See What Human Resources Will Your New Organization, Product or Service Need?)

7. How much money might you need for startup? (See How Much Money Will You Need?)

8. Might you draft a first-draft of a basic strategic plan or business plan now? There can be business plans for a nonprofit. (This eMBA has upcoming modules about strategic planning and about product and service planning.) (See Write a Strategic Plan or Business Plan Document?)

Starting/Registering a New Nonprofit

1. What is a nonprofit organization? (See First Things First -- What Do You Mean by "Starting a Nonprofit"? and What is a Nonprofit?)

2. What does the phrase "fiscal sponsorship" mean? In what situations might a fiscal sponsor be helpful? (See Consider Fiscal Sponsorship.)

3. What is a business incubator? (See Nonprofit Incubators.)

4. What are the benefits of incorporating a nonprofit? (See First Things First -- What Do You Mean by "Starting a Nonprofit"?)

5. What does the phrase "tax-exempt" typically mean? (See First Things First -- What Do You Mean by "Starting a Nonprofit"?) How does a nonprofit obtain tax-exempt status? (See Table of Reminders for Registering Your New Nonprofit.)

6. Do the terms "tax-exempt" and "tax deductible" mean the same thing? (See First Things First -- What Do You Mean by "Starting a Nonprofit"?)

7. What does the IRS classification "501(c)(3)" mean? (See First Things First -- What Do You Mean by "Starting a Nonprofit"?)

8. When is a lawyer often needed during the process of starting a nonprofit? (See Do You Need a Lawyer to Start Your Nonprofit?)

9. What are articles of incorporation? Bylaws? (See Table of Reminders for Registering Your New Nonprofit.)

10. To which do you file for incorporation -- the IRS or your state? To which do you file for tax exemption -- the IRS or your state? (See Table of Reminders for Registering Your New Nonprofit.)

Understanding the Nonprofit Organization

1. What is a basic definition of an organization? An organization gets ongoing direction primarily from mission, vision and values. That's why it's so important for boards, management and staff to understand these concepts and how they apply to their nonprofit. What is a mission? Vision? Values? (See Basic Definition of Organization (which includes some optional reading about systems thinking).)

2. It helps a great deal to think of organizations and programs as systems, for example, when planning programs and evaluations or managing major changes in your organization. What is a system? (HINT: Think about inputs, processes, outputs and outcomes.) How is a system different than a pile of sand? What are some common characteristics of systems. How is an organization like a system? (See Basic Definition of Organization (which includes some optional reading about systems thinking).)

3. What metaphor do you prefer to describe organizations? Machines? Organisms? Persons? Groups? Families? Others? (See Various Ways to Look at Organizations.)

4. Organizations have certain dimensions and concepts in common. When designing, organizing and/or re-organizing organizations, it helps to be aware of these dimensions and concepts. Name at least three of the dimensions of organizations. Name at least three key concepts to consider when designing organizations. (See Common Dimensions in Organizations and Key Concepts in the Design of an Organization.)

5. The concept of culture is VERY important. Each organization has its own unique culture, particularly in nonprofits. When managing a nonprofit, it's important to acknowledge what values are really important to the organization, what behaviors typically occur and what behaviors are really treasured. Lack of understanding about culture is one of the major reasons that organizational change efforts fail. Describe the concept of organizational "culture". (See Organizational Culture (the "personality" of the organization).)

6. People -- like most other systems -- go through life cycles. When trying to understand, manage or help a system, it's very important to you know what life cycle the system is in. This is true for organizations as well. Organizations have life cycles. This is often forgotten when trying to work with organizations. Describe the concept of organizational life cycle. (See Life Cycles of Organizations.)

7. What is the "new paradigm"? What are several of the changes that might be expected in this new paradigm? What major, overall driving forces are causing this new paradigm? (See Driving Forces and a New Organizational Paradigm.)

8. What are the seven key roles in a nonprofit (as listed in the materials for review)? (See Key Roles.)

9. What are the three major sections of nonprofit personnel (as listed in the materials for review) (See Three Aspects of Nonprofit Structure.)

10. What is devolution? (See Current Major Challenge: Devolution.)

11. How would you describe the typical nature of a small nonprofit organization? (See Unique Nature and Struggles of Traditional Small Nonprofits.)



ACTIVITIES TO BUILD SYSTEMS AND PRACTICES

  • Learners are strongly encouraged to complete the following activities, and share and discuss results with peers, board members, management and staff, as appropriate.
  • As you proceed through the following activities, be sure to note any incomplete actions in the Action Item Planning List.
  • If you are operating in an already established nonprofit, you can skip to the subsections titled "Understanding Your Organization ..." below.
  • Note that the information in the subsections "Understanding Your Organization ..." is enough to give you a basic sense of your organization, including its structure and basic parts, its current (or desired) personality, and feedback among the basic parts. You'll soon learn a great deal more about your nonprofit as you progress through the remaining modules in this program.

Starting/Registering Your New Nonprofit

1. Write a five- to ten-sentence description of the charitable purpose of your nonprofit. This is the mission statement of your new nonprofit. What is the nature of your organization's services, e.g., advocacy, arts, civic, cultural, health, education, human services, or other? (For assistance, see Writing/Updating a Mission Statement.)

2. Find out the minimum number of people required to be on a nonprofit, corporate board of directors in your state. You might call, for example, your Attorney General's office, States Attorneys office, etc. Recruit at least this number of people to join your board. (For assistance, see
Overview of Board Roles and Responsibilities, Joining a Board and Recruiting Board Members.)

3. Recruit expertise to help you get your nonprofit started. A great place to start is by getting references from other small nonprofits. Don't forget about finding an insurance agent. You'll probably soon need liability and property insurance. (For assistance, see
Getting a Bank and Banker, Joining a Board, Hiring Consultants, Getting and Using a Lawyer, Getting and Using Accounting Services and Insurance for Nonprofits.)

4. If you plan to incorporate your nonprofit, draft a set of Articles of Incorporation (or whatever other type of legal charter is required, for example, a constitution, Articles of Association, etc.). (For assistance, see Articles of Incorporation.)

5. Draft a set of bylaws (bylaws specify how your board will govern the organization and how it will be configured, for example, with an executive director, etc.). (For assistance, see Corporate Bylaws.)

6. If you plan to file for exemption from federal taxes, contact the IRS to obtain the necessary forms. Begin completing the forms when they arrive. (For assistance, see Getting Tax-Exempt Status.)

7. Make a draft (probably a very rough draft at this point) of a plan that includes the top 5-8 goals for the nonprofit to accomplish over the next year. Think about what resources are needed to achieve these goals. (This is a very rough draft of a strategic plan.) Write down the costs for the resources and group them in major categories including: personnel, computers, office supplies, facilities (rent, utilities, etc.) and any other major groups of costs. This is a very rough draft of a yearly budget. You don't have to go into great detail at this point. (For assistance, see Basic Guidelines for Successful Planning Process and Basic Description of Strategic Planning.)

8. Hold a meeting of your board of directors. In the meeting, members should review the drafts of the Articles, bylaws, application to the IRS for tax-exempt status, strategic plan and budget. Members should vote to approve the drafted items. Members should also vote to select officers. Your state may require that boards have certain officer roles, for example, Chair/President, Secretary and Treasurer. (For assistance, see Basic Sample Board of Directors Meeting Minutes.)

9. Make the necessary filings for incorporation (probably to your local Secretary of State) and tax-exempt status (to the Internal Revenue Service).

10. On the Action Item Planning List, make note to follow up on the following actions.
a) When you get notification from the IRS that you've obtained tax-exempt status, contact the appropriate state department to seek exemption from state taxes. (These exemptions vary across states.)
b) When you get notification from the IRS that you've obtained tax-exempt status, contact the local tax assessor to seek exemption from property taxes. (This exemption varies across states and localities, as well.)
c) Contact your local city hall to identify if you need permit or license to solicit in your city.
d) Contact your local post office to obtain a bulk mail permit.
e) It may be useful to obtain an employer identification number at this time, so you're ready if and when you hire employees.
f) Start obtaining facilities in which to operate, whether in your home, an office, etc. The link Setting Up an Office may help you.
g) Begin looking into computer equipment you may need. The link Computers, Internet & Web may help you.

Understanding Your Nonprofit Organization -- Its Logic Model

1. Diagram a logic model of your organization, including its inputs, processes, outputs (tangible results) and outcomes (impacts on clients). (Note that this systems view is sometimes called an "outcomes model", which is very useful when designing outcomes-based evaluations or writing proposals in grant applications.) Fill in the table in the Guidelines and Framework for Designing Basic Logic Model

2. If possible, diagram a basic systems view of your programs, including inputs, processes, outputs (tangible results) and outcomes (impacts on clients). (Note that we'll soon give more attention to programs, including their design and marketing, in an upcoming learning module.) Fill in the table in the Guidelines and Framework for Designing Basic Logic Model

Understanding Your Nonprofit Organization -- Its "Personality"

1. Write a half-page description of the culture of your organization. Include what values your organizations holds dear and what values you see reflected by the behaviors in your nonprofit. Note that if your nonprofit is still fairly new, you can still benefit from this activity by describing what you'd like to see as the "personality" of your organization. This activity will be useful later on during strategic planning when writing values statements. (For assistance, see Organizational Culture (the "personality" of the organization) and Unique Nature and Struggles of Traditional Small Nonprofits.)

Understanding Your Nonprofit Organization -- Its Life Cycle

1. Write a half-page description of the life cycle of your organization. Is it in Birth? Youth? Midlife? Maturity? Include what characteristics you observe that lead you to conclude that your organization is in that life cycle. Note what life cycle will be next for your organization. Include description of any challenges that you might expect when you go through the next life cycle change. (For assistance, see Life Cycles of Organizations.)

Understanding Your Nonprofit Organization -- Its Communications

1. In the materials for review, you learned that organizations are systems and that for systems to thrive, their needs to be continued and effective feedback (communications) between its major parts. What can you do to ensure effective communications between the key roles in your nonprofit, including clients, board members, board committees, board chair, executive director, staff and volunteers? Effective communications requires more than good intentions. What specific structures can you use, for example, consider reports from the director, meeting minutes, staff meetings, etc. (For assistance, see Basics of Internal Communications, Communications (Writing) and General Recommendations to Improve Communications Skills.)



ASSESSMENTS

Assessments for New or Already-Established Nonprofits

Use any or all of the following assessments to evaluate the health of your new or already established nonprofit organization.
1. Answer the questions in the "Legal Indicators" in the Checklist of Nonprofit Indicators. Have you completed all of the necessary activities to conform to U.S. regulations (for example, to maintain tax exempt status)?

Additional Assessments for Already-Established Nonprofits

1. If you are just starting your nonprofit, the following assessments may be advanced at this point. However, if you are from an already-established nonprofit, then you might apply some or all of the following assessments:
Checklist of Nonprofit Indicators
Organizational Assessments (Nonprofits) (this link is to many organizational assessments)



TRACKING OPEN ACTION ITEMS

1. One of the first indicators that an organization or a person is struggling is that open action items are not tracked and reviewed. (Open action items are required actions that have not yet been completed.) Instead, people only see and react to the latest "fires" in their workplaces or their lives. Whether open action items are critical to address now or not, they should not entirely be forgotten. Therefore, update and regularly review a list of open action items (identified while proceeding through this program) that includes listing each open action item, who is responsible to complete it, when it should be completed and any associated comments. When updating the list, consider action items as identified during discussions, learning activities and assessments in this module. Share and regularly review this action item list with the appropriate peers, board, management and employees in your organization. You can use the following Action Item Planning List. (At that Web address, a box might open, asking you which software application to open the document.)

2. If you have questions, consider posing them in the national, free, online discussion group HRNET, which is attended by many human resource and organization development experts.


(Learners in the nonprofit organization development program can return to the nonprofit organization development program.)


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For the Category of Capacity Building (Nonprofit):

To round out your knowledge of this Library topic, you may want to review some related topics, available from the link below. Each of the related topics includes free, online resources.

Also, scan the Recommended Books listed below. They have been selected for their relevance and highly practical nature.

Related Library Topics

Recommended Books

Starting a Nonprofit Organization

Overall Capacity Building to Enhance an Established Nonprofit Organization



Starting a Nonprofit Organization

Nonprofit Program Design, Marketing and Evaluation - Book Cover Field Guide to Nonprofit Program Design, Marketing and Evaluation
by Carter McNamara, published by Authenticity Consulting, LLC. The most important aspect of starting a new nonprofit is designing your first program -- the reason for your new nonprofit. Your new nonprofit is built around the success of your first program. Too many books completely separate the highly integrated activities of planning, marketing and evaluating programs. This book integrates all three into a comprehensive, straightforward approach that anyone can follow in order to provide high-quality programs with strong appeal to funders. Includes many online forms that can be downloaded.
Developing, Operating and Restoring Your Nonprofit Board - Book Cover Field Guide to Developing, Operating and Restoring Your Nonprofit Board
by Carter McNamara, published by Authenticity Consulting, LLC. Provides step-by-step, highly practical guidelines to organize, operate and sustain high-quality nonprofit Boards -- and to fix a broken Board! Includes variety of Board models you can choose from, roles and responsibilities, how to get the best members, how to train and organize them, goals for standard committees, ensuring high-quality meetings, evaluating Boards, how to evaluate and/or replace the Executive Director, and much more! Includes many sample Board policies you can download! Written by the developer of the Free Management Library. Many materials in this Library's topic about Boards are adapted from this book. 30-day, money-back, guarantee!

The following books are recommended because of their highly practical nature and often because they include a wide range of information about this Library topic. To get more information about each book, just click on the image of the book. Also, a "bubble" of information might be displayed. You can click on the title of the book in that bubble to get more information, too.



Overall Capacity Building to Enhance an Established Nonprofit Organization

Consulting and Organization Development With Nonprofits - Book Cover Field Guide to Consulting and Organizational Development With Nonprofits
by Carter McNamara, published by Authenticity Consulting, LLC. Provides complete, step-by-step guidelines to identify complex issues in nonprofit organizations and successfully resolve each of them. This book is also helpful to organizations that are doing fine now, but want to evolve to the next level of performance. This is one of the truly comprehensive, yet practical, books about this complex subject! Includes online forms that can be downloaded. Many materials in this Library's topic about guiding change are adapted from this comprehensive book.
Venture Forth - Book Cover Venture Forth! The Essential Guide to Starting a Money-Making Business in Your Nonprofit Organization
by Rolfe Larson, published by Fieldstone Alliance. Provide step-by-step guidelines to identify and implement the best ideas to generate more revenue to further your nonprofit mission. Ideas can come from current or new services -- many nonprofits are already providing critical services from which they could generate more revenue. The movement of social entrepreneurship, including earned-income generation, is becoming a must for every nonprofit to consider. Many funders greatly appreciate nonprofits generating more income -- this book shows you how!
Coping With Cutbacks - Book Cover Coping with Cutbacks -- The Nonprofit Guide to Success When Times Are Tight
by Emil Angelica and Vincent Hyman, published by Fieldstone Alliance. This treasure trove helps nonprofits to consider a very wide range of practical ideas for addressing financial shortfalls in their nonprofit organization. Every nonprofit, not just those in financial trouble, should be doing financial contingency planning -- planning for what they will do if they do not get the revenue that they expect from fees and fundraising. This book gives you plenty of ideas!
Strengthening Nonprofit Performance - Book Cover Strengthening Nonprofit Performance -- A Funder's Guide to Capacity Building
by Paul Connolly and Carol Lukas, published by Fieldstone Alliance. Provides step-by-step guidelines for funders to plan and develop highly effective capacity building services for nonprofits in their area. Many funders are finding that it's not enough just to write checks -- nonprofits need highly accessible, low-cost means of support and guidance to use the funder's resources to enhance organizational performance. This book explains common types of capacity building, key criteria for any successful capacity building program, and how to set up the best capacity building program.
Nonprofit Strategic Planning and Facilitation - Book Cover Field Guide to Nonprofit Strategic Planning and Facilitation
by Carter McNamara, published by Authenticity Consulting, LLC. Step-by-step guidelines to customize and facilitate planners to implement the best strategic planning process to suit the particular nature and needs of their nonprofit. This is one of the few books, if any, that explains how to actually facilitate planning. Includes many online forms that can be downloaded and used by planners.

The following books are recommended because of their highly practical nature and often because they include a wide range of information about this Library topic. To get more information about each book, just click on the image of the book. Also, a "bubble" of information might be displayed. You can click on the title of the book in that bubble to get more information, too.



Also See

Organizational Development (Managing Change) -- Recommended Books

Strategic Planning -- Recommended Books

Social Entrepreneurship (Nonprofit) -- Recommended Books

Capacity Building (Nonprofit) -- Recommended Books

Fundraising -- Recommended Books

Program Management -- Recommended Books

Planning and Project Management -- Recommended Books

Leading -- Recommended Books

Volunteers -- Recommended Books




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