The name “nonprofit” can be misleading, causing many people to believe that nonprofit organizations do not make a profit. Although it’s a common misunderstanding, this is a false assumption. Not only can nonprofits make money, they should be making money if they want to be effective and continue accomplishing their mission. However, making a profit is not always easy, and financial responsibility and oversight often falls on the board of directors.
The board of directors are the central decision makers for the organization, and therefore need to have a solid grasp on the organization’s financial standing. This can come in the form of deciding what fundraising efforts to undertake, where to allocate funds in order to enhance effectiveness, and deciding salaries if your organization has employees.
Nonprofit organizations will continuously need to be asking and receiving donations, pursuing fundraising activities, and creating and maintaining a revenue model. Since the financial responsibility of the organization falls on the board of directors, these efforts should be spearheaded by the board. Board members need to be held accountable to tap into their own networks by reaching out to their personal and professional connections, instead of solely relying on grants or scattered personal donations.
One of the most important ways that a nonprofit board and organization can act financially responsible is to remain compliant with state and government regulations. Compliance can be a scary word that conjures up images of lots of paperwork, due dates, and rules. However, in simple terms, compliance really only means that you are making sure you are staying on top of filing the 3-6 mandatory reports and applications that are required throughout the year, depending on which state you are located in. The major forms that most nonprofits have to file each year are:
- IRS Form 990
- State Annual Report
- Charitable Solicitation Registration
- Sales Tax Exemption Form (*not mandatory for all states)
- Franchise Tax Exemption Form (*not mandatory for all states)
By staying up to date on the necessary filing requirements for nonprofits, you can avoid late fees and remain in good standing – both of which are very important to the success of your organization.