Every nonprofit organization must file an annual 990.

The change happened a few years ago, but may not have received adequate attention.  All nonprofits, not just organizations with revenues of $25,000 or more, must file a tax return. Any organization that does not file a 990 for three consecutive years will lose their tax exempt status. The federal law requiring this change was passed in 2006, and the first three-year window closes May 15th, 2010.

If you work for a nonprofit, hopefully you already know this and are aware of the upcoming May 15th deadline – the date when organizations with a December 31st year end must file their 990 with the IRS.

Although this change could negatively impact thousands of organizations, there is still time to meet your filing deadline.

(Update: The Star Tribune has published an excellent article on these changes.)

Steps to Staying Tax Exempt

Visit the IRS Website

• Find out your filing deadline – all you need to know is your fiscal year end
• Find out which form to file (this chart is taken directly from the IRS website)

• If you need to file an extension, these are the procedures for Form 990 or 990-EZ

Prepare Your Form

• Small organizations only need 8 pieces of information to file the 990-N (aka e-Postcard). If you file this form on time, your organization will remain tax exempt.
• The National Center for Charitable Statistics (NCCS) has a tool to help organizations e-file the 990 or 990-EZ. It is free for nonprofits with less than  $100,000 in annual revenue.

Not sure if your organization is at risk?

• Review this document, available from MCN.
• Use the NCCS database for a state-by-state list

Find Out More

• Stay Tax Exempt – a mini training site from the IRS
• Updates on Your Exempt Status and a Form 990 To-Do List from Nonprofit Accounting
• Information from Tech Soup, including links to discounted accounting software
• For more resources visit our previous blog post,  New Year, New You

I think it’s interesting, and timely, that in the last few weeks both my original and adopted hometowns blew me away by their community and collaborative spirit.

Partnerships That Produce Results

First, Buffalo, NY took full advantage of Extreme Makeover: Home Edition coming to town, using the opportunity to transform an entire neighborhood and illustrate the importance of green building practices, such as deconstruction.

Then Minnesotans donated more than $14 million dollars to 3,141 nonprofit organizations in 24 hours, setting a national record. That is certainly above average.

Wow.

Neither effort would have been possible without significant community support – in the form of 5,000 volunteers and 38,778 donors, respectively – as well as the work of countless organizations behind the the scenes and some public-private partnerships.

There is no reaction except to be humbled. But there are lessons that we can learn for projects large and small.

Let’s Collaborate

Right now, everyone who wants to improve the nonprofit sector is emphasizing collaboration.  Certainly in some instances the results are impressive.  But successful partnerships take a lot of work and trust.

There is no one size fits all model. Collaborations range from joining forces on a project to combining backroom operations to a full merger.  Advantages include increasing impact or taking advantage of unique skill sets, such as in these examples, and minimizing costs.  Challenges include letting go of control, managing the needs of diverse stakeholders, and confusion around roles and responsibilities.

GiveMN as an Example

The GiveMN Give to the Max Day effort was incredibly successful in promoting individual giving, engaging new donors, increasing online donations, and getting significant amounts of cash into the hands of nonprofit organizations.

However, there was also confusion around some details, especially the matching funds. Regardless of how the uncertainty happened, it underscores the importance of clear communications among stakeholders – in this case that includes the 3,141 nonprofits, 38,778 donors, and the project partners.  Everyone needs to be on the same page about project goals and outcomes.

Beyond illustrating the widespread community support for Minnesota’s nonprofit sector, GiveMN also shows that nonprofits and their supporters can effectively use social media and other online tools to leverage their networks to take action.  There was an earned media blitz from the partners, but organizations and individuals took advantage of email, facebook, and twitter to get the word out.  The very nature of social media is collaborative.

What are your stories of collaboration? What lessons have you learned from those experiences?

Case Studies

• Nonprofit Collaboration Case Studies
• Where Can I Find Case Studies of Nonprofit Collaborations, Mergers, and Other Strategic Alliances?
• Joining Forces in the Back Office – Lodestar Foundation Resources
• Interview: Collaboration Prize Co-Winners
• What happens when two competitors combine forces
• By sharing expertise, agencies are able to improve operations, save money and help more clients

Tools and Resources

• What do I need to know about collaboration and other kinds of strategic alliances?
• Nonprofit Mergers and Acquisitions: More Than a Tool for Tough Times
• Project ReDesign and Merge Minnesota

Scenario Planning

The McKinsey Quarterly recently wrote an article about the advantages (and some potential pitfalls) of scenario planning.  At Nonprofits Assistance Fund, we love scenario planning for the reasons laid out in McKinsey Quarterly:

Scenarios are a powerful tool in the strategist’s armory. They are particularly useful in developing strategies to navigate the kinds of extreme events we have recently seen in the world economy. Scenarios enable the strategist to steer a course between the false certainty of a single forecast and the confused paralysis that often strike in troubled times.

What’s in your Planning Toolbox?

Here are some resources that can help you craft your own scenarios.

• Scenario Planning tools:
  • Scenario Planning Example
  • Scenario Planning Worksheet: A blank template for you to use
• Cash flow template
• Contingency and Scenario Planning – What’s the Difference and How Do Nonprofits Get Started?
• Focus on the Destination, Not the Route (Budget)!

You can also read Kate’s post on this topic, What H1N1 Taught Me About Contingency Planning.

The Wall Street Journal Makes It Personal

Why is management advice to the philanthropic sector filed under personal finance?

This section includes commentary about foundation payout rates, general operating support, social enterprise, public-private partnerships, and corporate philanthropy – not personal finance. There is a related blog post on how financial advisers can help their clients maintain their charitable giving in a recession, but it’s not part of the special section.

At least the New York Times section on Giving is part of their US coverage.

Why It Matters

This might seem off topic, but when business leaders (and their publications) tell nonprofits how to behave, how to improve, how to be more efficient and effective, while also treating us as an afterthought, that’s a problem.  It underscore how little time and energy they spend thinking about the challenges – and possible solutions – for our sector.

And I think it also explains why often the rallying cry is “be more like business,” even when that doesn’t make sense.

Philanthropic Investments

If you read about Goldman Sach’s Foundation’s unusual investment strategies, you might be curious about “traditional” investments.  The ideas of prudence and risk management – because the funds are intended to benefit the community – underscore most philanthropic investment strategies.

In her blog post from last year, Jittery About Investments, Kate lays out some fundamental guidelines for nonprofits:

• Time Horizon – Funds that may be needed within a few months must be invested in highly liquid, safe investments. This is the most common type of investment fund for most nonprofits, composed of operating funds and reserves. In order to be assured that the funds will be available as needed, the investment choice must be readily available.

• Risk Tolerance – One of the fundamentals of investing is the balance of risk versus return. Investments with a higher return almost always also come with higher risk. The key question for nonprofit leaders and boards is to understand how much risk is involved and to decide if they can accept the risk. As an example, if the funds to be invested represent the balance of a large program grant that will be spent over the next year, then the organization can’t afford to risk the loss of any of the funds. A permanent endowment fund, on the other hand, is usually invested in a diverse portfolio that includes more risk in return for a higher long-term return.

• Responsibility – The nonprofit’s board of directors is responsible for overseeing this balance of risk and return for the health of the organization and any legal requirements. In order to fulfill this responsibility the board must act as prudent and loyal stewards of the organization’s assets.

Here are some additional resources:

• Notes from Endowment and Investment Policies
• The Chronicle of Philanthropy’s Special Report on Endowments
• The Care and Feeding of a Healthy Organization
• It’s 10 am, do you know where your cash is?
• Cash is Cash, Sometimes

Foundations can also use mission-related investments and program-related investments as part of their portfolio. Learn more about MRIs and PRIs:

• Aggregating Impact: A Funder’s Guide to Mission Investment Intermediaries
• Philanthropy’s New Passing Gear: Mission-Related Investing
• PRI Makers Network
• Program-Related Investing guide from Grantcraft

Nonprofit Harvest

• A four-part series from Nonprofit Capital Management’s blog on tax deductible business expenses
  • Transportation and mileage
    
  • Travel
  • Office moves
  • Education
• Fiscal Sponsorship Revisited from the Nonprofit Law Blog
• MCF Research on Giving Trends Released
• The L3C: A new business model for socially responsible investing

National Volunteer Week honors the important work of volunteers in our communities.  It seems fitting that President Obama signed the Serve America Act during this time.

In addition to encouraging service, the legislation includes capacity building resources specifically designed for small to mid-sized organizations. For more information, read Kate’s thoughts or learn more about the Serve America Act.

Volunteer Management Resources

We know that volunteers provide a great boost to nonprofits, but they also require specific management resources.  Here are some tools to help nonprofits get the most value out of their volunteers:

• Tracking Volunteer Time to Boost Your Bottom Line: A Complete Accounting Guide from Blue Avocado
• Value of Volunteer Time from Independent Sector

Nonprofit Accounting

Speaking of accounting systems, Alan at Not-For-Profit Accounting makes an excellent case for their importance:

We go into the sector because we care about the mission, making a difference, building community, or any other number of reasons.  Not so we can crunch numbers.

But some people are shocked when they realize just how much regulation, filing and paperwork comes with a tax exempt status…The more time it takes to hammer those reports together, the less time you have to do other things like mission and fundraising work.  The harder it is to compile good financial information, the greater the likelihood of it not being as accurate as it should be.  As has been stated more than a few times,  you can’t figure out what you are going to do financially if you don’t know where you stand right now.  Good cash flow planning and budgeting can only be done if you have a system in place that can get you usable information in a timely fashion.

His post, Why You Need an Accounting System also provides resources to help you get you started.  For more ideas on what questions to ask if you need to develop your own system, read Help! We need an accounting system!

This Week’s Harvest

• Two-Thirds of Foundations to Reduce Grantmaking in 2009 from PhilanTopic
• Helping Themselves from the Wall Street
• The Recession Brings Tough Challenges and Opportunities, Say Experts on Socially Run Businesses

If you are looking for volunteer opportunities in the Twin Cities metro area, I suggest visiting HandsOn Twin Cities or MAP for Nonprofits.

Blue Avocado’s new issue includes the financial management article, Finance Fear Factor Ratios.  Unfortunately, a number of people can probably relate to this experience:

A CFO at a troubled organization told me, “The first and last thing I do in the morning and evening is look at our bank balance and see if we have enough cash to meet our next payroll. The budget looks fine, but cash flow is our biggest problem.”

How do you know whether or not you should worry?  Read the rest of the article for ratios and four key questions to help you recognize red flags.

You can also read Cash is Cash, Sometimes for information on what could impact your ability to access your organization’s cash.  And our handy Cash Flow Template is available to help you craft your own cash flow projections.

Calling All Minnesota Social Entrepreneurs

Don’t miss your opportunity to enter the Social Entrepreneurs Cup – a joint venture of Social Venture Partners Minnesota and the Minnesota Cup.  This competition “seeks out, supports, and celebrates Minnesota’s most innovative and effective social entrepreneurs and the nonprofit organizations they lead.”

The deadline is Friday, April 24th, so you have one more week to enter.  It’s an opportunity to win a $20,000 general operating grant and 40 hours of consulting from Social Ventures Partners.

In the News: This Week’s Harvest

• The Pohlad Family Foundation announced $20 million in grant support to businesses and nonprofits.  (Our loan fund is generously supported by the Pohlad Family Foundation.  Our complete list of funders is available here.)

• USA Today launched a new feature specifically for the nonprofit and philanthropic community.  Check out the Sharing section for news on our sector.

• The Foundation Center-Cleveland’s online librarian, Katie Artzner, live-blogged a recent conference session, Navigating Your Nonprofit Through Challenging Times.

• Updates from the Social Enterprise Summit (via the Chronicle of Philanthropy):
  • Nearly Half of Charities Operate Businesses
  • New Legal Status for Socially Oriented Business Gains Ground

• White House Appoints Head of Social Innovation Office

Nonprofit Funding: It’s Not One Size Fits All

Ten Nonprofit Funding Models: A Proposed Lexicon

Social Standford Innovation Review points out one of the reasons that nonprofit financial models are more complex than for-profit ones:

When a for-profit business finds a way to create value for a customer, it has generally found its source of revenue; the customer pays for the value. With rare exceptions, that is not true in the nonprofit sector. When a nonprofit finds a way to create value for a beneficiary (for example, integrating a prisoner back into society or saving an endangered species), it has not identified its economic engine. That is a separate step.

The article, Ten Nonprofit Funding Models from the goes on to identify different models, arranged by the dominant type of funder – individuals and/or foundations, government, corporations, and a funding mix.

So, What’s the Best Model for My Organization?

When trying to figure out your organization’s funding mix, it’s important to remember that there is no one right answer.  Blue Avocado elaborates in Just Tell Me: What’s the Best Way to Raise Money? Choosing the Right Revenue Strategy:

The decisions you make about your revenue strategy – that is, who should be supporting your work and how to go about soliciting that support – should be based not only on who is most likely to give you money or pay for your services, but what makes the most sense in terms of who you are, what kind of change you’re trying to make in your community and how your funding sources can help you get there.

And Is Profit Important?

Not-For-Profit Accounting addresses a frequently asked question, Why Nonprofits Have Profit

In order for an organization to do its work and carry out its mission on an ongoing basis it must generate more income than the expenses it incurs. It must make a profit. Any organization, either a for-profit or a nonprofit, that does not take in more money than it spends will fail in the end.

Fresh from the Farmer’s Market: This Week’s Harvest

• A Social Capital (Farmer’s?) Market from Tactical Philanthropy

• Resetting the Capital Approach from Social Velocity

• A Social Solution, Without Going the Nonprofit Route from the New York Times

• Increasing Service Opportunities Would Revive Nonprofit Finances, Report Says from the Chronicle of Philanthropy

• Academic Endowments: The Curse of Hoarded Treasure from Business Week

• Pawlenty plans to cut funds for local governments

• Minnesota Budget Bites has the rundown on the unallotments: Ready, set,cut!!

• More from Budget Bites, House asking for your ideas on how to close the budget deficit

Here’s what the Minnesota Budget Project will be saying this session: State policymakers must take a balanced approach to the state’s budget deficit and avoid policy choices, like excessive spending cuts, that make the economic downturn more painful. The deficit is simply too large to take raising revenues off the table.

• Update: Pawlenty announces short-term budget cuts

• MinnPost asks Deficit spending: Why shouldn’t Minnesota do as the feds do?

But some are asking, what good is a balanced budget if it means widespread slashing and burning to eliminate jobs and services, especially in tough economic times?

• CBPP’s article on the long-term impact: Restoring Fiscal Sustainability Will Require Major Changes to Programs, Revenues, and the Nation’s Health Care System

While the long-term problem should not deter policymakers from dealing with the short-term crisis, policymakers will need to demonstrate to the public and the lenders who finance our short- and longer-term borrowing needs that they are prepared to move the budget toward a sustainable long-run path when the economy improves.

We encourage you to share your ideas with the Minnesota House.  You can chime in about the federal budget and spending priorities on change.org and change.gov.

MCN’s Forum on the Economy

On Tuesday, MCN hosted a forum on the Nonprofit Fundraising and Economic Outlook in 2009.

It included updates from the 2008 MCN Salary and Benefit Survey, the 2008 Minnesota Nonprofit Economy Report, a new 4th Quarter survey of nonprofit fundraising, and the state’s November Economic Forecast.

More on the Forum

• Economic briefing for nonprofits offers some optimism, plus reality checks and strategies, for 2009 from Scott Russell at MinnPost

• Notes from MCN’s Economic Briefing from Philanthropy Potluck

•  Nonprofit Survival: A Special Broadcast on MPR’s Midmorning with Jon Pratt from MCN, Jim Farstad of Intermedia Arts and Melissa Brown, director of research at the Center on Philanthropy at Indiana University.

Read the Reports

• Nonprofit Current Conditions Report

• Nonprofit Economy Report

• The Economy and Charitable Giving: Special Briefing November 2008

Other Resources

• Blue Avocado brings you Twelve Blue Avocado Days of Christmas, our favorites:
  • Seven pairs of bad shoes
  • Two unbalanced budgets

• 20 Emergency Funding Sources for Nonprofits from Fieldstone Alliance

• Kristin Giantris of NFF offers advice in the New York Nonprofit Press Dec. 2008 issue.

• Join the Discussion: Service Response

Paul Schmitz, a member of the Transition’s Innovation and Civil Society Team, kicked off the Change.gov discussion on service by asking to find out more about the social causes and volunteer efforts making a difference in your communities.

• Economic Crisis Calls for New “Social Contract,” Charity Head Says from Chronicle of Philanthropy’s Government and Politics Watch

The severity of the nation’s economic crisis has created an opportunity for charities to transform the way they work with the government as a new administration and Congress take shape, Larry Snyder, president of Catholic Charities USA, said today.

…He said public officials should draw on the expertise of charities to design social programs, exploring “a new way to work together, a more mutual thing, rather than simply government throwing funding out and all of us scrambling for it.”

• Princeton Legal Battle Raises Questions from Give & Take

• The Future of Corporate Philanthropy by Alyson Warhurst for Business Week

• Charity donation decline gives rise to innovation (hat tip: CNM’s post Economic Crisis Spurs Innovation)

• Some charities see good news and bad in the economy from MPR

From the Blogs

• Foundations’ Role in a Tough Economy from Social Velocity

[I]t is not just about foundations.  They are only part (and a very small part) of the resource engine that drives the social sector.  The entire way in which the social sector is capitalized needs to change.  We need to put a financial priority on the solutions that the social sector is coming up with.  Those solutions need to be scaled and made sustainable. And adequate capital (from all sources) is the only way to do that.

• Strategic Philanthropy in Tough Times from Paul Brest

[W]e need to ensure that the best organizations — those that are delivering real outcomes — weather the storm. We’re not going to be able to salvage them from the bottom of the sea after the storm is over. On the other hand, we shouldn’t use precious assets to keep poorly managed organizations afloat either.

• My Social Entrepreneur Identity Crisis… And, Philanthropy is Sustainable from ForImpact’s Daily Nuggets: Blog

• Is Generosity a Luxury Good? from Sasha Dichter

And now for something completely different

I am an avowed social media geek. You, however,  may not be.  So I want to tip you off to something very cool that’s going on. Allison Fine and Marnie Webb have launched GiveList, and trust me, you want in on this:

Times are tight. We know, we know. We’ve all seen the scary headlines. Too many of the scary headlines. And we’re all feeling the pressure in other ways too. But, still, we want to contribute what we can to making the world the better place. The GiveList gives you ideas and inspiration for just that: ways that you contribute without spending or buying. Or maybe giving while buying and spending a little less than usual. There are lots of small things you can do that don’t cost you anything that can make a big impact on communities. And you probably have some thoughts on this. Share it on del.icio.us, via twitter, in your own blog post. Just tag it GiveList and we’ll share help you share your idea with the world.

As nonprofit financial leaders, we offer a unique perspective.  While we’re gathering resources and ideas on how organizations can manage during this challenging time, we can also think about how we all can maximize our impact with the resources we do have.

What are your GiveList ideas?

As you can see from the screenshot, you can sort the data by fiscal year, state, or recipient type.  It’s important to note that this includes grants and PRIs or program-related investments.  (Kate describes the benefits of PRIs in her post, Hidden gems of foundation funds.)

For more information, read the announcement on PhilanTopic.  Their intent is for the map to evolve and accurately reflect foundation giving:

New grants will be added to the map on an ongoing basis to provide the most current picture of foundation giving for programs and issues relating to the economic downturn. Grantmakers are encouraged to send announcements about their grants or PRIs to Matthew Ross at mr@foundationcenter.org.

Do you know what’s happening in your community?  Chime in!

So, what are the numbers?

Although the numbers are not as bad as some projections, they are ugly.  What a weird reaction to be oddly relieved that the gap is “only 5.2 billion.”

Minnesota Budget Bites has a great breakdown of the numbers:

• For the current biennium (FY 2008-09, which ends June 30, 2009) the deficit is $426 million (that’s about half the size of the deficit we already closed during the 2008 Legislative Session).
• For the next biennium (FY 2010-11) the deficit is $4.8 billion (add another $650 million for inflation).  That deficit amounts to about 13% of our budget. That’s a lot. State Economist Tom Stinson says this recession is expected to last 24 months – which would be the longest recession on record.
• For the biennium after that (FY 2012-13) the planning estimate predicts a $4.6 billion deficit (add another $1.5 billion for inflation).

By the way, in case you are confused by the $5.2 billion deficit announced in the media – that adds the FY 2008-09 and FY 2010-11 deficits together.

What people are saying

There is, and will continue to be, a lot of conversation on this issue. A great place to go for up to date information is the Budget Bites blog from the Minnesota Council of Nonprofits.

• Deficits: $426 million now, $4.8 billion soon and $4.6 billion later 

• Predictions of a $4 billion state budget deficit

Here are some additional news stories:

• Officials react to Minnesota’s dire deficit projection

• Budget deficit: Pawlenty remains oppposed to tax increases

• Minnesota’s red ink: $5.2 billion; Pawlenty seeks 10% spending cuts

• As Minnesota reels from a record deficit, leaders offer no specifics on recovery

• Op-Ed from Dane Smith (Executive Director of Growth & Justice)

• Minnesota Revenue Loss Pushes State $5.5 Billion in the Red

• Session of a thousand cuts: Thursday’s budget forecast sure to force painful decisions

• Looming Minnesota deficit offers chance to innovate

You can also visit the Minnesota Management & Budget website to see the state’s financial information, the November forecast, and get up to date on budget planning for FY 2010-2011.

What are our options?

The impact will be huge and felt across the state, in every community and every sector.  This figure represents 14% of the state budget.  Minnesota’s constitution requires a balanced budget, so tough choices will have to be made.

Where do we start?

• Budget Bites calls our attention to an article from 2001, Budget Cuts vs. Tax Increases at the State Level: Is One More Counter-Productive than the Other During a Recession? from the Center for Budget Policy and Priorities.

• A more recent article from CPBB outlines proposed budget cuts that would disproportionally impact those most vulnerable.

• Scott Russell at MinnPost weighs the relative merits of cutting rates or eligibility for health and human service organizations.

• Post your ideas and suggestions at Minnesota 2010 and elsewhere.

If you tweet or use delicious, I suggest tagging items as mnbudget. Let’s aggregate our ideas!

(My favorite tweet on this topic was from @dbrauer, who writes for MinnPost: “Seriously, we are going to need MPR’s budget challenge for this deficit thing. Stories today made clear cuts alone won’t do it.” For a bit of levity, check out the Budget Hero.)