Thursday, December 31, 2009

2010 New Year’s Resolution – No New Nonprofits Unless…

This article outlines my reasons for suggesting that the United States does not need any new tax exempt nonprofits organized or recognized in 2010 unless…. In a way this is a challenge to consultants, dreamers, unincorporated groups, legal clinics and others NOT to assist anyone in creating a nonprofit tax exempt organization unless… Do not reply to questions about incorporating on social media. This article will provide my ideas of “unless”, a list of facts that say no more NPOs and headlines from around the country showing how funding is just an empty bucket - unless..You will see the picture from the national, state and local perspectives.

In 2010 there should be no new nonprofit tax exempt organizations incorporated at the state level and recognized as tax exempt by the Internal Revenue Service…

  • Unless you understand the nonprofit will not be “your nonprofit” and you have enlisted an incorporating board that is interested in the concept and capable of performing the necessary tasks of incorporating and operating the organization and
  • Unless you understand there is no “free money” from the federal or state governments. The federal government distributes funds through scholarships, fellowships, contracts, grants and loans. Each requires an application, meeting eligibility requirements, demonstration of a task to be undertaken, proof that the task was performed and the money used appropriately and in many instances a report evaluating the use of their funds and
  • Unless you understand that foundations and corporations set the standards for how and what they fund and your organization has to meet those standards to be considered. It is not unusual for a foundation to fund less than 5% of the applicants in a given year. That was before the current fiscal crisis across the world and
  • Unless you understand that any funding your NPO will receive will probably be from individuals and possibly local service groups such as the Junior League or Rotary Club, local churches or other houses of worship and local businesses. The NPO may be eligible for a contract from local, county, parish or state agency to provide certain services and
  • Unless you realize that creating a web site with a button for people to contribute money really does not work if no one knows the organization. Many people put up a web site and a button for funding before they finished with the process for tax exemption. Take that web site down. Seeking funding over the Internet can be illegal in many states unless the organization is registered to solicit funds in that state. For a list of states that require registration see the Unified Registration Statement created by the National Association of State Charities Officials and the National Association of Attorneys General This is a complex matter and you may want to talk to an attorney about how to solicit funds on a web site without violating other state laws and
  • Unless you have a concept of what it costs to develop and operate a nonprofit in terms of shared leadership, time, thought, study, serious planning, hard work, evaluation and annual reporting as well as money and
  • Unless you have no intention of attempting to raise more than $5,000 a year for the next 5 years and
  • Unless you have enlisted or been encouraged by an “angel”, funder or investor to create the NPO for a specific mission and
  • Unless you are forming a NPO because of a tragedy, disaster or calamity in conjunction with other organizations as the best vehicle to handle services and to raise funds and
  • Unless you have performed due diligence and created a board of mixed talents, diversity, shared passion and vision concerning a truly unserved issue or need supported by some empirical evidence. If the need is an underserved need, why not join with the current providers and increase the service or product? And
  • Unless you understand that there simply are not grants available to pay for the incorporation process. If you and others cannot raise the first $1,000 or so to incorporate, then where do you think you will get the money to run the organization? When someone asks, as many do, does anyone know where I can get a grant to start my nonprofit, we should either not respond or tell the truth – you are not ready to start a nonprofit. Go volunteer at a local nonprofit and
  • Unless you understand that any funding you may want to seek will be from the local or regional area being served by the organization and
  • Unless you understand that fundraising is about relationship-building with individuals and groups to want to provide the organization with resources, money, volunteers or equipment. Fundraising is friendraising and friend-maintaining and
  • Unless you have developed a business plan that
  1. explains clear identification of the organization on credibility, history
  2. explains your vision, your mission, the goals and objectives, the kind of services that will be provided and the activities, functions and results in detail. How are your goals and objectives measurable? Assesses the problem being addressed, experience, goals and objectives, purpose and methods.
  3. gives description of the service you will provide, how you will provide it and the community or the market your organization will be in
  4. demonstrates your character. Character is the general impression you make to a prospective supporter, contributor or funder. Describe the character of your organization and its leadership. Supporters and funders will form a subjective opinion as to whether or not you are sufficiently trustworthy actually to be able to perform the service and to handle the funds.
  5. provides the educational background and experience of the board and staff for review
  6. shows the quality of the references and the background and experience of your leadership and employees because they will also be taken into consideration
  7. illustrates the research you performed and the conditions and trends in the needs you want to meet
  8. explains the need for your service and the demand for it; how is it unique?
  9. explains any barriers that you will have to face at the beginning, how you will maintain and sustain your activities as a nonprofit organization and how you plan to overcome those barriers
  10. demonstrates that you may have discovered a gap in services; describe that gap, why you believe it exists and how you will close that gap.
  11. assesses how anyone will know you are meeting your stated goals and objectives and meeting them timely?
  12. answers the question, "So what?" So what if you will perform these activities? So what if you outline an extremely busy and detailed activity list? What will be different because you perform these activities in the way you perform them? What difference will it make? How will people or the problem improve or be alleviated or resolved? What have you changed or accomplished? What impact will be made and measured? Many are not able to articulate and prove they accomplished or changed anything. So…what will you change, how will you change it and how will you know your activities produced the change? Explain how you will create and how you will deliver your service and meet the identified priorities and need(s).
  13. specifies how you will get your service out the door to customers/clients or supporters and meet the needs you see. Describe how you intend to provide your service and who will use it. How will people know about the service?
  14. describes your distribution plan and advertisement plan. Describe how you are going to market the mission, the vision, the activities, the results. Describe how you will reach potential customers and clients, how they will learn about the organization. Give the details of your marketing plan.
  15. demonstrates that it takes a TEAM to raise a nonprofit organization – to raise it, to maintain and to sustain it. That team begins with the governing body. Describe the governing body of the organization, the board and indicate whether you will have members. Explain who will direct the day by day operation of the nonprofit.
  16. shows you are going to raise money, seek grants, hold fund raisers, collect dues, sell products, explain how you intend to raise the money, why you need the funds, how you will use the money, and how you will maintain fiscal records. Include budget totals - total project cost, funds already obtained
  17. shows how you will account for the money and what records you will keep. Describe your plan to secure funding and other resources and give a contingency plan in case your initial plan fails.
  18. includes projections and budgets for the expected performance of your nonprofit for the upcoming three to four years.
  19. demonstrates your understanding of basic accounting and the financial concepts for nonprofits that are crucial to the success of your organization


According to the Independent Sector Fact Sheet -

There are over 1.9 million nonprofit organizations in the United States. The Internal Revenue Code defines over 27 categories of organizations exempt from federal income taxes, including private country clubs, labor unions, business associations, fraternal organizations, and many others.

The majority of these organizations – about 1.5 million of them – make up the “independent sector.” The independent sector includes 501(c)(3)s (public charities, private foundations, and religious congregations) and 501(c)(4)s (social welfare/advocacy organizations). Together these organizations are sometimes referred to as the independent sector to emphasize their unique role in society, distinct from government and business.

There are approximately 1.4 million 501(c)(3) organizations, including hospitals, museums, private schools, religious congregations, orchestras, public television and radio stations, soup kitchens, and foundations

The total number of independent sector groups has approximately doubled in the last 15 years.

Most nonprofits are small. More than 73 percent of reporting public charities reported annual expenses of less than $500,000 in 2005. Less than 4 percent of reporting public charities had expenses greater than $10 million.

That's too many nonprofit tax exempt organizations

According to studies by the Foundation Center in 2007 there were 74,470 private foundations and corporate foundations and 717 community foundations to which over 1 million nonprofits could apply for funding

Of the 845,786 active nonprofit charitable organizations recognized by the Internal Revenue Service (IRS) under Code section 501(c)(3), 301,214 filed Form 990 or 990-EZ returns for accounting periods that began in Calendar Year 2006. Those not required to file included churches and certain other religious organizations, as well as organizations with annual gross receipts totaling less than $25,000.

A new study by a Stanford group shows that over 50,000 new nonprofits are recognized by the IRS as tax exempt organizations EACH YEAR over 80,000 new groups filed in the year after September 11, 2001

The IRS approves tax exemption for new groups every 10-15 minutes

Even with government funding there is not enough money to go around for those nonprofit tax exempt organizations already existing to make a lasting impact.


A major problem in the burst of new nonprofits can be laid at the feet of the states and the IRS. They are the gatekeepers for the third sector. In my opinion they have lapsed in their duties to assist and protect the public in approving nonprofit status and tax exemption for just about anything. In the past several years the IRS has tightened its reporting process for current groups and totally ignored its approval process. Here are some suggestions -

  • States and IRS should tighten conflict of interest that no employee may sit on the board, no more than two related people may serve on a board at any time unless the board is three members and then no relatives can serve.
  • There should be a time limit for people to serve on the board of a nonprofit with a maximum of five or less consecutive years and no officer will serve more than two consecutive years.
  • States should ask about the plans of the organization to use the internet, social media and other forms of communication to raise funds.
  • States should ask for more information for incorporating similar to questions asked by the IRS on Form 1023 about fundraising, activities and a 3-year projected budget .
  • The minutes of all boards should be a public document and signed copies filed with the state annually. The IRS should tighten its appraisal of the relationship of the budgets to sources of revenue and activities that are projected – are they reasonable given the mission of the organization?

Please add any changes you would like to see below.


The decisions made now by foundations will impact their ability to maintain their own administrative needs and make grants in 2011. Some foundations are more concerned about their ability to maintain a level of funding for their current grantees in 2011 than they are about 2010. Most if not all foundation boards create budget plans and projections for 3-5 years in advance. While foundations are required to expend 5% of their funds each year, they can and may provide 7% in 2010. They can then reduce the percentage to 3% for 2011.

If you think you will have your nonprofit funded by a grant read on -

  • Foundations are well connected to and experienced with those NPOs they are funding currently.
  • Many foundations have increased the percentage of funding they provide in a year to work with current grantees to maintain a level of service but not new applicants
  • Many foundations have stopped their application process to focus on current grantees only
  • Many foundations have made adjustments to their priorities making basic needs their priorities: food, shelter, jobs.
  • A few foundations have been collaborating and jointly funding certain nonprofits that have been vetted and are well known to them to maintain the level of service.
  • Foundations generally look for nonprofits that have a 3-5 year history of accountability and experience to even consider an application.
  • A few foundations are interested in only start-up grassroots organizations, usually with emphasis on poverty, women, advocacy, race or other similar interests.
  • Some foundations, local and state funding sources are suggesting or requiring that groups merge when they review new applications for grants
  • A number of foundations have ceased accepting any new applications until further notice
  • Many foundations that have staff have reduced the number of employees
  • The funding from the Recovery Act (ARRA) is going only to nonprofits with which the federal, state or local governments have funded in the past
  • The federal Pipeline Safety Technical Assistance Grants currently available is very unique - A nongovernmental group of individuals is eligible for a grant under the TAG program if its members are affected or potentially affected by pipeline safety issues. A nongovernmental group of individuals is eligible for a grant under this grant program if the group’s members are affected or potentially affected individuals who are or are willing to become incorporated as a non-profit organization where they are located. The new deadline is January 18, 2010.

Key survey findings from the Washington Regional Association of Grantmakers for 2010

  • The recession has served as a crucible for many grantmakers, providing an impetus to reduce expenses, reevaluate priorities, and promote and engage in collaboration.
  • A lower percentage of grantmakers reported a decrease in assets in 2009 (65%) than in 2008 (86%). Some saw a decline in 2009 as a result of increasing their payout rates.
  • Grantmakers expect to give fewer grants in 2010 than in 2009.
  • More respondents expect their grants budgets to decrease than increase in 2010. Nearly half expect a decline; roughly one in six expect a decline of 5% or less. Nearly one-third expect grants budgets to increase. Approximately one-quarter are not sure.


National and local headlines and articles about the drop in support for current nonprofits

Little cheer this season for charity fundraising - Ho, ho, no: Nearly two-thirds of charities polled say this November and December have been as bad as—or worse than—last holiday season. By Miriam Kreinin Souccar December 22, 2009 8:52 AM Crain's New York Business

With less than two weeks left in the critical fundraising season, charities are struggling to bring in donations.

Nearly two-thirds of charities polled by the Chronicle of Philanthropy last week said this November and December have been as bad or worse for fundraising as last holiday season, with 32% reporting declines of 10% or more. Most nonprofits bring in more than half their annual donations during the last three months of the calendar year.

Foundation Giving Faces Steeper Decline Than Expected By Ian Wilhelm Chronicle of Philanthropy November 4, 2009

A new report suggests that grant makers will cut back their giving this year more than previously expected.

Housing nonprofit shutting down after 35 years Agency transfers properties, so residents won't be affected. By John Keahey, Salt Lake Tribune Updated: 12/23/2009 06:01:06 PM MST

Rising costs and declining contributions are forcing a nonprofit that develops affordable housing to turn its properties over to larger agencies and shut down its operations.

ECONOMIC SCENE: No quick recovery for charitable giving = The Great Recession has hurt charitable giving — and may keep on doing so for some time By David R. Francis / November 30, 2009 Christian Science Monitor

…giving to foundations is likely to decline more than 10 percent, the Foundation Center in New York noted earlier this month. Many of the nearly 600 foundations surveyed have cut staffs to weather the recession.

One of the few exceptions was religion. Some 37 percent of 1,540 congregations reported an increase in donations in the first half of 2009 compared with the same period in 2008. Another 34 percent reported fundraising to be flat, according to a survey by the Lake Institute on Faith & Giving at Indiana University, Indianapolis.

“Religious giving appears to be recession-proof,” says Timothy Seiler, director of a school for fund-raising at Indiana University.

If history is any guide, easy times for charities won’t return soon. Looking at individual giving after the Depression and the deep 1973-75 recession, a study by GivingUSA concluded that inflation-adjusted giving by households and individuals won’t reach their 2007 level until at least 2012, if the recession ended in June.

Plight of the nonprofit: (Delaware) State's groups struggle By MIKE CHALMERS • The Delawareonline News Journal • December 8, 2009

Delaware's nonprofit groups lack the organization, financial stability and sufficient support from foundations, corporations and individuals to handle the state's growing needs, a new report finds.

The need for greater cooperation and leadership is clear, the report's backers said Monday.

"No one sector can address these challenges alone," said Mary Kress Littlepage, a Florida consultant who wrote the report for a group of Delaware nonprofit and corporate leaders.

The Delaware report, titled "Philanthropy in the First State," found:

  1. More than 35 percent of Delaware's roughly 1,000 active nonprofits operated at a loss each year from 2002 through 2007.
  2. Of the 390 philanthropic foundations in Delaware, only 23 made significant donations to nonprofit groups here.
  3. Donations from corporate foundations in Delaware make up just 2 percent of giving by all major foundations, compared to almost 10 percent nationwide.

Tweeting for $10: new appeals for holiday giving in tough times Posted by Kristi Heim November 20 2009 Seattle Times

With the lingering recession expected to cut into holiday giving, charities are soliciting smaller donations and increasingly using free social media to publicize their efforts, The Seattle Times reports.

American charities may not have a happy holiday - American charities have weathered a significant drop in giving this year, and while they're hoping for a holiday miracle, a recent survey shows they will probably see a decrease in year-end generosity. By DONNA GORDON BLANKINSHIP Associated Press Writer Page modified November 16, 2009 Seattle Times

A Survey Shows Pain of Recession for Artists

Newseum trims its staff once again 29 employees have lost their jobs; meanwhile, Smithsonian's buyout offer gets 158 takers By Jacqueline Trescott Washington Post Staff Writer Wednesday, December 2, 2009

Haven for Disabled Workers Feels Job Market's Sting NOVEMBER 28, 2009 Wall Street Journal

Lott Industries is a nonprofit organization in Toledo OH that trains adults with developmental disabilities to do light assembly work and other tasks. In 1993, Lott became the only program of its kind to earn the auto industry's prestigious Quality One supplier award.

Now, Lott and its 1,200 workers are in danger of becoming another casualty of recession. Seven major contracts vanished in late 2007, representing 80% of its business, when Ford Motor Co. closed a nearby stamping plant. Next, in 2008, went the General Motors contract for truck transmission parts. Earlier this year, business with a Honda parts supplier dropped off. Cleaning and other nonautomotive work also dried up as companies brought those functions back in-house to keep their own employees busy.

As Foundations Close, Anxiety for Charities By DAVID CAY JOHNSTON Published: November 11, 2009 New York Times

See and

Hard times hit Wilder Foundation; jobs, services being cut - The Wilder Foundation plans to cut 260 jobs and end programs affecting about 5,000 individuals and families. By JEAN HOPFENSPERGER, Star Tribune Last update: October 14, 2009 - 10:57 PM

Declining donations drive MADD to trim staff - Citing a nearly 20 percent drop in donations, Mothers Against Drunk Driving is cutting staff at its national office and in 11 states, including West Virginia. By P.J. DICKESCHEID Associated Press Writer, The Seattle Times

Third of Region’s Nonprofits May Close - Economy, rise in demand create perfect storm for nonprofits By Diane Weaver Dunne Hartford (CN) Business Journal October 19, 2009

The recession has hit the region’s nonprofits hard, with nearly a third concerned that they may shutter their operations in the coming year, according to the annual survey conducted by the United Way of Central and Northeastern Connecticut of the nonprofits in its 40-town service area.

Susan Dunn, executive director of the local United Way chapter, said it was “alarming” that one in three nonprofit executives said that they were either “concerned” or “very concerned” that they might close in the coming year.

In last year’s survey, the vast majority of respondents — two out of three — were concerned that funding would dry up in the coming year. They weren’t entirely wrong. The recession has dealt them a double whammy: corporate, public sector and individual funding is down, resulting in a reduction in staffing, while the demand for services has increased 72 percent.

Decreased or flat government, corporate and individual funding was felt by most of the region’s nonprofits. Government funding from local, state and federal budgets also fell, with two out of three saying they will be affected by changes in public sector budgets. Even when government funding remains flat, it translates into a loss for nonprofits because their costs continue to go up

Charitable giving is also down. Individual and corporate funding fell by 20 percent and 10 percent, respectively over the previous year. As a result, nearly a third have tapped into their reserve funds, double the number in 2008. Notably, 25 percent do not have any reserves and 6.4 percent have depleted their reserve funds, consistent with the survey’s findings that nearly a third of the region’s nonprofits may close. Most of the nonprofits are holding their own by finding ways to economize their operations, reduce staffing, cut programs that have lost funding, and by increasing collaboration with other nonprofits.

And few expect the federal government’s stimulus program to help alleviate their financial strain.

The 2010 Crisis in Philanthropy | By Sean Stannard-Stockton

Nonprofit Groups Face Trouble Coping With Pension Obligations Chronicle of Philanthropy October 02, 2009

Decline in United Way Giving October 01, 2009

Legal-Aid Study Finds Continuing 'Justice Gap' for Poor October 01, 2009

Claremont Museum of Art is on verge of closing doors October 5, 2009 doors.html

Grantmaker policies threaten nonprofits September 29, 2009

Recession delivers a double blow to many charities By David Crary (AP) – Sep 29, 2009

Red Cross to Auction Off Little Pieces of Its History By STEPHANIE STROM Published: October 2, 2009 NY Times

Stanford Puts $1 Billion in Assets on Block University Aims to Unload Partial Interest in Illiquid Investments; Private Equity Is Watching OCTOBER 3, 2009 BY CRAIG KARMIN AND PETER LATTMAN Wall Street Journal

Salary cuts for one third of US museum directors Survey shows widespread pay reductions, hiring freezes and layoffs By Jason Edward Kaufman | From issue 206, October 2009
Published online 5 Oct 09 The Art Newspaper

It’s Official: Three Unions Merge to Form Nurses ‘Super Union’ December 9th, 2009 | Lindsay Beyerstein Today’s Workplace a workfairness Blog

Nurses have been called the new face of organized labor. Like an increasing percentage of the rest of America’s labor movement, the typical RN in the U.S. is female, college-educated, and working a non-outsourceable job in the service sector.

This week, American nurses banded together to wield unprecedented power in the workplace and in national politics. Delegates in Phoenix yesterday approved a three-union merger to create National Nurses United (NNU), the nation’s largest union of registered nurses.

Eight months in the making, the merger joins the California Nurses Association, the United American Nurses, and the Massachusetts Nurses Union to create a new super union with a combined strength of 150,000 members.

Two nonprofits that support Yosemite to merge Carl Nolte, Chronicle Staff Writer Monday, December 21, 2009

The Yosemite Association and the Yosemite Fund, two nonprofit organizations that provide private financial support and interpretative programs in Yosemite National Park, have decided to merge.

Nonprofits: Misery loves company - The struggling nonprofit world may be on the cusp of a merger boom. By Lawrence Delevingne, Reporter Last Updated: February 20, 2009

There are my reasons for my 2010 New Year’s Resolution – No New Nonprofits Unless


Anything Goes: Approval of Nonprofit Status by the IRS, Center on Philanthropy and Civil Society, Stanford October 2010

Reasons Not to Incorporate a Nonprofit Organization

The Nonprofit Business Plan - Program Precedes Money. Planning Precedes Program

In Praise of Small and Mid-size Nonprofits - On the Side Streets of America

One Phase of Nonprofit Organizational Readiness for Grant Funding: Recordkeeping

Agenda and Minutes of First Board Meetings

Minutes: The Ongoing Record of Your Nonprofit Organization

Your Nonprofit Library Third Shelf – See What the IRS Demands of Your Tax Exempt Organization After it is Recognized as Tax Exempt

According To My Crystal Ball, Your Nonprofit Organization May Be Toast In 2009

The Stories of Nonprofits Dying

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