If you are thinking of or in the process of starting a nonprofit,
some of the non-profit jargon that you might encounter along the way
could leave you scratching your head! So in this video I'm going to share 10 non-profit
startup terms that you may or may not have heard of before but are definitely words
you should know to successfully start and grow a non-profit organization.
Welcome or welcome back! My name is Amber Melanie Smith and I'm a non-profit founder and executive
director who loves making these videos here on YouTube to help folks who want to make an
impact whether that is by starting a non-profit or working for a non-profit starting a social
Enterprise or socially conscious business and other avenues to create positive social change
as always I hope that you find this video useful and helpful don't forget to give it a like And
subscribe to my channel for more content like this and check out my website FounderToFullTime.com
where I have some online courses that are helping folks with the process of starting a nonprofit
and the process of developing a sustainable fundraising plan for their new organization
all right are you ready to test your knowledge I'm going to get into these 10 terms now and I
would love to hear at the end how many of these you knew and got right and which ones were the
most confusing let's get into it okay term number one is fiscal sponsor a fiscal sponsor is another
non-profit organization who basically partners with a new non-profit startup to let it borrow
its official established 501c3 status and operate under it for some administrative and
management support while it's getting itself up and running not any organization can be a
fiscal sponsor of a new startup non-profit the fiscal sponsor organization and the new
non-profit startup have to have missions that are really really well aligned so you want to
really vet a partner before you fall under the fiscal sponsorship of another organization fiscal
sponsor organizations can do things for a startup like allow donations to be made to the new startup
using the fiscal sponsor's current donation and tax exempt status setup they might provide some
management guidance or support or administrative support when you're sharing resources like an
office or software for example you don't have to get those resources yourself as a startup
so the reason that another organization might be willing to be a fiscal sponsor for a new startup
is if those missions are really aligned like I said if the new startup is going to do something
that's going to be very complementary to the existing organization and so it's success is an
important part of the established organization's success the second term is direct service
direct service so this is when an organization has programming or activities that directly work
with the intended uh population so for example when an organization is managing like a soup
kitchen or running an animal shelter or shelter or animal like fostering or adoption agency
um or tutoring youth you're working directly with the population being served this is different
from some non-profits who focus more on Research Outreach or advocacy which are
also really important missions the thing about direct service versus indirect service is not
one is good or or bad over the other they're both really needed to create long-term social
change you've got to have people providing those Direct Services like feeding people and housing
um stray animals and stuff like that while also having other people work on uprooting the systems
that are perpetuating those social problems in the first place so why do we have hunger still in the
world when we have plenty of food to eat in theory well someone's got to be working on that problem
while someone is also feeding people day to day the third term I'm going to cover is IRS form 990.
I know it can be exciting to think that once you have filed for your non-profit status and
gotten all that paperwork out of the way that you don't have to file any more paperwork ever
again but unfortunately that is just not the case especially if you're a non-profit in the
United States you have to file the form 990 each year to prove to the IRS that you are
still complying with the Internal Revenue code that applies to your non-profit status and tax
exemption the easiest way to think about the 990 is it's basically your non-profit organization's
annual tax tax return forms so on your 990 you're going to need to include things like your assets
your receipts the compensation of your highest paid staff or officers of the organization you
can technically fill out the 990 yourself there's no rule against it but many organizations do hire
an accountant to take care of this for peace of mind the fourth term I'm going to cover is General
operating support General operating support this is when a magical donor gives a contribution that
is intended to cover the organization's day-to-day cost this can be anything from
ongoing expenses or office supplies or salaries utilities rent for your organization space
etc etc these are unrestricted donations which means you can use it for these day-to-day needs
but you can also decide if you need to to use these funds for emergencies or
urgent needs that come up related to any aspect of your organization's work the fifth term is bylaws
and depending on where you are in the process of starting a non-profit you might already have
these bylaws completed or you might be just now figuring out how to complete them let's start with
what they are bylaws are a written document that outline your organization's basic governance and
operating procedures creating bylaws is something that at least in the United States is required
by law in order to get your official non-profit status so all organizations have to have bylaws
these organization bylaws will typically include things like the minimum number of board of
directors members you're going to have what their roles and responsibilities are on a basic level
um how do you hold meetings how frequently do you hold board meetings what is your process for
electing new board of directors members if someone leaves the board and what a board term is so you
know um organizations to stay healthy and always have you know a lot of perspectives and be truly
representative of the community should have board terms of maybe a couple of years tops so that new
board members can come in and lend their fresh ideas too so what are those board terms that would
be in the bylaws it would also outline things like the conflict of interest policy and other
important key policies that your organization might be operating by um you do have to have these
as I said to get your official status and you also have to update the IRS if you make any significant
changes to them you just send in a bylaw Amendment okay term number six is days cash on hand
days cash on hand hopefully you can kind of figure out what this is by what it sounds like
so days cash on hand is basically how many days your organization could continue to operate and
pay its uh obligated or expected bills um based on how much cash you literally have
in your bank account right now the purpose of this metric is to basically assess the
short-term Financial Health of your organization are you about to go under because you only have
10 days cash on hand for example it's really healthy to have at least a couple of months of
days cash on hand or operating costs in the bank accounts that you can you know
be thinking ahead and making sure you can pay your your bills that you're expected to pay but
um several months days cash on hand is even better all right number seven is strategic plan
strategic plan a strategic plan is a written document that Maps out your organization's
step-by-step process to basically achieve its Mission so at minimum this strategic plan is
going to include your ultimate outcomes or goals such as how many people will you serve or what
percent of a population will you serve and how it will include your specific strategies or tactics
in order to reach those outcomes or goals how are you going to reach all those people how are
you going to serve all those people the resources that you need in order to enact those strategies
to meet your outcomes and then how you're going to get those resources and resources could be things
like money it could be technology it could be the right Talent on your team it could be any of these
things typically you would sit down with your leadership team could be your board of directors
it could be your or staff and board of directors if you have staff but whomever is responsible for
making decisions in your organization and I also encourage organizations to include uh
you know non-leadership staff too who might have insights about things they're seeing on
the ground as they're enacting your programs that might be helpful to developing a strategic plan
um so including all these people collaborating together thinking through what does the
organization need over the next several years and what are the best strategies to get there writing
all this down in a document and this is your this is your guide this is your map for how you're
going to achieve your mission it's one thing to say we're going to end Hunger in my city another
thing to have an actual strategy and a plan to make it happen you might have short-term strategic
plans that last one or two years and then slightly longer term strategic plans that last three to
five years but it is important to keep going back and looking at them and refreshing them because
the world changes and your organization has to evolve too all right number eight is kind of two
terms rolled into one and it's cash versus accrual basis of accounting non-profits really need to
have accurate accounting and strong accounting practices for many reasons but one of them is
that form 990 that I mentioned earlier has to be accurate the IRS could audit your organization
at any time so you really want to make sure that you are keeping great financial records and that
they are accurate and up to date when you're a startup this begins with choosing your method
of accounting it's either Cash basis or accrual basis and I know many startups choose the cash
Basics because it's a little bit more simple and makes a lot more sense when you don't have
as many Financial transactions coming in or out at a given time so here's the difference between them
the cash basis of accounting is going to focus on reporting the transactions in the period in
which they actually happen so let's say a donor promises that you're going to get a donation and
they promise this on March 1st but they put it in the mail and it takes a month to get to you and
you don't actually get the donation check in your hands until April 1st well then you'd be putting
it into your bank account and under the cash basis of accounting you'd be counting that money in your
hands as of April 1st not March 1st so it's basically when you literally have the cash in
your hands on the other hand the accrual basis of accounting generally focuses focuses on reporting
transactions when they're anticipated to happen so let's say that same donor promises the donation
on March 1st you might put in your accounting system that you are expecting that donation as
of March 1st instead of just logging when the cash actually arrives in the bank account you would be
logging when you know it's expected it's a way of anticipating your expenses and your income over a
longer period of time if there are any accountants watching please weigh in with any Nuance here that
I might have missed because I am not an accountant but I have been working in my own organization's
finances for several years term number nine that we're going to cover is earned Revenue
slash earned income about the same thing so earned revenue or income is basically when a non-profit
generates money by providing goods or services so an example that you might be familiar with is
a non-profit Art Museum or a non-profit theater selling tickets to its exhibits or performances
that would be earned income this is different from a contribution because a contribution is made by
a donor who's not expecting anything material in return they're not expecting a good or a service
in exchange for Their donation it's simply a gift many many non-profits generate a significant
portion of their annual income through earned revenue or earned income but the trick here is
that it can't just be any goods or services that you sell if you sell if you if you sorry if you
bring in too much revenue um based on selling goods or services that have nothing to do with
your mission then the IRS might say well this is unrelated business it's not related to your
mission and we're going to tax you on it so to avoid that penalty for unrelated business income
your earned income uh strategy should really focus on selling goods or services that directly further
your mission I talk about this a lot in one of my other videos that's specifically about earned
income but basically you want to think about your mission let's say it is to help young women become
entrepreneurs and you happen to be the Girl Scouts well been selling Girl Scout cookies
and having the kids learn sales and marketing and all that is teaching them to be entrepreneurs thus
it is an earned income strategy that would not be considered unrelated business boom okay the final
one number ten is overhead or infrastructure costs overhead or infrastructure costs
overhead costs are the costs for items or salaries relating to the management Administration or
fundraising for your organization overhead has had a negative connotation in the past and if
you've seen many of my videos I've talked about this several times but many people
are realizing that overhead often relates to those really critical things an organization
has to have in order to run effectively and smoothly for example if you run a shelter for
people experiencing homelessness then the rent on your building should not be unnecessary overhead
because you can't fulfill your mission of helping people experiencing homelessness
and giving them shelter without a building so it should be related it's not just a utilities cost
um a lot of people think that just all salaries for a non-profit are part of overhead but that
is not true that is a misconception um if any staff member is spending any time on
fulfilling the mission through your programs if they're working on a program's related task
that time being spent is a program's cost not an administrative or fundraising cost so dividing
up the staff time and their salaries based on the amount of time that they're spending on the
different activities of the organization is the right way to do it it's not that
um one person let's say the executive director is not just all overhead if they're spending a third
of their time on programs or supporting programs then a third of their time is a program's cost
there's a lot more Nuance here that we could get into but trying to keep this video uh
done in a timely manner so I'm going to wrap it up here okay it's the moment of truth how
many of the ten did you get right I would love to hear which ones were the most obvious which ones
were the easiest for you and which ones had you not heard of before share in the comments below
as I mentioned before if you are in the process of starting a non-profit or creating your fundraising
strategy I have some great online courses at my website foundertofulltime.com you can find
those there I have one all about the process of starting a non-profit and another one about
how do you actually start creating a sustainable fundraising plan or strategy so check those out I
have a newsletter for change makers and non-profit leaders you can subscribe to that using the link
below this video and opt out anytime you like and finally I have a Facebook group called Change the
World or Bust! We've got four thousand plus people in there from around the world now who
are all trying to make an impact in their own way and we're just talking to each other getting some
support and guidance from each other on our Journeys so I hope you can join us there too
once again my name is Amber Melanie Smith and I hope to see you next time - bye!