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Nonprofits: 4 ratios worth watching
To control your not-for-profit’s expenses and improve operating efficiency, you need to keep an eye on the numbers. This should come as no surprise. But which measures are important? Which ratios can help you identify how much currently goes toward programming (as opposed to administration), how much you spend on fundraising (compared to funds raised), and how much your nonprofit needs in operating reserves? Key measures In general, these four key ratios should be regularly monitored:
Make a fraud recovery plan now, before your nonprofit is defrauded
According to the Association of Certified Fraud Examiners (ACFE), not-for-profit organizations make up 9% of all defrauded organizations. Such attacks — and losses — can be enough to destroy a nonprofit. Although the best defense against fraud is a strong offense in the form of internal controls, you should also have a recovery plan should fraud occur. Here are some best practices to consider.
Make your nonprofit’s auction a success by following IRS rules
Whether your not-for-profit is holding an in-person or online auction to raise funds, you need to be careful to adhere to tax requirements. For example, you should provide written acknowledgments (including good faith estimates of any goods or services provided in return for contributions) to donors of items valued at $250 or more. Here’s an overview of auction-related tax issues — including those your donors should be made aware of.
Data analytics is more accessible than you might think
Data analytics is the science of collecting and analyzing sets of data to develop useful insights, connections, and patterns that can lead to better-informed decision-making. It can be enormously useful for not-for-profits. For example, data-driven nonprofit Community Solutions partners with local charities to help them reduce, and even end, homelessness in their communities. Among the tools, it uses are databases that account for individuals experiencing homelessness and their history, health, and housing needs, as well as real-time data on available housing. But what about nonprofits that don’t have the expertise to pursue tech-driven solutions? If this sounds like your organization, take heart: Using data analytics is easier than you might think. And deploying it successfully can save your nonprofit time and effort over the long term.
Is effective altruism all it’s cracked up to be?
The arrest last year of a high-profile cryptocurrency exchange founder for fraud not only hurt the crypto business but also cast a shadow on “effective altruism.” This philosophy employs evidence and statistics to determine strategic ways to benefit others — and the alleged fraudster is a vocal proponent. He has claimed that he earned as much money as possible to give most of it to charity. Is this a case of one bad apple spoiling what’s otherwise a sound approach to giving? After all, effective altruism is particularly popular among tech millionaires and billionaires. Or should your not-for-profit be wary of philanthropists who espouse it?
Passing the public support test
Unless 501(c)(3) organizations prove they’re publicly supported, the IRS assumes they’re private foundations. The distinction is important because publicly supported charities enjoy higher tax-deductible donation limits and generally are exempt from excise taxes and related penalties. The tax code recognizes several types of publicly supported organizations, but most 501(c)(3) charities fall into one of two categories. The first, Sec. 509(a)(1) organizations, primarily rely on donations from the general public, governmental units, and other public charities. The second category, Sec. 509(a)(2) organizations, has significant program revenue. The IRS has established tests for each type of organization. If your nonprofit doesn’t pass the 509(a)(1) test, it may qualify under Sec. 509(a)(2).
Are your Accounting and Development departments like oil and water?
When Accounting and Development teams don’t work well together, the situation can lead to more than employee hostility and conflict. It can affect the not-for-profit’s financial statements and lead to the forfeiture of grant funds. To ensure the staffers in your Accounting and Development departments communicate fluidly, you may need to revise certain procedures and actively encourage collaboration.
Why you should connect with giving circles
Giving circles — generally small groups of people who make a charitable impact by pooling their money — are growing in popularity. If your not-for-profit isn’t already actively appealing to them, you need to get up to speed because they’re capable of providing substantial financial resources.
Give your organization’s members a reason to renew
When inflation is high, it’s common for people to cut expenses by deciding not to renew subscriptions and memberships. For charities and associations that depend on membership fees, this trend can be distressing — if not catastrophic. If you’re not-for-profit’s membership rolls are declining due to non-renewals, you need to address the problem immediately. Here are some ideas for keeping members in the fold.
A refresher on nonprofit endowment management
If your not-for-profit has an endowment, you probably know it’s a significant responsibility. Endowment investments generally need to be managed by a financial expert. Your organization must adhere to certain regulations, particularly regarding spending. As a refresher — or primer for new employees or board members — here are the basics of endowment management.
Before your nonprofit celebrates that new grant …
Most not-for-profits can’t afford to turn down offers of financial support. At the same time, you shouldn’t blindly accept government or foundation grants simply because they’re offered. Some grants may come with excessive administrative burdens, cost inefficiencies and lost opportunities. Here’s how to evaluate them.
2023 Q1 tax calendar: Key deadlines for businesses and other employers
Here are a few key tax-related deadlines for businesses during Q1 of 2023.
Even perfectionists can learn to love delegation
Not-for-profit executives can be perfectionists — they often know exactly how they want something done and believe they are the only ones capable of doing it right. Unfortunately, this attitude can alienate staffers and make it difficult to mentor successors and build effective teams. Then there is the problem of time: There are only so many hours in the workday. To best serve your nonprofit and its constituents, you must practice the art of delegation.
Putting accountability into practice
At its base, “accountability” means taking responsibility for outcomes — both good and bad. But one common byproduct of accountability is that results are actually more likely to be positive than negative. That’s because accountable managers work proactively, seeking solutions to potential problems instead of sidestepping them. Here are some other ways for your not-for-profit to embrace this concept.
The standard business mileage rate is going up in 2023
Although the national price of gas is a bit lower than it was a year ago, the optional standard mileage rate used to calculate the deductible cost of operating an automobile for business will be going up in 2023. The IRS recently announced that the 2023 cents-per-mile rate for the business use of a car, van, pickup or panel truck is 65.5 cents. These rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles. In 2022, the business cents-per-mile rate for the second half of the year (July 1 – December 31) was 62.5 cents per mile, and for the first half of the year (January 1 – June 30), it was 58.5 cents per mile.
Tips to help prevent accounting and tax errors
Although failing to file a Form 990 with the IRS when required to do so is probably a more serious mistake, filing it with data errors isn’t recommended. Similarly, your not-for-profit should strive to be as accurate as possible when preparing accounting and other tax documents. Carelessness can cost you support from donors and grant makers and, in extreme cases, threaten your exempt status. Here’ s how to avoid financial errors.
What local transportation costs can your business deduct?
You and your small business are likely to incur a variety of local transportation costs each year. There are various tax implications for these expenses.
How to ease staffer anxiety about your nonprofit’s future
Like every other organization, your not-for-profit is probably working hard to negotiate the challenges of high inflation and other economic threats. So you’d be forgiven for concentrating more on stretching every dollar than on your staffers’ financial anxieties. But as some high-profile employers start laying off workers, your employees may worry about the security of their own jobs. To keep your operations running smoothly, it’s important to clearly and honestly communicate information about your nonprofit’s financial situation.
2023 limits for businesses that have HSAs — or want to establish them
No one needs to remind business owners that the cost of employee health care benefits keeps going up. One way to provide some of these benefits is through an employer-sponsored Health Savings Account (HSA). For eligible individuals, an HSA offers a tax-advantaged way to set aside funds (or have their employers do so) to meet future medical needs.
Why your nonprofit might want to compensate board members
Because most not-for-profit board members serve voluntarily, you may not have known compensating them was an option. But depending on the type of organization, the expertise and experience expected of board members, and the required time commitment, it may make sense to compensate these hardworking individuals.