How to Avoid Common Nonprofit Pitfalls

Copyright (c) 2009 Chuck W

A nonprofit doesn't exist to make money, but in many ways they operate like a traditional business. Most nonprofits start with a good cause and well-formed vision, but they need more than that to be successful. Planning, organization, research and a positive cash flow are essential for sustainability. Take the following steps to make sure your organization avoids common mistakes.

- Before you start... You've got a great idea and a great cause, but before you start make sure to do your homework. Get ahead before you even start by reading and researching as much as possible. Educate yourself on similar existing nonprofits, ask them how they got started, and consider volunteering to get an upclose look at how they operate. Minimize your growing pains by learning what works and what doesn't from someone who's been there.

- Come up with a plan Every business starts with a business plan, and every nonprofit should as well. The plan should be researched, detailed, and include clear objectives followed by plans to meet those objectives. Make sure to consider daily operations, financial projections and growth potential. The business plan should communicate your mission, vision, goals, and how you envision meeting them.

- Get straight with the IRS Nonprofits enjoy a special tax exemption, but it should come as no surprise that achieving that status doesn't come with work on your part. First, make sure your organization falls under the IRS's 501(c)(3) qualifications. If your nonprofit serves the public good and is organized for religious, charitable, educational, scientific or literary purposes you shouldn't have any trouble. To receive tax breaks you'll have to file federal and state forms. The IRS has a site designed to help you navigate the 501(c)(3) waters, www.irs.gov/eo.

- Watch your cashflow A successful nonprofit is one that helps people and the community, but sustainability is all about the bottom line. Money and marketing should never be an afterthought, even for nonprofits. Raising funds and setting a budget are critical pieces of every nonprofit. Fundraising is competitive, and sticking to a budget can be tough so make sure to prioritize both. If you're starting a nonprofit, be prepared to deal with dollars and cents.

- Spread your vision Your mission might be the driving force in your office, but without effective marketing, your donors, donations and volunteers will dwindle. Make sure to differentiate yourself from other causes, and include a call to action, something that specifically explains how to get involved. Garner support by marketing your mission, which will increase community involvement and strengthen your efforts.

- Realize your commitment Running a nonprofit, training for a marathon and raising children have one thing in common: they all require lots of time. A nonprofit is neither a hobby nor a part-time job. Plan to commit a significant amount of time to the cause, and partner with dedicated people who can do the same.

- Build a board A board of directors provides critical leadership and direction. Choose people who are dedicated to the cause, honest and experienced. The board will add an important level of integrity, expertise and counsel.

- Plan for growth Don't get so caught up in avoiding pitfalls that you get surprised by your own success. Your plan should cautious, but include best-case scenario as well. Consider an action plan for a surplus of donations, volunteers and community response. Instead of getting overwhelmed by the positive response, just remember: this is a good problem to have.