| Community Tool Box

Sometimes, it seems like community work has a high price tag, and no one wants to foot the bill. There is so much change we want to see happen, but our finances are in such a sorry state that we're just trying to maintain what we've done so far. Staff is underpaid, overworked, and burning out; necessary programs are dropped or scaled back because there's no money; and closing the organization's doors is a constant fear in the back of everyone's mind. This goes on for years for many nonprofit groups; for others, the doors really do slam shut.

Sound familiar? Our question in this section is, how can this be avoided? Or, if this is the reality your group is faced with, how can it be changed?

Earning money - and as staff of nonprofit organizations, we do earn every grant dollar or other bit of funding we obtain - isn't a mystical process. It's not something that can only be understood by a chosen few. It's a process almost anyone can do. And with enough time and effort, it's a process that can be richly rewarding.

However, it's something that can't done well haphazardly. "If we need it, it will come," isn't a safe philosophy for members of community groups to live by. Many groups will say, "This is really important. Let's do it, and worry about the money later." Later, unfortunately, ends up meaning headaches and frustration, and being in the red.

In this section, we'll look at the basics of planning for the financial sustainability of your organization. We'll discuss what it means, why do it, and how to do it. Finally, we'll close the section with some tips from the field from folks who have been doing this work for a long time.

What is a plan for financial sustainability?

So what do we mean by a plan for financial sustainability? Simply put, such a plan is a tool used to help the organization or initiative - and more importantly, its goals - thrive. And allow it to continue thriving over the long term.

Although it might seem otherwise, a plan for financial sustainability is not just about getting money. Now, part of your plan might well be to raise some dollars. In fact, it probably will be an important part. You may raise money through donations, grants, user fees, or all of the above, to name a few examples.

But that's not the whole story. A financial sustainability plan will also include other types of resources you might obtain, such as in-kind support, volunteer staff, or shared resources from other organizations. It may even include convincing another organization to take on a project you started.

A simple rule to go by: If it helps keep your organization or its work going, and if it's something you would have had to pay for if it hadn't been a donation, then developing it fully will be part of your financial sustainability plan.

Like any other type of plan, a plan for financial sustainability includes objectives, strategies, and action steps to get and keep these resources. All of this should be made very concrete as part of your plan.

For example, a partial list of what your plan will probably include:

• A list of all items and needs of the project
• The amount required to sustain each item
• Current resources
• Required resources
• Potential matching and funding organizations or individuals, and
• Amount that will be requested from each organization, individual or funding source
• How it will be requested (and by whom, and when)

Your plan will also look at all of these things on a long and short term basis. That is, it will help you to consider your finances for six months from now, but it will also ask you to consider where you would like your organization to be in, say, six years.

Before we move on, a last important note here is what your financial sustainability plan is not. It's not the reason you are in business - it's not why you get up in the morning. If you had wanted your focus to be money, you would have gone into banking or something similar.

Planning for financial sustainability, then, is just one part of your overall plan for institutionalization. It lets you concentrate on your real purpose, whether that purpose is helping children live healthier lives or helping adults on their spiritual path. It allows you to "do more mission," in the words of author Peter Brinckerhoff.

So, while it's important to take care of the money, don't allow yourself to get so caught up in it that you forget what you are really trying to do.

Why should you complete a plan for financial sustainability?

One thing a plan for financial sustainability will take, if done right, is time. It's a long process. At least in the short term, it will take quite a bit of effort on the part of project staff. What are the advantages of taking that time and effort when you already feel overwhelmed?

By developing such a plan, your finances should become more secure, which means:

• An increased focus on your real work. You can do more of what you set out to do, because your focus can be on the mission, not just on day-to-day survival.
• Becoming more competitive in your field. For example, more money allows you to hire more and better staff, which, again, allows you to do more to obtain your mission.
• Easier transitions. A plan can assist your organization in successful transition when current funding is depleted or dries up.
• Following guidelines. Sometimes, you don't have a choice. For example, some funders require the development of a plan for financial sustainability as a condition of their grants. By having a plan already developed, you start a step ahead.

When should you develop a plan for financial sustainability?

The short answer is: it's never too early to start planning. If you need money, and you plan to be around for the long haul, you should do this from the start. Planning should take place as soon as the project begins.

Even if your organization has been around for a while and is going strong, it still makes sense to periodically dust off your plan and make sure it is still viable. Such a "check-up" might occur on a yearly basis.

On the other hand, if your organization isn't where you want it to be financially and the organization doesn't appear to be headed in the right direction, it might be time for a complete overhaul.

How do you plan for financial sustainability?

Every organization is unique, and each will have its own way of doing things. Planning for financial sustainability is certainly no different. For most groups, however, a process like the following can be very helpful. Try it on for size, and modify it to fit your own needs.

However, before you get started on your plan, it's important to think about what you really need and want in terms of financial sustainability. Ask yourself, "Because our initial grant was for $100,000, do we need to have another $100,000 for next year?" Think creatively about what you have done and will do. Just because the program ran last year, is it worth doing again next year? Should your organization or group continue to do it, or should you try and get a different agency to take on a program?

Also, think about what taking money or earning money in different ways will say about your organization. Funding in and of itself does not guarantee success or failure - poor groups may flourish, and rich ones may falter. The way funding decisions are carried out, however, can make very different organizations. For example, if your group has a high membership fee, will those who can't afford to pay it find your group elitist? If your group has a lot of money and a beautiful facility, will some of the people you are trying to help feel uncomfortable using your services?

The lesson here? Think broadly about your funding needs from the start. With that in mind, let's look at a step-by-step method for how to develop a financial sustainability plan.

Decide who will develop the plan

If you have developed a financial sustainability committee, as suggested in the previous section, these are the folks to do the work. If you don't have such a committee in place, you might consider forming one, or at least a temporary working group. Board members are often key members of this type of committee. Developing a plan is easier, more enjoyable, and more effective with shared leadership.

Let everyone know what you are doing

Let staff, Board members, and your funders know what's going on. There are two reasons for this. First, they might have some excellent suggestions your working group wouldn't have considered. If so, your plan will be even more effective than it would have otherwise.

Second, it helps build an atmosphere of trust and mutual respect. There aren't unanswered questions, rumors in the office, or feelings of being "left out of the loop." Open communication is a very important part of any organization. Especially where money is concerned, people get antsy. Putting your cards on the table can take care of problems before they occur.

Conduct an internal audit

That is, find out what resources and expenses your organization has right now. You can't decide where you are going if you don't know where you are now. You need to know:

• How much money you currently have
• How much money you expect to have in the coming year, two years, etc.
• Where it is from
• What you do with it - how much money goes to programs, staff, etc.
• How much debt you have

You probably already have this information in your annual budget. If so, now is the time to dust it off. Make sure that all of the information is correct, and that everyone working on your financial sustainability plan understands it. If you have money coming in but haven't taken the time to write out a budget, now is the time to do so. If your project or initiative doesn't yet have any funding, of course, you can simply go on to the next step.

Determine how much money you need

This is really very similar to doing an internal audit, and you will probably use a lot of the same information. The difference is this step really asks you to think about what can be cut from what you are doing; if you absolutely needed to tighten your belt, what could you afford to lose? What would a bare-bones budget look like?

This step breaks down into two parts: listing what you are currently doing that is essential to your mission, and then looking at what each of these things costs, as well as at your general organization costs.

What you are currently doing

Make a list of what your group is doing now that is:

• Essential to your mission
• Something that your organization should be doing

The first of these points is more obvious, although there may be some disagreement as to what is essential to the mission. For example, if your group is trying to reduce teen pregnancy, is an after-school club (to keeps busy during "unsupervised" time between three and six) essential?

Decisions on what is essential will mean different things to different groups - there's not a set formula for making them. Because of this, an idea of what is necessary should be made as a group, with everyone working on the plan giving their input. It should also be clear to members that even if something a group is doing is decided to be "non-essential" to the mission, that doesn't mean it will necessarily be cut. What you are doing is trying to get an absolute base cost for your group's work.

The second of these two points - are these activities your group should be doing - is an important step that's often forgotten by community groups. Some of your activities may be very important to reaching your goals. At the same time, however, maybe they are activities that should really be done by someone else.

For example, if your group is a coalition trying to revitalize the neighborhood you live in, an important part of your project will probably be to develop a job training program to make neighborhood residents more "marketable" to employers. However, should coalition staff itself run such a program? It might make more sense, for example, for the coalition to partner with the local community college or a "jobs for young adults" program who already have a structure for this training, as well as a lot of experience in doing it.

Before you make your list of "essentials," then, be sure you have pared it what really is the minimum. You can always add to what you are doing, as money becomes available, but this list will give you something to start from.

What each of these things costs

Now, figure out how much it costs to continue doing these activities. Consider both programmatic and staff costs as you figure out this base amount. Again, this part will be very similar to your annual budget.

Along with program costs, there are also expenses that are independent of programs you are doing. Costs such as office rental, utilities, and the organization's newsletter are three examples of bills that need to be paid that are not necessarily associated with any one of your programs. Be sure to add these in as well.

Decide how much money you want

This step is the opposite of step four. There, we suggested you figure a bottom dollar amount you could live with. Now, we ask you to go to the opposite extreme, and come up with a top dollar amount you would like to have.

In short, this is where you get to dream. Think about your long-term goals - what do you really want to do? If money weren't a problem, what would you like to see happen?

In this step, you will want to go outside of your planning group to get ideas. Talk with other staff members and clients for their ideas of where they would like the group to go - what they would like to see occur. The group as a whole, or members of the coordinating council, might make initial recommendations on which of these ideas are worth pursuing.

Also, even if your organization didn't add any new work or programs, chances are there are still things you would like to find money for - a copier, a full-time administrative assistant, a computer. Be sure to add these items for the organization to your wish list as well.

Next, make those dreams more concrete. What it will take (in terms of resources) to accomplish these goals? Will you need more staff, and/or better trained staff? A new building? Write down a list of what you would need over what period to make your vision happen. Then, next to each item, write down an estimate of what that would cost. Break the list down into first year costs, second year, etc. You might want to write this down over a five year period of time, or even longer.

Compare the amounts set out in the previous three steps

How far are you from your goals? On an annual basis, how much money will you need in the next five years to reach all of the goals you have set out?

Set objectives

Now, look at the information in front of you and decide how much funding it may make sense to go after at this point.

If your organization already has all of the money it needs (or is very close) this step might be very easy. You might set objectives to earn every dollar that you came up with a use for in your ideal situation.

On the other hand, however, if there is a huge gap between how much money you have and the ideal amount, you may want to make choices, so that all of your time isn't spent doing fundraising. In this case, you might look at which goals it makes most sense for you to pursue right now.

From these choices, you can set specific funding objectives, both short and long term. For example, a short term objective might be increased funding next year for two more positions; more long-term funding goals might include the development of an endowment, or buying (instead of renting) office space.

Consider the available possibilities

Brainstorm available funding possibilities.

What are different ways to obtain resources that make sense to your organization?

• Leveraging shared positions and resources
• Becoming a line item in an existing budget
• Incorporating activities and services in organizations with a similar mission
• Applying for grants
• Using existing personnel resources
• Soliciting in-kind support
• Fundraisers
• Using third-party funding
• Developing a fee-for-service structure
• Acquiring tax revenues
• Securing endowments and giving arrangements
• Establishing membership fees and dues
• Developing a business plan
• Creating a for-profit corporation to help pay for the nonprofit side
• Have programs be "picked up" by other organizations

Another way to look at it: Finding funding from partners

Most of the possibilities listed above are things your organization can do on its own to try and raise money. However, most community groups work with other community agencies to reach common goals. And different groups have different resources available that might be shared. A good bet, then, is to work with other groups in your community to see how things can best get done, and what resources they can obtain for your group.

For example, if you are doing a violence prevention program, the police department may be able to get money your group is not eligible for directly. However, they might share those resources with you to get the job done. The local school district may have money available for substance use prevention programs, and so on.

What possibilities exist in your community?

Decide which funding possibilities you will follow up on

Now, consider which of these possibilities make the most sense for your organization. Questions that might help shape your decision include:

• What will be easiest for us to do?
• What possibilities hold the highest likelihood of success?
• What would we enjoy doing?
• How would any of these funding strategies change what we do?
• What is most in keeping with our mission?

Strategize how to get what you want

Who will you need to work with to implement your funding strategies? What would make them want to help you? What can you do for them?

Sometimes, we'll complain that everyone just wants to know, "What's in it for me?" Those of us working in the nonprofit sector often have the idea that there shouldn't need to be anything in it for them - that donors should simply give from the goodness of their hearts.

When you think about it, though, that attitude might be a little naive. All of us have reasons for the things that we do, or we simply wouldn't do them. Those reasons may be simple - to make us feel better, to avoid negative consequences, or just out of habit. But however simple they might be, those reasons do exist. When planning for financial sustainability, we can't afford to expect potential donors to be any different. Many want recognition; others want to spread their values or interests in the community; other might simply want to feel good about what they are doing.

Find out what potential donors want and how you can give it to them. For example, foundations often say they are most upset to receive applications from people who have clearly not read their guidelines. Knowing this, you can be sure to follow granters' guidelines to the letter.

By knowing what potential donors want, you will have a better idea of know what you will ask for, know how to ask for it, and understand what you can offer in return. See Tool #2 at the end of this section for ideas of what potential donors might want and how your group can give it to them.

Develop a timeline

The timeline should indicate the various actions to be taken, when they should occur, and who should do them.

Develop a draft of your plan

This draft should incorporate all of the information you have compiled so far, including:

• Your current financial situation, including you annual budget
• Your long and short term financial goals
• The broad strategies you will use to carry out those goals
• The timeline with specific actions
• A one page "executive summary" at the beginning of the document summarizing your work
• An executive summary is used for many types of business plans. It serves as a "cheat sheet" for anyone who is reviewing what you have done, and gets the facts out front so people don't get lost in the detail. It should be simple and concise.

Incorporate feedback on your plan

Document in hand, you're ready to get some opinions on what you have done. Key groups to have review the plan include:

• Staff members
• Board members
• Clients
• Key community leaders
• Current funders

Representatives from all of these groups can comment on the plan and make suggestions for improvement. Getting feedback at this point can be very helpful for at least two reasons. First, suggestions may be made that will make you plan stronger than it would have been otherwise. For example, something you have suggested might be impossible, and one of the reviewers might pick that out; or reviewers may have suggestions to build on your ideas.

Also, by allowing those who will be involved in implementing the plan the chance to modify it, it becomes theirs. Generally speaking, people are more willing to work on something that they created or at least believe in.

When asking folks to look at the plan, however, be sure to explain what the numbers mean. Misunderstanding financial information can lead to frustration and anger among people who are looking at it. For example, if a staff member earns $22,000 a year and sees that the annual budget is $500,000, (s)he may become very unhappy with his /her salary is (s)he doesn't understand where the rest of that money goes. Likewise, a program coordinator may be very angry about proposed cuts in her program if she doesn't have a full understanding of why they are necessary. On the flip side of the coin, if your organization carries a lot of debt, members may be led to think you are at the verge of financial collapse, and that they should be dusting off their résumés, even if that isn't the case.

The lesson here? Make sure those who are reading your plan have a full understanding of what it means. After everyone has had the opportunity to comment on the draft, the original working group can incorporate the suggestions as they see fit.

Implement your plan

With the revised plan in front of you, it's time to go do the work that has been decided on!

Monitor and evaluate your progress

When pieces of your plan have been implemented, however, you're still not done. As long as you are still in business, there is evaluation to do, monitoring of your progress, and tweaking or flat out changing things so everything works better.

Remember: planning never stops. It is ongoing, changes with the organization, and will need to be constantly revisited. This is true for all of our work in the nonprofit field. Earning money is no different.

Tips from the field

Financial sustainability is an uphill battle, and the challenge to get to the top can be one of the biggest frustrations we face in our work. Below, we have gathered a list of tips from people who have been through this process.

• It always helps to network, to keep informed about what's going on, and to develop connections with others.
• It helps to have someone in your organization who will take on the task of scouting and tracking those opportunities that might be available to you.
• If you can possibly afford it, you might consider hiring someone to do the work of writing grants for you. This can be worth the expense if your grant-writer is good, and especially if he or she is willing to work at least partly on commission. One next best alternative: find a sympathetic local professional with background both in grant-writing and in your content area to review your proposal for form and content; follow his or her advice.
• You can often find some other like-minded tax-exempt group or organization to make a formal grant application for you, if tax-exemption is needed and you are not tax-exempt yourself. That same group, often called a lead agency, may also manage grant funds received.
• If you do enter a similar arrangement, be sure and work out the relationship beforehand. Everyone's roles and responsibilities should be made very clear, as should what advantages both groups will receive from the arrangement.
• Successful fund-raising also depends upon your being in the right place at the right time, over and above the actual merits of you proposal. And funding deadlines are often short. These are even more reasons to stay connected with possible funding sources, and to have ideas and action plans developed so that you can be ready to move quickly when the right opportunity comes your way.
• Get to know your local politicians (legislators) well enough so that they return your calls, and make sure that they and other politicians understand your issue and its importance.
• Diversify your funding, so you aren't completely dependent on any one form of support.
• Continuity is important. Stick to your mission, keep doing what you're doing. It's helpful to have consistent people, consistently going out doing the same consistent thing. People know what you're all about, and it helps create the local base of support discussed in the last bullet point.

Some of these tips have been adapted from The Spirit of Coalition Building.

In Summary

Developing a plan for financial sustainability, as with any plan, takes a lot of work to be done right. It's intricately linked with the idea of institutionalizing your organization and its programs as a whole. By creating an effective financial plan, members of your organization will be able to do more to make your vision a reality and have your mission accomplished.

What is a plan for financial sustainability?

___A plan for financial sustainability is a tool used to help the organization or initiative and its goals thrive over the long term

What are the advantages of a plan for financial sustainability?

___Financial security

___An increased focus on your real work

___Becoming more competitive in your field

___Easier transitions

___Following guidelines

How should you plan for financial sustainability?

___Develop your plan early and revise it often

___Decide who will develop the plan

___Let everyone know what you are doing

___Conduct an internal audit

___Determine how much money you need

___Decide how much money you want

___Compare how much money you have, need, and want

___Set objectives

___Consider the available possibilities

___Decide which funding possibilities you will follow up on

___Strategize how to get what you want

___Develop a timeline

___Develop a draft of your plan

___Incorporate feedback on your plan

___Implement your plan

___Continuously monitor and evaluate your progress

Example 1: Interview with Tom Wolff

Tom Wolff, former director of AHEC/Community Partners in Amherst, MA, is considered a national expert on community coalitions. Here, he discusses his ideas on how a coalition can be sustainable over the long term.

"Generally, people think about sustainability at the point at which their grant is a year from ending, at best, often three months. And they say, 'What we need now is to replace the 1.2 million, hundred twenty thousand, forty thousand dollars,' - whatever it is their grant was. They say financial sustainability is replacing that money and continuing to do what we're doing. That's the general thinking, and it's erroneous. It really is a status quo way of thinking of sustainability.

"You have to ask yourself, what have we been doing, what is worth maintaining, and how do we maintain that. One of the ways of doing that is by institutionalizing the effort. That is, you do a curriculum on domestic violence prevention and after your first year of doing it, the schools, the YMCA, or the shelter pick it up. They find a way to get a state grant or something but they keep doing it and so you've institutionalized it into some more formal part of the community. This is the most successful way of doing it, 'cause it means it will keep going.

"The second way to be sustainable is you create policy change. They recently did a policy in the courts in Massachusetts that requires all divorcing couples to go through a course on the impact on kids before you divorce. So, if you had been doing a prevention program on trying to limit the negative effects of divorce on children, you get the courts to make this mandate. You've now created a policy that will institutionalize this program.

"The third way to be sustainable is really to turn to the community and to strengthen the community in their capacity to solve the problems. This is the idealistic community development approach. I think it's the hardest and longest term, but I think it's a goal that's worth achieving.

"But generally, when people talk about sustainability, they're not thinking about any of those three. They're thinking about incorporating, getting the cash, and continuing to do what they are doing using the money. All this has a place, but only has it after you've asked yourself some questions about the other three.

"The way you should develop sustainable coalitions is when you get your funding, think about what your goals are, and how you're going to sustain your work.

You think at the beginning of a coalition what is that you're trying to do and how would you sustain the pieces of what you're trying to do over time. You don't think about it just in terms of money."

Example 2: Example internal audit sheet

This is the example of an internal audit for a teen pregnancy prevention project in the Midwest. The group had been awarded a four year grant and had obtained significant commitments from the community for funding over the next five years. This is the audit their group came up with, based on their action plan and expected expenses.

Thanks to Chris Hampton, Jacquie Fisher, and Adrienne Paine-Andrews for their work on the development of this example.

 Internal Audit Sheet

	Year 1	Year 2	Year 3	Year 4	Year 5
Amount of Funding
Funding from Source 1: Foundation Grant	$77,750	$77,750	$77,750	$77,750	grant ends
Funding from Source 2: Health Department	$21,125	$21,000	$20,500	$20,125	$20,000
Funding from Source 3: Community organization	$18,125	$18,000	$18,500	$18,500	$18,500
Funding from Source 4: School District	$15,625	$16,700	$17,950	$17,105	$18,310
Funding from Source 5: Area churches	$4,250	$4,200	$4,500	$4,000	$4,000
Total of funding from all sources	$136,875	$137,650	$139,200	$137,480	$60,810
Amount of expenses
Staff #1: Project Director, 100%	$37,500	$38,000	$38,000	$39,000	$39,500
Staff #2: Administrative Assistant, 50%	$11,250	$11,500	$11,500	$12,000	$12,250
Staff #3: Outreach Coordinator, 75%	$25,000	$25,300	$25,300	$25,900	$26,200
Staff #4: Outreach Coordinator, 75%	$25,000	$25,300	$25,300	$25,900	$26,200
Staff #5:	--	--	--	--	--
Total Personnel Costs:	$98,750	$100,100	$100,100	$102,800	$104,150
Program #1: Graduate Teacher training	$22,875	$22,875	$22,875	$22,875	$22,875
Program #2: Baby Wait a While high school program	--	--	$1,500	$1,500	$1,500
Program #3:	--	--	--
Total Program Costs:	$22,875	$22,875	$24,375	$24,375	$24,375
Travel	$2,500	$2,500	$2,225	$2,225	$2,225
Equipment	$2,000	$1,000	$500	$500	$500
Supplies	$2,000	$2,500	$2500	$2,500	$2,500
Printing	$2,000	$2,000	$2,125	$2,125	$2,125
Media/publicity	$3,000	$3,000	$3,250	$3,250	$3,250
Phone/fax	$1,000	$1,000	$1,125	$1,250	$1,250
Postage	$500	$500	$750	$750	$750
Miscellaneous	$2,250	$2,000	$2,000	$2,000	$2,000
Rent/housing	n/a	n/a	n/a	n/a	n/a
Utilities	n/a	n/a	n/a	n/a	n/a
Amount paid on debt	n/a	n/a	n/a	n/a	n/a
Total of all expenses:	$136,875	$137,475	$138,950	$141,775	$143, 125
Expected deficit or surplus:	0	+ $175	+$250	-$4,295	-$82,315

Example 3: Example Timeline

Nashua Literacy Coalition Timeline for Developing Funding Possibilities 

Goal	Action Steps to Meet Objective	By whom	By when
Renew current grant (current grant ends 6/2014)	Write a new proposal that takes into account the foundation's new emphasis on community collaboration	Jeannie, Marcelo, Robin, with input from area churches, schools, shelters, the library, and Head Start	12/2013
	Edit proposal	Board of Directors	2/2014
Develop a fee-for-service tutoring program for high school students who will be taking standardized tests	Look into the legal consequences of a fee-for-service program	Leslie (a lawyer on the Board)	8/2013
	Decide fee scale, logistics	Rashma, Jeannie	9/2013
	Train literacy tutors for this type of tutoring	Robin	10/2013
	Market program at area schools	Tanisha	11/2013 and continuing
Work with other organizations in town to do some of the literacy work	Meet with heads of area organizations to suggest the idea	Jeannie	10/2013
	Train staff and volunteers of interested groups as tutors for literacy	Robin	11/2013 and continuing
Ask city to pay for base costs as part of annual budget	Meet with council members, discuss possibilities	Jeannie with help from the Board	3/2014

Examplel 4: Executive Summary

Daleton Crisis Assistance Center:

Plan for Financial Sustainability - Executive Summary

Current situation

The Daleton Crisis Assistance Center (DCAC), now in it's twelfth year, currently has an annual budget of $260,000. That amount can be broken down as follows:

• $100,000 comes from the local University
• $50,000 comes from the United Way
• $50,000 from a grant from the Dinkerston Foundation
• $25,000 from a grant from the Cuassa Foundation
• $25,000 (total) from area churches
• $10,000 (approximately) from our annual membership drive

Expenses for the center are as follows:

• $168,750 for staff costs (5 full time staff, 3 part time)
• $24,000 for rent and utilities
• $30,000 office/miscellaneous (e.g., equipment, travel, supplies, publicity, communications )
• $30,000 program costs (Community Crisis Readiness Program, Picking up the Pieces Family Support Program, Daleton Area Community Resources Directory)

For this year, the Center has a slight ($7,250) surplus.

Projected situation

Our situation remains relatively strong, with all of our money expected to continue at the same level for the next two years. However, in January 2001 the Dinkerston grant will end, and the Cuassa grant will end in August 2001. The Cuassa grant is nonrefundable.

Staff has made clear the fact that additional support is necessary, with a particular need for a director of volunteers. The Center also has two goals that will require additional funding: the purchase of a facility, and a fund to offer financial assistance for families or individuals struck by crises.

Recommendations

The recommendations of this report are as follows:

• Set a goal to double the amount raised in the membership drive in the upcoming year, and increase the amount by 15% in each of the subsequent two years. Use this money for a down payment on a facility.
• Consider implementing a sliding scale fee-for-service for the Picking up the Pieces Family Support Program
• Search for additional grants; reapply for the Dinkerston grant following the recommendations of our program officer

Tool 1: Internal audit sheet

Use this sheet to do an internal audit for your organization as described in Step 3 of this section. Depending on the size of your organization, you may need to add additional pages, or further separate some of the categories. On the other hand, many of the costs listed will not be applicable to smaller groups.

To use this sheet, do the following:

1. List the funding you have (or for future years, anticipate having) from each source in the appropriate box.
2. Add up the funding from each source for every year. Write these totals in the box marked Total of funding from all sources.
3. Go to the second half of the table, Amount of expenses. Write in all of your current and anticipated expenses for each year. The cells in grey should be totaled in the white cells above them. For example, the cost of each staff member should be written out individually, and the total of all of the staff costs should be added in Total Personnel Costs. A similar process should take place for Total Program Costs.
4. Add up the expenses for each year. Do NOT include the grey cells in this figure, as they will be added in under the subtotals for personnel and program costs. Write these figures in the Total of all expenses for each year.
5. Subtract the amount in Total of all expenses from the Total of funding from all sources for each year. If you have a positive number, you have a real or projected budget surplus - your organization has extra money, and is in the black. If the number you have found for a given year is negative, you have a real or projected deficit for that year - you are in the red, and will need to find additional resources.
6. Confusing? See Examples for a filled out version of this table.

Internal Audit Sheet

	Year 1	Year 2	Year 3	Year 4	Year 5
Amount of Funding
Funding from Source 1:
Funding from Source 2:
Funding from Source 3:
Funding from Source 4:
Funding from Source 5:
Total from all funding sources:
Amount of expenses
Staff #1(list title and %FTE):
Staff #2:
Staff #3:
Staff #4:
Staff #5:
*Total Personnel Costs:
Program #1:
Program #2:
Program #3:
**Total Program Costs:
Travel
Equipment
Supplies
Printing
Media/publicity
Phone/fax
Postage
Miscellaneous
Rent/housing
Utilities
Amount paid on debt
Total of all expenses:

* For personnel costs, include salary and the cost of fringe benefits. FTE = full time employment
** Remember to take personnel costs out of program costs, as they are listed separately.

Tool 2: What donors want from you

What follows is a list of desires that are typical of many groups of donors, such as government agencies, foundations, and individual donors. By knowing what members want, you will be able to target your marketing to their desires.

All of these suggestions should be taken as a starting point. Just as different nonprofit organizations want very different things, different donors will have their individual desires as well. It's your job to figure out what they are, and how your organization can best fulfill them.

Government agencies (federal, state, city, or county)

• A carefully defined set of services, provided by a carefully defined set of people, in a set period, often in a set manner, with no audit exceptions, and with all paper work in on time.
• Generally, government representatives want you to know regulations cold.
• You should meet all of their regulatory and bureaucratic wants.
• You might also design specific materials (such as reports or brochures) using needs and keywords of government. They should emphasize outcomes, quality, and certification levels.

Members

• Clear, tangible benefits that they actually receive.
• Updates on what the organization is doing.

Foundations

• Innovative projects that meet their criteria
• A demonstration of strong community support
• Self-sustainability within approximately three years
• Usually, they want general information, such as your mission, history, and goals.
• Letters of endorsement from community leaders or collaborators can be helpful

We should note here that foundations are a slightly different case than other potential donors. Many times, they are located across the country, and each may be unique in its desires and goals. Talk to program officers of foundations if you can, and ask what they like to see most and least in applications. Read the foundation press and consider getting help from an experienced, successful grant writer.

United Ways

• Guidelines for funding met precisely.

United Ways are an excellent source of funding for many small community organizations. If your United Way does needs assessments, make sure that you participate so that your service area needs are included.

Donors

• To support a program.
• To support an endowment.
• Some want to be visibly thanked for your contribution; many others don't. Ask.

Donors, both individual and corporate, have wants that vary widely. Organizations should learn who is most likely to donate, and focus energies on these potential donors.

Users who pay fees

• High quality and value for their money. Note that we say value, not low prices. Many people who pay fees won't balk at a high price tag if they feel they are getting a lot out of it. For example, a group of tourists may willingly pay ten or twenty dollars to tour a historical site if they have heard that it is particularly beautiful, or that the guide is exceptionally charming.

While this list gives many of the more common ways for a nonprofit organization to raise money, it isn't meant to be a complete list. Does your group have other potential means of funding? What are they?

From Peter Brinckerhoff's Financial Empowerment: More Money for More Mission. Used with permission.

Tool 3: Timeline

For each financial goal, use a separate cell to write out the action steps that need to occur, who will do them, and by when. This chart can then be used as a reminder for what you still need to do.

Timeline for Financial Sustainability Plan

Goal	Action Steps to meet the objective	By whom	By when	Completed?

Tool 4: Developing a strategic funding plan

Innovation Network, Inc. is a 501(c)(3) nonprofit organization founded in 1993 to meet the critical information and evaluation needs of nonprofit and public organizations. InnoNet's mission is to help agencies better plan, executive and evaluate their structures, organizations, and services. Their web page will walk you through an interactive page to help you develop a strategic funding plan. The service is free, but you will need to register.

• What's the connection between business and community development?

• What's a business plan?

• Why should you make a business plan?

• When should you make a business plan?

• How do you make a business plan?

What's the connection between business and community development?

Although your primary goal is improving the community rather than making a profit, "business" can still be important to your work. Even non-profit organizations need resources to sustain their work, and business operations can be a good way to acquire those necessary resources.

Your business operations usually involve things you sell. Those "things" can be products - actual goods - or they can be services. Below are some examples of each.

Products	Services
Books, or booklets	Child care
Crafts (homemade)	Food delivery (from supermarkets)
Flower seeds, or flowers	Gardening/landscaping, yardwork
Greeting cards	Housing, or space rentals
T-shirts	Recreational programs/camps

But is it ethical for us to sell products and services?

Yes, if it is done honestly, openly, and fairly. What is sold should be of high quality and good value,fairly advertised and delivered as stated.

And selling products and services can be more than ethically permissible. It can be the ethically responsible thing to do if you are selling something that people need, and that will actually help them.

And is it legal?

Yes, in a great number of cases. Here's a key fact:

A nonprofit group can make a profit. Of course, the selling of products and services must comply with local laws and regulations. It's up to you to know what those laws and regulations are where you live.

Does this mean all nonprofit groups should go into business?

No, not necessarily. There are other ways to pay expenses and to ensure your financial sustainability. Among them are grants, fund-raisers, membership dues, and in-kind support. Your decision about going into business should depend upon what funding you need, what you have on hand, what funding options are available to you, and what your prospects for success are in each case.

To plan for your overall financial sustainability requires an overall financial plan, and if business operations are part of what sustains you, then you will also need a business plan.

What is a business plan?

A business plan is a written document that describes in detail what kind of business you intend to operate, how you intend to operate it, and why you believe it will succeed. It is backed with logical, factual and financial documentation.

Why should you have a business plan?

• Setting your thoughts down on paper, and forming a plan, will clarify your own thinking
• Your business plan will raise confidence in your business ventures among members of your own group and among potential outside backers
• A business plan will increase your likelihood of business success

When should you make a business plan?

• When you are seriously thinking about embarking on a particular business venture
• When you need clarity on the details
• When you want expert feedback or advice on the specifics of your ideas
• When you need to attract outside grants, gifts, loans, supplies, other materials or moral support

How should I make a business plan?

We'll cover three main elements:

• What should the plan contain?
• How should the plan be written?
• How should the plan be packaged?

What Should the Plan Contain?

Successful business plans vary in format, but all contain some basic components. Don't hesitate to adapt them to your own situation, but try to stay fairly close to the mark.

Cover page

This should include a title, your organization name, and accessible contact information (phone/fax/e-mail). The title should reflect the nature of your plan, and it should be phrased for maximum appeal to your intended audience. You want to capture audience attention and interest right from the beginning.

Table of contents

List each section of your plan, with appropriate page numbers.Tabs attached to the first page of each section can make it easier for the reader to find a specific section. This table should be a maximum of one page.

Executive summary

This summary is usually the most important section of your plan. It should not be more than two pages long, and normally should be written last. Your executive summary will be a condensed version of your entire business plan. A reader of the executive summary should be able to understand what your business purpose is, what your plan contains, what your organization wants, and why it wants it.

If your executive summary is effectively written, it will:

• Communicate your organization's vision of the future
• Establish your organization's credibility
• Describe your product or service, and how it will be sold
• Explain and document the need for your product or service
• Inform the reader of key steps you plan to take
• Make the reader want to read the entire plan
• If money is being asked for: Request an appropriate amount of money, and present a defensible case for such a request

Description of your organization Or, in other words, "Who are you?" This should include:

• What your organization does
• Where it is located
• How long it has been in operation
• Its goals and objectives
• What it has accomplished
• What financial support (if any) it receives at the moment
• What specific background it has in selling products or services
• What is distinctive about your organization that sets it apart from everybody else

Description of your management

If you are looking for outside support, this will be a vital element of your plan, because potential supporters will be investing in your organization's management and its ability to perform. Briefly describe your key officers and staff, including their qualifications relevant to this plan. If you have a board of directors, advisory board, or other professional or technical advisors, they can be listed here too.

This section of your plan, together with the previous one describing your organization, is the equivalent of your organizational resume. It should convince potential supporters that the current leadership can carry out the plan.

Description of your product or service

Here's where you describe the product or service you want to sell. What exactly is it? What are the "product specifications?" Give the details, but don't overload the reader with technical jargon.

Try to present some clear examples. If it's a physical product, try to include photographs, drawings, or brochures. If there are any special permits or licenses that you need, or regulations you must comply with, cite these too.

Point out any particular beneficial features your product might have. And if you can document previous customer support, provide endorsements, or cite experts who recommend its use, such testimonials should certainly be included.

Information about your market

Your reader will want to know what your market is, what research you have done to determine that market, and how you plan to reach that market.

This will frequently be your most detailed section, because it spells out precisely how you intend to carry out your business plan. So let's take the above points in order:

• Your market means who your customers are. How many potential customers are there? Are they likely to grow in number; if so, why? What distinguishing characteristics do they have, demographic or otherwise? Where are they located? Your plan should answer these questions concretely. What you want to show here is that there are enough customers for your product or service to justify the sales levels you are projecting. (Those sales levels will be detailed later, but can be previewed here.) If there is a particular part of the market you want to capture, say so.
• Your market research means documenting why you believe your potential customers will become actual buyers. Here you need evidence. For example, what do you really know about the habits of your market? Have you gathered data on sales off similar products? Have you observed consumers, or done a survey, or conducted interviews? And have you tested out some prototype designs, and measured consumer reaction? This is the type of evidence we mean.
• Your market plan means how you plan to reach your intended market. How can customers find your product or service? Where will it be sold - in stores (which ones?); by advertisements (where? when? how often?); at special events; by mail; by local or toll-free phone line; over the Internet; or through some combination of the above? Will there be discounts, contests, free samples, or tie-ins with other local happenings? Are there contingency plans, in case one marketing strategy fails?

Information about your competition

It's rare that a totally new product or service comes onto the scene; often, your product or service has been sold before, and there may even be others nearby who are selling it now.

Your plan should profile these competitors, briefly describing what they provide. Then, if you can, you should give reasons why your product or service is superior to your competition's. If you can't justifiably claim superiority, then at minimum you should document that there is enough customer demand for a new competitor on the scene - that is, you.

Details of your operating plan

Somewhere along the line, your product will have to be manufactured or acquired; if it's a service, someone will need to provide it. Your operating plan describes just how this will be done.

An operating plan should answer the following questions:

• What is the production process?
• Who produces it, and where?
• How many employees are needed?
• Is production occurring right now, or are matters simply in the "research and development" stage?
• Is production machinery involved?
• Is there a specific production location?
• How will production be scheduled? (If you acquire the product from somewhere else - coffee mugs, for example - who are your suppliers, and what are the precise supply arrangements?)
• What about outside production regulations?
• What about labor and maintenance considerations?
• How will items get to the customers?
• What about quality control?
• What contingencies exist in case things go wrong?
• How will customer satisfaction be assessed and assured?
• Is there a flow chart that summarizes and diagrams your operational steps?

If you can't answer all of these questions right away, it will stimulate you to think about the questions, and come up with your best responses.

Financial information

This is where you present the actual financial information to show how you will make a profit selling your product or service.

The specifics here include:

• Historical data from selling the product or service (if such data exist)
• Projections of how much income you will take in from selling your product or service; this is done for several different points of time in the future
• Projected sales costs, broken down by category, and covering the same multiple points in time as your income projections. (Your total projected income minus total projected costs will yield your projected profits for each time point.)
• Financial assumptions which underlie and justify your projections
• Cash on hand, and other assets available
• Additional cash needed, if any, to put the business into operation at your desired level

If you are seeking a loan, this last item of course requires special attention. You need to demonstrate precisely what the loaned funds will be used for, justify your ability to repay them, and suggest and how and when they will be repaid.

There are two common forms used in presenting financial information, which respond to the points above. These are a Balance Sheet and an Income Forecast, and blank samples of each are provided under Tools.

Timelines

You should have a timeline or chart that specifies each action step in your plan and when it will be completed.Creating a timeline is an excellent planning discipline and can be persuasive to potential supporters.

Appendices

Lastly, you may have other supporting information to present which strengthens your business plan, but which does not fit easily into the main text. Such information can be placed in an appendix to your plan. Examples here could include more specifics of management qualifications, letters of endorsement, or details of your market research. What other information might apply to your own situation?

These are your basic business plan ingredients. Now let's move on to how the plan should be written, and then presented.

How should the plan be written?

Your plan should be written simply, clearly, persuasively, honestly, and to the point.

Adapted from "Guide to Writing a Business Plan" here are some of the most common writing mistakes:

• The writing is unclear. It's difficult to understand.
• The plan is too long. The writer does not get to the point, support it with facts, and move on.
• The layout is poor, and/or illogical. Illustrations, product descriptions, and graphs are missing.
• An executive summary is omitted.
• There is too much technical jargon. The writer does not clearly demonstrate what the benefits are and why someone would want to use the product or service
• There is insufficient detail on the qualifications of the proposers to implement the plan.
• The market is not defined. And/or: Market research is not cited. And/or: A marketing plan is missing.
• No mention, or sketchy mention, is made of the market competition.
• The financial information given is not straightforward.
• The reader is given no compelling reason to invest in the plan, or to otherwise support it.

Remember these pitfalls before putting your plan onto paper!

How should the plan be packaged?

Your reader will see your plan before reading it, and will form an impression without having scanned a single page.

Make sure your plan looks professional. To be specific:

• It should be printed on high-quality paper, by a high-quality printer.
• As a guideline, its overall length should be about 20 pages, plus-or-minus ten. (Sometimes a shortened version of the plan can be created for other promotional purposes.)
• Color printing, when thoughtfully employed, can give you an edge; so can tasteful presentation graphics.
• The completed plan should be bound according to the standards of your readers. Seek the advice of your local print shop - or get hold of some comparable finished plans.
• Have several people read over the plan before it is printed to make sure it's totally error-free.

To enhance your persuasive content and your clear writing, your plan should have an attractive and professional appearance, without being unnecessarily flashy.

What is a business plan?

___A business plan is a written document that describes in detail what kind of business you intend to operate, how you intend to operate it, and why you believe you will succeed

___You understand that it is legal for a nonprofit group to make a profit

___You understand there are other ways to ensure your financial sustainability

Why should you have a business plan?

___To clarify your own thinking

___To raise confidence among group members

___To raise confidence among potential outside backers

When should you make a business plan?

___When you are seriously thinking about embarking on a business venture

___When you need clarity on the business details

___When you want expert feedback or advice on the specifics of your ideas

___When you need to attract outside help

How do you make a business plan?

___Include the following in your business plan:

• A cover page
• A table of contents
• An executive summary
• A description of your organization
• A description of your management
• A description of your product or service
• Information about your market
• Information about your competition
• Details of your operating plan
• Financial information
• Timelines
• Appendices

___Write the plan simply, clearly, honestly, and to the point

___Avoid common pitfalls such as:

• The writing is unclear
• The plan is too long
• The layout is poor and/or illogical
• An executive summary is omitted
• There is too much technical jargon
• There is insufficient detail
• The market is not defined, or a marketing plan is missing
• No mention or sketchy mention is made of the competition
• The financial information given is not straightforward
• The reader is given no compelling reason to invest in the plan

___Package the plan professionally by ensuring that it is:

• Printed it on high-quality paper
• Approximately 20 pages
• Printed in color with tasteful graphics
• Bound according to the standards of your readers
• Totally error-free

Tool 1: Sample Balance Sheet

If you have a real business idea in mind, try filling out this form (possibly with some small adaptations) for your proposed product or service. What conclusions do you draw?

	Current Year	Forecasted periods
Assets	$	$
Current Assets
Cash (Note)
Inventory (Note)
Prepaid Expenses
Total current assets
Property equipment (Note)
Equipment
Office furniture and fixtures
Leasehold improvements
Less - accumulated depreciation and amortization
Other assets:
Organization costs, net of accumulated amortization (Note)
Liabilities and stockholders' equity
Current liabilities
Current portion of long-term obligations
Accounts payable (Note)
Accrued expenses
Federal and state income taxes payable
Total current liabilities
Long term obligations (Note)
Stockholders' equity
Common stock, no par value
Authorized - shares
Issued and outstanding - shares
Retained earnings (accumulated deficit)

A business plan should include at a minimum the current year's financial results and a forecasted financial statement which includes significant forecast assumptions. The forecasted financial statements should be presented for a minimum of three years with five years preferred. The forecast should be presented monthly for year one, quarterly or monthly for year two, and annually for all subsequent forecasted periods.

Practical note: Total liabilities and stockholders' equity should equal total assets.

Tool 2: Sample forecasted statements of income and retained earnings

	Current Year	Forecasted periods
Revenue (Note)	$	$
Cost of sales (Note)
Salaries and wages
Payroll taxes and fringe benefits
Product costs
Rent expense
Equipment lease
Utilities
Depreciation and amortization
Total operating expenses
Gross margin (deficit)
Selling, general, and administrative expenses (Note):
Advertising
Administrative
Salaries and wages
Payroll taxes and fringe benefits
Commissions
Insurance
Depreciation and amortization
Total selling, general, and administrative
Income from operations
Other (income) expenses
Interest expense
Interest income
Total other (income) expense
Income before provision for income taxes
Provision for income taxes (Note):
Current federal and state income taxes
Net income (loss)
Retained earnings, beginning of period
Retained earnings, end of period

Practical note: Ending retained earning should agree with the ending retained earnings number on the balance sheet.

• What is a financial sustainability committee?

• Why should you develop a financial sustainability committee?

• When should you develop a financial sustainability committee?

• When shouldn't you develop a financial sustainability committee?

• How do you develop a financial sustainability committee?

• Maintaining a financial sustainability committee

Most of us, in our personal lives, have experienced the headache of trying to pay our bills when the checkbook is dry, or making that small paycheck go a long way. We wonder how we will pay for Kim's braces and a new transmission; and we try to decide if we should cash in a CD or just eat spaghetti all month.

Financial difficulties, unfortunately, are often part of our organizational lives as well. If your group is like many community organizations, finding the money to reach your goals is a constant struggle. Do we cut staff or programs? What will we do when the grant ends? Where else can we get support?

Fortunately, at work, at least, you don't have to be alone dealing with your financial woes. Others are there who can take care of the money, so that other members of the organization can breathe easier and focus on the work they were hired to do, such as increase immunizations, fight the death penalty, or clean the environment. The people who can help manage your finances may be on the Board of Directors, hired grant writers, or - our suggestion - members of your financial sustainability committee.

What is a financial sustainability committee?

What do we mean by a financial sustainability committee? In simplest terms, it is a group that helps you raise money or obtain goods for your project. Generally, such a group is made up of people in your community that have, or can get money or goods. People who have experience dealing with legal or financial issues, such as lawyers and accountants, may also be members. That's because they can help you with the many legal issues that can affect you financially, such as becoming tax exempt.

"Wait a second," you might think, "these people are already represented on our Board of Directors." If so, fantastic - you probably don't need to form another committee. Or the financial sustainability committee you create might be a subgroup of the Board. These possibilities are especially likely for smaller organizations.

Why should you develop a financial sustainability committee?

Although for some organizations such a committee may be unnecessary, for many organizations, it can be a very good idea.

A financial sustainability committee can:

• Help get resources to help your organization survive - and thrive
• Ease the transition from one source of funding to another, such as at the end of a grant period
• Help find money or goods from many different sources - a financial committee that has members with many connections will help lead to a diverse funding base for your organization, which is one of the most effective ways to ensure sustainability.
• Meet some funders' requirements - sometimes, the existence of a committee for financial sustainability is a requirement for receiving a grant.
• Allow members of your group to focus their time and energy on the jobs they were hired for. Too often, members of organization spend so much time trying to find resources for the organization they are unable to spend time doing what they were hired to do. A community mobilizer may spend all of his time mobilizing the community around the need for money to keep the organization going, instead of the real issue of child hunger. for example. By having a committee of experts taking care of the finances, you allow the mobilizer to do what he knows best, not something he (potentially) knows little about.

When should you develop a financial sustainability committee?

So, when is the right time to develop a financial sustainability committee? Ideally, the committee should be formed during the first year of your project.

Remember: It's never too early to start thinking about sustainability. Many groups start thinking about it when their grant is almost out - and find themselves out of luck as well.

For established groups, other good times to form a financial sustainability committee include:

• When future funding is uncertain for your organization
• When your group does not have all the resources it needs to carry out desired activities

When shouldn't you develop a financial sustainability committee?

Despite all of the advantages, there are times when forming such a committee isn't necessarily a good idea, times when your "person power" can be better used elsewhere, such as:

• When your organization has a guaranteed, continuous influx of resources
• When the resources coming in to your organization cover all desired goals
• When your organization was developed as a short-term organization, and has no plans to remain active in the future
• When members of the Board of Directors are already doing the work that would be done by a financial sustainability committee

How do you develop a financial sustainability committee?

So, if you have decided that now is the time - that you're going to create a financial sustainability committee - how do you do it? The following steps will take you through the process.

Brainstorm possible committee members

First, think about the people in your community who might be helpful:

• Who has access to resources, or knows how to get that access?

For example, bankers, lawyers, the Chamber of Commerce, and business owners probably know how to get money in your community. You may already have people representing these groups on your Board or staff, or as members of your coalition. If not, who among these groups might be interested in your project and think your goals are important? Write down a list of the possibilities.

• Who knows about the laws that might affect you? Are there lawyers, judges, accountants, or elected officials in your community you believe might be sympathetic to your cause? Write them down!
• What parts of the community are not represented on your list? Your committee should be made up of people from different agencies or organizations, such as businesses, health organizations, and the local United Way. Having a diverse membership on your committee will help you ensure that your organization gathers resources from the widest variety of sources possible.

Determine how large you would like the committee to be

Is there an approximate size that might be ideal for your group? There is no absolute "right" size; for some groups, a committee of five will work well; other groups may have 20 members. A lot will depend on the size, purpose, and goals of your organization. It will also depend on who the members of your committee are, and what they resources they can bring (if you have one person you know will raise a million dollars a year, then there's your committee!).

Recruit members

Think about who among your staff, family, or friends knows the people on your list. Ask them to invite the people on your list to be part of your committee. Using personal or professional connections is one of the best ways to involve people.

If there are people in town who you would like to be on the committee with whom you don't have any connections, don't give up! You can still ask for help - after all, you have nothing to lose! The request should be made by the organization director or by a member of your organization who is powerful in the community. For example, if a state representative serves on your Board of Directors, don't hesitate to ask her to make the request.

If, while brainstorming, you have come up with many more potential members than necessary (and you should - some people will always decline your invitation), you might consider asking people in tiers. That is, ask the people you want most first, then others. Let people know that you are interested in their ideas, and that this does not have to take a lot of time.

Set a date for the first meeting

Let people know where and when the meeting will take place with a postcard or phone call. If more than a week or two passes before the meeting takes place, you might send out a reminder!

Take care of the logistics for the first meeting

Make sure the room where you will be meeting is open (don't forget the key!), accessible, and has the equipment you need, such as a projector.

Consider the tone the meeting will set. Remember, you will be asking these people to go raise money for you - that's a pretty large request. How do you want to handle these relationships?

One example is a director of a teen pregnancy prevention project in the Midwest, who opted to treat the members of her financial sustainability committee more as friends than as business associates. Their meetings were held as luncheons, and although business was discussed and material was presented professionally, she made an effort to keep the luncheons casual, friendly, and enjoyable. The result? The group worked well and productively together, opening doors and obtaining resources the project never could have gotten otherwise. It's always a good idea to have a plan for how the first meeting, and the committee interactions overall, will be conducted, because everyone else will be taking their cues from you!

Additionally, you'll probably want to have the following materials ready to give committee members:

• General organizational information (e.g., the group's history and membership information)
• Your goals and successes
• Why the project should be maintained
• Your operating budget
• A list of current and former funders and donations with contact persons, phone numbers and addresses
• Other information you find relevant
• Any marketing materials you have created, such as posters or brochures. This is important because it lets committee members know what materials they have to work with right now.

These materials help people on your committee know what your project is about, what you have done, why it is important, and what your needs are. They can use this information when getting money and in-kind donations for your organization. You might even want to have all of these materials together in a folder that your committee members can take with them and refer to on an as-needed basis. If you have more than five pages, consider color-coding the sheets for easy access.

For example, financial information might go on green paper, general organization information on blue, and marketing on yellow.

Hold the first meeting

You may want to have the following items on the agenda:

• Introductions of committee members and project staff
• A description of the project
• A description of the project's needs
• An explanation of what you would like members to do, which might mean:
  • Asking everyone to think about the types of resources available in the community and how they can be used
  • Asking everyone to think about different ways of getting money and in-kind donations from different parts of the community
  • Putting all the ideas into a plan and decide who will do what by when
• A discussion of how often and when the committee will meet. The committee should meet regularly, but not so often that the time commitment becomes overwhelming. Many such groups will meet every other month.
• A discussion of training for those who will be asking for resources, if any such training has been planned. Although members of the committee are usually chosen for their expertise in such matters, this is often not the case for staff members who might also be active in obtaining resources. If your staff will be given specific training on how to approach donors, let members of the committee know about it. This can serve to reinforce the methods you would encourage them to use, as well as to help keep communication clear throughout the group.
• Task assignment. Give each person something to do before the next meeting! It's very important to maintain momentum at this point, and to be sure that members don't go home and forget what was discussed. The best way to do this is to give them something tangible to do to keep them focused.

For example, you might ask each of them to call or speak with three potential donors before the next meeting.

Congratulate yourself for completing the first meeting!

You've accomplished a lot of good work already. Now, it's time for follow through. Begin to carry out any actions the committee has planned.

Continue holding regular meetings

At each meeting:

• Discuss each member's successes and challenges getting money or goods for the project or organization
• Distribute a list of all the contributions you get, including goods such as equipment or supplies
• Continue to discuss other things the project needs and ways to get them

Maintaining a financial sustainability committee

Keeping the energy up after things get going can be hard to do, but these tips can help:

• Hold meetings on a regular basis, such as every other month. This helps keep everyone on track and updated about the project. Also, remind members of upcoming meeting dates. One coalition coordinator we know sends out the next meeting time with the minutes from the last meeting. She then sends a Day-Glo postcard as a reminder a week before the meeting. Then, she follows up again with a phone call from her administrative assistant the day before! Although she doesn't really enjoy having to constantly remind members, she's found that this is what works best for her organization.
• Ask members to talk about what they have done for the project during committee meetings. This helps make sure that they will do something before the meeting so they have something to talk about. You might want to hand out a donor request form such as the one found in Tools, so members will have all of the important information in front of themselves at meetings.
• Thank members when they help get money or goods for the project, and thank them for their effort when things don't pan out. It's human nature to want to feel valued - always let your volunteers know you appreciate what they are doing. Remember, too, to thank people publicly, not just in private.
• Send a thank you note to the people who give the project money or goods. This will help encourage them to give even more, and make your financial committee that much more effective.

In Summary

Many of us are hesitant to form yet another committee and ask community or organization members for more of their time. It's particularly difficult for many of us to ask for money or help in getting it. Always remember, though, that you're not asking for you, you're asking on behalf of a cause you believe in. By forming a financial sustainability committee, you develop a group of professionals who believe in your group and who can save you a lot of time and energy by handling the monetary challenges. And by working carefully with these experts, your organization could continue working for a long time to come.

___You understand that a financial sustainability committee is a group that helps you raise money or obtain goods for your project

___You understand the advantages of developing such a committee

___You realize it is never too early to start thinking about sustainability

___You understand when you should and shouldn't develop a financial sustainability committee

___You have brainstormed possible committee members

___You have decided how large you would like the committee to be

___You have recruited members

___You have set a date for the first meeting

___You have taken care of the logistics for the first meeting

___You have held the first meeting

___You have congratulated yourself!

___You are continuing to hold regular meetings

___You understand how to maintain a financial sustainability committee

Example: Timeline for Staff and Financial Sustainability Committee

This is an example of a timeline for the formation of a financial sustainability committee. The Tools part of the section has a blank form you can download and use for your own organization.

By February 1, 2014, project staff will identify individuals who will serve on the Financial Sustainability Committee.

By April 1, 2014, the Director will recruit members for the committee and schedule the first meeting.

By the first meeting of the Financial Sustainability Committee, the administrative assistant will locate or develop materials that will be used to facilitate the meeting.

By June 1, 2014, the Director will hold the first meeting of the committee.

By September 1, 2014, members of the committee will have identified organizations/individuals to approach and determined the amount that will be requested of each. The committee will begin to contact these organizations/individuals.

By December 1, 2014, committee members will have contacted all organizations and individuals identified as potential contributors.

Tool 1: Timeline Form

You can use the following form to record the growth and accomplishments of your own Financial Sustainability Committee.

Timeline Form

By _____________, project staff will identify individuals who should serve on the Financial Sustainability Committee.	Potential committee members:
By _____________, the Director will recruit members for the committee and schedule the first meeting.	Final list of committee members:
By the first meeting of the Financial Sustainability Committee, the administrative assistant will locate or develop materials that will be used to facilitate the meeting.	What materials need to be located or developed?   By when:__________________ Check when done:__________
By _________________, the Director will hold the first meeting of the committee.	Reminders sent out (Y/N)?_____ When? ___________
By _______________, members of the committee will have identified organizations /individuals to approach and determined the amount that will be requested of each. The committee will begin to contact these organizations/individuals.
By ________________, committee members will have contacted all organizations and individuals identified as potential contributors	Potential contributors contacted? Y/N ____ When:____________________________
Once potential contributors have been contacted, the financial coordinator will develop a forecasting budget reflecting the areas in which resources have been obtained.	Date completed:_______________

Tool 2: Donor Request Form 

Copies of this form can be given to members of the Financial Sustainability Committee to keep track of donations requested. One member of the group may want to group the information from all of these sheets into one large master document. Such a document can be used to help track requested donations and responses over the life of the organization.

Donor Request Form

Donor (Name, phone #, etc.)	Requested donation (Amount/Type)	Date Requested	Response	Thank-you note sent (Yes/No)	Comments and Follow-up

 

• Do you really want to apply for a grant?

• What are grants?

• Why should you apply for grants?

• When should you apply for grants?

• How should you apply for grants?

Do you really want to apply for a grant?

Grants are wonderful, most of us think -- and much of the time they really are. People give you money to do just what you want to do, maybe what you've always longed to do. How many times does that happen in life?

But most of the time, grants aren't easy to get. First, you have to find the right grant source. Secondly, you have to write the grant proposal. Both take time and energy, often intense labor; and your labors are not always rewarded, because grants are competitive. This isn't surprising; many others want grants for the same reasons you do.

Now, the good news: grant-writing is learnable. You can learn how to do it, and to do it well. Two main sets of skills are involved. One is writing the grant itself – and there are many excellent resources that will lead you through the process, step-by-step, with plenty of details, some of which are included in the Resources for this section.

The other skill area involves activities that accompany the actual grant-writing. Many of these deal with preparation. Some others parallel the writing itself. All of them fall under the heading of "general approach"; and while this heading is loose, its contents are vital.

With the right approach, you can:

• See how your grant-writing plans fit with your organizational goals
• Get in the right frame of mind before writing
• Appreciate the role of social and political factors (over and above proposal content) in the grant review process
• Increase your overall rate of proposal-writing success

What are grants?

For our purposes, grants mean dollar awards to your group or organization to carry out a community project you have proposed. In real life, grant awards are sometimes given in resources other than cash (e.g., travel expenses, time off the job). And occasionally, especially for research, grants are made to individuals as well as groups.

But our emphasis here will be on cash awards to groups for community projects.

Why should you apply for grants?

In a sentence: grants enable you to do work you might never do otherwise. Community projects take time. Unless you are wealthy, you cannot pay staff salaries -- or your own salary -- from your own pocket. And few of us are able to buy expensive equipment, or cover a year's worth of office expenses, without outside help. So in many situations, grants are desirable; in some, they are essential.

Many situations, but not all:

• There are times when you can do excellent community work with very little money, or no money at all. Organizing a meeting, holding a social event, getting local policies changed -- these and similar community actions are either cost-free, or come with very modest price tags.
• There are also times when money can become an actual drawback. Someone has to figure out how to spend it, make the payments, keep the records, and be accountable for it. Also, when you have money, your own members may compete for it; the all-volunteer, let's-everyone-pitch-in spirit of the project may be impeded.

And although grants are an excellent way to generate money, they are not the only one. They might belong in your financial planning, but your financial plan should also include other sources of income. A grant might be your guest of honor; but don't you want others to come to your party?

When should you apply for grants?

• When you want to start a new project, or expand an existing project, and financial costs are involved
• When these costs cannot be covered in your current budget
• When you know of a granting agency that makes awards to pay for the types of costs you envision
• When you know that you meet the eligibility standards for such awards
• When you are able to commit the needed time and energy to the grant-writing process

What about writing a grant proposal because the money is available?

These situations happen all the time. Here's an example:

• Suppose your group provides after-school programs for kids. You are looking for more after-school money. A local foundation funds community groups like yours, but its main interest is the elderly. To increase your award chances, you could design a program where senior citizens become involved in your after-school programs. Should you do it?
• In general: "No", if it means twisting your program priorities; and "certainly not", if you're not interested in senior citizens. "Maybe," if the intergenerational program meets your organization's needs, and if it's really a good idea you just never thought of. In other words, you want to find a balance between staying true to your mission, yet not neglecting opportunities that come your way.

It's not always an easy choice, so consider carefully whether the benefits of extra funding from this grant will outweigh any drawbacks from requirements attached to the funding.

How should you apply for grants?

Be clear about your reasons for applying

Before you begin, take a step back, and look at the larger picture. Why are you thinking about applying for a grant?

Ask yourself these questions, and check your answers:

• What are my true long-term program goals here?
• Can I do the same work as well, or almost as well, without grant money?
• What will I actually use the dollars for?
• Am I planning to apply simply because grant funds are potentially available?
• Is a grant the only way (or the best way) to do what I want to do?
• Are there other (and perhaps better) ways of getting the money I need?
• Am I clear on my realistic chances of success?
• Am I prepared to put in the work to produce a top-quality grant proposal?

If you are part of a group, a group discussion and decision should be involved here. Your group's careful and honest answers to these questions will help shape your next steps, which might or might not involve grant-writing.

Know the types of support available

We have already listed some other options to consider for your financial plan, and you can probably brainstorm several additional ideas on your own. So before you pursue a grant, make sure you know the other options available to you.

Focus on the type of support you want

After consideration, perhaps your thinking about funding will change, or you'll decide to support your work some other way. But perhaps you'll decide that you want to write a grant proposal after all. Good! Now you can move more confidently into the next preparation stage.

Search the field

There are three main sources for grant funding:

• The government - often federal, sometimes state, and occasionally local
• Private businesses and corporations
• Foundations, which distribute many millions of dollars per year to community groups and organizations similar to yours

Proposal-writing details are somewhat different from source to source. Government grants in particular tend to require more paperwork and more filling out of pre-established application forms. There are also special techniques and procedures for securing government grants (and also government contracts), the details of which can be found with the application materials.

Our emphasis will be on foundation grants, for two reasons. First, because foundations are where grassroots groups interested in grants are often most likely to turn. And second, because the principles of grant-writing for foundations generally apply to other grant sources as well.

But there are many thousands of foundations. How can you find the ones most suitable for you? It usually takes research. But there are many good resources to make your search easier.

Here's a list to help you get started:

• One standard print source is the Foundation Directory, available in most hometown libraries. This gives good capsule descriptions of the grant-writing activities of the great majority of U.S. foundations, arranged by state, with cross-references by type.
• Your reference librarian may also point you to smaller directories for your state, and/or to more specialized directories for your particular field. But if your reference librarian comes up short, ask some knowledgeable colleagues about where to start looking; then follow their leads. (Many major metropolitan areas also have regional foundation libraries open to the public; check to see if there is one in your area.)
• The Chronicle of Philanthropy, a biweekly newspaper, is the best single source for staying up to date on foundation activities nationally, especially for activities of larger foundations. Each issue lists grants made by many larger foundations, and upcoming application deadlines; the Chronicle also includes general articles on grant -writing and fund-raising which provide excellent background.
• And of course, the Internet has made the search process much easier in recent years. Most foundations now have all of the details and application materials for their grants available from their websites. It's a good idea to start with some of the fundamental resources such as the Foundation Directory to help point you in the right direction, and then you can expand and enhance your search online.

Narrow the field

Your research might turn up dozens of foundations that could potentially support your cause. That's good - but you are probably not going to apply to all of them. It's time to narrow the field further through some additional research.

• Check the fields in which grants are offered. Are you sure the foundation makes grants in your particular area?
• Check the purpose of grants offered. You may want start-up, or "seed" money. But some foundations emphasize other types of grants, such as those for ongoing support.
• Check the size of grants offered. You may be looking for $25,000, but the maximum award size of a promising foundation might be $10,000. (It's possible, though, to apply to more than one foundation at a time.)
• Check the locations where grants are offered. Are you sure the foundation covers your geographic area? Some have geographic preferences, as well as restrictions; and other things being equal, you are often better off applying to a foundation close to home.

Through this checking and rechecking, you can narrow the field to a smaller number of leading candidates. It's a gradual process -- much like looking for work, or applying to school. But being methodical here will pay off; and now you are ready to do some further investigation of your leading prospects.

Investigate your leading prospects

Before you even consider applying to a foundation or granting agency, learn as much as you can about it. If you were applying for a job you really wanted, wouldn't you want to find out as much as you could about your potential employer? Here, you are making a different type of application, but the same reasoning applies.

How can you find out? The simplest way is to call the foundation itself, and ask for information. Almost all foundations which accept public applications will send you basic application guidelines. If the foundation has a separate application form, that will be included as well. Many foundations will also include an Annual Report and/or Grants List, which will tell you more about the foundation's goals and organization, whom it has made recent grants to, and in what amounts.

Doing your homework can save you a lot of time and trouble in the long run. Your group's issue may be neighborhood safety, and you may have had the Safe Homes Foundation in mind as your number one prospect; but on making an inquiry you find out that Safe Homes funds only projects related to endangered species. It's better to learn such things sooner than later, so that time isn't wasted on both sides.

In researching a foundation, start with its website. Most foundations post information about what they fund, how best to contact them, grant guidelines, and how to apply – often including application forms if they use them – on their websites. Many expect, and some specifically ask for, electronic application. Like many other things, applying for a grant has changed with the growth of the web

Know the guidelines (they can vary)

Each foundation and granting agency does business in a slightly different way. This is perfectly justifiable - it's their money. So the guidelines often vary.

Some foundations will ask for a short one- or two-page letter describing your proposal, and nothing else to begin with. (The foundation will read these letters, screen out inappropriate inquiries, and request more information if it wants to know more.) Others prefer to get the whole application up front. Some first want to know your credentials; others are primarily interested in your ideas. Some want detailed budgets; for others, money talk comes later.

The guidelines will tell you what the rules are 99% of the time.

Follow the guidelines

Now that you know what the guidelines are, follow them.

If the foundation asks for an initial two-page letter, don't send 20. If they want proof of your tax-exempt status, be sure to include it. If their application deadline is June 1, don't wait till summer. If your case is an exception, this should be described in your application, most commonly in your cover letter. But don't handicap yourself at the start; why shoot yourself in the foot before you've started walking down the road?

Guidelines can sometimes be stretched, and very occasionally broken. But if you choose not to follow the foundation's guidelines, you should have very compelling reasons for doing so, and make sure they are well explained.

Ask questions, if needed (but think before asking)

Even though foundation guidelines are usually clear, you may still have a question. Some point may not be covered by the guidelines, or you may not be sure about a point. In those cases, it's perfectly okay to call and ask. Most foundations will have someone on staff to respond to calls like yours. And most foundations expect to receive such calls.

Think before calling, though. A call (or other contact) generally means you will need to identify yourself. Since first impressions count, you want to present yourself in the best possible light. So be sure you don't ask questions that are covered and italicized in the guidelines, Page One.

However, if you have a good reason do so, there are advantages to making a personal contact. First, the foundation staff person may also volunteer some information not explicitly in the guidelines, which can help you. Also, in the course of conversation, you can ask other questions or check on other guidelines to make sure you are on the right track. This leads us right into the next point:

Consider a meeting with the funding source

Sometimes, it's also possible to set up a meeting with a foundation staff person to explore your idea before a proposal is written or delivered. Suppose that your issue is adult education, and that the Lifelong Learning Foundation seems to be right up your alley. But you're not sure whether your particular approach is something that Lifelong Learning would seriously consider. So you call and ask if you might visit to discuss it.

Here, especially, foundations vary. Some discourage such meetings; they simply don't have enough time available. Others are more open to them. If you see value in a pre-application meeting, and if the guidelines don't tell you otherwise, consider making the request. If you do get a meeting, you can get your questions answered, which will either help you improve your application, or prevent you from wasting your time. You will also have made a personal contact, and perhaps gotten some tips along the way.

If you can't get a face-to-face meeting, you may at least be able to get guidance over the telephone. And even if you can't get that, you've lost little by trying.

Have others make contacts for you

One variation of the above idea: You don't have to initiate a personal contact yourself; perhaps someone else could do it for you. This is especially true if you are a new player on the grant-writing scene; or if you know few people in the foundation world; or if you don't have much of a track record, or if you are promoting an untested idea.

Perhaps you have a friend (especially a well-connected friend) or know another well-connected person who knows a program officer at a local foundation. It's perfectly acceptable for your contacts to call up their foundation contacts and say, "These people I know are going to be calling you about their idea to do X. I think it's an interesting idea, and they are good people. I think you should meet them."

Build community support

Most organizations that make grants will want to know that your ideas have community support. This is because a usual part of the funder's mission is to serve the community. So if you can build community support before you start, that can be a big point in your favor.

How to build it? Sometimes the support will be there already, and you'll know it. Sometimes the whole community will be behind you from the get-go, waiting for you (or someone else) to step in. Other times, you'll need to ask for support, and be forthright about asking. At other times still, especially when you have a new or unfamiliar idea, community support may need to be actively cultivated.

A good way to build support for new ideas is to circulate the outlines of your ideas, as a rough draft, or "concept paper," and ask for feedback.

This serves four distinct purposes:

• It validates (or, occasionally fails to validate) community interest in the idea
• It gets some others actively interested
• It makes it easier to get formal letters of support in a full-scale application, if they are needed
• It provides useful corrective feedback about your idea itself - others may think of points you hadn't thought about before

Form a working group

Most of the time, you'll want to gather the input of others in planning your grant application. Even if they aren't experts, those others may have attractive content ideas, good strategic thoughts, and often bits of specialized knowledge which one person alone will rarely have. And even if they lack any of these things, a group can give you the support you need to get the job done.

So form a working group, to talk about what should go into the application and how it should be presented. This will usually be a short-term group; it needn't meet more than a few times, unless it's a very large application. The group might not do the actual writing – "writing by committee" is not usually preferred. But the group's original input will be important; group members can divide up the information-gathering, legwork, and possibly drafting; and the group comments on the first (and later) draft can be valuable too.

Get expert advice

When you do have a proposal draft, perhaps you know of an expert (or experts) in the field who might be willing to review your draft and give advice. "Expert" here could mean either an expert in your grant content area, whatever that may be; or it could mean someone particularly knowledgeable about how foundations work, perhaps even about your chosen foundation in particular.

Sometimes expertise may lie within your group or organization itself; if so, call upon it. But otherwise, it's often a good idea to look for expertise from the outside. This is especially true if you are relatively new to grant-writing. Why not get an expert opinion before you send in the final application?

Use a successful model

Artists use models; it makes their job easier. And if you were building something, from a bird house to a summer cabin, you'd almost always want to have a successful model nearby, (or at least a diagram), so that you could see how it was done and refer to it as needed.

The same applies to writing a grant. If you can get hold of a winning application, particularly one that was funded by your chosen foundation, you are ahead of the game.

How can you do it? It might be easier than you think. If you have a list of grants previously made by that foundation, you can call up one of the awardees, and politely ask to see a proposal copy. (They've gotten their award; you won't be competing with them -- so what can they lose?) The next best alternative is to find a winning example on a related topic that was selected by your foundation. If you can't do that, plenty of sources have at least partial examples of successful grant applications.

What did they say, and how did they say it? How was the application organized and packaged? How much detail and documentation, and what kind, went into each section? These are some points you can learn from examples. A model is not meant to be followed too closely, and certainly not copied word for word. But it can certainly be one useful reference point when you're not sure how to proceed.

Learn from rejection

Most grant applications are not funded; yours may not be either. That's the cold reality of the grant-making world.

If you go ahead with your proposal, you certainly want to be optimistic and to give it your very best shot. But even though you have done all your homework and covered all the bases, even though you may truly have a terrific proposal in all possible respects, you may not get that hoped-for phone call or award letter. The reasons may have little to do with your proposal at all; the foundation may have only a very limited amount of money to give; another application may have come closer to a foundation priority; political considerations may have intervened; you may have asked for too much money; or the foundation reviewers may simply have made a mistake.

But you can learn from rejection. If your application is rejected, you certainly have the right to find out why. If that is not made clear in your rejection letter, it is perfectly reasonable and generally desirable to call the foundation and get more feedback.

This is true as long as you take the proper tone, which is not "Why didn't you fund my brilliant proposal?" but rather, "What could we have done to make our proposal better?" The latter approach is not only more professional, but also more in your interest. Why? Because no one likes to feel criticized or put on the defensive. Because you probably want to keep the door open to later applications, which means you want a good working relationship. And because the foundation, when properly approached, will in fact be more willing to give you helpful advice which you might use in subsequent applications, whether to that foundation or not.

If your application was a good one, the foundation might even encourage you to make revisions and apply again. Even if it doesn't, you can gain from a rejection experience. "If it doesn't kill you, it makes you stronger." Well, not always. But in this case, maybe so.

Of course, you may not be rejected at all. That wonderful phone call or letter may really come. If so, congratulations! Now it's time to make great things happen!

You understand when to apply for a grant:

___You want to start a new project or expand an existing one

___You know of a granting agency that makes awards for the costs you envision

___You know that you meet the eligibility standards

___You have the time and energy necessary for the grant-writing process

___You understand when not to apply for a grant:

• When you can do excellent work with little or no money
• When money can be a drawback
• Other ways to get money

Steps for applying for grants:

___You are clear about your reason for applying

___You know the types of support available

___You are focusing on the type of support you want

___You have searched the field

___You have narrowed the field

___You have investigated your leading prospects

___You know the guidelines

___You have followed the guidelines

___You have asked questions, as needed

___You have considered a meeting with the funding source

___You have asked others to make contacts for you

___You have built community support

___You have formed a working group

___You have gotten expert advice

___You used a successful model

___You have learned from rejection

Example 1: Getting initial support

Ray Shonholtz, the founder of an innovative organization called Community Boards, describes how he got initial community support for his work. Community Boards involves training citizens in dispute resolution on a neighborhood level. At the time Ray started, this was a very unfamiliar idea:

"When I started Community Boards, I knew that it was an unusual idea, particularly to funders and to political people. My first effort was to build credibility for the idea by associating it with people of some standing in the criminal justice community -- which meant people in the bar association, the district attorney's office, et cetera -- to at least say it was an interesting idea, worth experimenting with.

"So I wrote a concept paper, made 50 copies of it, distributed them to the legal community and to some community organizations. And then asked some friends of mine around the city to put me on the agenda for community organization meetings, public defender office meetings. And I started making contacts with all them, not for them to endorse it -- I never asked anybody to endorse it -- but merely to give it conceptual credence.

"The advantage of that is that you avoid anybody critiquing it too early, and kind of have all the benefits of getting what you really want, which is some green light like "This idea interests me," signed, "The Prosecutor." Since I didn't ask for more, I didn't get more; but those kind of support positions grew to be extremely useful with funders.

"Before any services were delivered, I also built a board of directors of name people -- some community people, but also a nice balance of lawyers and judges, very friendly to the idea. Then, in the funding proposals, I would show the support we had received from these different organizations, and leverage that with the funders. I'd say, "Look at the range of interests in this unique idea." So I became relatively skillful at educating the funding base.

"And I was a credible person: teaching at the law school, being an Associate Professor of Criminal Law, putting it on law school stationery, circulating the idea around. That added to the credibility of it, because stature, name, connections, I think have a lot to do with whether an idea gets some hearing or is quickly dismissed. I spent a lot of time around the politics of the idea, so that nobody came out opposing it. There were some people who were skeptical, but then I would only ask for conceptual support, for trying it -- not in the sense it was a meritorious idea, but one that ought to be given some chance.

"Well, there are very few people who won't give you that, you know. So I had very little if any opposition in the early days. It was very important to build a conceptual constituency within the local community for it."

Example 2: Approaching foundations

Ray describes how he approached foundations, and in particular how he used one funder to network with another. Eventually his work became funded by more than a dozen different foundations.

"I also learned foundations fund people first and ideas second. The foundation wants to know that the person they're funding isn't a kook. Regardless of what the idea is, they want to know that the person has a reasonable chance of delivering it, or at least making a reasonable effort to attempt to deliver it, especially if it's a very risky idea. So credibility becomes the first and primary issue for most sophisticated foundations. Who you are and who supports you will be the first determining factor of whether a foundation gives you money.

"My process with the funders was always to see the executive director of the foundation, not a program officer. It's to use one funder to network with other funders. So if one person in the funding community felt strongly about it, I would ask her or him who else this should go to, and could I use their name in the letter; or better yet, would they make a call for me indicating that I was going to call so-and-so. And invariably they'd say yes to one or the other of those openings.

"The issue with foundations is getting through the door. Once you're through the door, you have to be your own salesperson. But you need a door-opener. Somebody has to be the bridge, help you over the bridge, that's been my experience. So if I wanted to deal with the Ford Foundation, I'd need somebody who knew the Ford Foundation and who would say, "Hey, this program you should look at, and I'll let so-and-so know you're going to call." And that of course is a time-honored approach; I don 't think there's anything unique about it.

"But the funding community responds well to that, because they get so many requests, and most of them don't have the staff to screen -- see, they all operate on the principle of people first, ideas second. That might be simplistic, but I think it's generally true. That increases the importance of somebody to take you through the door."

(Both examples from an interview with Ray Shonholtz in Bill Berkowitz, Local Heroes, Lexington Books, Lexington, MA, 1987.)

Example 3: Collaboration, Not Competition: Thrive Allen County's Capacity Building Initiatives

Rural organizations face many challenges in applying for grants, including few major foundations located in or familiar with rural areas and the perception that a smaller population area means a smaller impact. But one nonprofit in Kansas is showing just how mighty a rural organization can be. Since 2019, Thrive Allen County has brought over $28 million into the county for a wide variety of projects, including public transportation, grocery stores, hiking trails, and much more.

In Thrive Allen County's early years, the executive director at the time decided to expand the organization's funding from local sources and start applying for state, regional, federal, and other funding sources. Expanding funding sources helped the nonprofit build capacity and avoid local budget cuts or changes in their early funding sources.

Thrive Allen County's grant writers “usually bring in more money for the community than they do for the organization,” Regehr said. The grant writing team helps governmental agencies and civic and nonprofit organizations apply for funding. “It's not just Thrive doing the work,” she added. “We're also working to empower all of them to do the work as well.”

In addition to Kansas, Thrive Allen County has worked with rural communities in California, Louisiana, Missouri, Nebraska, New York, Nebraska, and Oklahoma. “We are energized by working with other organizations in other communities,” Regehr said. “It is not just people learning from us; it's us learning from them. There are so many cool things that are being done across the nation.”

Thrive Allen County has even distributed funds to other organizations. During the COVID-19 pandemic, Thrive Allen County was asked by the county to distribute $2.4 million in SPARK funding, or Kansas's use of American Rescue Plan dollars. The money had to be spent in six months. Thrive Allen County met with people from different community sectors to create an advisory group and develop grant programs to distribute the money.

To read more about the success of Thrive Allen County, you can click this link to the full article on the Rural Health Information Hub website.

Tool: Tips for Successful Grant-Writing from Foundation Officials

We've collected some quotes from actual foundation officials regarding the grant -writing process. So here are some tips, straight from the source, that can guide you as you proceed:

Do your initial research

"Call first and ask for a copy of our report, which describes previous grants, so people get a sense of what the amounts are and what kinds of organizations we've been supporting."

Check the guidelines

"Do your homework, not just in finding out how to apply, but in making the match between your needs and our needs. Although we have a broad giving program, it's very clear in our annual report what we are most interested in and what's important to us."

"Read our guidelines. We have a number of printed materials relating to our programs. Study our past history, and then contact us with a specific request based on their understanding of our guidelines."

Ask, if you have good questions

"I respect people who aren't afraid to get on the phone and call me to talk about ideas. I invite that, as long as they've done their homework and know what we're about. If there's a sense that there's something there, and there's any room for them to come within our guidelines, and the idea sounds plausible, I'm probably going to encourage them to proceed with a small concept paper and then a proposal. We take it one step at a time."

Don't call just for the sake of calling

"I detest people calling up and saying "Can we send you a proposal?" The answer is "yes"; that's what we're in business for. But then they always want you to have lunch, show you around, tell you their whole story. I can't do it. There aren't enough days in the year."

Sensible middle ground

"If they have done the research, it may not be necessary to call. But I'm very willing to talk with people about what they are interested in having us support and if it's feasible."

Build community support

"One thing I find compelling is some indication of community support or involvement in programs we are being asked to fund. I would encourage anyone who has newspaper articles about the importance of the organization or a special program, or unsolicited letters of praise, to send us copies of those."

(Source: Interviews in Massachusetts Foundation Examiner.)

 

 

Tool: Potential Funders (by Category)

Funding resources on this page are categorized first by region of the world, and then by categories when appropriate. If you know of additional funding sources that should be added to this list, feel free to email them to us at toolbox@ku.edu.

Global

Foundations

• Council on Foundations. Provides tools to over 2,000 grantmaking foundations and giving organizations that are members of the Council on Foundations worldwide.

Grantwriting/Grantseeking (International)

• International Funding. A listing of international, regional, and country-specific directories. Provides information on how to write grants, training courses etc.
• International Human Rights Funders Group. Although the International Human Rights Funders Group (IHRFG) does not make grants, the site provides information about funders that do. You can search by geography, issue, type of support etc.
• Nonprofit Expert. Provides a list of international grants accommodating a wide range of interests, also provides various other resources as well.
• Grants to Non-U.S. Organizations. The Foundation Center provides some useful links and resources for international grants, including proposal writing, tools and resources, training courses etc.

Philanthropy (International)

• Philanthropy Australia. Philanthropy Australia is the national membership organization for grantmaking trusts and foundations. The site contains a gateway to community foundations, and links to research and information, workshops and training, fact sheets, and more, you must become a member before you can use their resources.
• International Philanthropy. This Site is devoted to online resources in the field of international Philanthropy which includes updates on the latest news within the field and a resource directory.
• The National Endowment for Democracy. Database that contains over 100 Philanthropic organizations that provide funding, fellowship and awards for those in the area of international democratic development.
• Worldwide Initiatives for Grantmaker Support. Dedicated to philanthropy and culture of giving, they provide mutual learning, support and knowledge sharing.
• Peace and Security Funders Group. Provides information on effective grantmaking strategies related to international peace and security. There is a cost for membership, see website for details.

Health

• Global Fund to Fight AIDS, TB and Malaria. Committed to saving lives all around the world through providing medicine to fight HIV/AIDS/ Tuberculosis and Malaria.
• Fogarty International Center. Research grants, training grants, fellowships and other opportunities related to global health.

Poverty

• Worldwide Initiatives for Grantmaker Support. Dedicated to philanthropy and culture of giving, they provide mutual learning, support and knowledge sharing.
• Global Development Network. Funding opportunities for development researchers and research institutes in low and middle income countries.

Research

• Grant Agency of the Czech Republic. An independent institution established to promote progress in scientific and technological development in the Czech Republic.
• Global Fund for Women. International network committed to equality and social justice for women by making grants to support women’s groups around the world.

Regional Sources of Funding – United States and North America

• The Foundation Center. Maintains a comprehensive database on U.S grantmakers and their grants. Access to free resources through five regional Libraries, has network of over 400 funding information centers.
• Grants.Gov This website, run by the U.S. government, is a central storehouse for information on over 1,000 grant programs. It provides access to approximately $500 billion in annual awards.
• Minnesota Council on Foundations. Provides grantmaking and grantseeking resources, requires a membership fee.
• The Grantsmanship Center. This site covers all aspects of the United States, and provides grantmaking foundations by state, community etc.; you must pay a membership fee in order to use this resource, check website for complete details.
• Cottonwood Foundation. This foundation focuses its funding on committed grass roots organizations that rely on volunteer efforts.

Agriculture

• International Agriculture Grants. A directory of selected international grants, exchanges, fellowships, and collaborative research opportunities in agriculture.
• International Forestry Grants. A Guide to Grants, Fellowships, and Scholarships in International Forestry and Natural Resources.
• United States Department of Agriculture. Contains information on research as well as tips on grantwriting and updated information on RFA’s (Request for Applicants).

Environmental

• Environmental Grantmakers Association. Helps member organizations become effective environmental grantmakers through information sharing and collaboration and networking.
• Grantmakers without Borders. Dedicated to increasing funding internationally specifically for international social justice, and environmental sustainability.
• Environmental Protection Agency. Contains various types of research and information related to the environment that can aid in the grantmaking process.
• Echoing Green. Provides seed money to social entrepreneurs who want to make a positive social change.

Grantwriting/Grantseeking

• Fundsnet. A compilation of grantwriting and fundraising services at no cost; includes various categories of interest.
• The Grantsmanship Center. Conducts grantsmanship trainings, as well as earned income strategies for nonprofits.
• How to Get Money Out of Donor Organizations. These detailed guidelines can assist you in getting your project funded by international donors.
• Appalachian Regional Commission. Provides a list of online resources by topic ranging from community planning to funding. Each year ARC provides funding for several hundred projects throughout the Appalachian Region.
• National Service Resources. Provides general grant resources as well as grant opportunities by category.

Health

• Grantmakers in Health. Grantmakers in Health (GIH) is a nonprofit, educational organization dedicated to helping foundations and corporate giving programs improve the health of all people, you must become a member in order to get full access to information.

Philanthropy

• Minnesota Council on Foundations. Provides grantmaking and grantseeking resources, requires a membership fee.

Poverty

• Administration for Children and Families. Responsible for federal programs that promote the economic and social well-being of families, children, individuals, and communities.

Women’s Health and Development

• Funding Sources for Gender-Equality and Women-focused Projects. Access to free downloads of materials, information on gender and development, great resource on implementing programs for gender development, mainstreaming gender equality concerns, and the information can aid in the grantwriting process.

Regional Sources of Funding – Africa Africa

• World Bank's Africa Program. The World Bank is a vital source of financial and technical assistance to developing countries around the world. This site provides data and research, news, publications etc. about the countries they are aiding.
• Kabissa: Space for Change In Africa. Online community for African civil society, designed to empower African organizations and their allies to showcase, connect and learn. It has a network of over 1200 organizations working to improve communities in Africa.

Regional Sources of Funding – Canada

• Canadian Grants. The site of Big Online, a fee-based subscription service of available funding sources in North America with an emphasis on Canada.
• Canadian Sources of Funding. Links to online databases and directories of funding agencies and foundations of interest to Canadian individuals and organizations.

Regional Sources of Funding – Europe

• European Commission. Provides the latest news of EU affairs, links to policies, direct links to key information services which may aid in the decision making process.
• Welcome Europe. A search engine for European grants and loans. You'll also find EU funding news, calls for tenders, and other information, this site does require a membership fee. The membership fee ranges in price.

Regional Sources of Funding – Russia

NIS Funding Opportunities & Exchange Programs. Programs that involve work or travel with scholars and students in Russia and the NIS.

Regional Sources of Funding – Southeast Asia

• Japan Foundation Center. Contains a lengthy list of links to Japanese Grant-Making Foundations as well as additional background information on history and trends, assets, and features of grant programs.
• Philippine Foundation Center. Contains databases on donors, NGOs, and foundations, as well as a publications database and other relevant links.

 

• What is a grant?

• Why is it worthwhile to write a grant proposal?

• Who can write a grant proposal?

• What are the standard components of a grant proposal?

• How do you prepare a winning grant proposal?

Has your community identified a health problem and a strategy for addressing it, but reached a roadblock to action because of inadequate funding? A grant can provide that much-needed funding and enhance the community's capacity for change.

Whether you have never contemplated writing a grant proposal and feel intimidated about how to begin, or you have written grant proposals in the past but feel a bit rusty and want to enhance your capacity, this is the tool for you! This discussion primarily covers how to apply for grants available through the public sector, but many of the strategies can be applied to foundation grant proposals as well.

What is a grant?

A grant is a sum of money given to an agency or individual to address a problem or need in the community. The written document that one prepares as a means of requesting or applying for this money (funding) is a grant proposal.

Grants are not synonymous with contracts. Organizations or individuals can use grants to accomplish their stated purposes, objectives, within their own policies and guidelines. Contracts are legally binding, and represent an arrangement in which contracting agencies (federal or state government, for example) buy services from organizations or individuals in order to fulfill obligations or responsibilities.

Grant funding is available via both the public and private sectors. In the public sector, money is raised via taxes and other government revenue, and then allocated through legislation to address social issues.

For example, in 1996, the U.S. Congress established an abstinence education program as part of welfare reform legislation. Congress pledged $50 million annually for five years to state administrative agencies, which were then given autonomy to determine programmatic priorities and award community - level funding to entities such as community organizations, local health departments, and faith based organizations.

In the private sector, businesses (e.g., corporations and foundations) and even individuals choose which social issues to address and offer grant awards based on their special interests or research priorities.

Why is it worthwhile to write a grant proposal?

There may be many reasons as to why you want or need to write a grant proposal:

• You want to start a new project (for example, you have identified a need in your community, and documented that no support services or related programs exist to address the need).
• You want to expand an existing project and costs cannot be covered in your current budget (for example, you have a program that serves families living at 150% of the Federal Poverty Level, but you want to expand it to serve families living at 200% of the Federal Poverty Level, thereby increasing enrollment numbers and the need for staffing, supplies, etc.).
• You know of a granting agency that makes awards to pay for the program or initiative that you envision for the need or problem that you have identified.
• You know that you meet the eligibility standards for awards available via grants (for example, some grant awards are limited to educational institutions).
• You are able to commit the time, energy, and other resources needed for the grant-writing process.
• You have been invited to apply for a grant award.

But there are still a couple of things you might want to consider before you get started.

Where can you find Calls for Proposals, Requests for Proposals, Requests for Applications, Notices of Funding Availability, or Program Announcements?

An important note: While all of the suggestions below for finding potential grant sources are still good ones, there have been some changes since this section was originally written. A great deal more information is now available online, and many public funders actually require electronic, rather than paper, submission of grant proposals. The first place to look, generally, is online, using Google to search for something like “grant for [the area in which you’re looking for funding].” An advantage here, in addition to speed and the fact that you’re likely to find several potential funders, is that the websites you find will usually contain a great deal of background information about the funder, names of contact people, clear guidelines for eligibility and proposal writing, and a large amount of other useful information. Searching for grants and submitting proposals online is now probably the best – and preferred – way of finding possible grants.

• The Federal Register is a legal newspaper published daily by the U.S. National Archives and Records Administration. It is a great resource for listings of RFPs, RFAs, and Program Announcements.
• State Contracts Registers. While sometimes a little more difficult to locate online, state contracts registers include RFAs for contracts available with government agencies. In a search engine, try entering: "[state name] contracts register". If that search does not yield results, you may need to access funding opportunities more indirectly by going to state government agency home pages.
• The Foundation Center provides an online directory of grant makers, philanthropic news, and other information relevant to finding resources for community programs. The online directory of grants available requires a $9.99 one-month subscription fee for access to thousands of grant opportunities for researchers, students, artists, and other individuals.
• Websites for individual government agencies and foundations
• Special regional centers with walk-in libraries such as Associated Grantmakers, with offices in major U.S. cities
• Notices in a specialized newsletter within your field

And, if the aforementioned resources still don't yield what you are looking for, you can always ask around. Talk with colleagues locally and nationally and with other people you know who have grant writing experience.

What is a typical proposal timeline?

A grant proposal is often a labor-intensive undertaking that requires a commitment of resources devoted to producing a document as long as 15 - 50 pages or more in a relatively short period of time. When a Request for Proposals is released by an agency, the deadline for proposal submission is often as little as one month away. So be prepared to work hard on the development of a grant proposal, keeping in mind that the hard work is finite – only a few weeks – for potentially multiple years of funding to address your identified problem or need.

Who can write a grant proposal?

You can! Do not be intimidated by Request for Proposal (RFP) rules and instructions. Simply read the RFP carefully. You might want to make a plan to stay organized. Highlight key or essential elements (such as the deadline for submission, mailing address, number of copies to be submitted, etc.) as you read through the RFP. You might also find a one-page checklist of all required items within an RFP. If you are intimidated by the writing element, solicit the help of a colleague or someone collaborating in your effort to secure funding. You can also contact the agency soliciting grant proposals and request some samples of previously funded proposals.

You do not need an English degree to put together an effective proposal. While grammar, spelling, and cohesion are certainly important elements of a well-written proposal, substantive elements (such as identifying the need for funding for your topic or population of interest) are ones in which you can be creative in how you present the information. In fact, innovative or creative approaches can enhance a grant proposal's likelihood of success!

At the same time, because readers often have to wade through a large number of proposals, a well-written one often can receive more attention and even a higher rating. If there are no good writers within your organization, find someone who is willing to edit your proposal and turn it into elegant prose. Readers will thank you, and you may well be rewarded for your extra effort.

What are the standard components of a grant proposal?

While some Requests for Proposals may include unique requirements that you must read carefully and follow, many grant proposals follow a similar structure. The most common eight elements are listed below.

The discussion that follows will give you guidelines, one element at a time.

• Cover letter, title page, and abstract
• Statement of the Problem / Needs Statement
• Project Description (goals and objectives and methods / activities)
• Evaluation Plan
• Budget Request and Budget Justification
• Applicant Qualifications
• Future Funding Plans / Plans for Sustainability
• Appendices

Cover letter, title page, and abstract

Instructions for the cover letter and title page will be included with the RFP. The cover letter should be on agency stationery and signed by the appropriate organizational official.

The cover letter – usually limited to one page – should:

• Describe the agency's interest and capacity to successfully implement the proposed project
• Have an upbeat tone that makes it stand out in a positive way
• Summarize the project
• Designate a contact person for any questions about the project

Once again, a well-written letter is likely to get you extra points in the reader’s mind. Make absolutely certain that all your spelling and grammar is correct. There’s often an assumption on the part of the reader or the agency – and it’s often true – that if you don’t take care in writing your cover letter and proposal, you won’t take care running your program, either.

Typical title page contents include:

• Project title
• Name of the agency submitting the grant
• Agency address
• Name of the prospective funder
• Beginning and ending project dates
• The total amount requested

Some RFPs may require a letter of intent that precedes the submission of a grant proposal. These can be challenging to write, as they are basically an abstract of the proposal. Therefore, it is helpful to have a clear purpose, identified need, and some idea as to your strategy for addressing that need ahead of time. You should really have those things in mind anyway as you conduct research for RFPs so you can identify which agency missions and grant opportunities match your interests.

An abstract is related to, but different from, the letter of intent. The abstract includes a summary of the statement of the problem / need, overarching goals of the proposed project (but not the detailed objectives), a summary of the methods that will be used to implement and evaluate the project, and a final paragraph describing your group's or agency's capacity (expertise and resources) for carrying out the proposed project. An RFP may include a limitation on the number of pages that an abstract can be, but a good rule of thumb is no more than two pages.

Statement of the Problem / Needs Statement

The needs statement may be one of the most powerful components of your grant proposal. This is where you really grab the reviewer's attention and make your case for the need for funding. So, do your homework before writing this section. Know your community (e.g., demographic and socioeconomic characteristics within the population), the extent of the problem, and whether or not any previous or existing efforts have targeted the same problem.

Your problem or needs statement should accomplish the following:

• Document the problem you want to address (use text, statistics, and graphs / charts)
• Describe the causes of the problem or the circumstances creating the need
• Identify approaches or solutions attempted to date, based on a review of the literature when possible

Use existing data sources when possible to document the problem. For instance, you might consider using census data for your county, or other existing sources for your area that provide indicators of the behaviors or outcomes you are addressing. If you locate existing county level data, it is also good to research comparable data at the state and local levels, because your argument that the current situation in your area is a problem will be more effective if you present it in relative terms.

For example, instead of stating, "Only 10% of sexually active adolescents in Troubled County report using a condom in the past three months," re-framing the information in relation to state and national data can have a bigger impact: "Only 10% of sexually active adolescents in Troubled County report using a condom in the past three months, while the rate is 15% at the state level and 25% at the national level."

The Internet is an efficient way to research existing state and federal data for you to compare with your local level data, allowing  you to:

• Locate census data (data collected every ten years, most recently in 2000, from over 115 million housing units across the U.S., including geographic, demographic, and socioeconomic information) from the U.S. Census Bureau
• Research numerous state and national statistics about women, infants, children, adolescents, and children with special health care needs at the Title V Information System website of the federal Maternal and Child Health Bureau, Health Resources and Services Administration.
• Access the full range of Federal Government statistical information available to the public, with links to 70 federal data sources at FedStats.

If you cannot locate existing local data for your needs / problem statement, you may need to conduct qualitative research (telephone interviews, focus groups, or self-administered surveys).

For example, your community may have experienced a lot of growth in population and housing developments in the past five years. With that growth, traffic flow near schools would increase and become more dangerous. In this situation, you might have an intuitive awareness of a need for more cross walks for students / pedestrians, but you do not have a concrete source of data to substantiate this need. Therefore, you can interview school administrators, parents, subdivision residents, and students as a means of documenting the problem.

Finally, as you research the approaches or solutions that have been implemented to date, think about whether your grant proposal will be building upon existing efforts, introducing a unique strategy, or some combination of both. Some reviewers may be searching for that fresh, innovative approach to a problem that has been well documented but not yet addressed effectively.

There is no right or wrong way to present the information within the standard grant proposal sections as long as it is in a logical order that is easy to read. Just remember that your grant proposal is your first opportunity to effectively communicate the need for funding for your special interest or population to a specific foundation or other agency, so make it count. You want to keep the reviewer interested enough to read on and learn more about your important ideas.

If the addition of tables or graphs will make your needs statement more persuasive, definitely include them. Here are some things to consider as you prepare graphic illustrations of your data:

Tips for Presenting Data:

• Use comparative statistics whenever possible (e.g., county vs. state vs. federal, or multiple age groups or ethnicities)
• When determining which type of chart or graph to make, do not use a pie chart if you have more than three or four categories of data
• Use line graphs to show a long-term trend in data
• Use bar charts to depict differences, especially when you are comparing only two categories of data (e.g., only two race/ethnicity categories, male versus female, county versus state)
• Include a chart title that accurately yet succinctly describes the image, and include the year(s) from which the data came
• Always clearly label the y (vertical) and x (horizontal) axes of your charts, and identify the units of measure (e.g., rate versus count)
• Provide a legend to explain data categories, data ranges or intervals, color-coding, etc.

Figure 1: Example Pie Chart

Figure 2: Example Bar Chart

Project Description

Once you have captured the attention of the reviewers by clearly and effectively documenting the need for funding, you get to present the details of how you plan to implement your program. This section of your proposal should guide the reviewer step by step through all activities needed to accomplish your goal(s) in a way that will continue to engage the reviewer's interest and excitement. Furthermore, you will refer to it time and time again over the course of program implementation. Even if program staff changes over time, the project description should provide a road map for anyone to understand and follow.

The project description includes three main pieces of information:

• Goals and objectives
• Methods or activities for addressing the identified problem or need
• A time line chart for the completion of each activity

Goals and Objectives

Goals and Objectives are a very important piece of your grant proposal. Goals are broad statements with a long-term, ideal outcome in mind. Most proposals do not have more than three goals.

Example Goal: "Eliminate disparity among Medicaid enrollees' and privately insured consumers' use of prenatal care in Fertile County."

For each goal, you might develop numerous, corresponding objectives. Objectives are specific statements that will indicate to the reviewer exactly how you plan to achieve your goals. The best objectives have several characteristics in common.

Well-written objectives are:

• Specific. That is, they tell how much (e.g., 40 %) of what is to be achieved (e.g., what behavior of whom or what outcome) by when (e.g., by 2014).
• Measurable. Information concerning the objective can be collected, detected, or obtained from records (at least potentially).
• Achievable. Not only are the objectives themselves possible, it is likely that your organization will be able to pull them off.
• Relevant to the mission. Your organization has a clear understanding of how these objectives fit in with the overall vision and mission of the group.
• Timed. Your organization has developed a timeline (a portion of which is made clear in the objectives) by which they will be achieved.
• Challenging. They stretch the group to set its aims on significant improvements that are important to members of the community.

Do not be discouraged if you find it difficult to write objectives that meet each and every one of the criteria listed above. Like most things in life, writing objectives becomes easier the more you practice!

Building on the example goal of eliminating disparity among Medicaid enrollees' and privately insured consumers' use of prenatal care in Fertile County, below are two examples of how a related objective might be written.

Insufficient Example Objective: "Survey Medicaid enrollees and privately insured clients about why they do or do not access prenatal care services early in pregnancy."

The example above is insufficient because:

• It is not measurable or specific
• It is not timed

Better Sample Objective: "By June 2014, survey 50 postpartum Medicaid enrollees and 50 privately insured clients prior to discharge from the hospital regarding why they did or did not access prenatal care services in the first trimester of pregnancy."

Let's break down the sample above and determine why it is a better objective:

• It is specific - 50 postpartum Medicaid enrollees and 50 privately insured clients will be surveyed prior to discharge from the hospital.
• It is measurable - information can be collected because it will be collected in person (unless patients do not give their consent to participate).
• It is achievable - 100 women is probably a realistic number of people to interview.
• It is relevant - relevant to the mission within the sample goal of eliminating disparities in use of prenatal care
• It is timed - all surveys will be completed by June 2014.

Once you feel comfortable drafting objectives, you should determine whether or not they are "process" versus "outcome" objectives.

A process objective measures the accomplishment of tasks completed as part of the implementation of a program.

Example Process Objective: "By June 2014, distribute 500 copies of the patient education pamphlet, 'Heart Disease Prevention' to men between the ages of 30 and 50 in Coronary County."

An outcome objective measures long term results or impact of a program. Using the same scenario in the process objective example above, an outcome objective might be:

Example Outcome Objective: "By June 2014, decrease the number of men between the ages of 30 and 50 with high blood pressure in Coronary County by 5% from the 2010 rate of 40%."

Methods

You will have a sense of clarity and specificity after drafting your proposal objectives. The next step in the proposal writing process will be to break down each objective into a series of activities needed to achieve it. The methods section describes in detail how you propose to carry out your goals and objectives over the course of a project.

Let's continue using the Coronary County example. You have a process objective for distributing 500 copies of the patient education pamphlet, "Heart Disease Prevention" to men between the ages of 30 and 50 in Coronary County. In the Methods section, you need to show reviewers that you have carefully considered the steps necessary for planning and implementing this objective.

Activities and other details to discuss might include:

• Will you be using an existing pamphlet? If yes, briefly describe it, the credibility of the organization that developed it, and include a copy in your appendices.
• Do you need to develop the pamphlet? If yes, discuss who will be involved. An advisory board? Special committee? Consultants? Include their CVs in the appendices.
• Will the pamphlet be translated for bi-lingual distribution?
• How will you print, copy, and market the pamphlet (if applicable)?
• How will you reach your target population? Via physicians' offices? If yes, include a discussion about how you plan to solicit and involve local physicians in your effort. If no, describe all venues for distribution (Libraries? Grocery stores? Health clubs? Barber shops?).
• How will you document how many pamphlets have been distributed, and which staff will be responsible for that?

When writing the methods section, be sure to:

• Keep the sequential order of tasks in mind
• Make sure that the activities described are cohesive so reviewers see that you know how all pieces of the puzzle fit into the "big picture"
• Include a flow chart of the sequence of events - if applicable to your situation - in addition to a time line chart, which is usually required

Figure 3: Example Time Line Chart

A commonly used tool is the time line chart (GANTT chart). This chart is used to present a detailed list of all activities and their projected date of completion. Activities are usually listed in sequential order.

 You may be applying for only a one-year grant, in which case your time line columns could be representative of quarterly progress versus years, as shown in the column headers in Figure 3 above.

Tips for filling in a timeline chart:

• Try to anticipate every activity an objective might entail and estimate at which point in the program's time frame the activity will be completed
• Understand that the timeline is meant to be used for planning purposes and may be revised over time. For example, some activities will be dependent upon the completion of prior activities. One cannot train staff members until the staff is hired; if the hiring process takes four months versus two, the training timeline will also need to be adjusted.
• It is fine to show multiple items with the same completion date
• Remember that all activities in the timeline will shape your budget request

Evaluation Plan

The purpose of the evaluation plan is to show how you will measure the completion or success of process and outcome objectives. Be sure that your plan includes details about how information will be collected and analyzed. Also describe how and when evaluation findings will be shared with the funder.

How and why is a program evaluation plan useful in a grant proposal?

From your perspective:

• The evaluation plan may help you clarify objectives so they are measurable
• Evaluation helps you continually refine or revise program approaches in future years of funding
• Evaluation data provide information about the relative costs and effort for tasks so activity and budget adjustments can be made in future years of funding
• Evaluation plans are usually required, and will be worth a specified number of points in the rating system when the proposal is reviewed

From the funder's perspective:

• The funder will be able to clearly see whether or not objectives have been met
• The funder will be able to determine whether funds were used appropriately
• The funder will be able to assess whether or not the program's benefits (e.g., outcomes) justify the cost of implementation

There are two main types of evaluation: process and outcome. Your project will dictate which type of evaluation you use. Most likely, you will use a combination of both approaches depending on the types of objectives you draft. Process evaluation assesses the implementation of a program, emphasizing activities to be completed (for example, "distribute 500 copies of a flyer"). Outcome evaluation assesses the short or long-term impact of a program.

Example Process Evaluation: "By June 2004, distribute 500 copies of the patient education pamphlet, "Heart Disease Prevention" to men between the ages of 30 and 50 in Coronary County."

This objective might be evaluated as

• Not accomplished
• Partially accomplished (e.g., only 200 copies were distributed)
• Accomplished
• Exceeded (maybe 600 copies were distributed)

Documentation of this objective should be straightforward, but it is surprising how difficult it can be to get health care facilities and staff to adopt a new data collection form or task and assure that those who interact with patients are recording data consistently and correctly. So, as part of your evaluation plan, you would need to design a system that would yield appropriate documentation of the distribution of the pamphlets. Remember, too, that the system needs to be "user friendly" so staff will use and follow it.

Now, let's look at how you might evaluate an Outcome Objective.

Example Outcome Evaluation: "By June 2006, decrease the number of men between the ages of 30 and 50 in Coronary County with high blood pressure by 5% from the 2003 rate of 40%."

The most important thing to remember about outcome measures with this structure is that you should already have baseline data – current statistics that describe the percentage of men between the ages of 30 - 50 with high blood pressure living in Coronary County. This is important for two reasons:

• The fact that you are including the objective in your proposal means that you should have data to back up the need to address it. The data would be most appropriately described in the Statement of Problem / Need.
• When you evaluate the impact of your program, you will re-measure (or research statistics in an existing surveillance system) the percentage of men between the ages of 30 - 50 with high blood pressure living in Coronary County, in order to compare pre- and post-program high blood pressure statistics.

Let's assume that you assess the percentage of 30-50 year old men with high blood pressure before you implement your program, then three years later. You find a 4% decrease after three years. Can you automatically attribute that decrease to your program? If only it were that easy! Other factors such as competing programs may have been solely responsible for the percentage change, or may have indirectly enhanced the impact of your program.

For example, let's say a different community-based organization in Coronary County received a grant in the same year that you did. The other program targeted men ages 20 - 40 with education about the importance of daily cardiovascular exercise. 50% of the men exposed to that intervention adopted a regimen of 20 minutes of cardiovascular exercise three times per week. Those same men are part of your evaluation sample three years after you implement your program.

One purpose of your evaluation would be to determine whether or not the percentage of men ages 30 - 50 with high blood pressure decreased because you educated men about ways to prevent heart disease, or because half of the men who participated in another program adopted a regular exercise regimen.

Evaluations can be complex, time-intensive aspects of a program. Unless you can afford to budget for an evaluation consultant, design the evaluation plan within the strengths and limitations of program and staff resources.

Budget Request and Budget Justification

Once you have drafted the detailed information for your goals and objectives, methods, and evaluation plan, you will have the foundation for your budget request. You will now need to assign corresponding dollar amounts to staff positions and activities.

Common budget line items for the Budget Request include (details for each are provided below):

• Staff salaries
• Taxes
• Fringe benefits
• Indirect costs
• In kind items
• Rent and utilities
• Equipment and supplies
• Postage
• Travel

Staff salaries

Staff salaries are listed in a budget as FTEs, or "Full Time Equivalents." A person working a 40-hour week will be listed at 1.00 FTE, and the actual amount for salary requested in the budget will be 100% of the proposed salary for that position. A person working 20 hours a week will be listed at .5 FTE, and the actual amount for salary requested in the budget will be 50% of the proposed salary for that position.

Staff Position	Full Time Salary	FTE	Year One Budget Request
Project Director	$55,000	1.0	$55,000
Project Assistant	$35,000	1.0	$35,000
Administrative Assistant	$25,000	.5	$12,500

Fringe benefits

Fringe benefits may include half an employee's social security and Medicare payments (public agencies are exempt) and voluntary benefits such as medical, dental, disability, life insurance, and retirement plans. These are generally calculated as a percentage of staff salaries.

Indirect costs

Otherwise known as overhead, indirect costs are defined as an attempt to compensate the organization for the cost of housing a project. Indirect costs may or may not be provided by your funding agency. They are often allocated as a fixed percentage of your direct costs.

In-kind items

An in-kind line item will not add any costs to the project because it is paid for or absorbed by the agency applying for the grant. In kind services might include paying for rent (perhaps a separate grant within the agency already covers this, so the agency can afford to not request rent as a line item of the budget in the new grant proposal). Or, perhaps clerical / administrative staff are shared across multiple grants in-house, so a proportion of an administrative staff person's time will be listed as "in kind" in the budget line items.

In the Budget Justification, be sure to clearly describe the need for each line item total requested. In one or two sentences per budget line item, show the reviewer exactly how you arrived at the total for an item.

Example Budget Justification for a travel line item of $2115: The Project Director will present project findings at a total of three national conferences in year two of the project. Airfare will average $400 per trip; hotels will average $100 per night; and the per diem (allowance for meals) will be $35. For three trips averaging three days and two nights each, the total request for travel is $2115 [$1200 airfare, $315 food, and $600 hotel].

Some tips to consider when making your budget:

• Make sure that your budget does not exceed the maximum amount stated in the request for proposal (RFP)
• Make sure that the numbers in the proposal narrative and budget justification text match those in the line item budget
• If you are required to submit budget projections for multiple years, remember to include a cost of living raise in staff salaries and allow for inflation among supplies, utilities, etc.
• If you are inexperienced with a proposed activity (such as conducting focus groups), talk with someone who has done this to gain insight as to how much to budget for. You may learn about costs that you did not anticipate. It is better to discover those before you submit your grant proposal than after you are working within a set budget that could require that you reduce the total number of activities or exclude some altogether.

For example, say you have proposed to conduct three focus groups with low-income parents of children with special health care needs (ages 0 - 3) in your county over the next 6 months. Here are some things you might need to consider as you calculate your budget request:

• How will you solicit participation in the focus groups? What printing, outreach, or marketing costs will you incur?
• How many parents will participate in each focus group?
• Will parents need assistance with transportation to the focus group site?
• Will you offer an incentive (e.g., money or on-site child care during the sessions) for focus group participation?
• Will you serve food / beverages during the focus group session?
• Will you moderate focus groups, or pay a professional social researcher?
• Will you need a bi-lingual moderator? If yes, will this be an additional expense or do you have existing staff resources?
• Who will record / transcribe the focus groups? Will you need to pay for this service?

Of course, this list is not exhaustive, but you can see how one proposed activity has many planning and implementation details tied to it. And each detail potentially increases the amount of money that you need to request in your line item budget.

Applicant Qualifications

Use this section of your proposal to convince the reviewers why you should be funded rather than someone else. You may be requesting funding for a problem or need that is already well documented. While reviewers may need no convincing that the issue is important, timely, etc., they have a limited amount of funds to award. What makes your qualifications and your approach or strategy better than the competitor's?

You should onclude the following information in this section of the proposal:

• Describe your agency's (or your) mission, history, and existing experience.
• Emphasize agency strengths and current contributions to the field or community in the topic area for which you are requesting funding.
• Highlight links to community collaborators and other resources. Obtain letters of support (or letters of participation) for the proposal appendices from the same collaborators you mention in this section.

Future Funding Plans / Plans for Sustainability

Federal or state agencies often want to see a long-term plan for the self-sustainability of a project. The reasons for this vary. Maybe funding at the federal or state level will only be available for a couple of years. Maybe funding for a special interest will only be available until elections bring in new legislators with different fiscal and policy priorities. Some programs require a match of funding from the beginning. For example, for every four dollars awarded, a grantee (you) may be required to contribute matching funds of two dollars. Funders will want to know how grantees' matching funds will be provided and sustained.

Some initiatives will need to be in place for years to come if they are to have a long-term impact on outcomes such as health status indicators.

For example, you cannot expect to get 25% of smokers to quit smoking within a two-year grant cycle, but perhaps after a decade of persistent programming, smoking rates will drop substantially. Therefore, if a foundation or other agency can only afford to fund this particular issue for two years, it may want to know how you plan to continue tobacco use prevention efforts in your community over the long term.

While you cannot guarantee that your proposed program will be self-sustainable, it is important to make your best case for sustainability and describe a plan.

Some things to consider:

• Will you be able to charge a fee for services provided?
• Can you market and sell any materials developed via the proposed funding?
• Will you institute membership dues (when applicable)?
• Can you develop new grants or contracts for funding?

If the answers to these questions are "yes", discuss the strategy and time line for establishing the revenue-generating component of the project. As a rule of thumb, most projects rely entirely on the funding source in year one, as this is the year that planning and implementation activities are accomplished. But by year two, you may be able to include some revenue-generating activities in your time line.

Appendices

Appendices are supplemental materials that do not belong in the body of the proposal, but nevertheless are important pieces of information, such as:

• A marketing or dissemination plan schematic
• A project staffing flow chart
• A time line chart of proposed activities (you might include this in the body of the proposal instead of or in addition to here)
• An evaluation instrument (e.g., a survey that will be used)
• Any existing educational or printed materials to be used
• Biosketches or curriculum vitae of key project personnel, including Advisory Board members and any consultants already identified
• Letters of support and/or participation

One-page letters of support / participation should be submitted on official letterhead from each agency that you have proposed as a collaborator. Letters should be signed by an Executive Director or Chief Executive Officer of the collaborating or supporting agency. You may want to draft the letters for each collaborator (in fact, they may request that you do this), but make sure that each letter is unique to your working relationship and shared interests. Highlight the significance of the proposed collaborative relationship in the context of proposal goals and objectives. Also summarize your and your collaborating agency's capacity and strengths for addressing the problem or need identified in the proposal.

How do you prepare a winning grant proposal?

In these times of shrinking state budgets, the numbers of grant proposals submitted far outweigh the number of grants available. Organizational and community leaders seeking funding for special interests or populations must therefore prepare grant proposals that are superior to their competitors'. Still, you should keep in mind that even if you and/or your collaborators prepare the best proposal possible, it might not be accepted. Do not be discouraged. One source notes that 50% of proposals funded are resubmissions that were denied the first time.

So, once you have identified a need or problem within your community, done your homework and documented the problem, and presented a credible and persuasive strategy for addressing the need or problem, what else can you do to ensure that your grant proposal is "top notch"? Listed below are some things to consider as you complete the final, comprehensive review of your draft proposal.

"Star Proposals": What Features Shine in the Eyes of the Reviewers?

• Following all directions
• Well-organized proposal sections that are integrated and easy to comprehend (for example, a clear table of contents, nice layout and graphics, etc.)
• Well researched and documented statement of the problem (provide narrative and statistical detail, and reinforce the message with graphs or charts to persuade the reviewer)
• Statement of the problem or need in a way that explicitly addresses the funder's priorities
• Creative or innovative strategies for addressing the need / problem
• Feasible goals and objectives (e.g., "Decrease by 2% the number of adolescents ages 15-17 who report cigarette smoking over two years" as opposed to, "Decrease by 50% the number of adolescents ages 15-17 who report cigarette smoking over two years")
• Measurable objectives (e.g., "Implement a five minute provider-patient education protocol for heart disease prevention for primary care visits among men ages 30 - 50 in Coronary County from January 2004 - January 2005" as opposed to, "Educate men in Coronary County about the risk of heart disease")
• A sound evaluation plan. Have you shown that you have the capacity to access primary data [data that you collect via interviews, surveys, or focus groups] or secondary data [existing data such as census data]? Have you clearly indicated whether or not you will be evaluating implementation versus short- versus long-term outcomes, or all three? Have you allocated a proportion of the budget line items for evaluation?

"Snoozers and Losers": Why Grant Reviewers Need A LOT of Coffee

• Not following directions. Pay attention to funder criteria regarding margins, text spacing, and single- versus double-sided pages, bound versus stapled, etc.
• Spelling and grammatical errors. Spell check is a great tool, but it shouldn't be a substitute for checking your work yourself, and having someone else read through it to make sure that not only are all words correctly spelled and correctly used, (e.g., there versus their), but that your writing is concise, with clear transitions and good organization. Once again, if there’s no one in your organization who can write or edit well enough to make sure that the proposal is grammatical and well-organized, find someone who can to help you.  It’s important enough to take some pains to get it right.
• No previous experience with work in the area of the identified need / problem
• Lack of community involvement in the planning process
• Overall lack of focus - maybe the proposed intervention is too broad for the issue at hand
• Inappropriate strategy given the problem or target population
• Unrealistic timeline for accomplishing proposed activities
• Weak evaluation plan
• Unrealistic budget, or one that does not clearly justify how the requested funding will be spent
• Lack of potential for the program to become self-sustainable (when applicable)
• Poor organization throughout the proposal. Make sure that all sections are cohesive and complementary.

In Summary

A grant is a sum of money given to an agency or individual to address a problem or need in the community. The written document that one prepares as a means of requesting or applying for this money (funding) is a grant proposal.

A grant proposal is a labor-intensive undertaking that requires a commitment of resources devoted to producing a long document in a relatively short period of time.

Read RFP rules and instructions carefully. Make a plan to stay organized, noting essential pieces of information (such as the deadline for submission, mailing address, number of copies to be submitted, etc.).

If you are intimidated by the writing element or do not want to manage it alone, solicit the help of a colleague or someone collaborating in your effort to secure funding. If you write as part of a team, assign tasks and sections of the proposal.

Common elements in a grant proposal:

• Cover letter, title page, and abstract
• Statement of the Problem / Needs Statement
• Project Description (goals and objectives and methods / activities)
• Evaluation Plan
• Budget Request and Budget Justification
• Applicant Qualifications
• Future Funding Plans / Plans for Sustainability

Appendices, which often include:

• A marketing or dissemination plan schematic
• A project staffing flow chart
• A time line chart of proposed activities
• An evaluation instrument (e.g., a survey that will be used)
• Any existing educational or printed materials to be used
• Biosketches or curriculum vitae of key project personnel, including Advisory Board members and any consultants already identified
• Letters of Support / Participation

Features of a strong proposal that enhance the likelihood of funding:

• Well organized proposal sections
• Well researched and documented statement of the problem
• Creative or innovative strategies for addressing the need / problem
• Feasible goals and objectives
• Measurable objectives
• A sound evaluation plan

Are you ready to write a successful grant proposal?

___You know what a grant is, and that funding comes from both private and public sectors

___You have reviewed recommendations for developing each standard section of a grant proposal, and determined how to clearly present information in a way that will elicit a positive response from grant reviewers

___You have conducted an efficient online search of supporting data for your needs / problem statement

___You have reviewed recommendations for presenting data in your grant proposal

___You have prepared a line item budget and its accompanying budget justification text

___You have written process and outcome objectives that are specific, measurable, achievable, relevant, timed, and challenging

___You have linked your budget request and your evaluation plan to proposed activities

___You have prepared a structured time line of activities using a GANTT chart

___You have identified feasible possibilities for how your proposed program can become self-sustainable

Congratulations! You now have the skills and tools you need to write a winning grant proposal!

Tool 1: Example Timeline Chart

The sample timeline chart below has been filled in to demonstrate how you can summarize the detailed information about program implementation. Below this chart is an empty table that you can copy and paste. You can use it as a template and modify it for your own objectives and activities.

 

Tool 2: Blank Timeline Chart

 

 

Tool 3: Checklist for Following Funders' Guidelines

 

When applying for a grant, it is important to follow the funders’ specific guidelines exactly. Here’s a general checklist you may wish to use:

_____	Be sure to format and organize the grant headings exactly the way the Request for Proposal (RFP) requests. Answer all the questions in the order listed, and use the headings, subheadings, and numbers provided. Be sure to submit the number of copies the grantmaker requests.
_____	Include a cover letter to introduce your organization and your request, and to make a strategic link between your proposal and the funder's mission and grant making interests.
_____	Grant proposals should be typed and look professional. Make sure the grant is easily readable (e.g., the font size is not too small).
_____	Keep an electronic copy of the proposal for future reference. This can be adapted or modified for future proposals.
_____	Find out if you need to register to submit an application. Contact the funder to let them know you are applying, or set up a profile before submitting a grant (e.g., a federal grant needs a DUNS number). If any of these steps are required, make sure you complete them well in advance of the grant’s due date. If you contact the grantmaking agency, be sure to state not only your name, but also the group you are with.
_____	Find out if the grant needs a letter of intent (LOI), and submit one by the due date if required.
_____	Determine if you need letters of support or if you need potential partners to sign an MOU (Memorandum of Understanding).
_____	Pay attention to how reviewers are going to score various aspects of the grant, and give higher priority (proposal length, etc.) to areas that are more heavily weighted.
_____	When writing the grant, use bold or italics for emphasis of key points.
_____	Note that it is fairly common to need to include the following in the Appendices: proof of non-profit status, staffing overview or organizational chart (including board, staff, and volunteer involvement), and an audited income or expense statement.
_____	Once the grant is written, review it for clarity and consistency. Although grant applications are often a team effort, the final grant application should have one voice. It should read as if it were written with the consistent language of one writer.
_____	Be sure to make a strong case for the overall significance of the proposal and prospects for success. (State WHY this project should be done: a) at all, b) in this community, c) at this time, and d) by this organization.
_____	Be sure to ask questions of the funder, if needed – but read the application well and think before asking. If your organization is granted funding, there will likely be periodic reporting requirements to the funding agency.

 

 

EXAMPLE 1: COLLABORATION, NOT COMPETITION: THRIVE ALLEN COUNTY'S CAPACITY BUILDING INITIATIVES

Rural organizations face many challenges in applying for grants, including few major foundations located in or familiar with rural areas and the perception that a smaller population area means a smaller impact. But one nonprofit in Kansas is showing just how mighty a rural organization can be. Since 2019, Thrive Allen County has brought over $28 million into the county for a wide variety of projects, including public transportation, grocery stores, hiking trails, and much more.

In Thrive Allen County's early years, the executive director at the time decided to expand the organization's funding from local sources and start applying for state, regional, federal, and other funding sources. Expanding funding sources helped the nonprofit build capacity and avoid local budget cuts or changes in their early funding sources.

Thrive Allen County's grant writers “usually bring in more money for the community than they do for the organization,” Regehr said. The grant writing team helps governmental agencies and civic and nonprofit organizations apply for funding. “It's not just Thrive doing the work,” she added. “We're also working to empower all of them to do the work as well.”

In addition to Kansas, Thrive Allen County has worked with rural communities in California, Louisiana, Missouri, Nebraska, New York, Nebraska, and Oklahoma. “We are energized by working with other organizations in other communities,” Regehr said. “It is not just people learning from us; it's us learning from them. There are so many cool things that are being done across the nation.”

Thrive Allen County has even distributed funds to other organizations. During the COVID-19 pandemic, Thrive Allen County was asked by the county to distribute $2.4 million in SPARK funding, or Kansas's use of American Rescue Plan dollars. The money had to be spent in six months. Thrive Allen County met with people from different community sectors to create an advisory group and develop grant programs to distribute the money.

To read more about the success of Thrive Allen County, you can click this link to the full article on the Rural Health Information Hub website.

• What are the elements of an annual budget?

• Why should you prepare an annual budget?

• Some practical considerations

• Planning and gathering information to create a budget

• Putting it all together: Creating and working with a budget document

 

Download the Program Based Budget Template mentioned in this video here.

 

What are the elements of an annual budget?

It can be daunting to start the process of creating a budget, especially if you're not familiar with some of the common accounting and budget terminology you will encounter, so we have provided a glossary of terms covered here, located toward the bottom of the page under the In Summary section of the page.

It is important for organizations to create accurate and up-to-date annual budgets in order to maintain control over their finances, and to show funders exactly how their money is being used. How specific and complex the actual budget document needs to be depends on how large the budget is, how many funders you have and what their requirements are, how many different programs or activities you're using the money for, etc. At some level, however, your budget will need to include the following:

• Projected expenses. The amount of money you expect to spend in the coming fiscal year, broken down into the categories you expect to spend it in - salaries, office expenses, etc.

Fiscal year simply means "financial year," and is the calendar you use to figure your yearly budget, and which determines when you file tax forms, get audited, and close your books. There are many different fiscal years you can use. Businesses often use the calendar year -- January 1 to December 31. The federal government's fiscal year runs from October 1 to September 30. State governments -- and therefore state agencies and many community-based and non-profit organizations that receive state funding - usually use July 1 to June 30. Most organizations adopt a fiscal year that fits with that of their major funders. You'll want to prepare your budget specifically to cover your fiscal year, and to have it ready before the fiscal year begins. In many organizations, the Board of Directors needs to approve a budget before the beginning of the fiscal year in order for the organization to operate.

• Projected income. The amount of money you expect to take in for the coming fiscal year, broken down by sources -- i.e. the amount you expect from each funding source, including not only grants and contracts, but also your own fundraising efforts, memberships, and sales of goods or services.
• The interaction of expenses and income. What gets funded from which sources? In many cases, this is a condition of the funding: a funder agrees to provide money for a specific position, for instance, or for particular activities or items. If funding comes with restrictions, it's important to build those restrictions into your budget, so that you can make sure to spend the money as you've told the funder you would.
• Adjustments to reflect reality as the year goes on. Your budget will likely begin with estimates, and as the year progresses, those estimates need to be adjusted to be as accurate as possible to keep track of what's really happening.

Why should you prepare an annual budget?

• It sharpens your understanding of your goals
• It gives you the real picture - by accurately showing you what you can afford and where the gaps in funding are, your budget allows you to plan beforehand to meet needs, and to decide what you're actually able to do in a given year
• It encourages effective ways of dealing with money issues - by showing you what you can't afford with known income, a budget can motivate you to be creative - and successful - in seeking out other sources of funding
• It fills the need for required information - the completed budget is a necessary element of funding proposals and reports to funders and the community
• It facilitates discussion of the financial realities of the organization
• It helps you avoid surprises and maintain fiscal control

Some practical considerations

It's important to note that not everyone has the skills or desire to create and manage a budget single handed. Fortunately, there's help available, both within the organization (by hiring a bookkeeper, accountant, or CFO) and elsewhere. There are organizations like SCORE (Service Corps of Retired Executives) that exist to assist with things like budgeting. Local universities or government agencies may maintain offices that help small businesses and non-profits with financial planning. The possibility of an accounting or similar position shared with or loaned by another organization may also exist.

Planning and gathering information to create a budget

The preliminaries: What will you need to spend money on next fiscal year?

It is important to know what the priorities are and what makes the most sense for the organization at its particular stage of development. Actually figuring out what you should be spending your money on involves an organization-wide planning process.

Consider these questions:

• What are the activities or programs that will do the most to advance your cause and mission, and that you think you can carry out with the income and resources you know you have or can foresee?
• How many staff positions will it take to run those activities or programs well?
• How much, how (hourly wages, salary, consultant fees, benefits), and from what sources will those staff members be compensated?
• What else will be needed to run the organization and its activities -- space, supplies, equipment, phone and utilities, insurance, transportation, etc.?

Estimating expenses: What will it all cost?

Step 1: Develop ways of estimating your expenses

Estimate your expenses for the coming fiscal year. In some cases -- yearly rent, or salaries, for instance -- you'll probably have real figures for what these expenses will be. In other cases -- telephone and utilities, etc. -- you'll have to estimate of an average monthly cost.

Be sure to add in some money in a "miscellaneous" category, in order to be prepared for the unexpected. There are always expenses you don't anticipate, and it is part of conservative estimation to make allowances for them.

Conservative estimation: When preparing a budget, try to be as accurate as possible. Always use actual figures if you have them, and when you don't, estimate conservatively for both expenses and income.

When you estimate expenses, guess high -- take your highest monthly phone bill and multiply by 12, for instance, rather than taking an average. By the same token, when you're estimating income, guess low -- the smallest number realistically possible. Estimating conservatively when you plan your budget will make it more likely that you stay within it over the course of the year.

Step 2: List the estimated yearly expense totals of the absolute necessities of the organization

For most organizations, they include, but aren't necessarily limited to:

• Salaries or wages for all employees, listed separately by position
• Fringe benefits for all employees, also broken out by position. Remember that even if you have no formal fringe benefits, you still have to pay part of the Social Security and Medicare taxes, as well as Workers' Compensation and Unemployment Insurance, for any regular employees (people who work a fixed schedule). These costs can be considerable, amounting to 12 to 15% added on to your total payroll.
• Rent and/or mortgage payments for the organization's space
• Utilities (heat, electricity, gas, water)
• Phone service
• Internet provider or server costs, depending on your organization's needs
• Insurance (liability, fire and theft, etc.)

Step 3: List the estimated expenses for things you'll need to actually conduct the activities of the organization

• Program and office supplies: pencils, paper, software, educational material, post-it-notes, etc.
• Program and office equipment. Wherever you classify computers and peripherals, copiers, faxes, etc., be sure to figure in the annual estimated costs of repairs or service contracts in addition to purchase or lease costs.

For budgeting purposes, it may be useful to separate program supplies and equipment from office supplies and equipment. In the case of state and federal funding, at least some office expenses are often considered "administrative", and funding for administrative expenses may be limited, sometimes to as little as 5% of your budget.

Step 4: List estimated expenses for anything else the organization is obligated to pay or can't do without

• Loan payments
• Consultant services - these may include an annual audit, accounting or bookkeeping services, payments to other organizations for specific services, etc.

Most non-profit organizations are required, either by funders or by the IRS, to undergo an audit every year. This means that a CPA (Certified Public Accountant) must check the organization's financial records to make sure they are accurate, and work with the organization to correct any errors or solve problems. If there is nothing illegal or seriously wrong, the CPA then prepares financial statements using the organization's books, and certifies that the organization follows acceptable accounting practices and that its financial records are in order. The larger an organization's budget, the more complicated an audit is likely to be, the more time it is likely to take, and the more it is likely to cost. An audit of a $100,000 budget might cost $2,000 to $4,000, for instance; that of a $1 million budget might cost $15,000.

• Printing and copying, if not done within the organization
• Transportation: travel expense for staff, participants, and/or volunteers; and vehicle upkeep and expenses for any organization-owned vehicles
• Postage and other mailing expenses

Now that you've gathered your necessary expenses, you can take a look at your wish list.

Step 5: List estimated expenses for things which you aren't sure you can afford, but would like to do

These might include staff positions, new programs (including staff, supplies, space), equipment, etc.

Step 6: Add up all the expense items you have listed

This total is what you would like to spend to run your organization. In other words, it's your projected expense for the coming fiscal year.

Estimating Income: Where are we going to get all that money?

Use last year's figures, if you have them, as a baseline and estimate conservatively, rather than being overly optimistic, and laying yourself open to disappointment and worse.

Step 1: List all actual figures or estimates for what you can expect from your known funding  sources

This includes sources that have already promised you money for  the coming year, or that have regularly funded you in the past. These may include federal, state or local government agencies; private and community foundations; United Way; religious organizations; corporations or other private entities.

Step 2: If your organization fundraising, estimate the amount you'll raise in the next fiscal year

Fundraising efforts might include community events (a raffle, a bowl-a-thon), more ambitious events (a benefit concert by a world-class performer), media advertising, or phone or mail solicitation.

Step 3: If you charge fees or sell services, estimate the amount you'll take in from these activities

This could be consulting services your organization offers, training materials that you created that can be sold to others interested in the same work, etc.

Step 4: If you solicit members who pay yearly dues or fees, estimate the amount that membership will yield

Step 5: If you sell items, estimate what these sales will bring in

This could include pins, T-shirts, books, blood pressure cuffs, etc.

Step 6: If you sublet or rent space to others, record the estimate of what this will bring in

Step 7: If you have any income from investments, estimate what you'll realize from these

This could include investments, endowment income, annuities, or interest income (e.g., from a certificate of deposit, or from a Money Market or checking account)

Step 8: List and estimate the amounts from any other sources that are expected to bring in some income in the coming fiscal year

Step 9: Add up all the income items you have listed

This total is the money you have to work with, your projected income for the next fiscal year.

Putting it all together: Creating and working with a budget document

Analyzing and adjusting the budget

Step 1: Lay out your figures in a useful format

If your budget is going to be useful, it has to be organized in such a way that it can tell you exactly how much you have available to spend in each expense category.

The easiest way to do this is by using a grid, usually called a spreadsheet. In its simplest terms, a spreadsheet will have a list of funding sources along its top edge and a list of expense categories running down its left-hand edge, so that each vertical column represents a funding source, and each horizontal row represents an expense category. Where each column and row meet (this meeting place is called a cell), there should be a number representing the amount of money from that particular funding source (the column) that goes to that particular expense category (the row). A simple spreadsheet for a small organization might look like this:

Spreadsheet: United Consolidated Metropolitan Health Agency (UCMHA)

	Dept of Public Health	United Way	Membership	Dept of Welfare	Totals
Salaries	15,000	2,500	2,500	21,000	41,000
Fringe	3,000	500	500	4,200	8,200
Supplies	300	200	0	500	1,000
Equipment	1,500	1,500	0	0	3,000
Phone	400	150	0	600	1,150
Utilities	500	200	0	500	1,200
Insurance	800	200	0	400	1,400
Rent	4,000	500	0	3,000	7,500
Totals	25,500	5,750	3,000	30,200	64,450

A spreadsheet format allows you to assign restricted funds to the proper categories, so that you can see how much money is actually available to you for any given expense category. In the above example, if the Department of Public Health says that no more than $18,000 of its grant can be spent on salaries and fringe, for instance, then you know that you have to find the rest of the $49,200 total in those categories from other sources.

Step 2: Compare your total expenses to your total income

• If your projected expenses and income are approximately equal then your budget is balanced.
• If your projected expenses are significantly less than your projected income, you have a budget surplus. This circumstance leaves you with the possibility of expanding or improving the organization, or of putting money away for when you need it.
• If your projected expenses are significantly greater than your projected income, you have a budget deficit. In this case, you'll either have to find more money or cut expenses in order to run your organization in the coming year.

Step 3: (For balanced budgets) Make sure you are able to use your money as planned

If you've filled in the numbers in accordance with your funding restrictions, your spreadsheet should immediately let you know whether you have enough in each of your expense categories. If there is a problem, there are several ways of addressing it.

• It may be possible to come to an arrangement with the funder that allows you to use the money in the ways that you'd like to, or that allows you more freedom
• You may be able to reassign some expenses from one category to another. If you don't have enough money to pay an Assistant Director, for example, it may make sense to make her the coordinator of a particular program, and to pay part of her salary out of the funds allotted to that program.
• In some cases, it might be necessary to rethink your priorities a bit, so that the money can be spent in accordance with funding restrictions

It's important to remember, however, that the mission, philosophy, and goals of your organization should drive its funding, and not the other way around. Creating a program simply to make use of available funding is usually a bad idea, unless the program is one you've already planned for, and will clearly fit in with and advance the mission of your organization.

Step 4: (For budget surpluses) Be aware that it may not show up as cash until the end of the coming fiscal year

• The most conservative course is to try to stick to your budget, and invest the excess money at the end of the year. This will give you something to draw on in emergencies, or money you can use in the future for something that the organization really wants or needs to do.
• "Invest" here doesn't necessarily mean putting money in the stock market, which usually doesn't make sense unless you have a lot of money, and you're willing to stay with it for a long period of time - ten years or more. Certificates of Deposit, which give high interest rates in return for keeping money in the bank for a set period (generally, you can choose a period of from six months to five years), or Money Market accounts, which give a high interest rate in return for keeping a large balance, are easy ways for an organization to earn interest on its money, while still keeping it available for emergencies.
• You can use your surplus to improve working conditions within the organization: raise salaries, add a benefit package, etc. It is important to remember that once you've instituted this type of change, you're obligated to maintain it.
• You can buy items that you haven't been able to afford previously
• You can consider adding positions or starting a whole new program or initiative, perhaps one you've been planning for a long time. If you're starting a new program, you're also implicitly making a commitment to maintaining it for a period of years, so that it will have enough time to be successful.
• You can think about a long-term capital investment, like buying a building. You could lock in your rent for the duration of the mortgage (probably 20 years), and you might be able to provide the organization with income as well, by renting part of the building to other organizations.
• Your surplus may not be large enough to enable your organization to make significant changes on its own, but it may provide the means for you to enter into a collaboration with other organizations to achieve a goal that none could have accomplished alone.

Step 5: (For budget deficits) Consider combining several or all of the following possibilities to make your budget work

• If you have enough money in the bank or in investments from prior years, you can use it to make up the gap in your budget
• You can try to raise the additional money you need through grantwriting, fundraising efforts and events, increasing your fees for service, etc. If you have a plan for raising money - such as a raffle to finance a new copier - it should be listed with your estimated income. But be aware that such a projection isn't "real" money until the financial goal it represents is actually reached.
• You can explore saving some money by collaborating with another organization to share the costs of services, personnel, or materials and equipment
• You can try to cut expenses by reducing some of your costs: use less electricity, use recycled paper, try to get donations of some items you planned to buy, etc.
• You can cut expenses by eliminating some things from your budget

A Guide for Budget Cutting

If you're going to cut your budget, it's a good idea to have a rational system for doing so. Here is a suggested step-by-step process which allows you to look at what is more and less necessary, and to make considered decisions about what you can do without and what you can't.

• Look first at those items that aren't essential to the running of the organization.
• Can you cut or cut down the amount of physical, tangible items you need to run the program, or cut the cost of services in some way?
• Finally, if nothing else will serve to balance the budget, you may have to consider cutting back on whatever it is the organization does, which usually translates to dealing with the positions of paid staff.
  • Reduce the hours of one or more staff, if people are on hourly wages - for instance, consider reducing the work week from 40 to 37.5 hours, or even further
  • Reduce one or more positions from full to half time - keep in mind that in many organizations, this reduction would eliminate benefits for those affected
  • Ask staff to pay a larger share of their fringe benefits (if there are fringe benefits)
  • Lay off one or more staff members

You can borrow the money you need, being sure to add the loan payments to your projected expenses and figure them into your revised budget

Creating an actual budget document

While the spreadsheet is probably what you'll use to keep track of your finances, you might also want to put the budget in a form everyone in the organization can understand.

Probably the simplest budget document is one which lists projected expenses by category and projected income by source, with totals for each. Thus, anyone can see how much you intend to spend, how much you intend to take in, and what the difference is, if any. Referring back to the spreadsheet example above, a simple budget would look like this:

UCMHA Annual Budget for Fiscal 2001 (July 1, 2000 to June 30, 2001)

Expenses:	Estimated Dollar Amount:
Salaries	41,000
Fringe	8,200
Supplies	1,000
Equipment	3,000
Phone	1,150
Utilities	1,200
Insurance	1,400
Rent	7,500
Total Expenses	64,450
Income:
Department of Public Health	25,500
United Way	5,750
Membership	3,000
Department of Welfare	30,200
Total Income	64,450

Another possible form would be similar, but would include a budget narrative, explaining how various items were arrived at.

The salary item, for instance, might look like this:

Salaries
Director ($17.00/hr for 20 hrs / week, for 52 weeks)	$17,680
Health Educator ($14.95/hr for 30 hrs / week, for 52 weeks)	$23,322
Total Salaries	$41,002

Other categories would be handled in the same way, with explanations of what they included and how the money would be spent.

A final possibility would be to use the spreadsheet itself as a budget document, for those who wanted to see exactly how the money was to be allocated. Many organizations provide their Boards with both a simple budget and a spreadsheet, so that those Board members who are eager to understand the organization's finances can get a clear picture, while others can simply see whether the budget is in balance.

Working with your budget

Most organizations make sure to review their budgets on a regular schedule - once a month is usually reasonable - and revise them to keep them accurate. If you get a grant you didn't anticipate, or if your spending estimates are off, these things should be figured into the budget.

The budget becomes the basis for financial documents that you might prepare during the course of the year (balance sheets, for instance) which give an up-to-the-minute picture of the financial status of the organization.

Your budget should:

• Tell you if there are still any gaps in funding, and exactly where they are
• Show you exactly what you need to do to close those gaps
• Make it possible to keep careful track of your money, to adjust to changes, and not to overspend

In Summary

Devising a budget process that examines the organization's priorities, and using it to produce an accurate, balanced budget for the coming fiscal year will help you keep control of the organization's finances, and will help guide the work of the organization. A rational and accurate budget will allow you to give accurate reports to funders and to spend their money as you have promised. And it will give you clear guidelines about what you can spend and when.

Glossary

This glossary covers some of the basic accounting terminology used in the section.

Accounting: The method by which one keeps track of and manages money. There are various accounting systems that an organization can use, but the goals of all of them are to assure accurate records, and to give the organization the ability to know exactly how its money is being spent and how its financial position compares to its budget at any given moment.

Audit: A CPA (Certified Public Accountant) checks the organization's financial records to make sure they are accurate, and works with the organization to correct any errors or solve problems. The CPA then prepares financial statements using the organization's books, and either certifies that the organization follows acceptable accounting practices and that its financial records are in order, or explains any problems with the financial records and suggests corrective measures.

Balanced Budget: Projected expenses and projected income are approximately equal.

Budget Deficit: Projected expenses are significantly greater than projected income.

Budget Surplus: Projected income is significantly greater than projected expenses.

Conservative Estimation: Using the highest reasonable figures when estimating expenses and the lowest reasonable figures when estimating income, so you will be more likely to create a budget that will keep you from overspending.

CPA: Certified Public Accountant. A certified audit, which is what most funders require, must be conducted by a CPA.

Fiscal Year: This term means financial year, and is the calendar which you use to figure your yearly budget (July 1 to June 30, for example) and which determines when you file tax forms, get audited, and close your books.

Fund Accounting: The practice of keeping a separate record of the expenditures for each separate grant or contract administered by an organization. Thus, a grass roots AIDS prevention initiative might keep separate records for funds they receive from the Department of Health, the Department of Social Services, the Department of Welfare, a local community foundation, and the AIDS Action Committee.

Line-Item: An expense category (salaries, telephone, office supplies).

Line-Item Budget: Generally, a budget agreed upon with a funder that specifies how much of the funder's money will be spent on each line-item. It could also refer to any budget that is broken out by line-item.

Projected expenses: The amount of money you expect to spend in the coming fiscal year, broken down into the categories you expect to spend it in -- salaries, office expenses, etc.

Projected income: The amount of money you know or can reasonably expect to take in for the coming fiscal year, broken down by sources -- i.e. the amount you expect from each funding source, including not only grants and contracts, but also your own fundraising efforts, memberships, interest and investment income, and sales of or fees for goods or services.

Spreadsheet: A grid format for setting out a budget in order to see expenses, income, and the ways they interact all in one place. In a budget spreadsheet, each vertical column represents a funding source, and each horizontal row represents an expense category. In the space where a column and row meet (called a cell) a number represents the amount of money from that column's funding source spent on that row's expense category.

___You know the elements of an annual budget

___You know why you should prepare an annual budget

___You are prepared for the amount of time and effort spent on your budget to bear some relation to the size of your budget

___You have determined what you will need to spend money on in the next year, using these six steps to estimate your expenses:

• Develop ways of estimating expenses
• List yearly expense totals for absolute necessities
• List estimated expenses for things needed to conduct the activities of the organization
• List estimated expenses for miscellaneous costs
• List estimated expenses for items you aren't sure you can afford, but would like to obtain if possible
• Add up all of your expense items

___You understand how to estimate your organization's income, following these nine steps:

• List all actual figures or estimates of amounts you can expect from your known funding  sources
• Estimate the amount you'll raise in the next fiscal year from fundraising
• Estimate the amount you'll take in for fees or services you provide
• Estimate the amount you will receive from yearly membership dues or fees
• Estimate the amount you will receive from items you may sell, such as pins, T-shirts, books, blood pressure cuffs, etc.
• Estimate the income from any spaces you sublet or rent to others
• Estimate the income you will receive from any investments, endowment income, annuities, or interest income (e.g., from a certificate of deposit, or from a Money Market or checking account)
• List and estimate the amounts from any other sources that are expected to bring in some income
• Add up all the income items you have listed to determine your total projected income for the fiscal year

___The five steps of analyzing and adjusting your budget have been followed:

• Laying out your figures in a useful format
• Comparing total expenses to your total income
• Knowing what to do if your budget is balanced
• Knowing what to do if you have a surplus
• Knowing what to do if you have a deficit

___If necessary, you have ideas on how to trim your budget

___You understand how to create a budget document

___You know how to work with your budget, including when and how to review and/or revise it

• Why does your organization need a money management plan?

• What does the everyday management of your money include?

• How do you create a money management plan?

• What issues are involved in being tax-exempt?

• How do you handle cash flow?

• What are some day-to-day money management issues?

• What are some investment issues?

Families need to keep control of their finances to make life flow smoothly. The same is true in spades for organizations.

In order to manage money properly, you need:

• A budget that's realistic and accurate, so that you can start with a good idea of what you have available to spend, where that money will come from, and what you want to spend it on
• A variety of ways of gaining access to cash so it can be used (a checkbook, credit cards, an ATM card, etc.)
• A way to keep track of cash so you don't overdraw your account or spend more than you have
• A system for paying your bills on time, and for making sure that you have enough money to do that
• A steady stream of income so you can afford the things you need
• Good relationships with the people who pay you for the work you do, and whom you pay for the things you need, so that you can make arrangements with them for advances, loans, or more time in emergencies or difficult situations

Why does your organization need a money management plan?

If your organization is tiny, and its finances come from bake sales and occasional ten-dollar contributions - in other words, if your income and expenses are only one or two thousand dollars a year - you may not need a money management plan beyond keeping your checkbook balanced and paying your bills on time. But if there's any complexity at all to your financial situation, a money management plan is necessary for several reasons.

• It will enable you to continue to fulfill your purpose - i.e. make sure that there's enough money to provide services, keep your initiative going... whatever it is your organization was founded to do.
• It will help to ensure that you get the most out of your money. Good money management will stretch your dollars by helping you use them as effectively as possible.
• It will make it possible to keep control of your finances, and particularly of your cash flow.
• It will help you maintain good relationships with your landlord, your suppliers, and anyone else whom you pay for goods and services. Life is much easier when people and organizations pay their bills on time. Landlords and others are much more likely to make repairs, fill special orders, and generally be friendly to those who make their lives easier.
• It will establish your credibility in the community. Your organization will get the reputation of one that takes care of business, and is serious about its financial commitments as well as its mission. This kind of reputation can add greatly to your fundraising success, since people want to put their money where they know it will be well-managed to do the most good.
• It will save you time in dealing with money. You'll spend far less time trying to track down a missing receipt, or redoing something because you didn't do it right the first time, or engaging in other forms of waste motion.
• It will save you a great deal of worry, because you'll know exactly how much money you have and how it's being spent.
• It will give you more time to devote to the actual purposes of your organization. Money is a means for you to reach your goals. The more effectively your money is managed, the more effectively you'll be able to use it.

What does the everyday management of your money include?

Many directors of organizations, especially in such areas as human services, health, or education, find money management boring, or even frightening. They see it as all about math, and worry constantly about whether they understand algebra well enough to handle finances, or whether a simple error in addition will push their organizations over the edge. But good money management is actually about systems and decisions. The systems are the ones you set up to keep track of and actually handle your money. The decisions are those you make about where to get and what to do with your money. Whether and how well you set up those systems, and the information and assumptions you use in order to make your decisions - not your background as a theoretical mathematician - will determine how well your money gets managed.

If you really find handling money difficult, it may be possible to delegate the money management part of the organization to someone who has the desire and the skills to take it over. Large corporations almost always have a CFO (Chief Financial Officer) who deals with the financial side of the operation. If your organization has a large enough budget, or can find a volunteer who is both competent and reliable, you may be able to do the same. A word of caution, however: even in an organization where there is a CFO or other person who manages the money, it's important that the director at least have a clear understanding of what's going on, and know what questions to ask in order to be sure that money is being used properly.

This kind of financial help can come from within the organization, in the form of a Board treasurer or a Board member or volunteer who is an accountant. It can also be found through other organizations, such as SCORE (Service Corps of Retired Executives), whose members volunteer their professional services to non-profits and others in need.

Some systems you might want to put in place:

• An accounting or bookkeeping system, that will enable you to get whatever financial information you need quickly and easily, and that will make any required reporting as easy and accurate as possible.
• A banking system that affords the organization as much flexibility and as little cost as possible through the use of one or more accounts in one or more banks,
• A money-handling system that clarifies who in the organization has the physical responsibility for various money-related tasks - making deposits and withdrawals, writing checks, paying bills, etc.
• A petty cash system that makes it possible for staff to gain access to small amounts of money for purchasing everyday items: stamps, coffee, etc.
• A payroll system that assures that everyone gets timely and accurate paychecks, with the proper fringe benefits, deductions, etc. included.
• A payables and receivables system that defines the procedures you use to pay bills and to bill for the goods and services you provide.
• A grants management system that allows you to keep track of the finances of each grant or contract separately, and to spend funders' money in the ways you've agreed to.
• A system for handling cash flow issues

"Cash flow" is a term you'll see many times in this section. It refers to the actual flow of money through the organization, as opposed to what's on paper. If you're owed $500.00 by your friend, but he hasn't paid you yet, and you only have $5.00 in the bank, that's a cash flow issue. You can't pay your electric bill with the fact that your friend owes you money. Organizations deal with this issue all the time. Money from grants and contracts often flows slowly, and fundraising is unpredictable. Bills, on the other hand, come regularly, and salaries have to be paid. How well your organization manages cash flow can make a tremendous difference in its health, financial and otherwise.

Some examples of decisions you need to make:

• What kind of accounting system will you use, and will you computerize your accounting?
• What types of bank accounts and banking are best for your organization?
• Who has the authority to make day-to-day money decisions and to sign checks?
• What constitutes full-time employment and what constitutes part-time? Who gets what kinds of benefits?
• Will you use purchase orders for your ordering and buying? Which suppliers - for phone, office and program supplies, equipment, etc. - will you use?
• Will you set up a separate bank account for each major grant? How will you handle reporting to funders?
• Which bills and obligations will you settle first if you're short of cash? How long will you wait before you borrow money?
• What will you actually spend your money on?

Most organizations will find that if they think carefully about the decisions they make, and set up - and continually fine-tune, if necessary - systems that work for them, the math will usually take care of itself.

Another important aspect of money management lies in the attitude that goes into it. It is possible to be too concerned with money, and too careful about it. This kind of over-cautious attitude may lead to an unwillingness to take risks or to change, an attitude that can stultify an organization. By the same token, a too-casual attitude can lead to financial and even legal difficulties for the organization. It's important to understand just how important money is to what you do, and also to realize that it's not the only thing that's important. Keeping a clear perspective is key to managing money rationally.

• What does tax-exempt status have to do with money management?
• How do you handle cash flow issues?
• What are the day-to-day decisions and concerns you'll face in carrying out a money management plan?
• Investing extra money?

How do you create a money management plan?

Every organization needs a money management plan. The nature of that plan depends upon the size and scope of the organization's finances, however. Much of the material in this section is admittedly geared toward organizations with five-figure or larger budgets. If your organization's budget is only a few thousand - or a few hundred - dollars, your money management may consist of little more than a checkbook and a calculator. It is important to understand what kinds of systems may be needed, however. Small organizations often grow, and even if they don't, they still have to manage their resources effectively in order to do their jobs. So if your organization is small, you may not need to use all, or even most, of the money management strategies described in this section. But you will need some of them, and understanding money management in a larger sense should help you to make the most of what you have.

Accounting

The discussion of accounting here is meant only to help you approach setting up an accounting system and some of the issues an organization must face in the process; none of the information about accounting in the Community Tool Box should substitute for conferring with an accountant or other financial professional.

If your budget is very small - only a few hundred or a few thousand dollars - you may not really need an accounting system at all; but you'll still need to balance your checkbook, keep track of money in and money out, and pay attention to cash flow. A basic understanding of the issues here will still be necessary for you, even if your accounting system is no more than a check register and a stack of receipts in a desk drawer.

When setting up an accounting system, you will need to determine whether you will use a cash basis or accrual system to keep your books.

Cash basis/Modified cash basis accounting

Many small not-for-profits use cash-basis rather than accrual-basis accounting to record expenses and revenues. This means that they only record revenue when the cash is received, and only record expenses when they are paid. Some not-for-profits use modified cash-basis accounting, where they will record payroll taxes withheld from employees or large revenue or expense items on an accrual basis.

Accrual basis accounting

Accrual-basis accounting reports income when it is earned and expenses when they are incurred. Most businesses track all expenses and revenues using accrual accounting. If you get public money (and, quite possibly, even if you don't), the accrual method is more accurate and more effective. It tracks line items better, and tells you how much of your annual budget you've actually spent. If you go purely on a cash basis, it's a little like not recording the checks you write from your personal checkbook, but only checking the balance occasionally. Doing that, you can end up overdrawn with no trouble at all, since your balance rarely matches the amount you've actually recorded in your checkbook. If you use accrual, you always know when you can spend and when you can't; it makes sense in that circumstance to keep track of cash as well, but not necessarily to keep books on a cash basis.

Another one of the most important elements of an accounting system is the working relationship between the organization's accountant or bookkeeper and the rest of the staff. Words that mean one thing in common English mean something slightly - or radically - different in accounting language, and this situation can lead to massive confusion and incorrect or incomplete financial information. One nonprofit director struggled to get from his organization's bookkeeper a statement of how much real money came in and went out in a particular year. It literally took years to determine that the bookkeeper meant something different by "cash" than the director did. Once the language problem had been solved, the information was easily obtainable.

This issue can cause errors in the other direction as well. An accountant or bookkeeper may not get the information she needs because of the language barrier, or because other staff members don't perceive the bookkeeper's requests as important, and, as a result, the books may not be accurate.

Yet another potential concern lies in the difference between nonprofit and for -profit enterprises. The bookkeeper in the anecdote above had never before worked in a nonprofit business, and therefore didn't realize that it was important to stick to the budget. He didn't understand why the director was so insistent on finding out where the organization's income and expenses were in relation to what was projected. The result was frustration on all sides.

The bottom line here (pardon the pun) is that the relationship between the accountant or bookkeeper and the rest of the staff is incredibly important in determining whether an organization's accounting system will work well or not. It is more than worth it to take the time to bring language and other differences out in the open, correct any misunderstandings, and clarify what's necessary on both ends in order for the organization's financial management to function smoothly.

Banking

If your organization or initiative has a small budget - only a few thousand dollars - a single checking account may be all you need from your bank. But if your budget is large and complex, with a number of funders, you may need more than one account, or more than one kind of account, as well as some other services. Before you start looking for a bank, you need to decide what you want from your banking system.

Some of the possibilities include:

• The best interest rates you can find, including interest on your checking account
• The availability of high-interest accounts (Money Market, for instance) for times when you have extra cash that you expect to hold on to for a while
• Overdraft protection (essentially a short-term loan up to a certain amount), so you can pay your bills when you're short of cash
• The willingness of the bank to loan your organization money if needed
• A different - and perhaps even a different kind of - account for each of your major grants or contracts (Do you want these all in the same bank?)
• Payroll direct deposit for employees
• A banking package giving you favorable rates - your organization may be passing large sums through that bank every year, so consider what you should get in return

Other issues might include security (Are the bank's deposits federally insured?), convenience (Is the bank close by? When is it open? How many ATM's can you use without a fee?), how easy the bank's services are to use, how the bank treats people from your organization, the bank's relations with the community (Does it encourage small business development?), the bank's philosophical stance regarding the issues your organization addresses (Does it lend to low-income and minority homebuyers, for example?), and personal relationships with bank officers.

You should shop for a bank the same way you'd shop for a car. Arrange an interview at each bank you're interested in, explain what your needs are, and discuss how those needs can best be met by that particular bank. Pick the one you think can do the best job for your organization. If you carefully make decisions about what you need, and choose your bank equally carefully, you'll come up with a banking system that's right for your organization.

Money handling

Having a banking system implies that someone has to be authorized to use it. Who in the organization has the authority to make final decisions about spending, and to sign checks and other financial documents, such as loan agreements or contracts? There are several ways to answer these questions, and the answers are different for different organizations.

Who makes financial decisions?

The answer here is usually the director, the Board of Directors, or some combination of the two. In many organizations, the director presents an annual budget to the Board for its approval, but, once the budget is approved, makes the day-to-day financial decisions without Board permission. If there are major deviations from the budget, the director comes back to the Board with a new budget, explains the changes, and has the new budget approved. This model is probably the most common among nonprofit organizations of all kinds. It allows for Board input and oversight through the budget process, but gives the director the freedom to make the decisions that go with her responsibility for the running of the organization.

In some organizations, the Board makes all financial decisions, and the director carries them out. In others, the director makes all financial decisions, and either no Board exists, or it has only a consulting role. This last model is unusual in larger organizations, where large sums of money are at stake.

There are other variations on all of these themes. Directors and Board finance committees or treasurers may share fiscal responsibility, Boards may hold veto power over directors' decisions, or other officers - the accountant or chief fiscal officer (CFO), for instance - may hold decision-making power about money. The best advice about this issue is to choose a system that gives everyone the powers that go with his level of responsibility, and that allows him to carry out that responsibility as effectively as possible.

Who signs checks?

The person(s) designated to sign checks for the organization usually reflect who makes decisions about money. It makes sense to have at least two people able to sign checks (in case someone is sick or on vacation). In organizations where the financial decisions are shared between Board and director, a check may require the signatures of both the director and either the chair or the treasurer of the Board.

In some organizations, payroll and payables checks - or even all checks - are signed by the accountant or bookkeeper, rather than the director. In larger organizations, where there are several separate programs, the director of each program may have a separate account, and may be responsible for spending - and for reporting, both to the funder and to the organization's accountant - for her program.

One standard procedure, often required by auditors, is that checks over a certain amount - usually several thousand dollars - be signed by two people, even if most checks get only one signature. This is to assure that large expenditures have been properly approved, and to keep someone from heading for Rio with the bank balance of the organization.

Who can use ATM cards and credit cards?

Who has access to the appropriate PIN numbers and cards? In most cases, these will be the people who make financial decisions and sign checks. Sometimes, however, convenience is also a factor: the bookkeeper or a staff member who lives across the street from the bank may be an obvious choice.

Who signs documents for the organization?

Most organizations choose an official signatory, the person whose signature commits the organization to a contract or other legal document. In most organizations, this is usually either the director or the chair of the Board, or, in some cases, both. As with check signing, who you choose as your organization's signatory probably should reflect who makes the decisions about money and the organization's functioning.

Petty cash

Petty cash is the money you keep in a drawer for when you realize there's no aspirin in the office, or when someone needs paper towels. The amounts of money covered by petty cash are by definition tiny compared to the overall budget of the organization (you might easily spend less than $100.00 a year). If they're not handled and recorded properly, however, they can drive bookkeepers and auditors insane. If your books are going to balance, you need a system to make sure that both who spent any petty cash and what they bought with it are recorded accurately.

One possibility is to simply start with a petty cash line in your budget. A certain amount of cash is drawn against this every month, and either distributed as needed, or distributed in set amounts to those who need petty cash. A way of reporting on spending is agreed upon by all concerned, and every expenditure gets recorded as soon as it's made. As long as everyone follows the system, it all works fine. The reality is that petty cash is almost always a pain. The easier and simpler your system is, the more likely it is to be followed.

Payroll

Payroll is the largest expense for most non-profits. It may seem that no real system is necessary: after all, you just have to write out a check every week or two for the amount of an employee's pay, right? Well... not exactly. There are a number of questions to answer before you make out and distribute your payroll.

• How often does everyone get paid?
  • Most organizations pay either every two weeks (the most common) or every week, but some pay monthly or on some other schedule.
• If the work year is less than 52 weeks, will you still pay on a 52-week schedule?
  • Most school systems and other educational organizations that take summers off pay their employees on a 52-week schedule, but other options are certainly possible.
• How flexible are you willing to be?
  • Does everyone get the check on the same day regardless of whether that's a work day for each person or not? Can employees decide individually on their yearly pay schedules?
• How do you define full- and part-time, and how does that affect benefits?
  • Some organizations give everyone the same benefits, or a share of benefits, regardless of how many hours a week they work. Others don't give benefits to part -time employees. Benefits are often denied to employees working fewer than 20 hours a week, and full-time is often defined as 30 hours a week or more
• How will you handle benefits?
  • Will those who don't need health insurance, for instance (because they get it through a spouse or some other source), be given the equivalent in some way? Will you hire a professional to prepare and administer a benefit program?

Remember that even if you don't offer any benefits at all, you're still responsible for paying - on a regular schedule - half of employees' Social Security and Medicare taxes, as well as for withholding all relevant federal and state income tax. In most states, you're also responsible for Unemployment and Workers' Compensation. If you fail to pay any of these on time, you get hit with both interest and penalties (worst on the federal taxes). The IRS may not inform you of your error for a year or more, and they charge interest and penalties for that whole period, even though you may have had no idea that you owed them anything.

• Will the organization do its own payroll?
  • Many banks and accountants offer regular payroll services, which may include direct deposit, mailing checks directly to employees' homes, or other possibilities. One of the advantages of hiring out payroll is that the payroll service may take responsibility for errors in withholding, etc.
• If the organization does its own payroll, will it use payroll software or some other check-writing system?
  • There are a number of payroll software programs on the market that include Social Security and Medicare taxes, and can easily be programmed to withhold appropriate amounts from each paycheck. They can also then print out the whole payroll - checks and records alike - saving a great deal of time. The drawback is the expense of both the software and the checks - specially printed and connected to be fed through a computer printer. Generally, the larger your organization, the more likely a software system is to be cost effective.
  • Check-writing systems - paper-and-pencil packages that allow you to make copies of checks and record payroll journals on the first writing, without having to resort to copiers or recording numbers by hand in two or three separate places - can be cost- and time-effective for some smaller organizations.

Payables and receivables

Payables are those expenses which you owe, but haven't paid yet. These include outstanding bills for goods you've bought, rent or mortgage payments, bills for last month's utilities, bills for services you've already received, etc.

Receivables are those items of income that you're owed for services or goods you've already supplied, or regular payments from funders which are due, but haven't arrived yet.

If your accounting system is computerized, then your payables and receivables system essentially has to be. Some questions to think about while setting up a system to handle payables and receivables:

Payables:

• Who actually pays the bills? The director? The bookkeeper?
• When do bills get paid? As soon as they're received or due, or simply on a regular basis (e.g. every two weeks, or once a month)?
• Will you use a purchase-order system to buy things? Purchase orders are printed forms, numbered in sequence, on each of which you record a particular purchase. The seller gets a copy, and you keep one yourself, allowing you to track the things you've ordered or bought, and when and how much you've paid for them. Purchase orders provide a record for your organization of what it's bought from - and what it owes to - whom, and they give the seller a record to bill from. Whether or not a purchase order system makes sense for your organization probably depends on how tight your fiscal controls are. Some accounting software can print out purchase orders automatically when you record an order, and make the process much easier.

Receivables:

• Who actually sends out bills?
• When does billing get done (or, in the case of grants, when do you apply to "draw down" - i.e. receive - money)? As soon as you've provided the goods or services, or simply on a regular basis (monthly, for instance)?
• How long will you give people to pay, and how do you communicate with people whose payment is late?

Grants management

If you receive grants or contracts, from public or private sources, they generally come with some clear expectations from the funder about what you'll do with the money. A grant is a gift of money which you usually must agree to spend in particular ways. A contract pays you for goods or services you provide, generally after the fact (i.e. you supply the goods or do the work and then bill the funder for your costs at a rate you've both agreed upon).

In the case of public money - and, to a large extent, of private money as well - the greatest difference between grants and contracts can be when you get paid. With a grant, you generally receive money on a regular basis, or all at once, whether you've spent it yet or not. With a contract, you often don't get any money until you've actually spent your own to provide goods or services. Many organizations would agree with an adult education provider who was asked the difference between a grant and a contract. He answered, "Life and death."

There are advantages to contracts as well. Often, a contract gives you more control over how you can spend your money. And not all contracts require that you spend money before you can receive it; some call for money to be provided on a regular schedule, or allow it to be drawn in anticipation of services. But in general, the grant/contract distinction holds.

With most grants and contracts, the terms of how your organization can spend its money are laid out very specifically. The funder and the organization will agree on amounts for particular line items (a line item is an expense category, which occupies a single line in a budget: "salaries," for instance, or "office supplies "). The funder then expects the organization to stick to these amounts, either exactly, or within specified limits (say, 10%). If the organization fails to fulfill its commitments without renegotiating the grant or contract (which is usually possible, at least within reasonable limits), it may be asked to return some or all of the money. It is therefore obviously crucial to be able to track each grant and make sure that spending is within the limits agreed upon, and that the called-for work or service is provided.

How will you track line items? The answer to this question can be complicated, because it often means juggling several different grant budgets. Your organization's overall budget for office supplies may be $300.00, for example, but that may be divided among three different grants, with different amounts in each. Not only do you have to be careful not to spend more than the $300.00 you've budgeted, but you have to be careful to assign your spending to the right grants. If you have accounting software, it may be helpful here.

How will you track separate grants? One possibility is to keep a separate bank account for each grant or contract. While this is probably the most efficient way to handle the issue, in practice it's often difficult because of cash flow. Keeping a separate set of accounting journals for each grant or contract is usually a much better option. With good accounting software, you can set up a system that will record your income and expenses by grant, and integrate them into the general ledger (the books of the organization as a whole) at the same time.

What issues are involved in being tax-exempt?

Most non-profit organizations are tax-exempt, but tax-exempt status doesn't come automatically. The organization has to first apply for and obtain non-profit status from the state, and then apply to the federal government for tax-exempt status. After federal tax-exempt status is granted, the organization can apply for a tax exemption from the state. Got that?

This discussion here of non-profit and tax-exempt status is primarily focused on the number of ways those issues can affect money management in your organization and make some demands on you if you want to take advantage of it.

First, there's that matter of obtaining tax-exempt status in the first place. You'll probably need to work with an attorney or CPA in order to fill out and submit the applications for non-profit and federal tax-exempt status. But once those are granted, your job isn't over. There are still several things you have to do - some of them only once, and others continually - in order to make sure that you actually don't pay any taxes (thus saving your organization a good bit of money, which you can then use to further your mission).

• Apply for state tax-exempt status. This has to be done after you receive notice of your federal status, but you will need to supply copies of your federal tax exemption, your articles of incorporation (if you're incorporated), your latest tax form, and some other information as well. While federal tax-exempt status excuses your organization from paying any income taxes, state status not only includes exemption from state income tax, but also covers sales tax, property tax, and any other state and local levies. State tax exemptions generally have to be renewed at regular intervals (every five years is common).
• Make sure that the correct forms are used when purchases are made. In order to avoid sales tax, in most states an official representative of your organization must fill out and sign, at the time of purchase, a form provided by the state that specifies the amount of the purchase, the amount of the tax, etc. You also need a form if your organization sells to others. It is contingent on someone in the organization to make sure that whenever anyone buys or sells anything taxable for the organization, he has copies of the appropriate form signed by the appropriate person.
• Remove taxes that you've been paying on your phone, utilities, and any other regular payments. The fact that you've received federal and state tax-exemptions doesn't mean that everyone automatically takes the taxes off your bill. Getting the electric company, the gas company, the phone company and others to remove your taxes can be an annoying process. All of them require documentation, and it's not unusual for each to require something different. It's a pain, but your organization will save a good deal as a result.
• Fill out tax forms. Even though you have tax-exempt status, you still have to fill out forms for both the IRS and the state. The IRS form is the 990, and has to be filed just like a for -profit tax form. Furthermore, failing to file - or failing to file on time - incurs the same penalties as if you were a for-profit business. Many non-profits have their taxes done by a CPA as part of their yearly audit.
• Arrange and undergo a yearly audit. An audit is the careful checking by a CPA, according to federal regulations, of an organization's books. Any organization receiving public funds over $25,000.00 must undergo an annual audit of a certain type, and there are particular guidelines for non-profit audits in general. Among other things, such audits generally must confirm that any granted or contracted money was spent in the way agreed upon in the grant or contract, that Board meetings actually took place, and that the organization provided whatever services it said it was providing.

How do you handle cash flow?

As explained above, cash flow has to do with the availability of cash at a given moment. The organization may be owed a great deal of money from funders and other sources, but if it doesn't have cash in the bank, it can't pay its bills. Community based and grass roots organizations deal with this problem constantly. While there's almost no way to avoid it completely, there are ways to minimize it. The first step is to understand and anticipate why cash flow problems might arise for your organization.

Causes of cash flow problems

There are numerous reasons that an organization may experience cash flow problems. The most common probably stem from late payments by funders. Some of the reasons that a promised grant or other payment hasn't arrived yet might include:

• The money hasn't been released to the funder yet - this is particularly likely in the case of public money, which is subject to funding approval at a number of levels

In Massachusetts in 1999, for instance, the state budget wasn't approved until November, five months after the June 30th end of the previous fiscal year. Until the budget was approved, no state agency could receive any funds from it, and the agencies' grantees and contractors in turn could get no funds, either.

• The funds are simply late - the funders are backed up, their computer system crashed, they're understaffed, etc.
• The funding is still in process. Perhaps you haven't gotten the funder a crucial piece of information, or they're still checking something in your proposal, or you're still negotiating about particular line items - in any case, you won't see any money until the process is completed.
• You're on a payment schedule, and the next payment isn't due for another month
• You applied for payment late (perhaps because your billing system is less than efficient)
• You may be awaiting payment for services already performed, and for which your organization has already spent a lot of money
• You may be waiting for revenues from a planned event - a carnival, a benefit concert - that hasn't taken place yet
• You may be waiting for a fundraising appeal or membership drive to take effect
• You may simply not have enough money to do what you're trying to do. If this is indeed the issue, it's not really a cash flow problem, and you have some hard choices to make.

Ways to address cash flow problems

While you may not be able to stave off cash flow problems altogether, there are number of things you can do to reduce their impact and prepare your organization to weather them.

• Try to anticipate when cash flow problems may occur. Summer and early fall, when the state budget may still be in deliberation, could be a problem if you 're dependent on public funding, for instance. If you have a fundraising event or drive planned in September and another in May, March and April might be a time when you're running short. Because of a difference in funders' fiscal years, there may be a lull in funding at a particular point.
• Set your priorities beforehand. What do you have to pay - or to buy - and what can you defer when you're waiting for cash flow to catch up with your bills and obligations? All but the most necessary office supplies can probably wait until you have some cash. The phone company will usually continue your service as long as you make some payment - often as little as $10.00 - on your bill. Figuring out ahead of time what you have to pay or buy and what you can put off will both make it possible to get through shortages of cash and contribute greatly to your peace of mind.
• Develop a cash flow contingency plan based on your priorities and the situation of your organization. Such a plan could include:
  • Negotiate beforehand with your major suppliers, utility companies, landlord, etc. to explain your situation and work out an arrangement that's agreeable to both of you. If your landlord, for instance, understands that there are months when paying full rent will be difficult, she may be willing to take partial payment at those times, and wait for the rest until you have it. In general, informing your creditors beforehand of the possibility and negotiating some mutually acceptable arrangement will buy you both time and goodwill.

What do you pay first, and what do you put off if you can't meet all your obligations because of cash flow? In almost all cases, payroll has to come first. The organization has an absolute obligation to its employees to maintain their livelihood if it possibly can. What comes next depends to a certain extent on who will let you slide how much. Landlords who rent to community based organizations are often sympathetic, for instance, whereas large utilities may not care who you are or what you do - they just want their money. At the same time, they want to keep you as a customer, and are usually willing to negotiate. It's generally easiest to put off those who don't provide goods or services upon which the life or death of your organization depends. There are ethical issues here as well, however: while the phone company won't go broke if you don't pay your bill on time, the local printer who produces your brochures might, even though he might also be more willing to wait for payment. What's your ethical obligation here?

• Arranging with your bank for short-term loans - at favorable rates, if possible - at the times you need them
• Putting aside a certain amount of money whenever it's available as a hedge against later cash flow problems
• Making absolutely certain that you apply for as much of your funding as possible from each funder as soon as it's allowable to do so

A temptation in a bad cash flow situation might be to put everything on a credit card, and take the benefit of the 30-day period before payment is due, or simply use the debt as a short-term loan. Remember before you take that route, however, that if you don't pay within the specified time, you'll be charged an exorbitant interest rate on your balance - usually 18% a year (you can get a much better deal on a short-term bank loan). Be aware also that different credit card contracts are different. Somewhere in the fine print in your credit card contract, it may mention that if you use your card to withdraw cash, every other purchase you make in that month from that moment will be charged interest at the maximum rate. Or there may be rules about what happens if you don't pay your minimum balance on time. Make sure you know exactly what's in your contract before you use a credit card to deal with cash flow problems.

What are some day-to-day money management issues?

Once you've set up your systems and everything's in place, you have to deal with the everyday tasks of actually using and keeping track of your money. Day-to-day handling of money, in addition to cash flow, involves the same kind of comparison shopping, looking for bargains, and negotiating for the best deals that careful families do. It also means maintaining your systems and making sure they're actually being used. Having great software doesn't help if no one enters the numbers, or if no one records them in the first place.

An important element of everyday money management that we won't discuss in detail here is the building and sustaining of personal relationships between people in your organization and landlords, suppliers, customers, and funders. It's always easier to negotiate, to get something done quickly, to get a break on a payment time, etc. if you have a personal relationship with the person you're appealing to. It also makes doing business in general smoother and much more pleasant. The reality is that the world runs on personal relationships: the more and the better you can cultivate, the better for your organization and the simpler your financial management will be.

Shopping for goods and services

You obviously want to make your money go as far as possible. One way to ensure that is by comparing the prices of different suppliers, and looking for the best deals on goods and services.

Some other things to consider:

• Looking carefully at stores or service firms you might want to do business with, and comparing not only their prices, but what kind of support they offer, and exactly what you're getting for the money. Cheapest is not always smartest.
• Using catalogues. Sometimes, catalogues contain items that aren't sold in stores, and may also feature specials, or simply be cheaper in general than store prices. With most catalogue orders, you have to figure in the extra shipping and handling fees; but some catalogue houses ship free if you order more than a certain amount. In addition, you can figure in the amount the organization saves by not having to pay someone to actually go out and shop.
• Becoming part of a buying collaborative. Nonprofit organizations often band together - sometimes joining with larger entities, such as school systems or city governments - to negotiate large-volume deals with suppliers. You may be able to get office supplies, furniture, or other items at greatly reduced rates if you're part of a group that orders these things in huge quantities.
• Sharing equipment, positions and services. Two or more organizations may be able to save money by sharing a copier, a receptionist, or trash pickup.
• Using the Internet. Major bargains often appear on-line, especially if your needs aren't state-of-the-art. You may be able to get the one- or two-year-old version of a dynamite accounting software package (which will probably be more than powerful enough for your needs into the distant future) for a small fraction of its original cost. Discontinued lines of furniture, computers and other electronic equipment, toner for copiers and printers, or just plain low prices on things you need can often be found with a little searching. Once again, you have to add shipping and handling fees, but you'll save on person-hours.

With any of these strategies, remember that it's important to balance the money you save with the value of what you get - the level of service, for instance, or free technical support - and the time and effort you spend. If it takes someone in the organization a day to find a bargain on a new computer, what's the difference between that day's pay and the amount you saved? If it's not considerable, it's probably not worth it. By the same token, if you buy an inexpensive piece of equipment that's constantly out of the office being fixed, or you get a deal from a CPA firm that regularly messes up your tax returns, you haven't found a bargain.

Negotiating with funders

As mentioned above, you're obligated to fulfill the terms of a grant or contract. Those terms aren't necessarily cast in stone, however, and most funders are willing to negotiate, at least within broad limits, about such things as payment schedules and uses of money. After all, the funders are concerned that you do what you've been funded for as well as possible. They're usually willing to do whatever they can, within reason, to make that happen.

Renegotiating your payment schedule may mean that you can stave off cash flow problems. The ideal is being able to ask for money whenever you anticipate needing it. It will take the funder a certain amount of time to deal with the request for funds - anywhere from a few days to months, in the case of some state or federal bureaucracies - and you have to leave enough time so that you'll actually receive the money before you run out of what you have.

Most funders have a mechanism that allows them to approve changes in your line -item budget (although not in the total amount of funding) up to a certain point in the fiscal year. This gives you the opportunity to address unforeseen circumstances, or simply to respond to the real expenses of your project. As long as you can justify the changes, and as long as the changes are directed toward accomplishing what you 're funded to do, funders will almost always approve.

Maintaining systems

As you use your money management plan day-to-day, you have to make sure that all the systems you so carefully designed continue to work properly.

Some of the areas that have to be maintained:

• Data entry and backup. Any systems that are computerized - accounting, payables /receivables, payroll - need the right numbers put into them constantly so that they'll always be up to date. In addition, they should be backed up regularly - ideally every day - so that you won't lose all your data if the power goes out or if your hard drive crashes. If those systems aren't computerized, the data entry - using pencil and paper - is still just as important, and can be even harder to maintain, because it takes longer.
• Paying bills and billing. Your system is useless unless someone actually does the paperwork on a regular basis, and keeps careful records.
• Payroll and payroll taxes. Someone has to make sure that Social Security, Medicare, state and federal taxes, unemployment, and workers' compensation are all paid correctly and on time. In addition, whoever is in charge of payroll has to keep up with changes in the tax laws, as well as with any changes in employee benefits, so that he withholds the proper amount from employees' checks in either case. W-4 forms (employees' declarations of the number of their exemptions) have to be on file, and W-2 forms (the employer's declaration of how much was withheld and paid in all categories of taxes from each employees' pay for the year) have to be issued to employees, with copies sent to the federal and state governments, between January 1 and January 31.
• Audit and organizational tax requirements. An audit has to be arranged each year, for which someone in the organization has to gather and provide all the necessary financial and other records, often including Board meeting agendas and minutes, actual contracts and grant agreements, and records of services provided or activities conducted. In addition, the Form 990 (for the IRS) and any relevant state tax forms have to be completed and sent to the appropriate agencies within three and a half months of the end of the organization's fiscal year.
• Printed forms. If you use purchase orders or other printed forms for financial systems, they have to available when they're needed, whether that means buying generic ones, running them off on a computer printer or copier, or ordering them from a printer.

In addition to general system maintenance, it's important to evaluate systems continually to make sure they're working efficiently, and to make changes where necessary to make your money management as effective as possible.

What are some investment issues?

If your organization is one of the lucky - or well-run - ones whose cash flow is healthy, you may find yourself with extra money in the bank. Rather than letting it sit around gathering dust in a no- or low-interest checking account, you might consider investing at least part of it in a something that yields higher interest.

A Certificate of Deposit (CD) gives you a high rate of interest in return for leaving your money in the bank for a specified length of time - usually from three months to five years. A three- or six-month CD provides high interest, but doesn't tie up your cash for too long. If the organization needs cash, the money can be withdrawn before the time is up, but there is a substantial interest penalty (i.e. the CD's final interest rate will be considerably lower than if you kept it for the full period).

A Money Market Account yields high interest in return for keeping a certain minimum balance. While Money Market interest is lower than that of a CD, cash in a Money Market Account is available without any penalty as long as the minimum balance (usually about $5,000.00) is maintained.

Both CD's and Money Market Accounts provide good ways of putting aside money for short periods of time to deal with anticipated cash flow problems. They also provide the opportunity for longer-term high interest opportunities.

For most organizations, investing in the stock or bond markets makes less sense, since these are by nature long term propositions that carry a certain amount of risk. Because of ups and downs in stocks, cautious investment strategy means staying in the market for at least ten years, which may defeat your organization's investment purposes. In addition, your investment needs managing, and management fees are charged whether you're making any money or not. Unless your organization has an endowment or some other amount of money large enough to generate significant income (and which you can afford to have tied up for a long time), investing in stocks and bonds is seldom useful.

If you have a larger amount of money to play with, you might consider a capital investment. A capital investment means taking some of your capital - the worth of your organization - and using it to buy something which itself becomes part of the capital of the organization. For instance, you might consider, as many non -profits do, buying a building.

Some of the advantages of this course of action:

• There are numerous federal and state programs available to provide low-interest mortgages for non-profits
• You can lock in your rent (i.e. your mortgage payment - as a tax-exempt organization, you'll pay no property tax) for the period of the mortgage, typically 20 years. This allows for easier financial planning, since you know exactly what you'll be paying for space.
• The building itself is an asset of the organization which can be sold if necessary, or can be kept until the organization owns it free and clear
• You may be able to generate income - perhaps enough to cover the mortgage and upkeep - by renting out the parts of the building you don't use yourself. If you can eliminate your space costs in this way, you'll improve your cash flow situation tremendously.

Other possible capital investments, depending upon the needs and purposes of your organization, could include buying vehicles, major pieces of medical equipment, land, etc.

In Summary

Good money management is largely a matter of making good decisions and setting up good systems to manage your financial operation. If you can set up systems that work for your organization to handle your daily accounting, payroll, payables/receivables, and grants management issues; if you can anticipate and deal with cash flow problems; and if you can invest wisely when you have money to spare, then you'll have your money management under control. This will allow you to do a better job at whatever it is your organization is trying to do, and thus to provide more benefit for your target population and for society.

Have you included the following systems in your management plan?

___Accounting

___Banking

___Money-handling

___Petty cash

___Payroll

___Payables and receivables

___Grants management

___Handling cash flow issues

Have you included the following decisions in your management plan?

___Computerizing your accounting

___Types of bank accounts

___What constitutes full-time employment

___Which bills and obligations to settle first

___Determining your elegibility for tax-exempt status

Have you determined a plan for handling cash flow?

___Anticipate when cash flow problems may occur

___Set your priorities beforehand

___Develop a cash flow contingency plan based on your priorities and the situation of your organization

Have you considered the following management and investment issues?

___Day-to-day money handling

___Shopping for goods and services

___Negotiating with funders

___Maintaining systems

___Investing in a Certificate of Deposit

___Investing in a Money Market Account

Tool: Spreadsheets

A spreadsheet is a way to display a budget or the finances of an organization in a way that makes it clear how much money can be and/or has been spent for each line item from each funding source. In its simplest terms, a spreadsheet is a grid with a list of funding sources along its top edge and a list of expense categories running down its left-hand edge, so that each vertical column represents a funding source , and each horizontal row represents an expense category. Where each column and row meet (this meeting place is called a cell), there should be a number representing the amount of money from that particular funding source (the column) that goes to that particular expense category (the row).

While you can make a spreadsheet either by hand or by computer, the advantage to a computer spreadsheet is that it allows you to put formulas in particular cells to total up a column or row, or to otherwise make sure that the number in that cell reflects a change elsewhere. In the spreadsheet below, for instance, each of the cells in the "Totals" row at the bottom automatically adds all the figures in its column, so that if you enter a new number in one of the cells in that column, the total at the bottom will change automatically. The same is true for the cells in the "Totals" column on the right, with the difference that those cells are set up to total their rows. In the "Fringe" row, each cell - except for the "Total" ones - is set to figure 25% of the total salaries in its column, because you already know that fringe benefits are 25% of salary.

Consolidated United Conglomerated Community Health Program

	United Way	Department of Health	County	Raffle	Totals
Coordinator Salary	2,000	22,000	5,000	1,000	30,000
Aide Salary	5,000	8,000	4,000	1,500	18,500
Fringe	1,750	7,500	2,250	625	12,125
Rent	750	5,500	2,000	125	8,375
Insurance	0	1,500	0	0	1,500
Office Supplies	500	1,200	275	0	1,975
Program Materials	0	1,300	475	0	1,775
Totals	10,000	47,000	14,000	14,000	74,250

Because the cells change their totals automatically when new figures are introduced , a computer spreadsheet makes it easy to test out different ways of spending money , and to see immediately how much you can afford to spend in particular categories.

• What is accounting?

• How is not-for-profit accounting different from accounting for for-profit organizations?

• What is an accounting system?

• When should you develop an accounting system for your organization?

• Why should you do accounting for your organization?

• How do you do accounting for not-for-profit groups?

For many community organizations, how to get cash is the burning question on everyone's mind. "How can we possibly get the money we need to do what we want to do?" Usually, the director, the staff, Board members - everyone - spends a good deal of time and energy trying to find the best answer to this question. And find it again, and again, and again.

Often - and to the detriment of many not-for-profit organizations - the equally important question "How do we handle the money we do have?" is ignored or is handled haphazardly, without proper thought and expertise. Proper accounting procedures are often left by the wayside, to be addressed at the last minute, if at all.

Despite this reality, thorough and proper accounting procedures are crucial to the financial sustainability of an organization. In the business world, statistics show that the second leading reason businesses fail is inadequate accounting procedures. For nonprofit organizations, then -- who often have much smaller incomes on which to survive -- the use of good accounting procedures is even more important.

In this section, we'll give an overview of the process of accounting and its uses for your organization. We'll also talk briefly about obtaining help with accounting, both in person and in some of the software that is available to use today.

This section is not meant to take the place of legal or professional accounting advice. In fact, we strongly recommend you obtain the assistance of a Certified Public Accountant (CPA) when trying to make heads and tails of your organization's figures. Instead, this section is meant to give you a foundation of understanding that you can use when choosing and speaking with those who will do the accounting for your organization.

What is accounting?

Accounting is simply a system for providing financial information about a business or other type of organization. This system includes the everyday tasks of documenting, classifying, analyzing, and interpreting the financial (bookkeeping) records of an enterprise. These jobs, taken together, can be used to evaluate the progress or failures of a business and to track its financial condition.

Accounting also includes activities that occur less often, such as auditing and figuring taxes. By auditing, we mean the examination of an organization's accounts by people who had no part in their preparation. Annual audits are required for all publicly held businesses and for many non-profit organizations. They are discussed in more detail below.

While accounting is sometimes confused with bookkeeping, you can see from the above paragraphs that accounting is much more comprehensive. Bookkeeping is simply a means of accurately entering information into the organization's books. Depending on the complexity of your organization's finances, you may or may not require knowledge of accounting. An accountant will generally know how to analyze the organization's finances, and how to set up an appropriate accounting system to track them.

In the United States, there are a lot of regulations that dictate how accounting procedures must be carried out. Most public and many nonprofit organizations are required to follow generally accepted accounting principles (GAAP), which are developed by two different organizations: the Governmental Accounting Standards Board (GASB ) and the Financial Accounting Standards Board (FASB).

The GASB was developed in mid 1980s as a way to oversee accounting for governmental agencies. It works to improve standards of state and local governmental accounting, financial reporting, and to guide the public, including issuers, auditors, and users of governmental financial reports. Some not-for profits that receive government funding are also subject to its control.

Not-for-profits not subject to GASB control should follow the standards set forth by the FASB, which also sets regulations for for-profit organizations. The FASB works to establish and improve standards of financial accounting and reporting to guide the public, including issuers, auditors, and other users of financial information such as funders and Board members.

Special topic in accounting: What is an audit?

An audit is a process for testing the accuracy and completeness of information presented in an organization's financial statements. This testing process lets an independent Certified Public Accountant issue what is referred to as an opinion on how fairly the agency's financial statements represent its financial position and whether they comply with generally accepted accounting principles (GAAP).

The audit report is addressed to the organization's Board of Directors, and usually includes the following:

• A cover letter signed by the auditor, stating the opinion
• Financial statements, including the statement of financial position (balance sheet), statement of financial activity (income statement), and statement of cash flows. Health and social service organizations also have a statement of functional (i.e., operational) expenses.
• Comparison of previous fiscal years (optional)
• Notes to the financial statements, as required by GAAP, which might include information about functional expenses, a depreciation schedule (that is, a schedule of the decline in value of certain items the group owns), further information about contributions and volunteer services, and other significant information not obvious in the financial statements.

In addition to the financial statements, the audit may include results of an investigation on whether the money is being spent exactly as specified in grants and contracts -- both general areas and line items -- and whether the organization functions as it says it does. For example, for audits of one literacy project, the director had to provide the minutes from all Board meetings during the audited year. This regulation was to show that the Board actually met, and also to prove that financial decisions that required a Board vote actually got one.

Some not-for-profits are legally required to obtain audits. Many states require an audit for not-for-profits that receive contributions over a specified amount (the amount varies from state to state) and/or not-for-profits who hire a paid fundraiser. You might want to contact the Secretary of State for regulations in your state. In addition, not-for-profits that receive $300,000 or more in federal funding during a fiscal year are usually required to have a specific audit, called an A-133 audit.

In addition to the financial statements required for audit purposes, not-for-profits are required by federal and state governments to file various information returns to maintain their tax-exempt status and document tax compliance. The primary federal reports are the annual Form 990 and Schedule A to the 990. (These are available from the IRS). State governments may require additional reports.

Your organization may choose to obtain an audit even if you are not legally required to do so.

Common reasons to obtain an audit include:

• Funders commonly request audited financial statements or a review (see below )
• The Board may seek reassurance that the financial information they are considering is accurate and complete. In cases where financial problems or irregularities in the financial system have occurred, the Board and the general public may look to an audit to provide assurance that these problems have been resolved.
• The audit process can be valuable to your executive director and finance staff because it confirms your financial picture and helps you strengthen internal control procedures.
• Finally, an audit signals a new phase in the organization's maturity. As your organization's financial transactions become more complex, undergoing the rigors of an audit will help your staff develop and understand the financial systems required to track and manage finances responsibly.

Alternatives to an audit include a review, which is a more limited examination of the financial statements by a CPA, and a compilation. During a review, a CPA asks questions of management and conducts some analysis, but does not undertake the extensive testing required for an audit. A review provides only limited assurance that the financial picture is fairly presented. A review may cost less than half of what an audit does, however, and it may satisfy state requirements for smaller not-for-profits. Contact your Secretary of State's office for details.

A compilation is a report prepared by an accountant using financial data supplied by the organization. The accountant organizes this financial information into standard financial reporting formats, but does not review the numbers for accuracy or provide assurance regarding the information that is included.

How is not-for-profit accounting different from accounting for for-profit organizations?

The basics of accounting are the same for for-profit and not-for-profit organizations - both record and analyze transactions, both will need to figure taxes, and both may be audited.

However, parts of not-for-profit and for-profit accounting can be very different. Certainly, a huge difference is the fact that for-profits generally spend what they need to spend in order to run the business, and either show a profit or a loss at year's end. If they're generally viable from year to year, and not too concerned about growth except to keep up with inflation, they figure expenses and income will even out.

Most community-based and grassroots organizations, on the other hand, spend only as much as they take in, because there isn't any more. If they can't meet operating expenses, their situation is more serious. Options are: to go out of business; try to fundraise the difference quickly; lay people off or ask them to defer or forego salary -- many staff people in such organizations will do almost anything to keep things going; or beg a bank for a loan that they may not be able to get (or pay back if they do get it).

Some specific differences between for-profit and not-for-profit accounting are:

• Accounting for contributions - Not-for-profits that qualify for tax-exempt status under 501(c)(3) of the Internal Revenue Code can receive tax-deductible contributions. Since this certainly doesn't happen in the for-profit world, there aren't any comparable procedures for handling these contributions. Special procedures have been established for handling different types of contributions. This is discussed in the Statement of Financial Accounting Standards No. 116, Accounting for Contributions Received and Contributions Made; Analysis of FASB 116 provides a helpful summary.
• Capitalizing and depreciating assets - Both for-profits and not-for-profits are required to record the purchase of long-lasting, substantial property and equipment (such as computers, vans, buildings, etc.) as assets in the financial records. They must also depreciate those items for each year in which they have a useful life. However, some assets in the not-for-profit sector receive special treatment. These include museum collections, historical buildings, library books, zoo animals, etc..

Depreciation is the amount of value a piece of equipment, property, or other large, long-lasting item loses each year because of age and wear. If the expected useful life of a computer, for example, is five years, then it will depreciate - lose value - by 20%, or 1/5, each year up to the fifth, when it will, in theory, be replaced. Depreciation is figured as an expense or loss against the assets - the total worth - of the organization.

• Use of cash-basis and modified cash-basis accounting - Many small not-for-profits use cash-basis rather than accrual-basis accounting to record expenses and revenues. This means that they only record revenue when the cash is received, and only record expenses when they are paid. Some not-for-profits use modified cash-basis accounting. They will record payroll taxes withheld from employees or large revenue or expense items on an accrual basis. Accrual-basis accounting reports income when it is earned and expenses when they are incurred. Most businesses track all expenses and revenues using accrual accounting.

If you get public money (and, quite possibly, even if you don't), the accrual method is more accurate and more effective. It tracks line items better, and tells you how much of your annual budget you've actually spent. If you go purely on a cash basis, it's a little like not recording the checks you write from your personal checkbook, but only checking the balance occasionally. Doing that, you can end up overdrawn with no trouble at all, since your balance rarely matches the amount you've actually recorded in your checkbook. If you use accrual, you always know when you can spend and when you can't; it makes sense in that circumstance to keep track of cash as well, but not necessarily to keep books on a cash basis.

• Functional expense classification - Not-for-profits are required to report their expenses by what is known as their functional expense classifications. The two primary functional expense classifications are program services and supporting activities. Supporting activities typically include management and general activities, fundraising, and membership development. Practices vary widely from organization to organization in the not-for-profit sector as to how expenses are categorized by functional areas.
• Development of financial statements - The FASB has issued Statement No. 117: Financial Statements of Not-for-Profit Organizations, which establishes standards for general-purpose external financial statements provided by a not-for-profit organization. Analysis of FASB 117 provides a more in-depth explanation, but basically it requires that those financial statements provide certain basic information that focuses on the organization as a whole and meets the needs of those outside of the organization with an interest in the group's financial situation. .

What is an accounting system?

An accounting system is composed of accounting records (checkbooks, journals, ledgers, spreadsheets, etc.) and a series of processes and procedures assigned to staff, volunteers, and/or outside professionals. The goals of the accounting system are to ensure that financial data and economic transactions are properly recorded and that financial reports necessary for management are prepared accurately and in a timely fashion.

Components of an accounting system:

• Chart of accounts: The chart of accounts is a list of each item the accounting system tracks. You might think of the chart of accounts as the "table of contents" for the general ledger.
  • Accounts are generally divided into five categories: assets, liabilities, net assets or fund balances, revenues, and expenses. Each account is assigned an identifying number for use within the accounting system. Examples of accounts include things such as the payroll account, office supplies, donations, and so on.
• General ledger: The general ledger organizes information by account. In a manual system, summary totals from all of the journals (see below) are entered into the general ledger each month. The general ledger maintains a year-to-date balance for each account. In a computerized system, data are typically entered into the system only once. Once the entry has been approved by the user, the software includes the information in all reports in which the relevant account number appears. Many software packages allow the user to produce a general ledger that shows each transaction included in the balance of each account. For example:

Acct 3102	Account Name: Office Supplies
Beginning Balance @ Sept 30:	$1,535.26
Ck. No. 1729 Mick's Office Supplies 10/12	$347.40
Ck. No. 1746 Quality Paper Store 10/17	$32.89
Closing Balance @ October 31:	$1,154.97

• Journals and subsidiary journals: Journals, also called books of original entry, are used to systematically record all accounting transactions before they are entered into the general ledger. Journals organize information chronologically and by transaction type such as receipts, disbursements (the payment of a debt or other expense), or other transaction types. There are three primary types of journals:
  • The cash disbursement journal is a chronological record of checks that are written,categorized using the chart of accounts.
  • The cash receipts journal is a chronological record of all deposits that are made, categorized using the chart of accounts.
  • The general journal is a record of all transactions that do not pass through the checkbook, including non-cash transactions (such as depreciation) and corrections to previous journal entries.
  • As organizations mature and handle greater numbers of financial transactions, they may develop subsidiary journals to break out certain kinds of activity from the primary journals noted above. The most common examples include payroll journals, accounts payable journals, and accounts receivable journals.
• Checkbook: In very small organizations, the checkbook may serve as a combined ledger and journal.
• Accounting procedures manual: The accounting procedures manual is a record of the policies and procedures for handling financial transactions. The manual doesn't need to be a professional book: it can be a simple description of how financial functions are handled (e.g., paying bills, depositing cash, and transferring money between funds). Creating an accounting procedures manual for your organization helps ensure consistency in how your books are handled. It can be very useful when someone new begins handling accounting duties.

When should you develop an accounting system for your organization?

• If your organization spends or earns any money at all, you probably do some accounting already, even if it is just balancing your checkbook. The important thing to remember is that your accounting system will change as your organization's needs and resources change.
• Each organization is unique, and will develop accounting procedures that make most sense to them. Even a relatively new, small organization, however, should think about the long term from the start. It's never too early to speak with a CPA (especially if you can convince one to donate his or her talents) about what makes most sense to your organization, and where you might be going in the future.
• If it's at all possible, we recommend setting up a regular accounting system, with real books, from the start. It can be very difficult to switch over when you need to, especially since it's usually overdue by the time you realize the necessity. If your organization has a computer, it's worth it to set up an accounting system on it, even if it's only a simple program. If you have to do it after the fact, data entry becomes a serious problem, whereas if you have the data in the computer already, switching over to another program is often not a problem.

Why should you do accounting for your organization?

So, what are the advantages of using proper accounting procedures for your organization?

There are quite a few, including:

• To meet government requirements, such as those prescribed by the FASB and the GASB - not to mention the IRS!
• To help members of the organization and the general public better understand the financial activities and the condition of the organization
• To ensure that financial resources are used effectively and efficiently
• To make sure you're not spending money you don't have

How do you do accounting for not-for-profit groups?

For our purposes in this section, we will look at three things your organization will need to do to handle its accounting procedures:

• Find an accountant
• Choose accounting software
• Carry out the accounting process

Finding an accountant

First, decide who will do the accounting. Will you do it yourself? Doing it yourself will be most feasible if your organization is very small, with very simply financial reporting needs. Alternatively, will you hire an accountant or try to find a volunteer accountant? For many mid-size and larger not-for-profit groups, this is an absolute necessity.

For many community organizations, the best of all options is to find an accountant who is willing to do a little pro bono work for your organization. But how can you find someone who is willing to volunteer their time and expertise? Our suggestions are:

• Ask around. Use the networks of your Board members to find a willing volunteer. Most organizations have someone involved who either is a professional herself, or knows someone who is. Don't be shy about asking for help. Remember, you're not asking for yourself - you're asking on behalf of a cause you believe in.
• Look and see who advertises in publications related to what you are doing. For example, if you are a member of the local AIDS project, you might want to see if any lawyers or CPAs advertise in the local gay press. Some of the people advertising may well be willing to volunteer or work inexpensively for a cause they believe in.
• Another source of cheap or free accounting help is other organizations. You may be able to work out a shared or a donated position. Another alternative is to find an organization that pays people to work for other organizations. For example, the accountant at a literacy project in the Northeast came to the organization through a work program for senior citizens. The work program paid him for two years, at the end of which the literacy project had enough money to pick up his salary.
• Accountants for the Public Interest is a not-for-profit organization whose mission is to encourage accountants to volunteer their time and expertise to not -for-profits and others in need.

The next thing that you and your accountant will need to decide is whether or not you will use accounting software. There's no doubt that accounting software can be very helpful. It offers increased efficiency and accuracy, and better control over the numbers, but it is not a cure-all. A mess on paper will just become a bigger mess if it's entered into a computer without fixing any of the underlying problems.

Choosing accounting software

If you have decided to purchase software, sit down with whoever will do the accounting and make a list of the features you are looking for.

A first decision you will need to make is whether you want fund accounting software or not. Fund accounting software programs are sophisticated software for not-for-profits that use fund accounting methods. That is, they maintain separate balance sheet data (assets, liabilities, fund balance) for each account. This method (and software) encompasses most of the aspects of commercial accounting, but it will include a lot of information that is not part of a commercial program.

Drawbacks to fund accounting software programs:

• Cost - this type of software can be expensive
• Difficulty of use - unless you are an accountant or experienced bookkeeper, you will most likely find the fund accounting software programs daunting

A relatively small not-for-profit organization may find regular business software suitable for its needs. Our suggestion is to discuss your needs in depth with an accountant you trust.

There are a lot of programs on the market that can produce basic fund financial statements, but like anything else, they all have their own strengths and weaknesses. Some questions to ask yourself include:

• What sort of computer and operating system do you have? Do you want to buy new equipment to run the system? Can you run any worthwhile accounting software on the computer you have? (Do you have enough memory and enough storage space on your hard drive to run it?)
• Do you need fundraising software, fund accounting software, or both? If you need both, do they need to be connected?
• How many funds do you have? How independent are they? How many accounting transactions do you conduct each month?
• What is your budget for this project?
• Do you have specific reporting requirements from your funders?
• Can you support the software internally, or are you going to need long-term help from the consultant who installs it?
• Can you get a demo of the software to evaluate it before you buy? This is common practice with many companies.

Information about options for different types of fund accounting software is available from the Nonprofit FAQ.

And before you buy, you should also talk to others about what might be best for your organization. For example, you might speak with an accountant you know and trust for her recommendations. You might also ask other not-for-profit managers in your area what software they use. Then, not only can you get an honest appraisal of the software, you will have someone to talk with when you have questions.

Carrying out the accounting process

Whoever does your accounting (and whether or not they use software to do it), the procedure they follow will be similar. Detailing how to go about the process is beyond the scope of a Tool Box section - remember, the science of accounting takes up many, many college courses.

However, a brief overview of the process shows that it will include:

• Conducting financial transactions
• Analyzing transactions
• Recording transactions in journals
• Posting journal information to the general ledger
• Analyzing the general ledger account and make corrections (e.g., reconcile your information with bank statements)

If you will be involved in your organization's accounting, we strongly encourage you to check out the resources listed below.

In Summary

The tasks involved in doing the accounting for your organization can seem daunting, especially if numbers and formulae aren't a language you speak. As the manager of a community organization, however, it's important to have at least a basic understanding of the vocabulary and ideas, so that when the grants coming raining down on you, you won't let valuable resources slip away through poor management.

___You know accounting is a system for providing financial information about an organization

___You understand the differences between accounting and bookkeeping

___You can name the components of an audit

___You can list major differences between for-profit and not-for-profit accounting

___You know the components of an accounting system

___You understand when and why you should develop an accounting system

___You have a plan for finding an accountant, choosing software, and beginning your accounting process

Tool: Glossary of accounting terms

Essential Accounting Terms for Not-for-Profit Organizations

• A-133 audit - an audit required for not-for-profits that receive $25,000 or more in federal funding during a fiscal year.
• Accounting - a system for providing financial information about a business or other type of organization.
• Accounting procedures manual - a record of the policies and procedures for handling financial transactions.
• Accounting system - accounting records (checkbooks, journals, ledgers, spreadsheets , etc.) and processes and procedures assigned to staff, volunteers, and/or outside professionals.
• Accrual-basis accounting - accounting procedure that reports income when it is earned and expenses when they are incurred.
• Asset - something with economic value owned by an organization.
• Auditing - the testing of an organization's accounts for accuracy and completeness by people who had no part in their preparation.
• Bookkeeping - the practice of recording business accounts and transactions.
• Cash-basis accounting - accounting procedure that records revenue when the cash is received, and records expenses when they are paid.
• Cash disbursement journal - a chronological record of checks that are written, categorized using the chart of accounts.
• Cash receipts journal - a chronological record of all deposits that are made, categorized using the chart of accounts.
• Chart of accounts - a list of each item that the accounting system tracks.
• Compilation - a report prepared by an accountant organizing financial data supplied by the organization into standard financial reporting formats; does not include a review of the numbers for accuracy or analysis.
• Depreciation schedule - a schedule of the decline in value of certain items the group owns.
• Financial Accounting Standards Board (FASB) - The professional quasi-regulatory organization with primary responsibility for determination of financial reporting standards in the United States. The Securities and Exchange Commission has the power to override FASB standards.
• Fund accounting - a ledger, fund, department and project-tracking system for not -for-profit organizations. Fund accounting includes batch posting for all transactions , with safeguards that prevent the user from quitting posting unless debits and credits balance. Posts to previous, current, or future periods in the current fiscal year . Tracks funds from sources/donors, and maintains budgets and balances for both departments and departmental projects. Produces fund statements, revenue expense statements , budgets, and fund and project listings.
• General journal - a record of all transactions that do not pass through the checkbook , including non-cash transactions (such as depreciation) and corrections to previous journal entries.
• General ledger - a book of final entry summarizing all of a company's financial transactions.
• Generally accepted accounting principles (GAAP) - established accounting rules in the United States administered by the Financial Accounting Standards Board (FASB ) and Governmental Accounting Standards Board. They are largely delineated by Statements of Financial Accounting Standards.
• Governmental Accounting Standards Board (GASB) - organized by the Financial Accounting Foundation, GASB establishes standards of financial accounting and reporting for state and local governmental entities.
• Journals (books of original entry) - used to systematically record all accounting transactions before they are entered into the general ledger.
• Liability - a financial debt or potential loss.
• New assets/worth - the assets of an organization minus its liabilities.
• Opinion - the view of an independent Certified Public Accountant on how fairly the agency's financial statements represent its financial position and whether they comply with generally accepted accounting principles. An opinion is issued on completion of an audit.
• Revenue/sales - total amount generated or collected from goods and services an organization provides.
• Review - similar to an audit but more limited; a review conducts some analysis but does not undertake the extensive testing required for an audit.

• What does it mean to be nonprofit and tax-exempt?

• What are the advantages of nonprofit and tax-exempt status?

• What are the disadvantages of nonprofit and tax-exempt status?

• When should you consider applying for nonprofit and tax-exempt status?

• When you might not want to apply for nonprofit and tax-exempt status

• How do you apply for nonprofit status?

• How do you apply for federal tax-exempt status?

• A last word on getting help

In any society, there are rules citizens need to follow. In a good society, these rules have been created to help things run smoothly, for the benefit of individuals and for the community as a whole.

As individuals, others help us learn these rules as we grow. Our parents are quick to point out that we must pay for the candy bar at the grocery store; we take courses in government in school; we register to vote when we turn 18; and as we agonize over our tax forms each April, we know where we can go for help, especially the first time we fill out the paper work and agonize over foreign terms such as "earned income credit" and "total taxable income."

Organizations are part of the community as well. They don't exist in a vacuum, and therefore, they're bound by laws and regulations, just as private citizens are. And so, like individuals, community groups will go through a "coming of age" when they will decide what their place in society is, what laws affect how they do business, and how they can use those laws to run most effectively.

Unfortunately, help sometimes seems a bit harder to come by than it did when we grew up and learned the laws we needed to follow (whether we liked it or not!). Eventually, a community organization will need to consider its legal position. And this brings up a myriad of difficult questions that make us wish all we had to deal with was a 1040-EZ form.

Some of the questions that most community groups will face are:

• What different types of organizations exist? Just what type of organization are we? What kind of organization should we be?
• We're nonprofit, right? What does that mean? Can we make a profit?
• If we are a nonprofit group, are we tax-exempt? What does tax-exempt mean? Should we apply for it? How? Does it exempt the organization from federal, state, and local taxes?

In this section of the Tool Box, we'll walk you through the answers to these questions, and give you an idea of what it means to be nonprofit and tax-exempt. We'll explore the advantages and disadvantages of both, and talk about when it makes most sense for an organization to apply for such status. At the end, we'll give a brief overview of the nuts and bolts of the application processes.

Will you be able to fill out these applications on your own at the end of this section? Probably not. In fact, we strongly suggest you get professional help - either from a lawyer or an accountant who is well-versed in nonprofit and corporate law - as you decide what form your organization will take, and to help complete and file the papers. This section is not meant to take the place of an attorney or other legal counsel.

What we do hope this section will give you is an understanding of what's out there and what might be useful to your organization. We'd like to demystify some of the "legalese" that's so hard to understand, so you'll be able to make the best choices for your organization. If that makes sense to you, then let's begin.

What does it mean to be nonprofit and tax-exempt?

Are nonprofit and tax-exempt statuses the same?

No, but they are closely related. Nearly all organizations that are nonprofit wish to be tax-exempt as well, so the terms are often confused. Many charitable organizations, for example, are nonprofit organizations and are recognized by the federal government as being tax-exempt. But becoming nonprofit and becoming tax-exempt are different processes, done at different times (usually), and by different government agencies.

A first important distinction to make is that granting nonprofit status is done by the state, while applying for tax-exempt designation (such as 501(c)(3), the charitable tax-exemption) is granted by the federal government in the form of the IRS.

To apply for federal tax-exemption, you need to have been granted nonprofit status first. Further, not all nonprofits are eligible to be tax-exempt. Let's look at each term individually.

Nonprofit status

A nonprofit organization in its simplest variation, is any organization for which those who control or support it do not earn a profit. This doesn't mean that a nonprofit can't make a profit--quite the contrary is true. A nonprofit organization can produce goods and services, and it can earn a profit while doing so. It can even invest those profits (in the stock market, for example) in hopes of earning more money. However, all of the money made must go back into the organization - there is no "profit sharing" among members. Generally speaking, these organizations don't have any owners.

This is one reason that nonprofits are known more and more commonly as "not-for -profits." They may make a profit to help them stay in business, but making money is not their reason for being.

Individual states, and not the federal government, grant official nonprofit status. They may do so in slightly different ways, and give slightly different advantages for obtaining it. However, the federal government can recognize your nonprofit status. If you want to apply for tax-exemption, for example, you must be recognized as nonprofit by the federal government.

There are three types of nonprofit organizations that are recognized for this purpose by the federal government:

• A corporation
• An unincorporated organization
• A trust

Becoming a corporation is perhaps the most common choice for community organizations. For incorporation, the organization must be structured according to specific state laws. These laws include having a "creating document" commonly known as the articles of incorporation, and rules of operation which are commonly known as bylaws. Usually, there is a board of directors and officers, and state laws (usually) limit the liability of members in varying degrees.

Often, incorporation is the best choice for a community organization. Part of this is simply a matter of perception, or of comfort, of the people with whom you work. People are familiar with corporations; they're used to working with them, and often perceive corporations as serious and dependable. Also, the limitations on personal liability mentioned above can be quite helpful.

Basically, the personal liability protection means that if someone feels the organization or one of its members has harmed him, only the organization may be sued, and not individual members if you have this protection. For example, if a potential employee feels she has not been hired because she is hearing-impaired, she can sue the organization as a whole, but not the person who interviewed her. Likewise, if the organization's director gets in an accident and hurts a passerby on the way to a coalition meeting, the organization, but not the director, may be sued.

It's important to note, however, that the limits of this liability do vary from state to state, and you should be aware of the laws that govern what you do. There may be circumstances in which directors or members of corporations may face personal liability. Some insurance companies offer additional insurance for directors and officers of nonprofit corporations.

An unincorporated organization is a group much like a corporation, and often has similar bylaws and purposes. Although the name seems to suggest otherwise, it is still a formal structure with an official structure. However, a constitution or other policies may take the place of the articles of incorporation, and there is no protection against personal liability. Additionally, much less reporting to the state occurs.

A trust generally has more narrow interests than a corporation or an unincorporated group. Many laws which govern trusts are created with charitable trusts (i.e, groups that give away money) in mind. Because of this, becoming a trust is rarely appropriate for a community group.

Going into depth on each of these types of organizations is beyond the scope of the section; for detailed information on each of them, you might speak with an attorney, or read B.R. Hopkins' Starting and managing a nonprofit organization: A legal guide.

And of course, you can certainly be a nonprofit organization in the loose sense of the word without ever filing papers, having a board, or any of those things. For example, a neighborhood group could be very effective without ever incorporating, or having a board, or even elected officers. It's still a nonprofit in practice, though, even if the law does not recognize it. We'll discuss the advantages and disadvantages of becoming officially recognized later in the section.

Federal tax-exempt status

Organizations that are exempt from federal taxes are described sections in the United States Tax Code. The best known type of tax-exemption is 501(c)(3), also known as the "charitable tax exemption." This designation allows exemption from federal corporate and income taxes for most types of revenue. Also, organizations designated as 501(c)(3) are able to solicit tax deductible contributions. 501(c)(3) is most appropriate for many community organizations, and (except where indicated otherwise) it will be used interchangeably with the term tax-exempt for the remainder of this section.

However, before we move on, we should mention that there are a total of 26 exemptions under the tax code for different purposes, and some community organizations might find one of them more appropriate. For example, a group that is involved in heavy lobbying or political advocacy work would be unable to apply for 501(c)(3) status, as it isn't allowed under that statute. So a group heavily involved in social welfare that wants to lobby extensively for political candidates, for example, might find 501(c)(4) status (which deals uniquely with social welfare organizations) more appropriate for their purposes.

So before deciding to become 501(c)(3), it's a good idea to sit down and study other possibilities with an expert. Together, you can decide on the type of exemption that best meets your needs. That way, you won't be trying to push a square peg into a round hole. More information on the different tax exemptions, as well as other technical details not discussed in this section, may be found on the IRS website.

Generally, an organization becomes tax-exempt by applying for the status. This is a fairly long process. The application form (Form 1023 for 501(c)(3) organizations; Form 1024 for others) is approximately 30 pages, and the IRS suggests that it (1023) will take about eight hours to complete--and that's after you have done record keeping (on expenses, revenue, and the like) and learned the law. It usually takes several months to be granted status.

However, several weeks after you complete and mail the forms, the IRS will send you a letter saying your status is "pending." This letter is usually enough proof for funders and others who might require proof of your exempt status.

When status is granted, the IRS will send a "letter of determination" that your organization can then use to prove its tax-exempt status on a more permanent basis. You might need the letters to show to foundations when applying for a grant, for example, or when you are applying for state tax-exemption.

Additionally, however, there are two ways of having tax-exempt status without filing: automatic recognition and a fiscal conduit.

Automatic recognition

Some organizations are automatically recognized as having 501(c)(3) status; they don't need to file. These groups include:

• Subordinate organizations that are evaluated by parent groups, or are covered by a group exemption
• Churches, parts of churches, or associations of churches
• Organizations that are not private foundations and normally have gross receipts of not more than $5,000. For example, a group of citizens trying to convince the city council to create bike lanes on major streets might fall into this category. This recognition is particularly helpful for small grassroots groups who don't have the experience, time, and money necessary to file for exemption.

Even though these groups are automatically tax-exempt, they may choose to file anyway, in order to have the official letter of determination on file. This often makes it easier to solicit contributions and ask for exemptions from state taxes.

Fiscal conduit

A fiscal conduit is an organization that is already incorporated and tax-exempt that administers funds and performs other administrative tasks for your group. Also called a "lead agency," they can be invaluable in helping out with the organization of your group, reimbursing contractors, and sharing space. Local United Ways and public health departments are two examples of groups that often serve as fiscal conduits.

A fiscal conduit may be what you need at the very beginning. The lead agency can do all the paperwork for you, and provide other kinds of less tangible support that can really help you, at least at the start. Why not use that support if it's available?

State tax-exemption

State exemptions can include many different things, including exemptions from sales tax, income tax, and property tax. Again, these laws vary, so check with the Secretary of State's office for rules for your state. In some states, however, the requirements are the same as those of the federal government, and showing proof of 501(c)(3) status is enough to exempt you from many state taxes.

What are the advantages of nonprofit and tax-exempt status?

There are quite a few advantages to having the official status.

For nonprofit status:

• If you want to assume fiduciary responsibility for all of the funds and to contract directly with the state, you will need to be an incorporated nonprofit organization
• As an incorporated nonprofit organization, you'll be able to take advantage of reduced postal rates for many purposes
• And, as an officially recognized nonprofit, you can apply for federal tax-exemption, which leads to many more advantages

For federal tax-exempt status:

• As we mentioned above, you are freed from many taxes, and potential donors can make tax-deductible contributions. The latter is a powerful advantage for many groups who survive mainly on contributions and grants.
• You can apply for grant funds directly. Almost all foundation or government grants require evidence of federal tax-exempt (501(c)(3)) status. If you don't have it, you will need some kind of fiscal conduit in order for your grant application to be considered.
• Your group now becomes more independent, free (or at least freer) from the potential control of fiscal agents or others who have helped you before, even if they have been generally sympathetic.
• The independence you gain can be a psychological boost to your organization

What are the disadvantages of nonprofit and tax-exempt status?

Although applying for official nonprofit and tax-exempt statuses can be very helpful, there can also be some disadvantages to doing so.

• Incorporation creates another level of complexity, responsibility, and regulation that a volunteer-based organization may not be prepared to handle. For example, your organizations must send an annual tax-return to the IRS.
• Filing for incorporation and tax-exemption takes time and money. For example, at this writing (in 1998) the fee for filing for federal exemption is $500 for most groups, and $150 in a limited number of cases. Fees for tax advisors (legal and accounting) can also be substantial.
• For a group in the very beginning stages, incorporation and tax-exemption may not be necessary. It's often best to focus on doing the work, and developing a track record of success. Incorporation and related issues can become a distraction; they can be taken up later.
• Incorporation and federal tax-exemption may limit certain lobbying and advocacy activities. For example, you cannot (as an organization) support candidates for public office.
• The community may perceive creating another nonprofit organization as an additional level of bureaucracy.
• Tax-exempt organizations are taxable, to the extent that they participate in activities unrelated to the performance of tax-exempt functions. While this isn't exactly a disadvantage, it is something you should take into consideration.

When should you consider applying for nonprofit and tax-exempt status?

After taking into account all of the advantages and disadvantages of applying for nonprofit and tax-exempt status, you might decide that they are the right steps for your organization to take. But is now the right time to take the plunge?

Maybe so, if:

• Your group has proven its worth through specific community accomplishments
• Your group, and in particular its leaders, are committed to continuing its activities and staying in existence for the foreseeable future
• Your group plans to be applying for grants on a regular basis, or you will be selling a significant amount of goods/services
• No suitable fiscal agent or fiscal conduit is locally available

When you might not want to apply for nonprofit and tax-exempt status

On the other hand, you might decide that the time isn't right to apply when:

• You are not sure if the organization will continue
• The group does not need outside grants/money for successful operation
• A fiscal agent or fiscal conduit, whose views are similar to your own, is willing to handle any grant applications or other fiscal affairs

Any of these conditions might be enough, individually, to convince you to consider holding off for a while. However, organizations will want to look over all of the details of their own situation, and decide what makes most sense for them.

One more point to take into consideration: if you apply for exemption within the first 15 months of being created, your tax-exempt status can be applied retroactively to the founding date of your organization. The federal government also gives an automatic 12-month extension on this regulation. That means functionally, you must apply within 27 months of being created to avoid taxes for the start-up period of your organization. For groups who know from the outset that they want to be around for the long haul, then, it might make sense to apply relatively early in the life of the organization.

How do you apply for nonprofit status?

Procedures for becoming an official nonprofit organization will vary greatly from state to state, and so we won't spend too much time talking about it here.

But a general overview of the process might look like this:

• Hire legal counsel to help make the decisions and guide you through the process
• Decide if it makes sense for your organization to apply for such status now
• Decide what type of nonprofit organization it makes sense for you to be (a corporation, an unincorporated organization, or a trust)
• Decide the state in which you want to apply for nonprofit status - usually, this will be your home state; but some states have laws that are "friendlier" to nonprofits or to particular causes
• Apply for nonprofit status in accordance with the regulations for your state and type of organization. Contact the Secretary of State's office to learn more about those procedures. If you plan to later apply for tax-exempt status as well, it's important to pay particular importance to the wording and content of items such as your articles of incorporation, as some of the federal government's regulations are very specific.
• Be sure you understand the state's ongoing requirements for reporting and renewal

How do you apply for federal tax-exempt status?

The steps for applying for federal tax-exempt status are quite similar to applying for nonprofit status. There are, however, some important differences.

Briefly, the steps involved are:

• Hire legal counsel to help make the decisions and guide you through the process
• Determine if you are eligible for tax-exempt status, and if your organization is automatically exempt
• Decide if it makes sense for your organization to apply for such status now
• If you are not already a nonprofit organization (as designated by the state), you will need to become so
• Decide the tax-exemption (e.g., 501(c)(3), 501(c)(4)) for which your organization is eligible.
• Apply for exemption from the IRS
• Be sure you understand the ongoing requirements for reporting and renewal

A last word on getting help

Throughout this section, we have suggested getting help from an accountant or a lawyer when you are going through these processes. But those fees add up; how can a relatively poor organization afford this type of counsel?

Our advice is to look for professionals who will either donate their time or do the work at a reduced cost. You might find this help:

• By asking around. Most organizations have someone involved who is either a professional himself, or knows someone who is. Don't be shy about asking for help. Remember, you're not asking for yourself--you are asking on behalf of a cause you believe in.
• The Legal Aid organization in your town should have, at the very least, a list of lawyers in town willing to do pro bono work, and the American Bar Association might as well.
• You might also look and see who advertises in publications related to what you are doing. For example, if you are a member of the local AIDS project, you might want to see if any lawyers or CPAs advertise in the local gay press. Some of the people advertising may well be willing to volunteer or have a reduced fee for a cause they believe in.

When looking for help, you might want to try going through all of the channels listed above, and it may take some time before you find someone competent to help you out. Sheer persistence, however, often makes the difference - don't give up the first time someone tells you no.

In Summary

Understanding the legal system that surrounds the nonprofit world is certainly not an easy thing to do. In this section, we have left out many of the finer points of the law, to give you a general understanding you can use as you talk with legal council, or read through some of the more detailed literature on the system.

As you get more in depth into your study of the laws surrounding nonprofit organizations, it's easy to get lost in the details. But remember, the system was set up to help nonprofits, not hinder them. When you have a solid understanding of the system, your organization can use it to its advantage. By doing so, you've made an important step along the path of becoming a successful, self-sustaining organization.

___You understand the importance of legal counsel when applying for nonprofit status and tax-exemption

___You understand that nonprofit status is granted by the state, while the federal government grants IRS tax-exemption

___You know the three types of federally recognized nonprofit organizations are a corporation, an unincorporated organization, and a trust

___You understand that becoming a corporation is the most common choice for community organizations, because it is well understood, promotes continuity, and limits personal liability

___You know that 501(c)(3) is the "charitable tax-exemption"

___You understand that it allows exemption from federal corporate and income taxes, and that it allows solicitation of tax-deductible contributions

___You know there are a total of 26 different exemptions for different purposes

___You understand that there are three ways to become tax-exempt: application, automatic recognition, and using a fiscal conduit

___You understand the advantages of nonprofit status

___You understand the advantages of federal tax-exemption

___You understand the disadvantages of nonprofit and tax-exempt status

___You understand when you should (and when you shouldn't) consider applying for such status

___You understand how to apply for nonprofit status

___You understand how to apply for federal tax-exemption

___You know where to find inexpensive assistance

Example 1: Filing for 501(c)(3) status by the Lawrence (KS) Partnership for Children and Youth

Sydney Karr is the executive director of Lawrence Partnership for Children and Youth in Lawrence, Kansas. Her group, a non-profit corporation, applied for charitable exemption from federal taxes. "The 501(c)(3) status does a couple of things for you ," Sydney said. "The first thing is that it saves you money because you don't have to pay state income tax or federal income tax. The second thing is that it allows you to solicit more donations (because donors don't have to pay taxes for charitable contributions). To many donors that makes a big difference." Sydney also points out that a 501(c)(3) status can be beneficial in terms of purchasing insurance for the corporation, and in terms of state and their unemployment compensation. "Legally, you are a different kind of entity," she said. And that difference can bring benefits to your organization.

Sydney started her application using an example of another organization who had applied, so that her organization would have a sample of the way they should answer questions. "My accountant has alerted me that when you send this paperwork in," Sydney said, "the federal government will send back questions. It could be a series of questions, and quite often they send you a second series of questions and then you answer those . About the third time you send them something, they send you a letter saying you got it." That is standard practice, according to Sydney's accountant. No matter how thoroughly you fill out the paperwork, or how well you think you've done it, they will always have questions for you. And it's not a matter that they're not going to grant you the status, it's just that they always have questions, Sydney said.

So is it necessary to have both an accountant and a lawyer working on your application? Not necessarily, but in Sydney's experience, she got some legal advice from her lawyer, and then worked closely with her accountant. Her attorney, who works for free, said that if he just sent an example from his files from another organization to Sydney, she probably wouldn't have to come back to him for other questions. "It really is my intention to go ahead and do all of the paperwork myself," Sydney said . "But in the meantime, I was talking with our accountant, because he's the person who really knows both the federal and the state regulations, and he has really kind of pointed out to me the need for the 501(c)(3) status."

Getting 501(c)(3) status can help your organizations in more ways then one. Sydney offers an example about when her organization was trying to get directors and officers liability insurance. That's a way to insure the members of the board of directors against personal liability for the decisions that they make on behalf of the corporation , referring to director's and officer's liability in medical or treatment settings. "For instance, if a client or a patient says that he was harmed as a result of what this not-for-profit corporation did, then he could sue the corporation and each individual member of the board of directors," Sydney said. "The board of directors could actually have their own money at stake. I was trying to check into what the cost would be and get some quotes on the insurance. And one of the insurance companies that I was trying to get the quote from would not even give it to us until we had proof of our 501(c)(3) status. That was kind of an interesting kind of sideline that came up."

And that was not the only one. Sydney remembers when her organization was dealing with the state of Kansas on unemployment compensation insurance. Even though Sydney's corporation is a very small one with only three employees, the board decided that they would like to insure any members of the staff against being unemployed, having that state benefit available to them. "In trying to buy into that, and pay into the unemployment compensation fund, I just learned that we have to have 501(c)(3) papers pending at the very least," Sydney said. She ended up not needing the directors and officers liability, because they are not seeing patients.

"One of the things that is very confusing to people," Sydney remarked, "is the fact that when you say you're tax exempt, many vendors believe that means that you don't pay sales tax. I believe there are a few states where this is not the case, but in Kansas and in many states, just because you are tax exempt from income taxes and have that 501(c)(3) status, it does not exempt you from sales taxes." This can be tricky, because some business may set your business up as sales tax exempt, and then they will come back and ask you for your proof of sales tax exemption, when you might hot even had known they had you down as such. That's happened to Sydney. "I just discovered that a bill [that] was $50 and the amount owing was $50." And I said "that's not right, there's no taxes there." And they said "well, you're a non-profit." We know we are, but we pay sales taxes."

Sydney has experienced some hassles in filing her organization forms. She said that, when dealing with a lengthy federal form like the 501(c)(3) application, you may not know what it is they're asking for in each blank, and it might be helpful to look at an example of someone else and the way they've filled it out. Some of the regulations are very specific, and learning exactly what they are asking for before you submit the application can save an organization many headaches.

Example 2: Creating Affirm Youth, a nonprofit organization serving gay youth in Greenville, South Carolina

Recounted by Paul Evensen

I didn't have "start a nonprofit organization" on my list of things to do in life, and I don't think that is why any of us tackle something so overwhelming and challenging . What happens is that you become either very angry or very sad about what is going on in your community. Then, you get excited about what you could do to change things, and you end up half way into it before you know it.

I was compelled by the stories of several young people in my community who had been thrown out of their homes as teenagers because their parents discovered they were gay. The driving question became, "How can we keep families together and gay teens connected to school, churches and their community?" Part of the answer was to start a non-profit organization dedicated to crisis intervention, advocacy, and support.

I spoke with at least a hundred people including pastors, teachers, counselors, leaders in the gay community, parents, and representatives from the whole spectrum of social service agencies. I shared my ideas and solutions and asked for their feedback and suggestions for next steps and who else I should talk to. Most importantly, I asked for their personal commitment.

Through this process I found a fellow "preacher" who could see my vision and was willing to take a primary role in helping bring it about. It turns out he was a preacher in real life and he eventually became the full-time director of the agency . I also found those willing to shoulder key leadership roles on the board. We held a public meeting and announced the new organization, the name, logo, mission, the newly formed board, and the director to a very surprised community.

From there, it was a team effort to put a fund-raising plan together, to further develop the board, to create appropriate services, and to begin outreach.

I would offer several lessons to anyone trying to create a nonprofit:

• Get legal help early. Preferably, find a volunteer with experience in both nonprofit administration and the subject area your group deals with.
• Network quickly and nationally. Go to a national meeting of similar agencies and ask, ask, ask and ask again for what you need. This is where I found free legal help, as well as mentors from neighboring states and cities who could offer invaluable advice.
• It is not about you. It is about the issues and needs that draw us to common action. Many will want to make it about people, personalities, and politics. To counter this always focus on ideas and vision, and surround yourself with key people who do the same.
• Involve new young leaders. The work is very often not about the needs your organization is going to meet. Rather it is about giving the community a chance to learn and act. This includes new opportunities for young leaders to gain skills and experience. Give them a chance and pair them up with a mentor. They'll be running your organization after you're long gone.

Extending yourself to others is the heart of service. Seeing families changed because of work you've done will give your soul immeasurable rewards and an amazing energy to do more.

Example 3: A Sample Letter of Determination from the IRS

What follows is the text of an actual letter of determination. Special thanks to the United Way of Douglas County, Kansas, for furnishing and allowing the printing of this letter.

Internal Revenue Service
Department of the Treasury
1100 Commerce St.
Dallas, TX 75242

Person to contact: First read Tax Examiner
Telephone Number: (214) 767-1870
Refer Reply to: EP/EO:SBP:495ODAL

Date: May 07, 1986

United Way of Douglas County, Inc.
PO Box 116
Lawrence, KS 66044

Gentlemen:

Our records show that UNITED WAY OF DOUGLAS COUNTY, INC is exempt from Federal Income Tax under section 501(c)(3) of the Internal Revenue Code. This exemption was granted AUGUST 1973 and remains in full force and effect. Contributions to your organization are deductible in the manner and to the extent provided by section 170 of the Code.

We have classified your organization as one that is not a private foundation within the meaning of section 509(a) of the Internal Revenue Code because you are an organization described in section 170(b)(1)(A)(vi).

If we may be of further assistance, please contact the person whose name and telephone number are shown above.

Sincerely yours,

Theresa Nelms
FIRST READ TAX EXAMINER

• What is a Finance Committee?

• Why do you need a Finance Committee?

• Who should be involved in a Finance Committee?

• How do you create and use a Finance Committee?

Most of us in the US have, in recent years, heard a lot about the financial misdeeds of major corporations. Enron, WorldCom, and others have become poster children for white-collar crime. Unfortunately, the nonprofit world is not immune to similar problems. Both United Way of America and the NAACP have suffered scandals in the last few years, involving financial misconduct on the part of their CEOs, and causing serious damage to the images - and finances - of the organizations.

These were high-profile examples, but others that don't make the national media occur every day. Nonprofit organizations fail to fulfill funding requirements or obligations, and are asked to return grant money. Nonprofit board members are found to be awarding contracts to their own firms, or those of friends or family members. Even more common, an audit of a nonprofit turns up woefully inadequate or nonexistent record-keeping and accounting practices.

No matter how small the organization, every nonprofit, if it has any income or expenses at all, needs an accounting system that gives it control over its finances. Depending on the size and character of the organization, that system may be administered by the director, the treasurer, a bookkeeper, or an accounting department. In addition to someone to actually do the accounting, nonprofits need someone making sure that financial matters are being conducted legally, ethically, and efficiently, in order to protect the organization from lawsuits, loss of reputation, and financial disaster.

A common mechanism for financial oversight is a board or organizational committee that works with the organization's executive director to ensure that there's enough money, and that it's being spent according to the mission of the organization and funders' guidelines. Such committees may include non-board members as well, and often are composed of people with financial knowledge and skills.

A good Finance Committee can save you money, can save you trouble, and - in the worst circumstances - can save your organization's skin. This section will examine the role of a Finance Committee in a nonprofit - what its purposes and responsibilities are, why it's necessary, who its members should be, and how to set up and use it in your organization.

What is a Finance Committee?

Note: The following assumes that your organization is large and organized enough to have a board of directors. If you're a small, grass roots volunteer group that may not be the case, but - if you have any budget at all - it's still a good idea to have some financial help and oversight. You might consider finding a sympathetic individual with a financial background - a CPA or attorney, for instance, or a retired business executive - to work with you, or you might put together a small financial advisory group to handle the issues discussed below.. Especially if you're small and have a big task ahead of you, the last thing you want is to be sidetracked by a fiscal issue that may have little to do with your mission.

A Finance Committee is generally a standing committee of the board of directors that works with the director and the financial staff to monitor the finances of the organization. The organization's bylaws may specify that it has to have such a committee, or it may simply be formed because it's needed. If you do establish one, requiring a Finance Committee in your bylaws is not a bad idea. It gives the board financial control of the organization. Since the board is legally responsible for the organization's finances, it makes sense for it to exercise financial control.

A standing committee is one that is ongoing, and contributes regularly to the operation of the board and the organization. Most boards have at least a few standing committees. Standing committees are in contrast to ad hoc (Latin for, roughly, "to this purpose") committees, which are disbanded when their specific, time-limited tasks are done.

A Finance Committee is often chaired by the board treasurer, and may consist of board members only, or may include some people who aren't on the board, but who support the organization and have specific skills that are valuable to the committee. A CPA (Certified Public Accountant), a lawyer, a banker, or an investment analyst might all be good candidates for committee membership, for instance. Committee members, whether board members or not, should also have no financial interest in the organization, except for their fiduciary responsibility.

Fiduciary responsibility is another term for the board's legal responsibility for the organization's finances. It means that the board is expected to know what's going on, and to correct any errors or irregularities it finds. Boards can get in legal trouble - with funders, the IRS, the state Attorney General, or even the Justice Department - if they haven't been paying attention to financial matters, or if they haven't made any effort to get information other than what the director or financial person tells them. They're expected to exercise real oversight - to go over the books, be familiar with treasurer's reports, and otherwise keep track of the organization's money.

Not every board member has to be involved in this process, of course. The board can delegate the task to a single member or small group, which then reports back if there's a problem or something unusual. That's one of the reasons for having a Finance Committee, as we'll see.

Responsibilities of a Finance Committee

Depending upon the will of the board, a Finance Committee can have its finger in many pies. Common responsibilities of Finance Committees include:

Overseeing the financial dealings of the organization in this capacity, the committee might:

• Be familiar with, approve, and review periodically the organization's annual budget
• Make sure funds are being expended according to funders' requirements
• Oversee cash flow and other money management issues
• Monitor debt and debt payback
• Flag potential problems. There are numerous such problems that might come up. Income might look like it's going to be lower than anticipated, or expenses higher. Income-producing activities - fundraising, paid services - might be delayed, or not proceeding according to plan. There may be unnecessary, or unnecessarily high expenditures. Finance Committees are expected to catch and deal with these kinds of issues.
• Act as a resource to help correct fiscal problems and/or discuss fiscal issues. If the members of the committee have the right expertise, they can help to correct or restructure the organization's books and accounting procedures, for instance.
• Ensure that financial reporting requirements - including tax returns to the IRS and the state, reports to funders, and acknowledgments of gifts over $200.00 - are fulfilled
• Catch any illegal, unethical, or incompetent financial dealings engaged in by the executive director, fiscal or other staff, or board members. A Finance Committee can really prove its worth in a situation where the organization is placed in jeopardy by the actions of an individual.

If a committee actually realizes that something illegal is going on, it has an obligation to report it...but to whom? (We're assuming a major infraction - stealing, intentionally misappropriating large sums - not just a mistake on someone's part.) In most cases, the answer is the President or Chair of the board, but there are exceptions. What if the board President is involved in the illegality? Or what if the board President hesitates to deal with the issue, for fear of harming the organization? The committee, or its individual members, have, at the very least, an ethical responsibility here. The organization's reputation, its financial well-being, and/or perhaps its existence, are endangered by illegal actions. In addition, the board is at risk of a lawsuit for not exercising proper oversight if the actions aren't reported. If there's no recourse, the committee should go to the appropriate agency on its own. The damage done will be far less than if the organization waits to get caught...as it inevitably will be.

• Catch any illegal, unethical, or incompetent financial dealings engaged in by individuals or groups that the organization deals with, or financial arrangements that may harm the organization or someone else.

Participating in the annual audit

Unless your organization is quite small, and/or you have no or very little public money, you're probably required to have an audit every year. An audit is a review of the organization's books, financial statements and records, and financial practices by a CPA, who then writes an opinion as to whether the organization's records present a fair and accurate picture of its financial condition, and whether its financial practices are in line with what's considered reasonable financial management. If there are problems with either the records or the methods of the organization, the auditor makes recommendations as to what should be done.

The Finance Committee may be involved in an audit both directly - by supplying required board information, for instance (nonprofit audits often include a check on board minutes, board decisions, and bylaws) - and indirectly, by working with the director or financial officer to prepare for the audit or to develop a good accounting system.

The committee might take on some other audit-related functions as well:

• Participate, if necessary, in formulating a plan to correct any problems the audit finds
• Monitor the implementation of plans to correct problems identified by the audit
• Confer with the auditors about trends in the organization's financial picture
• Evaluate the performance of the auditors, ensure there is no conflict of interest, and make recommendations about their retention

Evaluating the organization's fiscal operation, and those in charge of it

In a small volunteer organization, the Treasurer may be the fiscal operation. In a small professional one, it may be the executive director. A large organization may have a whole accounting department. Whatever the circumstances, the Finance Committee is probably the arm of the board with the most understanding of the process, and most able to make judgments about the competence of the people carrying it out.

A committee that takes on this responsibility might also participate in the hiring and firing of fiscal staff members.

Ensuring that the financial elements of the organization are in accord with its vision, mission, and strategic plan

The board is the guardian of the organization's purpose, and it's their job to make sure that all aspects of its functioning go to advance that purpose. Thus, the committee might act as a watchdog to keep expenses pointed toward the mission, rather than being aimed at some peripheral issue.

Sometimes, without intending it, an organization finds itself spending money on areas that aren't central to what it wants to do. The committee, in those situations, can point out the contradiction, and help steer finances back to the direction they should be taking. It can also make sure that the director or fiscal officer doesn't make financial decisions that affect the direction of the organization without consulting the board.

Reporting to the board and/or Executive Committee about the financial condition of the organization, and/or any financial irregularities or inefficiencies

The committee is the liaison between the board and the fiscal operation. Many nonprofit board members take on a glazed look when finances are discussed. A knowledgeable committee can simplify the information so that everyone understands it, and make sure that the board is fully aware of everything it needs to know. If the committee suggests changes in fiscal policy or in the bylaws to improve the organization's position, or to correct problems, it's important that board members understand why the suggestions are - or aren't - appropriate, and be able to vote from an informed position.

Why do you need a Finance Committee?

• To help a board fulfill its fiduciary responsibility. A Finance Committee gives the board control over the finances of the organization, and is the tool by which it exercises fiscal responsibility.
• To protect the organization from legal challenges and liability. As explained above, the board has a legal duty to exercise control over the financial dealings of the organization. If the financial operation is negligent or, worse, engaged in illegal actions, the board is considered responsible, unless it can show that it exercised reasonable care to keep that from happening. The presence of a Finance Committee is generally considered evidence of reasonable care, as long as the committee does its job (i.e., doesn't ignore obvious evidence of a problem, or simply let the director do something that any reasonable person would know is illegal or foolish).

Boards are legally liable for the actions of their organizations. That doesn't mean that they are blamed for everything the organization does, but that they are expected to oversee the organization, and take action to keep it from harm. If they have done their best in this effort, then they have fulfilled their legal obligation. They are not blamed if they are lied to, or if information is hidden from them, unless they have good reason to believe that such a thing is happening, and don't investigate.

There are generally three legal "duties" that boards and board members must attend to:

• Duty of care: Board members have a duty to exercise the "care that an ordinarily prudent person would exercise in a like situation and under similar circumstances." (From BoardSource, a board development website.)
• Duty of loyalty: Board members must act in the best interests of the organization, even when that conflicts with their own self-interest.
• Duty of obedience: Board members must uphold the mission of the organization, and not act in ways contrary to that mission, or inconsistent with the organization's goals. If, for some reason, a board member finds this morally or otherwise impossible, the ethical course of action is to resign from the board.

• To guard the organization against illegal, unethical, or incompetent activities by fiscal managers. An alert and informed committee should be able to catch both intentional and unintentional mismanagement of funds. Examples of the former might include misappropriation of funds, embezzlement, outright stealing, taking a kickback from a contract, or paying people for work not done. Unintentional mismanagement could involve, for example, major accounting or bookkeeping errors, misunderstanding of the terms of a grant or contract, or failure to address potential budget cuts.

In the case of intentional mismanagement, the committee can take proper action: reporting the situation, recommending the firing of those responsible, making restitution, etc. In the case of unintentional mismanagement, the committee can step in to offer help and advice to correct the situation. In either case, having a Finance Committee can literally save the organization.

• To protect the organization from actual or apparent conflict of interest. We've used the term conflict of interest several times. A conflict of interest is a situation in which an individual's personal interest - or the interests of her family, friends, business associates, etc. - is, or appears to be, in conflict with her responsibilities to others, an organization, a job, an office, or a principle she is required to uphold. Thus, a member of a compensation committee voting on his own - or his brother's - salary is in conflict of interest. A Finance Committee can make sure that any potential conflict is avoided by the board or staff member in question withdrawing from the decision-making process on any issue in which she has a personal stake, or by simply avoiding the issue in the first place.

There are legal gray areas here. In most states, however, board members are legally allowed to be paid for services by the board or organization, as long as the organization discloses the relationship, and treats - and pays - the board member in the same way as it would any other contractor (i.e., shows no favoritism, can demonstrate why the board member was the best person to get the contract, etc.). Some boards choose simply never to engage in any transaction with board members in which money changes hands, or in which the board member can be perceived to be getting special treatment. (An example of the latter might be the hiring of a board member's wife as a staff member of an organization.)

Another issue here is the appearance of conflict of interest, which can be just as damaging as an actual conflict. In general, if there's any chance that anyone might think there's a conflict, the person involved should remove himself from the situation. Judges often recuse (remove) themselves from cases where they might be seen to have some personal interest, even if they haven't. A Finance Committee can guard against the appearance of conflict as well as its actuality by being alert to the way situations are seen from outside the organization. It can be particularly effective in this regard if one of its duties is to review contracts before they're signed.

• To act as the board's eyes and ears in the financial operation, relieving the whole board of having to struggle with the complexities of the organization's finances. The committee can "translate" the finances into ordinary language and simple numbers, so that board members who are not financially sophisticated can still understand clearly the organization's financial challenges and situation, and make informed decisions.

A Finance Committee may be especially valuable and necessary on a board where a majority of members are uncomfortable with fiscal matters and/or numbers. This is often the case on the boards of human service and community-based organizations, where many members may be either recipients of services or people who are heavily focused on the interpersonal and emotional, rather than the more mathematical and logical aspects of their intelligence.

• To act as an advisory panel to the financial operation. Especially if it's made up of people with expertise, the committee can provide advice on fiscal issues in general, correcting inefficiencies and misguided accounting practices, dealing with anticipated shortfalls or surpluses, investing, etc.
• To evaluate both the financial operation and the people in charge of it from a position of knowledge. A committee that works closely with the financial operation is in a much better position to monitor and evaluate performance than is a board that doesn't have that connection. It makes the financial operation accountable, and can - and should - let the board know when someone's doing a particularly good job, as well as when someone isn't working up to standard.
• To help in the hiring of fiscal staff or a new director. Having intimate knowledge of the financial operation gives committee members a much better perspective on the skills and temperament needed to do the jobs well.
• To make the audit easier, both by assisting the fiscal operation in gathering material and cleaning up records, and by working with the auditors beforehand to make sure that they have everything they need to complete the audit efficiently and effectively.
• To interpret the audit for the rest of the board. Audits often point out important financial questions, or raise warnings about the future. They can highlight both the good and bad points of an organization, if you know how to read them. A knowledgeable committee can help the rest of the board understand exactly what the audit has to say, and what that means for the financial future or the direction of the organization.
• To help recommend the hiring, retention, or firing of potential or current auditors. A committee that understands audits, knows what questions to ask potential auditors, and can observe an audit, will have valuable information to pass on to the board. It can also help the organization avoid the kind of conflict of interest by auditors that hurt not only Enron investors, but the Arthur Andersen accounting firm.

Who should be involved in a Finance Committee?

A Finance Committee should certainly include some people with expertise in financial matters, but that doesn't mean that everyone on the committee has to be a CPA. A committee with a diversity of backgrounds can be very effective, also. Some possibilities:

• Board members with the desire and background to be helpful, such as:
  • The organization's Treasurer (often the ex officio chair of the committee)
  • Lawyers
  • Accountants (particularly CPA's)
  • Bankers
  • Investment analysts, stockbrokers, and other financial professionals
  • Directors or officers of other nonprofits
  • Small business owners
  • People who've been on other Finance Committees
• Non-board members recruited specifically for the committee. This is often a good way to establish an organizational relationship with potential board members, or with people who, for whatever reason, may prefer not to be on the board, but support the organization and are willing to help. Retirees, particularly those who have business or financial experience, may be particularly good candidates here, since they often have both the time and the desire to share what they've learned through years of experience.

Another aspect of this type of recruitment is that the people with expertise in finance are often also the people who have the resources to contribute generously to the organization. They may be more likely to do so if they have this kind of connection.

• People without specific financial expertise, but who are willing to learn, and who can ask the kinds of questions that are representative of the understanding of the rest of the board. These folks may be particularly important in interpreting the financial situation for the board as a whole. They may include beneficiaries of the organization, and/or representatives of specific community or population groups, as well as other interested board members.
• People whose very presence lends an aura of legitimacy to the committee and to the financial oversight of the organization. Respected community figures (clergy, college presidents or professors, CEO's, etc.) and former officials (a former State Auditor, for instance) known for financial oversight and integrity might be good candidates.

Particularly in choosing a Finance Committee, it's crucial to avoid even the appearance of conflict of interest. You'd want to ask the following questions, and make sure that committee members withdrew (recused themselves) from discussion of any issue involving an individual or entity with which they had any connection:

• Do you work for the organization?
• Are you related to anyone who works for, or who is planning to apply for a job with, the organization?
• Do you as an individual contract with, or might you contract with, the organization?
• Are you related to anyone contracting with, or who might contract with, the organization?
• Do you have any financial or other interest in, contracts with, or are you employed by companies or other organizations that do business with, or are interested in doing business with, the organization?
• Are you related to anyone with similar interests, contracts, or employment?
• Do you have any connections to the organization's funders?
• Do you have any connections to organizations that compete with the organization for funding?

Most of these circumstances can be addressed by recusal. You might decide, however, that someone who works for or contracts with the organization would have to recuse herself too often to be a useful committee member. You might also decide that other members would feel emotional pressure (even if none was intended) to act one way or another in a decision that involved another member of the committee. It's best to avoid these possibilities if you can, and choose committee members with that in mind. And remember that if there is a situation in which a committee member recuses himself, he's not allowed to discuss the situation with other committee members at all, or to try to influence their decision in any way.

How do you create and use a Finance Committee?

The creation and use of Finance Committees is bound to vary a certain extent from organization to organization. This series of steps ought to be helpful as a general guideline to most boards, however.

Decide what you want the Finance Committee to do

At the beginning of this section, we discussed some possible responsibilities of a Finance Committee. A particular committee won't necessarily have all those responsibilities, however, or may have others that weren't on the list. The real question here is the degree of oversight you want to committee to exercise.

• The committee keeps up to date on the budget, is briefed by the director on spending and income - in other words, it's the eyes and ears of the board, but from outside the financial operation. In this case, it might meet only two to four times a year, with the executive director and/or fiscal staff, and report to the board after each meeting.
• The committee exercises much more direct oversight. It makes suggestions for, or actually requires, particular fiscal activities - expenditures and income generation - carefully and frequently monitors the organization's books and fiscal activities to make sure finances are being used according to their directions, etc. It's likely that a committee this active would probably meet at least 8-12 times a year, and would probably do a lot of work outside of meeting times.
• The committee actually participates in the running of the financial operation. Here, in addition to exercising direct oversight, the committee might be involved in developing the annual budget, making budget revisions as necessary, suggesting and/or helping to write grant proposals, etc.

The appropriate level of oversight depends on the type of organization (volunteer vs. professional; board-run vs. director/staff-run); the degree of expertise and integrity expected of staff; the complexity of the fiscal operation; the past history of the organization; the attitudes and requirements of principal funders; etc.

If there's a professional fiscal staff - a CFO (Chief Financial Officer), a bookkeeper, an accountant, an accounting department - then there should be no need for direct participation in the day-to-day finances of the organization. The Finance Committee in that case is an advisory and oversight body that keeps the board current on financial matters and makes sure that the organization's books are accurate and transparent. If the financial operation is handled by the director, or by a board treasurer who's not a financial professional, then more active involvement on the part of the Finance Committee may be called for.

In general, micro-management leads to problems, but a reasonable level of participation is in fact helpful to everyone. It gives the director and fiscal people support and help (assuming it's collegial rather than adversarial), it keeps the board involved and informed, and it assures that all parts of the organization are on the same track and working together.

In addition to the level of oversight, the board should decide whether it wants the committee to participate in the annual audit. If so, it might take on some, or all, of the following:

• Choosing auditors
• Working with the auditors to facilitate the process
• Meeting with the auditors after the audit to go over and understand their recommendations
• Helping staff develop plans to address the auditors' recommendations, and correct any errors, inadequacies, or problems with the organization's fiscal policy
• Monitoring the organization's adherence to and the success of plans to address issues or to comply with auditors' recommendations
• Reporting to the board on the competence of and proposed retention or dismissal of the auditors

Choose the members of the committee with its and their duties in mind

The more complex and rigorous the oversight you want, the more you'll need a core of people with real fiscal expertise on the committee, for instance. If one of the committee's main jobs is to interpret the organization's finances for the rest of the board, then you'll want people with good communication skills.

Other qualities you might look for include:

• Integrity - an oversight committee, to be taken seriously, has to be made up of members who can be trusted to do the right thing
• Independence - this means not only that a member has no risk of being in conflict of interest (i.e., she's independent of outside pressures and forces), but also that she's able to stand up to pressure - open or subtle - from the executive director, the board chair, or other board or committee members, in order to pursue the best interests of the organization
• Dedication to the mission of the organization
• Effort - the willingness to put in the time and effort to be a productive committee member
• Competence - the willingness and the ability to learn to read financial statements, understand grants and contracts, and comprehend the fiscal operation of the organization, if the prospective committee member hasn't already done so

Establish (with the committee) policies and procedures for the committee

Whether these are set by the board or by the committee itself, it's important to have guidelines for the work of the committee that make it easier to know where to start and what to do.

Useful policies and procedures include:

• A clear statement of the committee's purpose and scope of work that's been agreed to by the board
• The committee's relationship to the rest of the board and organization - to whom is the committee responsible? How does it interact with other committees and with the director and staff? Does it have any exclusive powers?
• Committee size - this will probably be a range, and should be small enough to be manageable, but large enough to allow for a diversity of opinion and ideas. Most groups seem to function best with about 6-12 members.
• Length of membership - you may want to include in this area some provision for staggering terms, so that there are always at least a few experienced members on the committee.
• Meeting schedule, including a minimum number of meetings (e.g., 12 per year), with the understanding that extra meetings may be necessary from time to time. There might also be a requirement here that members attend a certain number of scheduled meetings in order to keep their seats on the committee.
• Internal governance procedures - these include election or appointment of the chair, recording of meetings, setting the agenda, communication procedures, etc. This may also cover the actual running of meetings, if they're formal. (Will you use Robert's Rules of Order, for example?)
• Exercise of power - does the committee have the right to suggest changes in or courses of action for the fiscal operation? To demand them? To remove fiscal power from someone without the approval of the rest of the board? If it can do any or all of these, how does it go about them?
• Evaluation and personnel function - if the committee evaluates the auditors and/or the fiscal staff, what's the mechanism for doing so? To whom and how is the evaluation reported? Does the committee participate in personnel decisions concerning the fiscal staff? Hiring and firing?
• Reporting - to whom does the committee report irregularities? What is the mechanism for doing so? Does a report require a committee vote, or is it the responsibility of individual committee members?
• Ethics - when is it appropriate, if ever, for the committee, or one or more members, to act independently of the board? (And when, if ever, is it appropriate for a member to act independently of the committee?) What are the committee's ethical obligations - to the board, to the organization, to funders, etc.? What are the ethical obligations of each member?

Develop training for the committee

Depending on its functions, you might want to conduct training in any or all of the following areas:

• The organization's budget and financial operation. This might include a presentation or workshop by the Treasurer, executive director, and/or the fiscal staff, as well as some study of the organization's books and financial records by committee members on their own.
• Current grants, contracts, bequests, endowment, and other funding. Again, this would probably be a combination of presentation and committee members' reading documents on their own.
• Laws governing nonprofit finances. This would introduce or review the laws governing 501(c)(3) and other nonprofit status, state laws, tax requirements, etc., as well as board liability and responsibilities. If the board includes an attorney, she'd be the obvious trainer here.
• The auditing process. This would cover both the organization's legal obligations and the logistics of an audit. A CPA board member or a representative of the organization's auditing firm might be appropriate trainers.
• Committee policies and procedures, and ethical considerations.
• Committee responsibilities to the board. These might include protecting the board from legal difficulties, regular reporting, assisting in maintaining financial stability, etc.

How often training takes place, and who's involved, depends on the size and character of the organization, the level of involvement of the committee, the prior experience of members, etc. New members should certainly be trained as they are appointed, but that training might be conducted by the committee itself.

Veterans may participate in training new members, thus renewing their own knowledge as well. We see this as desirable both for refreshment of knowledge and as a team-building activity. The committee may also choose to undergo retraining at intervals, or to be trained in particular topics as they arise.

Determine (with the committee) exactly how the committee will function and carry out its duties

This includes the nitty-gritty of committee operation - the logistics of the implementation of its mandate.

• Frequency, timing, and nature of meetings - not only when the committee will meet, but whom the meetings will include (the organization's director? financial staff?), and what they will cover.
• How the committee will interact with the financial operation - will it simply monitor and provide support? Advise? Direct?
• What information the committee will review on a regular basis - this might include monthly or longer-interval financial and profit-and-loss statements, funding proposals and contracts, service statistics and reports, the organization's actual books or journals, bills and receipts, a computer-based accounting program, etc.
• How the committee will report back to the board - will it give regular reports at board meetings? Report only to the board Chair? Have a seat on the Executive Committee? Report only when there's a problem? Report regularly on the financial state of the organization? On trends and possible future financial scenarios?
• What the committee will do when it finds a problem - this will undoubtedly vary according to whether the problem is caused by an error or faulty practice, or caused by some intentional misdeed, and by whether someone has tried to cover it up. If the situation needs to be reported, as well as remedied, to whom does the report go? To the board Chair? The executive director (assuming she's not implicated in the situation)? The full board? The oversight agency or funder?
• How actively the committee will be involved in devising and/or monitoring remedies for financial or legal problems

Once these guidelines for its functioning have been set, it's up to the Finance Committee to do its job. That job should have the support of the board and its Chair, and of the Executive Director and financial staff as well, for a well-functioning Finance Committee can be a benefit to an organization and everyone connected with it.

Most Community Tool Box sections end by urging Tool Box users to maintain whatever activity or institution the section covered. This section is no exception, but the encouragement here is slightly different because of the nature of a Finance Committee.

Just as White House reporters are sometimes accused of getting too friendly with the Administration to report the news objectively, Finance Committees can so identify with the financial operation of an organization that they lose their oversight capability. Committees can also become so familiar with the financial operation that they fail to pay close attention to it, and therefore miss important trends or errors or irregularities. It's important not only that the committee continue to function for the life of the organization, but that it maintain its independence and freshness - perhaps by making sure that membership is regularly varied - so that it can continue to serve the organization well.

In Summary

Nonprofit organizations can be subject to gross financial errors or illegal financial dealings just as for-profits can. For that reason it may be wise for a nonprofit board to include a Finance Committee among its standing committees. The purpose of such a committee is to monitor the organization's financial operation and catch inadequate or incompetent practice, financial errors, or unethical or illegal actions - intentional or unintentional - on the part of the director or financial staff. The committee can also participate in and/or evaluate a financial audit and auditors and help to interpret financial information to the board as a whole.

The establishment of a Finance Committee is often taken as an indication that the board is properly exercising its legal and ethical responsibility to monitor the finances of the organization. Since a board is legally liable for the operation and actions of the organization, this can be important in protecting the board and the organization from lawsuits in case of any impropriety.

Specific reasons for establishing a Finance Committee include:

• To help a board fulfill its fiduciary responsibility
• To protect the organization from legal challenges and liability
• To help catch both intentional and unintentional mismanagement of funds
• To protect the organization from actual or apparent conflict of interest
• To act as the board's eyes and ears in the financial operation
• To act as an advisory panel to the financial operation
• To evaluate both the financial operation and the people in charge of it from a position of knowledge
• To help in the hiring of fiscal staff or a new director
• To make the audit easier
• To interpret the audit for the rest of the board
• To help recommend the hiring, retention, or firing of potential or current auditors

The membership of a Finance Committee may include both board members and non-board members who are supportive of the mission of the organization. It is usually helpful to involve at least some people with financial expertise - CPA's, lawyers, financial analysts, bankers, and others who've had experience running or monitoring a financial operation. It may also be useful to include members who will ask the sorts of questions that financially less sophisticated board members might ask, as well as people whose integrity and community standing lends credibility to the committee. All members should either be totally free of, or able to circumvent honestly (e.g., by withdrawing from discussion and decisions on particular issues) any conflict of interest.

The ideal membership, structure, and functioning of Finance Committees will be different for different organizations with a variety of needs.

A general series of steps to establishing and using such a committee, however, should probably include:

• Deciding what you want the committee to do.
• Recruiting committee members with the duties of the committee in mind. General characteristics of good committee members: integrity; independence; dedication to the mission of the organization; the willingness to put in the time and effort to be a productive committee member; and the willingness and ability to learn to read financial statements, understand grants and contracts, and comprehend the fiscal operation of the organization.
• Creating (with the committee) policies and procedures for the committee. These might cover internal governance, relationships with the board and staff, meeting schedules, reporting mechanisms, and ethical obligations.
• Developing training for the committee. Areas covered should probably include the organization's budget and financial operation; current grants, contracts, bequests, endowment, and other funding; laws governing nonprofit finances and board liability; the auditing process; committee policies and procedures and ethical considerations; and committee responsibilities to the board.
• Determining (with the committee) exactly how the committee will function and carry out its duties.

It's important to maintain the committee's functioning by keeping it independent and fresh, so it can continue to benefit the organization.

What is a Finance Committee?

___You use a standing committee, which may include both members and non-members of your board, to oversee your organization's financial operation.

Why do you need a Finance Committee?

You establish a Finance Committee because:

___A Finance Committee helps a board fulfill its fiduciary responsibility.

___A Finance Committee can protect the organization from legal challenges and liability.

___An alert and informed committee should be able to catch both intentional and unintentional mismanagement of funds.

___A Finance Committee can protect the organization from actual or apparent conflict of interest.

___A Finance Committee acts as the board's eyes and ears in the financial operation.

___A Finance Committee can act as an advisory panel to the financial operation.

___A Finance Committee can evaluate both the financial operation and the people in charge of it from a position of knowledge.

___A Finance Committee can be helpful in the hiring of fiscal staff or a new director.

___A Finance Committee can make the audit easier.

___A Finance Committee can interpret the audit for the rest of the board.

___A Finance Committee can be helpful in recommending the hiring, retention, or firing of potential or current auditors.

Who should be involved in a Finance Committee?

___You recruit board members who have a financial background, and who want to serve on the committee - CPA's, lawyers, financial analysts, bankers, etc.

___You recruit non-board members who would be valuable to the committee and with whom your board can benefit by establishing relations.

___You recruit board members who are financially less sophisticated, and who might therefore represent the board at large, and ask the kinds of questions they might ask.

___You recruit people who, by their known integrity and community standing, can lend credibility to the committee.

• What is a micro-grants program?

• Why might you want to establish a micro-grants program?

• When should you establish a micro-grants program?

• How do you establish a micro-grants program?

What is a micro-grants program?

Micro-grants are small, one-time-only, cash awards given to community groups and others for short-term community projects. The micro-grants projects are designed and implemented by the community groups themselves, not by the sponsoring organizations. They are bottom-up, not top-down. They are usually awarded on a competitive basis - the sponsoring organizations decide which proposal best meet its guidelines, and are most deserving of the limited mini-grant money available.

Many coalitions and other organizations are using micro-grants to stimulate community action and increase the sponsoring organization's visibility, while broadening the audience for the organization's work. Micro-grants are potentially powerful as well as cost-effective interventions. When used correctly, they can engage citizens in creative community betterment efforts, and generate real accomplishments citizens can take pride in.

Why establish micro-grants programs?

Micro-grants may seem like a good idea to you and your organization. But since they do involve using some of your limited resources, maybe you need a little more motivation as to what micro-grants can actually do for your community!

There are some benefits of a successful micro-grant program:

• They inspire creative and innovative thinking
• They are an excellent way to reach "hard to reach" or "yet to be reached" people, because they are awarded to groups (like parent teacher associations, scouts, neighborhood organizations) that have access to many more citizens than traditional health and human service organizations
• Many grass-roots groups are not eligible for traditional grant funding. For example, they may not have federal tax-exempt status (a common grant requirement), or, they may not have another organization to act as a fiscal conduit for them. Thus, micro-grants give them a chance to get hold of resources that would otherwise go only to bigger fish.
• The small amounts of money (the usual range being $400-$2000 per micro-grant) tend to discourage large agencies from applying, while encouraging smaller, innovative groups who might not otherwise respond
• Micro-grant money tends to buy products, not staff. In-kind contributions of staff time increase with micro-grant use. And having to make money go a long way forces people to bring other resources into play, thus increasing the amount of matching and volunteers projects receive.
• They can bring new partners into your efforts
• They can build political and community support

When should you establish a micro-grants program?

If your organization has some money available to spend as it wishes, then you may want to consider establishing a micro-grant program. So when is the best time to do this?

When:

• You want to utilize some program funds to get grassroots groups more involved
• You know that citizens already have many good grassroots ideas
• You are aware of possible matching resources in the community
• You want to create closer ties between traditional service organizations and grassroots groups
• You are looking for ways to get the most bang for your buck

How do you establish micro-grants programs?

Make the decision

The first step is to decide that you want to do it! This most likely means you will need to review your organization's budget. Then ask yourselves: "Of our overall available funds, are we able to, and do we want to, allocate some of the money for micro-grants?"

If the answer is "Yes" to both of these questions, then you will want to ask: "How much do we want to allocate?" A recommended amount to start with is $5000.

These decisions will set the course for the rest of your micro-grant program. The next steps will lay the rest of the groundwork.

Establish your purpose

You and your group should now decide what your goals are for the program. What are you providing the micro-grants for? Whom do you want to reach? What outcomes do you desire?

Develop micro-grants committees

In practice, you will probably want two search committees:

• A planning (or steering) committee - You will need a group to set up the guidelines, publicize the program, receive the applications, monitor micro-grant activities and oversee the whole process.
• A review committee - you will also want a group to review the actual micro-grant applications. This may be composed of community members, or a mixed group of people from your agency and from the community to ensure fairness and an impartial review. You certainly want to avoid a stacked deck, or even the appearance of one.

Establish micro-grant guidelines

The guidelines you or the committee develop should be as simple as possible. They should reflect the best interests both of your organization and of the community. What should the guidelines contain?

Usually they include a brief description of:

• The overall purpose of the micro-grant program. (It's usually a one-time start -up grant)
• The types of activities that are eligible and not eligible.
• The types of activities, if any, that will receive funding priority.
• The types of applicants who can and can't apply. (Can individuals apply, or just groups? What about geographical limits?)
• The maximum amount of money that can be awarded.
• The ways in which that money can be spent. (Printing, postage, supplies, and small equipment purchase may be eligible; salaries, construction, large equipment, and paying off debt generally are not)
• The application review process, including the review criteria.
• The deadline for applying.
• Any other information specific to your particular micro-grant program.
• Instructions for filling out and submitting the application form. (In many cases, the application form itself may be included)
• The name, address, and phone of a contact person from the micro-grant program, in case a potential applicant has questions.

All of this guideline information can be included on one page, or two at the most.

Now is a good time to also be clear about your policies on payment for the recipient's projects. Do recipients get paid up front, or after completion of their project? Many groups won't have the money to start the project out of pocket. On the other hand, giving up front money to a group that is untested and that you know little about may be unwise. Some projects give a partial award to start with and pay the rest upon completion of the project work.

Develop a micro-grant application form

The application you develop should be relatively short - most will be one or two pages, definitely no longer than four pages.

The key questions you want to ask are:

• The name, address, and phone number of the person who will be in charge
• Organizational affiliation, if any
• The nature of the planned activity
  • "What activity are you proposing?"
• The goals of that activity.
  • "What are the goals of that activity?"
• The procedure for carrying out that activity
  • "What steps will you take to carry out that activity?"
• The desired outcome of that activity
  • "What are the specific outcomes you desire when the activity is completed?"
• The amount of money being applied for
  • "How much money are you applying for?"
• How much money will be spent
  • "How do you propose to spend the money?"
• How will the activity be evaluated
  • "How will you evaluate the activity, to see how well it has achieved its goals?"

Another common question is how the activity might be continued once the micro-grant funds have been spent. You may also want to ask about the experience of those who will be in charge of the activity, and about other possible funding the applicant has for the project. In some cases, you might also want to ask for references or letters of support.

You may want to give applicants the option of presenting their application orally to the committee. Also, make sure you remind applicants that you and your staff members are available to help them fill out their application. Many groups will be intimidated or confused by even a simple application, and will need your technical assistance. Just make sure you are even-handed about the help you give; don't show favoritism to one group over another.

Announce and publicize the availability of grants

One way to publicize is to develop a simple flyer that your group can post around community gathering places, shops, businesses and churches. The flyer can be mailed to all community and neighborhood groups on your mailing list. E-mail is also a possibility. In addition, you may try to get a newspaper story.

In general, you will want to generate a lot of word-of-mouth publicity about the micro-grants. You will need to talk them up, and once again, help people turn their applications in. The more you can spread the initial word, the larger and better the applicant pool will be.

Review the application

Once you have received the applications, your review committee can start ranking the applications according to your predetermined application guidelines. Ideally, this will be a "blind" system, in which the reviewer does not know the name of the applicant. In a small community, this can be difficult to avoid; but any bias can be micromized by having a diverse review committee.

Rate the applications; award the grants

In order for the review committee to rate the applications, you will need to give each member a rating sheet. Each reviewer assigns points on each review criterion for each application - for example, 25 points for creativity, 25 points for feasibility, etc. Each reviewer then gives an overall point total to each application, the applications with the top scores will be awarded the grants. See the Tools section for a sample Reviewer Sheet.

Announce the recipients

The review committee has made its decisions. You are now ready to announce the recipients of the grant awards! This should be done with as much fanfare as possible - ideally in the context of a community event. Invite the press, as it will help motivate recipients and generate good public relations for the program. Require all recipients be present. Ask the recipients to present their projects to, so that both can be introduced to the larger community.

Monitor the projects

Once the recipients have received their awards, it is up to the monitoring committee to meet with the micro-grant recipients and help keep the projects on course. One representative from the committee can be assigned to each project. That representative can provide technical assistance and moral support, as well as making sure that money is spent appropriately, etc. Some groups will have no problems whatsoever, while others may struggle mightily--most groups will fall somewhere in-between.

At this stage, the monitoring committee might wish to develop a written document (sometimes called a Memorandum of Agreement) for the micro-grant recipients to read and sign. This can help make expectations clear, and increase accountability all around.

Receive reports or finished work

In order for you to evaluate how well the micro-grants programs worked, the grant recipients should prepare a final report or product by a target date. Make sure you make this clear in your application guidelines and when you award the micro-grants, so recipients know about their obligations well in advance.

Evaluate your results

After the reports come in, it's a good time to take a step back and evaluate. How well did the micro-grant program work? Did it meet your expectations? Did the community benefits justify your time and money? What changes - in your guidelines, in your promotion, in your review process, or in your program monitoring - might make the micro-grant program more successful?

Very few programs run perfectly, especially the first time around. So it is natural to want to make some changes. Here is your chance to make them, so that the overall program will be stronger in the future. And then you are ready to...

Repeat the grant cycle

When you have made your corrections - and assuming that you have the desire and ability to keep your program going - you are now ready for another micro-grant cycle.

The grant cycle is the time from when your organization announces the availability of the micro-grants until the recipients are notified and awarded the grant. You could award micro-grants in several different application rounds and cycles. For example, two or three times a year. You will have to decide based on how much money you have available for this, and when your own funding for the micro-grant project might end.

The micro-grant cycle might take around four months to complete. Here is one possible timeline:

• Month One: Announce availability of micro-grants
• Month Two: Deadline for applications
• Month Three: Review of applications by review committee; funding decisions by the committee
• Month Four: Notify recipients and award grants

___You and your organization have decided to establish a mini-grants program

___You have decided on your purpose and your goals for the program

___You know whom you want to reach and what your desired outcome is

___You have developed a planning committee and a review committee

___The guidelines that are developed are as simple as possible

___These guidelines reflect the best interests of your organization and the community

___You have developed a mini-grant application form

___The application is relatively short, but it contains the key questions

___The availability of the grants has been announced and publicized

___When the applications were received, they were reviewed by the committee

___A score was given to each application using a rating sheet

___You have awarded the grant to the best suited applicant

___After the grants have been given out, the monitoring committee has helped to keep the projects on course

___You have received a final report or product by the target date that was originally set

___You have evaluated how well the program went, making changes when necessary

___You are prepared to repeat the grant cycle

Example 1: Implementing a Mini-Grant Program for Self-Help Initiatives

After conducting a health concerns survey and forming a local health concerns coalition, The United Way of Douglas County was awarded $10,000 from the Kansas Health Foundation to administer a mini-grants program and disperse the funds.

This mini-grants program awarded grants to both informal and formal organizations addressing stated community health concerns, in the areas of health promotion and disease prevention particularly in the areas of cardiovascular disease, cancer, substance use, and maternal/infant care.

Special attention was given to those applications proposing self-help projects, those with significant involvement by community members experiencing the health problem (e.g., an adolescent pregnancy program led by Teen-age mothers), and projects that encouraged collaboration between community members and organizations.

For example, one mini grant was awarded to a program called "1st Step Nutrition" which was a nutrition program for women recovering from drug abuse. Another mini-grant was awarded to a group developing a "Youth Yellow Pages" which was book of resources for youth in the community. A third mini-grant was awarded to a group developing a video for breast cancer prevention.

These programs then went on to implement their projects, and, eventually, reported the results of their projects to the Douglas county United Way mini-grant program staff.

 

Example 2: Latino Health for All Minigrant Process

This minigrant proposal was developed to provide resources needed to implement the Coalition's priority strategies with 3 main objectives: to increase healthy nutrition, physical activity, and access to health services. Read more.

Tool 1: Sample mini-grant guidelines

A sample guidelines section for preparing mini-grant proposals.

Introduction

The purpose of the Health Action Minigrants Program is to support community groups' efforts to take action to prevent disease and promote health in Douglas County. These intentionally small grants (typical grants are approximately $1000) are designed to stimulate grassroots involvement in health promotion.

The Health Action Minigrants program is funded by a Kansas Health Foundation grant to the United Way of Douglas County. The Kansas Health Foundation is an independent nonprofit organization with the mission of improving the quality of health in Kansas . Grants will be awarded through the United Way of Douglas County.

The Health Action Minigrants Program is part of the Kansas Health Foundation's Kansas Initiative. The Kansas Initiative will provide support to community groups , such as coalitions and task forces, that are attempting to change policies, programs , personal competencies, or resources relevant to local health concerns. Consistent with the broader Kansas Initiative, the Health Action Minigrants Program will award grants in the following health areas: the prevention of cardiovascular disease, cancer , adolescent pregnancy, substance use, and maternal and child illnesses.

Eligible organizations

The Health Action Minigrants Program awards grants to projects or programs within Douglas County. The Program will consider proposals from groups, agencies, and organizations whose interests are consistent with the goals of the Program. The Program will not consider grant proposals for retroactive funding of projects already completed.

Types of projects eligible

The Health Action Minigrants Program will award grants for attempts to prevent the following health problems:

• Cardiovascular disease
• Cancer
• Adolescent pregnancy
• Substance use
• Maternal and child illness

Eligible projects are those that attempt to change or develop new policies, programs , personal competence, or resources related to specified areas of local health concerns .

Types of projects preferred

Projects with significant involvement by community members who are affected by the health problem are given priority. For example, a project focusing on prevention of adolescent pregnancy should involve current or former teen mothers, or youth at risk for pregnancy. Projects in which 50% or more of the applicants are affected by the health problem will be given preference over those with less substantial involvement by the target population. Projects that encourage collaboration among community members and organizations are also given priority.

Types of projects not eligible

The following projects are not eligible: a) direct subsidy of care for the medically indigent; b) direct subsidy of existing services by community organizations; c) projects identified with political parties of any kind; d) projects sponsored by a for profit organization; e) organizations that practice discrimination of any kind; f) general contributions to capital campaigns; g) operating deficits or retirement of debt; h ) endowment programs; and i) construction projects or real estate acquisitions.

Application procedure

Applicants should complete and submit a mini-grant proposal. The proposal requests detailed information about the need for the project, its goals, plan of action, and a budget. The proposal should be accompanied by letters of support and resumes of applicants. Use a copy of the attached mini-grant proposal form for each project submitted for approval. Should the proposal be reviewed favorably, a memorandum of agreement which provides clarification or more information about the proposed project may be requested.

Review process and evaluation criteria

Submissions will be reviewed by designated representatives of the Kansas Health Foundation. Applicants will be contacted if further information is needed.

The following criteria will be used to evaluate proposals:

• Significance - How well do the goals address local health concerns? How clearly are the goals and objectives stated? Are people most at risk targeted? How many people will benefit?
• Action plan - How well defined is the action plan? How closely tied is the action plan with the stated goals? Are the actions designed to change behavior? Are community members who are affected by the health problem involved in the development of goals, objectives, and plans of action? Does the action plan involve collaboration among community members?
• Likelihood of success - How feasible is the project in terms of time, budget requests , and available resources?

Please mail completed applications to:

Health Action Mini-grants Program
United Way of Douglas County
P.O. Box 116
Lawrence, KS 66044

Tool 2: Sample mini-grant application

A sample mini-grant application, including an action planning form.

Applicant Information

Applicant Name & Title:
Organization:
Address:

Phone Number:
Project Title:
Contact Person:

Project goal

List the broad goal(s) of the proposed project:

Project objectives

List the specific objectives for the project. List the specific changes in policies, programs, personal competence, or resources that will result from this project. Specific aims should refer to outcomes or changes in the community that can reduce risk of the health problem.

Relevance to health concerns

Describe how the identified problem is relevant to Kansas Health Foundation Goals:

Self help/consumer involvement

Indicate how targeted health consumers (those affected by the health problem) are involved in setting goals, objectives, plans of action, and program implementation. Describe the people that will be affected by the project and where the project will take place.

Project action plan

List the steps needed to complete the project. Complete the Action Plan at the end of the application.

Project evaluation and maintenance

Describe how you will monitor progress to identify what works and what needs improvement. Indicate how continuation of the program will be secured after the grant.

Significance

Indicate how the project is important and innovative. Indicate how the target population's risk to the health problem is reduced as a result of the proposed project. Note how the community's capacity to meet the health goal is improved.

Budget

Briefly describe expected project costs.

• Personnel (existing):
• Personnel (new):
• Operating Expenses: (e.g. printing, telephone, postage, materials)
• Other Expenses (please identify)
• Budget Total:
• Other sources of funding for this project (list source and amount)
• Other Resources Total

Budget justification

Provide an explanation for why each type of expense is needed .

• Personnel (existing):
• Personnel (new):
• Operating Expenses (e.g. printing, telephone, postage, materials)
• Other expenses:

Specific Objectives	Action	Date	Target	Actors	Location	Intended Outcome

Tool 3: Reviewer Rating Sheet

A sample sheet to help review committee members evaluation of applications you receive.

Instructions to the reviewer: Please rate each application on each of the four criteria below. For each criterion, assign a maximum of 25 points.

Then add all four ratings together, to arrive at the total point score.

• Creativity: How creative is the proposal?
• Feasibility: How feasible is the project in terms of time, budget, and available resources?
• Significance: How well do the goals address local health concerns? Are people most at risk targeted? How clearly are the goals and objectives stated? How many people will benefit?
• Action Plan: How well defined is the action plan? How closely tied is the action plan to the stated goals? Are the actions designed to change behavior? Are community members who are affected by the health problem involved in the development of goals , objectives, and plans of action?\

Application #	Creativity (out of 25)	Feasibility (out of 25)	Significance (out of 25)	Action Plan (out of 25)	Total (out of 100 points)

Tool 4: Memorandum of Agreement (MOA)

A sample letter of agreement for applicants to sign before they are given their grant award.

This is an example of an Agreement between a mini-grant applicant and Project Freedom , the mini-grant sponsor. In this case, the applicant is asked to sign and submit a copy of the Agreement before the application is actually reviewed.

• I will give Project Freedom a report of how the project went and what was accomplished no later than June 1, 20___.
• I will return any money that I did not spend to Project Freedom by June 1, 20___ .
• I will spend the money I get only on things I said I would in my budget. If I need to make changes, I will contact Project Freedom first.
• This money is not being used to replace, or free up for other use, funds which are presently being used for substance use prevention.
• I will let Project Freedom staff or mini-grant volunteers check up on my program any time they wish to see how it's going and how I'm spending my money.
• If my program is youth focused, I will ask youths to be involved in making decisions about the project.
• I will get the best photographs I can of my project and I will return the disposable camera that Project Freedom will give me. I understand that the photographs belong to Project Freedom and that they will be used to show others the benefits of the mini-grants program. I will tell Project Freedom if someone in my project does not want his or her picture used.
• I will tell others that my project is being funded by Project Freedom's mini -grant program and I will put this on any written materials I develop for the project .
• If I am part of an organization, then my signature indicate that I'm the one who has the right to enter into contracts with others for my organization.
• I will let you check my background to see that all this information I've provided is true.

Please Sign Here:_________________________ Date:_____________

Thanks for your application!
If you are funded, we wish you great success!
If you are not funded, don't give up. Talk to someone at Project Freedom about your ideas and try again next year. We want to work with you!