The daffodils are fading and the weather warming. I planted a few tomato plants and moved several potted plants to the back porch, and then the temperature dropped. Once again, misled by the inexact science of weather predictions. So, I check the Old Farmer’s Almanac and learn April and May will be cooler than usual. Maybe I will have more tomatoes, but when do the potted plants escape to the outdoors?
Too early, too late, too much or too little – whether it is a tomato plant or a new nonprofit, access to accurate information is vital!
The Farmer’s Almanac of nonprofits might be GuideStar, a useful source of nonprofit data. It has a database of more than 2.2 million nonprofits in the USA, which includes more than 1.8 million active organizations.
Until 2011 many nonprofits just faded into a quiet death continuing to be inactive year after year. Starting in 2011 the IRS revoked the tax-exempt status of more than 500,000 nonprofits due to not filing the required form 990 for three consecutive years.
While it is more difficult today to fade into that “quiet death” some nonprofits do seem to at least go dark for a time. Sometimes, an organization jump-starts after years of inactivity under the same tax-exempt status, with a new board of directors, mission, even services.
Meanwhile, the nonprofit sector is burgeoning. In a 2015 Nonprofit Sector Brief, the Urban Institute indicated during the decade from 2003 to 2013 public charities grew 19.5 percent.
Experts tell us more than fifty percent of new businesses fail within five years. Nonprofit experts believe the number is even higher for nonprofit organizations.
That’s the donor challenge: how to make wise giving decisions to just birthed or toddler nonprofit organizations.
Let’s unpack the challenges for the new organization in the first five years.
Great Idea, Little Fiscal Experience
A good idea, passion and a mission do not ensure healthy management. Inexperience and lack of skill can lead to early failure. Especially common is limited financial experience.
On a personal note when I ask an inexperienced executive director the size of the budget and hear “I don’t know or I’m not sure,” I cringe. If the number is too large, my radar goes up. As an experienced philanthropic advisor, I weigh the importance of proper fiscal management against the passion, mission and service. A nearly balanced scale is critical, or there is little hope of sustainability.
Fundraising Challenges
Lack of fundraising experience leads to a shortage of donors and too few revenue streams. Fundraisers can cost more than they raise, diverting critical dollars away from services, or raise too little.
I have a friend who often says special event fundraisers are akin to asking rabbits to carry lettuce to market. Too little remains by the time they arrive. It’s a trap many organizations fall into, especially so in the early years.
Young nonprofits often say if only we had large donors. That thinking jeopardizes their sustainability as they are unprepared when donors move on to other interests or die.
The Over-Related Board of Directors
Be cautious if the size of the board of directors is below five; or related by blood, marriage or friendship to the founder. Public charity status is intended to serve the public good. The board of directors, responsible for establishing direction and prudent fiscal oversight, should be a number large enough to understand the community they serve and the community in which they live.
And this is very important, the board of directors should be large enough to include a variety of skillsets.
Six Tips for the Wise Donor
Each of these issues threatens the fledgling nonprofit organization. The question is always how you can be a wise donor and ensure donations are used well?
- Donate to new or young nonprofit organizations with eyes wide open.
- Donate If you believe in the mission and you trust the leadership and board of directors.
- Start small and increase your support for their cause as they grow.
- The alternative is a more substantial gift to help them start up but be clear it will decrease as they expand the donor base.
- Always pay attention to the board of directors, especially so in the early years.
- Ask how much the organization spends to raise funds.
Be a wise donor. Keep your “eyes wide open.” Share your questions about young nonprofits.
Let’s start a conversation.
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I’m going to send this to new non-profits who see grants at the answer to their funding problems. While speaking to donors, your tips are clear marching orders for staff and board members.