It’s easy to get excited once your nonprofit startup is in place and jump too fast to fundraising, skipping over the step of creating a solid infrastructure.
It’s critical that you take the time to put a strong foundation in place if you want to grow a strong nonprofit.
Without systems and processes in place, the nonprofit you are building will quickly become unstable and is at risk of failing.
There are four big reasons you need sound systems and practices for your nonprofit startup:
- To maintain your tax-exempt status. As a nonprofit organization (in the US, you have 501(c)(3) status), you must file the required paperwork (US-based nonprofits must file a 990 with the IRS). If you don’t have the systems in place to easily find the info you need for these reports, you put your nonprofit status in jeopardy. If you have a system but it’s not dependable and you aren’t sure the numbers you’re getting are right, you’re also putting your nonprofit at risk.
- To provide transparency. Fundraising is built on trust. You must be ready and willing to open the books for anyone who wants to take a look. A solid infrastructure helps you manage money correctly as it comes in from donors and goes out via authorized expenses. Fraud can happen too easily to organizations with big hearts and good intentions, and good systems can help prevent fraud plus provide accurate information to curious donors and grant funders.
- To deliver quality, consistent services and be able to scale those services as you grow. The people or animals whose lives you are changing through your nonprofit need you and your organization. With good systems and practices in place, you will be able to deliver on promises and not let them down.
- To efficiently manage all aspects of your organization. Nonprofits, even small ones, have a lot of moving parts. Some services are more complex to deliver than others. If you have volunteers, you have to train, schedule, and thank them. You have gifts that must be recorded, donors who must be thanked, asks that must be made, grants that must be written and on and on. Communication is critical, as you have to tell people about the great work you are doing to gain support, and with communication you need systems and processes. Who will do all that? How will you make sure it gets done on time and to your standards? Trying to do everything yourself without infrastructure will wear you out and lead to missed opportunities.
Yes, your nonprofit startup needs infrastructure. And it takes time and money to put everything in place.
There are some good free and low-cost options for young organizations, but don’t try to do this as cheap as possible. Do it RIGHT so you’re setting your nonprofit up for success long term.
Make some room in your operating budget for your infrastructure needs and assume some systems will require tools beyond what is available for free.
Prioritizing your systems will help you create a calm work environment, one where everybody knows their role and is working toward a shared goal using the same processes. Burnout is so common in the nonprofit sector, especially with new nonprofits. Effective systems go a long way in preventing burnout and keeping nonprofit work rewarding, enjoyable, and sustainable.
It would be overwhelming to create all these systems at once, so don’t try. Tackle one at a time. If you try a tool or service that is a bad fit, change it but don’t give up on it.
It can take time and patience to find the right process for your nonprofit startup, but once everything is in place, your nonprofit startup will run like a well-oiled machine!.
1. Managing donations: It is critical to have sound practices around the handling of money. You DO NOT want to wing it or make it up as you go!
What is your process for receiving a gift? Do donors send checks to your P.O. box? Whose responsibility is it to pick up those checks? How often? Do they get deposited right away? You want the tightest timeline you can manage between the donor writing a check and receiving a thank-you letter. There are many good donor-management tools out there and several are very affordable for a nonprofit startup.
Much of your money will likely come through your website. How will the money get transferred to your bank? How will donations get recorded in your donor-management tool? What do the automatic thank-you emails look like?
The fewer people who handle your organization’s money the better. Yet everyone in a leadership position needs to know the processes, so someone can step in when the person responsible is sick or on vacation.
How does the bookkeeper track money coming into the organization? Your bookkeeper will need a software like Quickbooks to record bank deposits and expenditures and create financial reports for the Board. How do the bookkeeper and the person tracking donations for the purposes of thanking and managing donors work together? What is the role of your Board Treasurer?
You need written procedures for the handling of money, how gifts get from their point of origin to the bank and then recorded into a spreadsheet or donor-management tool. And every single procedure should be in writing and shared somewhere that everyone who needs it can access it, like in a shared Dropbox folder.
2. Paying bills, expenses, and reimbursements: Managing money is one of the most important jobs you have in your nonprofit startup! Money comes in and goes out in service of your mission. Who is responsible for it in every step along the way? And how do you minimize risk so that it is protected from theft at critical points?
Who is responsible for writing checks? This person should not be the bookkeeper! The bookkeeper keeps track of the money coming in and out, but someone else, typically the Executive Director, the Board Chair, or the Board Treasurer, should have the authority to write checks. Who is the backup person to write checks when the usual person is unavailable? At what amount do checks require two signatures or board approval?
Who is responsible for paying routine bills like insurance and utilities? Who runs payroll if you have employees and makes sure that payroll taxes get paid correctly and on time?
Often you will need to reimburse employees, Board members, or volunteers who purchase snacks for an event or incur other routine expenses. You need a written process to spell out how a person gets reimbursed. The person typically gets approval prior to incurring the expense. Who is authorized to give that approval? Then the person submits a form along with a copy of the receipt. Can you set up a cloud-based system for efficiency? Or will you create a form the person can download? Who approves the reimbursement? How does the form get to the person who writes checks? How is the person paid? In a check? Or direct deposit?
3. Managing bank accounts: With all funds passing through your bank, you need a well-communicated process to ensure funds stay safe.
Limit the number of people who have access to your nonprofit startup’s bank accounts. Typically, the Executive Director, Board Chair, and Treasurer have access, though other people might be authorized to make deposits. Also restrict who has the authority to open bank accounts in your organization’s name to prevent fraud. Determine if separate accounts are necessary for organizational needs. Some banks offer sub-accounts that keep all funds under one umbrella. Define the goal for any new account and outline when and why money can be deposited, withdrawn, or transferred.
Every organization needs a checking account to handle day-to-day activities. You may decide you need a savings account for cash reserves or a fund for a special purpose that won’t be needed in the short-term. Again, outline the reasons for depositing, withdrawing, or transferring funds from this account.
4. Managing Financial Accountability: Every nonprofit needs financial oversight beyond those who are engaged with the day-to-day handling of money. Typically the Board is in charge of this oversight, with support from the bookkeeper and the Executive Director.
Typically, the Board Treasurer or another authorized person will reconcile bank statements monthly to ensure there are no unauthorized expenditures. This person should also review credit card statements to make sure there are no unexpected or unauthorized charges.
To keep everyone in the financial loop, the Board should receive monthly reports, including a Statement of Financial Position, also known as a Balance Sheet, and a Statement of Activities, also known as an Income Statement. Other reports include Statement of Cash Flows and Statement of Functional Expenses. You can set up these reports in your accounting software and easily run them each month. The Board Treasurer should give a brief report each meeting, so Board members will all have a broad overview of the organization’s financial position.
While only a few people should be authorized to handle money and access bank accounts, employees with leadership roles and everyone on the Board should have a broad understanding of the organization’s finances.
5. Filing and Recordkeeping: Think about all the information you will collect in your nonprofit and how you should keep track of it. For example, if you depend on volunteers, where will you keep their contact information? If families or individuals sign up for your services, where will you keep their application forms? Where will you keep information on donors, such as their credit card numbers? Where will you keep bank records? And on and on.
Determine the appropriate way to store files for your nonprofit startup. Getting this right from the beginning will make your life easier later!
Can files be stored in the cloud using Box or Dropbox to give multiple people in different locations easy access? Or is it better to store information on a single computer hard-drive? (If information is stored on a hard-drive, what is your process for backing up the files?) Do some documents need to be filed in paper format? Yes, most likely. Consider investing in a filing cabinet with a lock. Let the Board Chair and Board Treasurer know where you keep the key!
Determine who should have access to files. Many will contain sensitive information, and that information should only be available to those who need it to do their job.
Recordkeeping is critical to an organization’s success so don’t overlook these systems. You will generate documents that you may think you will never need. But when the day comes that you need the document, will you know where to find it? If not, you could be in for a long day of frustration.
6. Protecting Data: The people involved with your organization trust you to protect their personal information. You need systems and processes to make sure you do that.
Assess every document and determine how to store it so sensitive information is protected. Some documents might include donor’s credit card information. Others might have home addresses and phone numbers of the people your program supports. Keep paper documents with sensitive information in a locked cabinet. Keep digital documents stored in password-protected folders in a cloud storage system.
Have a cross-cut shredder on hand to destroy any documents containing sensitive information when the time comes that you no longer need to keep them. Or use a service that can guarantee the total destruction of your documents.
Carefully consider where to keep passwords. Again, you need to limit password access to those who are authorized, yet you need enough people to have access to the passwords in case the primary person overseeing sensitive information is unavailable. Keep passwords in a central place that everyone authorized has access to. Consider storing them on a flash drive and keeping the drive in a locked filing cabinet. Just make sure everyone authorized knows where the key to the filing cabinet is kept!
7. Assessing and Managing Risk: Your ability to identify, analyze, and respond to a variety of risks will determine whether your nonprofit startup thrives or succumbs to a situation you were not prepared to handle.
Start by making sure you have sufficient levels of expertise on your Board to ensure effective organizational oversight. You should have at least one Board member with experience in each of these areas: human resources, accounting, law, and programs or operations. This Board-level expertise will help the Board stay out in front of problems and be proactive instead of reactive.
With input from the Board, determine what types of insurance the organization needs. Consider worker’s compensation, general liability, director and officer coverage — to protect the Board, leaders, and organization from lawsuits brought for ‘wrongful acts’ — property, auto, and cyber liability. Consult several insurance professionals to get a clear understanding of your organization’s options. Keep policies current and in a safe, accessible place.
If your organization has a facility, consider the security system in place to ensure the safety of staff, volunteers, and the people your organization supports. Consider who needs keys to the office and how to keep track of keys as employees depart and new employees are hired. Think about security systems, fire safety, disaster preparedness, and other details to make sure your organization makes a reasonable effort to keep everyone safe. Capture these details in a business continuity plan, a document that contains the critical information an organization needs to continue operating during an emergency or disaster.
8. Communicating: From the day you open your doors, the organization needs to speak with one voice both internally and externally. Develop a review process where every communication gets a second look to make sure it reflects the organization’s voice. Everyone needs an editor! Determine who is authorized to speak to the media on behalf of the organization, typically the Board Chair and the Executive Director. If these people are unavailable, another trusted person, such as the Vice Chair, might be authorized to speak on the organization’s behalf.
Communicate often with staff and Board members about communication issues. What points of confusion are arising from the community? What do you say when people ask if your organization is religious? Why your organization charges for services? Where donor money goes? Though only certain people should speak to the media, everyone should feel comfortable talking up the organization in the community. Just make sure everyone is working from the same blueprint.
Create standards for your nonprofit startup including how email signatures should appear, who will respond to the organization’s main “info” email, and how calls to the organization’s main phone number will be answered. Consider how social media platforms and the website will be maintained and who will approve thank-you letters to donors, annual appeals, and other external communications to make sure the right “voice” and tone are used.
There are other systems your nonprofit startup will need, especially as the organization grows, including systems to recruit, train, manage, and thank volunteers; manage human resources if you have paid employees, even part-time or contract employees; and identify, apply for, and receive grants. You will need a system for each program your organization operates. This system will dictate how the program is funded, the people it serves, the manner in which it serves, expenses related to the program, documenting of services provided, and reporting of results to the Board, the community, and funders.
Whew, it can be overwhelming thinking of all the systems needed to effectively run a nonprofit, especially a nonprofit startup. Where do you start? How do you get it all done?
Bite-sized pieces, that’s how!
Start with one system and give it your full attention. When that system is running smoothly and the appropriate people have been trained, move on to the next one.
Tackling one system a month is a reasonable goal, though maybe you can move faster, depending on the size and complexity of your organization’s programs.
Creating a system isn’t as intimidating as it sounds. Here’s how to do it:
1. Think about the end result. What is the system you are trying to create? What results do you need from this system? Make sure any system or tool you consider will deliver, even if you have to pay a small amount to get what you need. Tech Soup can be a good resource for discounts on commonly used nonprofit tools.
2. Identify system users. Who will use the system? What do they know now about the end result you are trying to achieve? What training and support will they need?
3. Flowchart the system. Break the system down into small, separate steps that will be easy to understand and teach. Flowcharts give you a visual to work with. You can do this with SmartArt or a similar tool. Sticky notes work well, too!
4. Find the tools you need to support your system. Ask your peers at organizations similar in size for recommendations. Look for the simplest system geared toward organizations similar in size and scope to your organization. Read product reviews and watch demonstration videos. When you think you have found just the right product to implement your system, share the product with the staff and board members who will be using it. Get their feedback.
5. Create written instructions that clearly explain the system. Use checklists, worksheets, or forms to make learning the system easy. Consider making a video so employees can learn at their convenience.