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Now Is a Good Time to Reassess Your Nonprofit’s Governance Practices
The current pandemic has ushered in a very tenuous period of hyper-change and disrupted planning for most nonprofits. This crisis has required organizations to be laser focused on survival, continuity, and operating with maximum efficiency. For many organizations, these challenges have shed light on old or outdated governance practices that may have been taken for granted in years past and most likely should have been changed years ago.
Q&A #10 – Is now a good time to start a 501(c)(3) subsidiary?
This question surfaces a lot from 501(c)(6) entities and other non-501(c)(3) nonprofit organizations. The answer is almost always a strong yes. Even during this crisis, organizations should not hesitate to pursue this strategy as it will open doors to new opportunities and funding not previously available.
Q&A #9 – Is the Executive Committee allowed to cut programs and terminate staff without consulting the full Board?
It is common for Executive Committees to have fairly wide latitude to make operational decisions without consulting the full Board, usually in collaboration with the Executive Director. This can include operational decisions like cutting programs and terminating staff. Whether or not this is legal in your case will depend on your organization’s Bylaws (or perhaps the Executive Committee charter or authorizing resolution).
![EBOOK: Glossary of Financial and Accounting Terminology [SUBSCRIBERS-ONLY]](https://images.squarespace-cdn.com/content/v1/5e6ccadfb4659c1d51df14d5/b959c1f0-3087-4488-b5b7-07dd2272dcb7/joanna-kosinska-1_CMoFsPfso-unsplash.jpg)
EBOOK: Glossary of Financial and Accounting Terminology [SUBSCRIBERS-ONLY]
This 16-page reference provides basic definitions and explanations of key financial and accounting terminology relevant to nonprofit organizations, including terms and concepts related to general accounting principles, financial statements, budgets, tax-exempt status and Form 990, nonprofit policies and procedures, and audits, compliance, and governance.
Q&A #8 – Should my organization create a separate bank account for PPP funds?
The answer is that you do not need a separate bank account to hold PPP funds. Having a separate bank account for PPP funds is not required and not particularly helpful. Your main priorities should be proper and concise documentation of eligible transactions, which can be achieved just as well through good accounting practices and processes.
Q&A #7 – Can my 501(c)(6) organization provide funds to help struggling businesses?
A 501(c)(6) organization is allowed to provide support to struggling businesses, but there are important restrictions and limitations to be aware of.
Picking Between Mission and Financial Health and Sustainability: Which Comes First?
In the short-run you must pivot to favor financial health over mission so you can make it to the long-run and deliver more on mission in the future. Ensuring your organization will be around a long time will be the single most important factor to sustaining and then increasing delivery on mission.
Options and Tactics for Managing Restricted Funds During a Crisis
When there is substantial accumulated restricted funding in place and held on the balance sheet, most nonprofit organizations find themselves at great risk of inadvertently using restricted funds for purposes other than those agreed to with the donor/funder.
Q&A #6 – Are there legal restrictions on my company’s ability to raise money for charity?
The main issue to consider is compliance with State “charitable solicitation registration” laws.” These laws, which have been enacted in about 40 States, are basically consumer protection laws aimed at protecting the public against being scammed by fraudulent fundraisers or illegitimate charities. These laws generally apply to anyone raising money for charitable purposes (with a few exceptions).
Setting Up a COVID-19 Task Force is a Proactive Strategy
Through many conversations with clients and colleagues, and feedback from participants in my webinars and podcasts, I have found that nonprofit organizations are significantly benefiting from setting up a task force to help respond and react to the many issues and disruptions related to the COVID-19 crisis.
Q&A #5 – Is my nonprofit organization allowed to extend Board terms during a crisis?
The simple answer is that you cannot violate your Bylaws with a simple Board resolution to extend Board terms (even on a temporary basis and even during a crisis). You should review your Bylaws and the laws of your State of incorporation closely to see what options may be permitted. There may be some flexibility built into your Bylaws that will allow you to retain the desired continuity.
Q&A #4 – What options does my organization have related to restricted funds for a project that we’ve had to put on hold due to the pandemic?
Restricted funds, of course, cannot be used for purposes outside of the restrictions agreed to unless the donors/grantors consent to modify the restrictions (or, alternatively, the modifications are approved by a court). However, there are several steps you can take to get a better sense of how narrow or flexible the restrictions actually are, and to work with your donors and grantors to seek the appropriate modifications that will benefit your organization.
Prepare a Burn-Rate Analysis and Dashboard
During a time of crisis, knowing the ins and outs of your burn-rate is vital because there are so many decisions being made quickly. Having a good handle on your burn-rate enables you to pay more attention to the variable cost side of the equation knowing you have already considered your operational fixed costs through a burn-rate analysis.
Using Operating Reserves During a Crisis: When and How Much?
Many nonprofit organizations have worked very hard over numerous years to build up operating reserves to a level that allows them to be considered a financially healthy organization with enhanced sustainability prospects for weathering an unexpected economic downturn. However, now that we are in the midst of a full-blown economic crisis, organizations that have built-up substantial operating reserves are faced with a real quandary of answering two simple questions: When? and How Much?
Q&A #3 – Is my Board allowed to have virtual meetings?
It is very likely that virtual Board meetings of this type are allowed based on your description of the Bylaws. Unless your Bylaws have specific restrictions, “virtual” attendance at a Board meeting counts as attendance in person, and the meeting is treated the same as any other Board meeting for all purposes (quorum, notice, voting, etc.).