Aristotle once said, “To give away money is an easy matter and in any man’s power. But to decide to whom to give it, and how large, and when, and for what purpose, and how, is neither in every man’s power nor an easy matter.”
To the uninitiated, it may appear that starting a nonprofit to do good work is an uncomplicated and straightforward proposition. In reality, nothing could be further from the truth. So what is the best course of action to take?
First, there are many types of foundations to consider, and selecting the right type is the most important first step. One can establish a public charity, a private foundation, an operating foundation, a sponsored project, or a donor-advised fund. Each type has pros and cons and different IRS requirements.
Once you have selected the best type of foundation for your purposes, getting expert professional guidance is perhaps the most critical step in ensuring future success. In no particular order, the areas to obtain the best professional advice are: legal, financial, program and strategic guidance, governance and, depending on the mission of the foundation and whether it raises funds from the public, public relations.
Consulting with an experienced non-profit attorney is your best first step. Ensuring the proper legal structure up front can save you lots of headaches and costs later. Los Angeles attorney Kent Seton, who specializes in setting up nonprofit charitable entities, advises that selecting the right charitable entity can often be the difference between success and failure.
To file for tax exemption with the IRS you will need to recruit a Board of Directors to govern the charity. Finding the best possible Board of Directors is a key determinant to the future success of your mission. Any good non-profit is a Board-Staff partnership. Making sure a proper amount of Directors’ and Officers’ Liability insurance is in place is mandatory to attracting a good board. “Charities are subject to tremendous oversight considering the assets are irrevocably dedicated for public benefit; thus, proper governance must be observed to insure no liability is incurred by directors, especially those who are volunteers and may not perceive the great responsibility of a board member,” imparts Seton.
Now you are ready to focus on your program and accomplishing your charitable mission. Getting expert strategic guidance in this area is critical, because if you get everything else right but don’t accomplish your mission, what’s the point? Stephanie Sandler, CEO of The Giving Back Fund, has advised scores of high net worth
individuals, corporations, and sponsored projects over the past 15 years. “It’s easy to get distracted from your mission and lose sight of what you ultimately want to accomplish,” she cautions. “Often it happens when charities are looking for funding or are involved with a PR campaign. They will mold their mission around what is popular at the time. As with any business, for-profit or non-profit, it’s important to have some clearly defined milestones and goals to keep you on track for success.”
Raising money and making certain it is safely invested are of paramount importance. Investing charitable dollars is a very different enterprise than investing other money, because charitable dollars are always held in a public trust. As a charity, you have a fiduciary responsibility to the public to invest funds prudently and effectively. As Aaron Werner, CFP of Raymond James Financial Advisors, points out, “Having an investment policy statement [IPS] serves as the cornerstone of the investment process and helps guide decisions. An IPS is critical to show donors that you are a good steward of their money, which can lead to additional donations and support.”
Finally, if you are fundraising or seeking the public’s support, you want to effectively communicate the good work you are doing. Carl Terzian, one of the leading non-profit public relations executives in the U.S., has advised hundreds of nonprofits over more than 40 years in the business. As he sees it, “A nonprofit is a business to be marketed and managed. You must invest time, talent, patience, and dollars to increase public awareness. Savvy marketing and PR can only enhance your survival and success.”
Once you are up and running, make certain to stay in good standing. Annual audits and 990s must be completed in a timely manner. Online charity watchdog Guidestar rates charities on their efficiency ratios—how much of the charity’s budget is spent on overhead vs. how much for charitable purposes. Getting a good grade from Guidestar will impact future success in fundraising and determine the charity’s public reputation.
Founding a charity and giving back to the community can be enormously rewarding and satisfying––if it’s done right.
Marc Pollick is founder and executive director of The Giving Back Fund.