The Nonprofit Life Cycle
Start-ups Face Challenges, Opportunities
Every nonprofit organization is unique, but most follow a fairly predictable life cycle. Similar to a child, the early years for organizations are filled with milestones. A nonprofit’s initial steps can potentially be the difference between being a sustainable organization able to fulfill its mission and a struggling failure that quickly dissipates.
Nonprofits often originate as an informal group of individuals recognizing a need for a program or service and feel personally responsible to help provide it. The people with the vision to start a nonprofit have a high level of motivation, commitment and passion, and usually commence their efforts prior to any thoughts of applying for tax-exempt status or soliciting support from others. Operations are agile but unstructured. Decision making is typically based on consensus and influenced by a charismatic leader.
Usually, these early-stage nonprofits don’t have an official board of directors, articles of incorporation, or even a formal mission statement. Additionally, these start-ups generally lack strong internal systems or diverse funding sources.
Actually, there may be resistance to such formalization. Founders sometimes are averse to relinquishing their control — or they may prefer to focus their energies on providing programs and services based on the organization’s mission.
The Right Steps
The incubation period could last anywhere from months to years. Ultimately, founders’ plans begin to exceed current resources of time, talent and money. It’s at this juncture that they realize that, if their organization is to have a chance to survive and fulfill its mission, certain steps must be taken to formalize governance and develop an infrastructure. This includes filing articles of incorporation, drafting bylaws, and appointing a board of directors.
The board, initially small, is likely to be made up of founders or early volunteers. Critical decisions should be formally voted on and documented with written minutes, instead of by casual consensus. As the nonprofit grows, the board needs to act strategically, not just react to events. The organization should create a formal governance structure, adding members with more diverse backgrounds.
In order to maximize effectiveness and efficiency, the early-stage organization should determine the best use of volunteer help, as well as hire part-time, full-time or contractor staff. Ideally, candidates will be attracted to the job based on mission-driven reasons.
Having centralized management becomes essential and an executive director should be appointed. The next step is to formalize job descriptions and personnel policies so they’re established as your staff expands in coming years. As the nonprofit approaches its mature stages, it will need official marketing, fundraising and volunteer management functions.
Specifying the criteria for continuing programs and services will result in a nonprofit that’s lean and mean. Outcomes should be tracked and any services that aren’t working should be eliminated. Collaborative arrangements with other organizations may be explored to better serve client needs.
Automation of data management and investing in the technology and equipment to facilitate formalized record keeping and reporting is another key to efficiency.
The Financial Management Priority
The importance of developing accounting and financial systems should not be underestimated, particularly where they’re necessary to satisfy compliance requirements. Formal accounting principles and policies should be implemented in conjunction with adequate internal controls and guidelines for operating reserves.
You should also prepare multi-year budgets (including capital budgets) and development plans that provide for diversified funding streams. If your nonprofit lacks the internal staff to handle these tasks, turning to an outside accounting firm for assistance could be a big asset.
Foundation for Success
The driven, hands-on people behind a young nonprofit can find it challenging to work through the seemingly endless nuts-and-bolts measures required to properly establish a new organization. Taking the time to build a strong foundation will greatly increase your nonprofit’s chances to succeed.
Sidebar: The 3 Ws of Board Development
As a nonprofit grows and its board evolves from a group of passionate founders focused on operations to a larger, more diverse group assigned to planning and oversight, they should consider using the “3 Ws” approach to board development. This approach requires selecting board members that possess at least two of these three valuable attributes:
Work. Workers are counted on to reliably and enthusiastically contribute wherever and whenever needed. They do more than attend board meetings, also volunteering, organizing events and interacting with clients.
Wealth. Those with wealth, or connections to wealthy individuals, can generate funds by donating from their own pockets or tapping others to donate.
Wisdom. Wisdom refers to individuals who have the necessary expertise. They may be experienced in the nonprofit world or experienced in circumstances similar to your constituency. They also might have expertise in areas such as accounting, marketing and law.
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