Guzman Law Group


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Non profit Organizations: Guess what? It’s a business and you need to run it like one.

The greatest number of inquiries we receive from non-profit organizations stems from discord within the Board members or Trustees.  9 out of 10 times, a schism occurs on the board.  One group does not approve of how money is being spent or reported.  The first question we ask is to see the Bylaws of the organization.  We usually are met with a sheepish answer that the Bylaws of the organization do not really reflect the operations of the organization. The common reason is that the organization selected a boilerplate set of Bylaws for the sake of having something to present to the IRS during the exemption phase of the formation of the non-profit organization. But now the organization has run into conflict and there are no true guidelines laid out. Whether it is how money will be distributed or how Board members will be elected each year, a non-profit organization’s Bylaws need to reflect who that organization is and how it will function in a general business capacity. What will the members of the organization be able to vote on and what issue will need only a Board vote?

The second mistake of most non-profits is that their passion for their particular cause blinds them as to their financial reporting obligations. Unfortunately, donors want to know how much of their dollar goes to the cost of a fundraiser and how much to the cause and or mission of the non-profit. Donors also want to know how much of the net-profit is applied to the administrative cost of running the organization as opposed to the actual beneficiary of the non-profit.  Trustees/Board members are asked to raise funds.  There has to be agreement as to how those funds will be used.  There also has to be a budget for fund raising. You cannot spend $100,000 a year in order to give away $10,000 a year in scholarship or grants, etc. There has to be transparency in the accounting and reporting of the expenditures and income of the organization. Your non-profit organization needs to be run with the same sound business judgment and with the detail to accounting that any business would present to it’s shareholders, profit or not.