As we begin 2017, many non-profits are entering the year with a level of uncertainty about how the upcoming changes in our government’s leaders will affect the funding that they receive. Non-profits will look to individual and corporate donors to provide those valuable charitable donations to sustain or enhance their mission and services. Organizations share their success stories with potential donors in annual appeal letters and social media posts. What about the rest of the year? As organizations seek both public and private foundation grants, they may be required to submit applications that don't tell the entire story. That's why it's imperative your financial statements and Form 990 submissions tell your story as well.
Let’s start with an organization’s financial statements. Financial statements are a private document of the organization, which means that the organization has control over who can view them. Some organizations will make their financial statements available for download from either their own website or Guidestar.org. Others will only present their financial statements upon request. There is no right or wrong to providing access. This is an organization’s decision. If your financial statements are available for download from a website, any donor can view them and draw conclusions about the financial health and stability of your organization. However, because the statements are received unsolicited, the organization cannot provide background information to the donor. This kind of information can be provided within the financial statements, if they are “customized” in certain ways. Here are a few examples of such customizations:
- If an organization has a formal name, but the community knows that organization by another name, present that name right on the face of the statements (i.e., YOUR ORGANIZATION dba THE HELPING PLACE; or YOUR ORGANIZATION, also known as THE HELPING PLACE).
- Provide clear descriptions of the sources and uses of your funds. If your organization has multiple funding sources or revenue streams, list them separately. This will allow a reader to easily see how much the organization generates income from its programs versus relying on donated support. For the use of funds, consider on the statement of activities listing your two or three largest programs under program expenses. Provide details of what these expenses were within the statement of functional expenses.
- An organization has the most flexibility for customization in the footnotes to the financial statements. I recommend the first footnote to the financial statements describe the “Nature of the Organization”, with information about the structure of the organization as well as its mission. Take the time each year to read and update this footnote. Is the mission disclosed consistent with the mission on file with the IRS? Is this mission consistent with your website or other marketing materials? Add current year information to this footnote, such as number of locations and programs. Disclose programmatic accomplishments, such as number of clients served, number of people trained, etc. The remaining footnotes, which discuss adopted accounting policies and required accounting disclosures, should be read each year with “fresh eyes”. Make sure the footnotes are concise but meaningful. Ask the question: If you weren’t there to explain a footnote, would the reader understand?
On to the Form 990…the Form 990 is the required tax filing for most non-profit organizations. This is a public document. When an organization submits its annual filing, a copy of this filing is posted to the website Guidestar.org. Any donor, whether an individual, foundation or corporation, can sign up for a free account with Guidestar and view any organization’s previous tax filings. As noted above regarding financial statements, because the Form 990 can be viewed unsolicited, the organization cannot provide background information to the donor. In 2007, the IRS did a complete overhaul of the Form 990. The IRS undertook this process to specifically address the increased demand for transparency and accountability within not-for-profit organizations. The new form, which has been implemented for close to ten years now, provides a great deal of flexibility for an organization to highlight its mission and accomplishments. Relevant to the focus of this article are pages 1 and 2 of the Form 990. On page 1, organizations are asked to provide a brief mission statement, with the recommendation that this be no more than 1 or 2 lines and not continued from the space provided (if extra space is needed, the reader is referred all the way back to a Schedule O attachment). Since in most cases, it will be difficult to state your mission in one or two sentences, what you want to do is provide a concise, compelling overview of your organization’s purpose, so that the reader will want to turn to page 2, where an organization is given a chance to shine. First, this page provides the organization with the space to disclose its expanded mission. The mission should be consistent with the mission disclosed within the financial statements and the organization website. Next, this page requires the organization to list its three largest programs and provides a section where other programs can be described. For these program descriptions, an organization can be as detailed as they would like. Be sure to highlight this year’s accomplishments and provide some quantitative data on each of the programs. This section is where you convince the donor that they believe in what you are doing and want to help.
Not-for-profit organizations do amazing good for the communities they serve, and should use their financial statements and tax filings not just for compliance but as a marketing and fundraising tool. Do the financial statements and tax filings of your organization tell a compelling story of its mission?