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Small Business Dimensions

SPRING 2023

Entering the nonprofit world

What business leaders should know about the nonprofit sector

Smiling businessman looking at male coworker while sitting in board room during office meeting

Successful business leaders and entrepreneurs often have opportunities to serve on the board of directors of nonprofits or may even want to form their own nonprofit to pursue a cause they are passionate about.

But entering the nonprofit world can be a little disorienting to those who have found success in business. The legal rules, of course, are different between these two worlds, as is the ultimate objective.

So, how can you have the most effective impact in the nonprofit sector? And is serving on a board or founding your own nonprofit worth the effort? Here are a few important questions to consider before exploring your nonprofit opportunities.

Parsing the differences

Seems obvious, but the most noticeable difference – and one you may find uncomfortable – is that no one actually OWNS a nonprofit. Very different from your day to day.

Because there are no shareholders of a nonprofit, the board’s mission isn’t to protect their interests. Instead, the nonprofit board members ensure the organization fulfills its mission and abides by state and federal legal requirements. The details of how a specific nonprofit board provides oversight will vary from one organization to another, but most nonprofit board members become involved in strategic planning, financial oversight and executive selection and compensation. Skills you likely have in spades.

If you’re thinking of creating a nonprofit, the fact that you wouldn’t own or control what you create is also something to consider. And you’ll need to think through how you’ll protect your vision for a nonprofit even if you play no role in managing it.

Here are a few answers to some frequently asked questions about taking a seat at the nonprofit table.

Q. Does serving on a nonprofit board of directors pay?

In general, those who serve on a nonprofit board are only compensated for expenses related to board service, such as travel and hotel expenses. Moreover, nonprofit board members are expected to provide a significant annual donation to the nonprofit ($10,000 or more) and to support fundraising efforts, including connecting the nonprofit to potential donors.

Q. What are the benefits of serving on a nonprofit board?

Although serving on a nonprofit board does not pay, the experience enables you to further develop as a leader. You’ll practice budget evaluation, financial management and strategic planning.

Of course, service on a nonprofit board is also a great way to serve a noncommercial goal you care about and to grow your network while gaining new perspectives.

Q. How should I structure my nonprofit?

The most conventional way to structure your nonprofit is as a tax-exempt 501(c)(3) organization – that is, an organization set up exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals.

The actual steps you’ll need to complete will vary from state to state, and the easiest approach is to work with a company that specializes in helping individuals form nonprofits.

Under federal law, all nonprofits must have a minimum of three board members, which can include the founder.

Because the board of directors has ultimate control over the nonprofit, it could in theory oust the founder if it feels that the founder is not serving the organization’s mission. This outcome could be devastating if you invested all of your time and money in forming the nonprofit and intended it as a second career.

To remove any possibility of losing control of a nonprofit you founded, some states allow you to form a sole member nonprofit, with the founder as the sole member. While such a nonprofit must still have a board of at least three members, the board cannot remove the founding member. Moreover, your nonprofit’s bylaws can be written so that the board serves at your discretion.

The downsides of sole member nonprofits, though, may outweigh this advantage. One downside is that you may have trouble finding individuals who are willing to serve on your board, given that they will have little power. With a sole member nonprofit, you also potentially miss out on dissenting voices that might help you realize your vision better than you would alone.

Q. How can I ensure my nonprofit maintains my vision?

One effective strategy is to create a very clear and specific mission statement. If your mission statement is too broad or vague, those interpreting it may see it very differently than you. For example, a mission focused on helping all veterans live meaningful lives is difficult to interpret and implement. Does such a mission include more than just U.S. veterans? What constitutes a meaningful life?

Compare that to a mission to help U.S. veterans find employment. While there is still room for debate about the best tactics to achieve this mission, the mission is much clearer.

Business skills you sharpen in the nonprofit world

Strategy development: Summon your strategic thinking skills as you develop targeted initiatives that will help the organization achieve its mission.

Financial management creativity: You know how to operate within tight financial constraints, but the financial challenges of the nonprofit world will force you to elevate your financial management game. Your objective? Strengthen fundraising while streamlining operations so that at least 80% of donations go to program expenses (as opposed to administrative costs).


Next steps

  • Talk to your advisor about how to pursue creating a nonprofit, and research companies that specialize in this service.
  • For causes you care about, connect with the board members of organizations devoted to these causes and explore how you can help.
  • Let those in your network know that you are open to board members roles at nonprofits.

Sources: councilofnonprofits.org; growthforce.com; forbes.com; shrm.com; 501c3.org; ssir.org

Quiet quitting: what it means, whether it’s real and what you should do

Why the quiet quitting narrative is an opportunity to reexamine employee engagement

Businesswoman working at office workstation

Quiet quitting refers to employees deciding to stop going above and beyond at work and instead simply fulfill their duties. They don’t quit their jobs; they just quit being married to their work.

The phrase originated on TikTok in 2022, adapted from a Chinese phrase that translates as “lying flat,” which described a movement among young Chinese workers to resist long work hours.

But, as a commentator in The Atlantic observed, this attitude toward work has existed among many for decades.

The same article argues that recent surveys don’t make a convincing case that worker disengagement is any higher than it has been in the past. So, should you brush off all the chatter? Or should you install technology to track your employees’ productivity? Below we share advice that applies no matter what labor’s prevailing attitude.

Is there a problem here?

Even if quiet quitting is an actual phenomenon, that doesn’t mean it’s taking place at your workplace. And even if it’s occurring at your workplace, does it matter? If some percentage of your employees are fulfilling their duties, doesn’t that still mean your business is running as needed?

Is your goal to squeeze every ounce of productivity out of your employees or to achieve your business objectives? If you’ve set the right minimal standards of employee performance – including courteous and prompt communication with colleagues and outsiders – your business should be fine.

And if your business can only succeed if most of your employees are regularly risking burnout, perhaps you need to reevaluate your business model.

Measuring employee engagement

How can you tell whether your employees are tapped out or have checked out? Companies like Energage offer research-based engagement surveys that help you measure your culture.

The bare minimum can go both ways

Now is a good time to reflect upon what you’re offering to your employees and how that might contribute to their motivation levels. Just as employees can do the bare minimum to keep their jobs, employers may also fall prey to providing minimal effort in creating a positive job experience.

For example, offering two weeks’ vacation to new employees is the bare minimum at many jobs. If you’re average in this area, how might that be affecting your employees’ view of their jobs?

Other factors you should consider include whether you allow for remote work, what employee engagement activities you offer, how you recognize employees, and how you help your employees see their work as meaningful.

Next steps

  • Consider an employee engagement survey service to take the pulse of your workforce.
  • Examine the remote work question from all angles, including the value of in-office experiences as well as evidence that members of certain groups (e.g., LGBTQ community) may favor remote work. Let evidence guide your decision.
  • Explore ways to build a sense of community and meaning at your business.

Sources: remote-how.com; forbes.com; npr.org; money.usnews.com; news.com.au; nytimes.com; theatlantic.com; energage.com

Cash management strategies for business owners

Top five tips for navigating market volatility and inflation

Business owner calculating his finances

Managing cash flow at a small business can be a challenge during the best of times, but recent market volatility and inflation have made this task even more critical.

The below strategies should serve business owners well during both economic storms and more favorable conditions.

Five tips

  1. Optimize the timing of your revenue intake. You have bills and payroll that require timely, predictable outlays of cash, but your receivables may be irregular or late. In fact, according to a 2021 QuickBooks survey, mid-sized businesses are owed an average of $304,066 in late payments. To accelerate your revenue intake, you need a system that minimizes late payments and manual efforts to invoice and collect. Dedicated software with automations may be a worthwhile investment that also helps you see the big picture of your finances. You can also consider providing discounts or incentives for early payment.
  2. Use a business credit card with cashback rewards. You should earn cash back on as many of your business purchases as possible. These rewards, which can often be taken as account credits, are in effect discounts on all purchases. A business credit card without rewards but that has a low or 0% APR may also be useful in avoiding interest payments on credit card debts you have.
  3. Consider security-based lending to address emergency needs or expansion opportunities. Whether you need cash to protect your business from unexpected expenses or wish to expand, securities-based lending may offer a flexible alternative to traditional financing, often providing better interest rates than a traditional business loan. You can use the borrowing power of eligible personal or business brokerage accounts to obtain your securities-based loan. Just be sure to talk to your advisor before applying.
  4. Hold and sweep cash. Holding cash or cash alternatives is part of a well-allocated, diversified financial plan. Consider cash-sweeping programs as well that sweep your brokerage cash into interest-bearing accounts for maximum income earning.
  5. Review subscriptions and renegotiate contracts. Now is a great time to renegotiate existing contracts, seek out new suppliers and reevaluate the value of your subscriptions. Periodically reviewing these fixed costs and seeking to reduce them is an important habit for optimizing cash flow.

Next steps:

  • Talk to your advisor to help you optimize your on-demand cash and cash-flow management.
  • Evaluate your overall financial picture to identify any frequent problem areas or opportunities to increase income and reduce expenses.
  • Consider reducing your product or service portfolio, prioritizing your fastest and bestselling offers.

Sources: raymondjames.com; wellsfargo.com; usbank.com; nationalbusinesscapital.com; quickbooks.intuit.com

 

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