Info You Can Use: Considerations Before Forming A Non-Profit

Last month, as many non-profits were faced with losing their status due to a change in the tax filing laws, Board Source President/CEO Linda Crompton suggested the situation might be good for the non-profit world by removing duplicative and ineffective/inactive non-profits. Because non-profits really aren’t required to generate a business plan or survey the need and competition before filing for status, she feels there may be too many non-profits in existence.

No for-profit company would start up without doing a thorough analysis of the competitive landscape; that analysis would be baked into the business plan and would inform all other decisions — one of which might be “not here, not now.” It’s incumbent upon our sector to school itself on this point: just because we have an idea, and a mission, and a great, good heart, does not mean that we need to start our own, brand-spanking new organization to fulfill that mission. The same truth applies to organizations in all stages of their lifecycle. Boards should be asking themselves: are we still relevant? Are we fulfilling our mission effectively and sustainably? Is there another organization across town doing the same thing, only better? Should we be discussing merger, or even dissolution?

I have mentioned a number of times over the years that I have often many arts organizations have been started that could have easily been part of an existing group or that could have merged with other groups when it was clear that their service area couldn’t support both groups very well. I will admit that I have seen many more groups in merger talks over the last few years since the economy has gotten worse than I had during previous economic down turns. It was good to see people considering this route. But I have also seen new groups peel off because of personality differences or a desire to perform a slightly different genre. Admittedly there is a difference between classical and modern realism, but Shakespeare festivals manage to produce both without compromising their souls.

To be honest though, I don’t know if the IRS would be in a position to evaluate whether there was or wasn’t a need for any type of non-profit, be it an arts organization or social service agency. Imagine the work involved in developing criteria to measure if there was a sufficient support base for the organization in a community. Imagine the bad press the IRS would get for denying someone non-profit status for a social service organization serving a very emotionally charged cause.

Which doesn’t mean due diligence shouldn’t be done. In a comment to Linda Crompton’s entry, Don Griesmann links to an entry on his blog in which he enumerates all the considerations that should be made before creating a non-profit. He also footnotes his arguments with the largest number of stories on the difficulties faced by non-profit organizations I have ever seen.

His entry came at the end of 2009 and he proposed that no new non-profits should be allowed to be created in 2010 unless a whole multitude of conditions were met. A brief sampling:

•Unless you understand the nonprofit will not be “your nonprofit” and you have enlisted an incorporating board that is interested in the concept and capable of performing the necessary tasks of incorporating and operating the organization and

•Unless you understand there is no “free money” from the federal or state governments. The federal government distributes funds through scholarships, fellowships, contracts, grants and loans. Each requires an application, meeting eligibility requirements, demonstration of a task to be undertaken, proof that the task was performed and the money used appropriately and in many instances a report evaluating the use of their funds…

….•Unless you have a concept of what it costs to develop and operate a nonprofit in terms of shared leadership, time, thought, study, serious planning, hard work, evaluation and annual reporting as well as money and
•Unless you have no intention of attempting to raise more than $5,000 a year for the next 5 years…

…•Unless you have performed due diligence and created a board of mixed talents, diversity, shared passion and vision concerning a truly unserved issue or need supported by some empirical evidence. If the need is an underserved need, why not join with the current providers and increase the service or product? And
•Unless you understand that there simply are not grants available to pay for the incorporation process. If you and others cannot raise the first $1,000 or so to incorporate, then where do you think you will get the money to run the organization? When someone asks, as many do, does anyone know where I can get a grant to start my nonprofit, we should either not respond or tell the truth – you are not ready to start a nonprofit. Go volunteer at a local nonprofit….

One of his next “unless” includes having a business plan that answer 19 different questions. One of his other conditions might be that you shouldn’t form a non-profit if you don’t have the patience to read his whole entry. While it is very long, it asks many pertinent questions and raises many points that ought to be considered. It is good to see people starting to advocate for this level of consideration prior to forming a non-profit.

Of course, non-profit status covers a lot of situations, including block associations and other purposes that wouldn’t necessarily be competing for grants from a shrinking pool of resources. These will certainly benefit from being well planned, but aren’t likely to struggle to stay in existence or become a drain on their community if they don’t meet every criteria.

Info You Can Use: Cost of Volunteering

Hopefully if I have planned well, the next post you see will be written by me upon my return from vacation. I have sort of saved the best for last. In this 2005 entry, I covered a study about the costs and benefits of volunteering. I think the topic is still very relevant because people probably don’t examine whether they are using volunteers to their best effect and if the time, energy and materials invested in training a volunteer is at least balanced by the volunteer’s productivity. There is also the shifting expectations of volunteers about their experience.

An excerpt from the entry-

One very interesting observation that the study makes is that half of the participants in the survey were unwilling or unable to accept more volunteers at the time. “This finding fundamentally challenges the assumption that the only requirement to engage more citizens in volunteer service is an effective call to serve.”

Consolidating Back Office In Columbus

I was listening to NPR this weekend and caught a story about Columbus Association for the Performing Arts CAPA, a Columbus, OH organization which area arts organizations have contracted to perform administrative functions.

About a year ago, I wrote about the excellent series the Non Profit Law blog did on the experiences non-profits have encountered merging their administrative functions.

Most of the examples used in that series were social service organizations so it was of some interest to hear a little about how arts organizations were entering the same arrangement. I wondered if it might become more prevalent in these tough economic times given that six Columbus area arts groups entered into arrangements with CAPA in the last year and a half. (This assumes there are businesses around the country who are able to offer these services. Not aware of too many in existence.)

I share a similar concern as Russell Willis Taylor quoted near the end of the piece. Relationships really matter when making the specific case for your organization in the community. Since CAPA seems to have varying scopes of responsibility with each client company, presumably an organization can reserve certain functions for itself and perhaps be involved with CAPA’s efforts on their behalf. But for a lot of artists and groups, the temptation to cede those functions to another so they can concentrate on creation of work alone may prove seductive. In the long run, their presence and public profile may wane as a group like CAPA’s waxes due to their adroit handling of so many responsibilities.

I don’t doubt that an arrangement with a group like CAPA can be extremely beneficial. Large for profit companies outsource their accounting, human resources, marketing, advertising and other functions all the time to great effect. But they also work very closely and stay very involved in every activity affecting the public image of their product because that is what is necessary.

As a little aside- I must confess that I had a moment of glee when I heard them describe the political cartoon implying CAPA is taking over. That anyone feels an arts organization is growing too powerful is so novel a concept, I can’t help but feel some joy. I mean, I don’t think I have heard anyone accused of that since the late 19th century with the Theatrical Syndicate. (Okay, I will grant you Clear Channel/Live Nation.)

Info You Can Use: Intern or Employee?

A few weeks ago I did an entry on the social impacts and elements of internships in the arts and very briefly referred to the question of whether unpaid internships were legal.

It only occurred to me later that the whole legality question wasn’t really dealt with very well. I read a lot about it, but didn’t really pass the information along or give readers the sense of urgency to follow through.

Well, hat tip to the ever resource full Non-Profit Law Blog which linked to an entry on Blue Avocado which really tackles the question in much greater detail than the NY Times article I had linked to in my previous entry.

The federal criteria to which you must adhere according to Ellen Aldridge at Blue Avocado are:

1. The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or academic educational instruction.

2. The training is for the benefit of the trainees.

3. The trainees do not displace regular employees, but work under their close observation.

4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded.

5. The trainees are not necessarily entitled to a job at the conclusion of the training period; and

6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.

You must meet all six or else pay minimum wage. Number 4 is probably the toughest to adhere to. The fact that non-profits can have volunteers adds another dimension to the whole question. You should really read the entry because I can’t get into all the nuances like laws dealing with stipends and the nature of functions being performed without reprinting the entire entry. There is, in fact, a significant difference between an intern and a volunteer, part of which determines the type of work each can perform.

At the end of the entry, Ellen Aldridge recommends two NY Times articles on the topic. The first is the one to which I linked in my previous entry. The second is the guidance the California Labor Department provided on the subject of unpaid internships.

The guidance really just supports the expectations an intern would have of their experience– something relevant to their career goals and not predominantly copying and filing.

In that situation, the agency suggested that payment was not required if an intern “performs culinary tasks directly pertinent to his or her education only, is closely supervised,” and “does not displace regular workers.” But, the agency said, if a restaurant required an intern to bus tables or wash dishes, that would probably be considered an employer-employee relationship and the intern would most likely have to be paid.

Mr. Balter cited another guidance letter that said film studios should pay college students who do routine work like delivering messages, filing tapes and clipping newspaper articles, partly because the work was so similar to that of regular employees and could displace such employees.

In the new guidance, the agency noted that it had previously concluded that interns should be paid if they did any work normally done by a regular worker.

But showing more leeway, Mr. Balter wrote that interns could do occasional work done by regular employees, as long as it “does not unreasonably replace or impede the education objective for the intern and effectively displace regular workers.”

This is only the interpretation in the state of California, and a recently altered one at that. Your state may differ so it will be prudent to see where things stand locally. It is promising that they take their lead from the 10th Circuit Court of Appeals which is considered more moderate than the 9th Circuit in whose jurisdiction California falls.