One of the first things an organization does when they first form is look to establish a board of directors. In fact, in order to receive a 501c3 tax exemption from the IRS, organizations are required to have a minimum of three individuals serving on the board. However, the majority of board of directors must be unrelated. In addition, the majority of the board is required to be uncompensated. That means that the majority of the board cannot hold a paid staff position within the organization.
A System of Checks and Balances
The reasons the IRS has established these requirements is because the IRS wants to ensure that there are no conflicts of interest within the organization and the there is a system of checks and balances among the organization’s leadership.
Unfortunately, many founders of nonprofit organizations do not place a strong emphasis on establishing a successful and motivated team of directors. In fact, many founders will depend on family members and personal friendships to meet the state and IRS requirements. However, the board of directors is a very crucial component when it comes to the success of your organization. Boards of directors are responsible for the oversight of your activities, preparing for future activities, obtaining funding for the organization, and remaining in compliance with the government.
A Strong Board is Essential for an Organization
A reason that it is vital for your organization to select strong and experienced board members is because potential grant funders will require that board biographies are submitted with the proposal. The funders will want to see that your board of directors are working professionals that are contributing to the development of your organization and that they either have experience working with your target demographic or running a business.
Grant funders will also request an audited financial statement of your organization’s previous years of financials, as well as a projected budget for upcoming years. Funders will be looking to see that your leadership team is comprised of a group of individuals that personally contribute to the organization. Most grant reviewers firmly believe that if your own board of directors will not donate to the organization, then why should they?
This is a chance to demonstrate to funders that you have a group of individuals that believe in the work that your programs are doing. The number of donations made by board members will vary and is dependent upon your overall budget, the organization’s needs, and the abilities of the directors. Some organizations will require a specific amount to be donated on an annual basis, while other organizations will leave it up to the board members’ discretion.
Choose a Board with Closely-Aligned Interests to the Organization
Another important component to take into consideration when selecting board members is their personal vocational and educational experience. It is important to select individuals whose past history can contribute to the overall development of the organization’s mission. For example, if the organization facilitates medical mission trips to foreign countries, it would be important to ask medical professionals and health administrators to serve on your board of directors. Their knowledge and experience will be unparalleled when meeting your objectives and planning for future missions.
Selecting a board member that has previous experience working in the nonprofit industry or running a business will also ensure that your organization is set up for success. Nonprofit organizations are required to file annual reports with the IRS and the state, complete charity registrations so the organization may solicit for donations, and file any required state tax forms. Failure to address these items may result in your organization being assessed penalty fees from the state and IRS.
In some instances, your organization may be dissolved for failure to complete these items. While the board member does not have to personally complete these items (CharityNet USA can complete these items for your organization), it is essential to have someone on the team that is aware of what documents are required and the due date for each item.
Account for Financial Transactions
In addition to state and IRS annual reports, your board members will need to make sure that all financial transactions are being accounted for through bookkeeping and accounting services. Every year, the organization will need to track each financial transaction and create a profit and loss statement. Not only are these items required by grant funders, it is a vital document for your organization to assess its financial goals and to track its progress.
The organization will also need to ensure that all payroll taxes and contractor forms are completed. In order to make sure your organization is staying on top of these items, it is important to recruit a treasurer that can oversee these items, sign off on and deposit all checks, and oversee any contracted bookkeeping and accounting services. The treasurer does not have to complete the accounting services themselves (BizCentral USA provides these services), but there will need to be someone that has experience handling financial information and understands that successful nonprofits are run like for-profit organizations when it comes to financial tracking and transparency.
Select a Board Willing to Donate Time
It is also very important to select a team of directors that are willing to donate their time and treasurers to the organization. The IRS requires that board members have a meeting a minimum of once a year. This is an opportunity for the organization to assess its production, approve budgets, vote on programming matters, and discuss upcoming programs. This can be done in person, phone or video conference. However, successful organizations will hold their meetings more than once a year.
Really successful nonprofits will have a team of leaders that will also donate their time to the organization above attending the board meetings. Their directors will volunteer at fundraising events, seek out corporate sponsorships and grant funding opportunities, and attend outreach events. The initial first years for a nonprofit organization can be a stressful time for the founders.
They are often working full-time jobs, caring for their families, and spending their limited free time trying to get the organization off the ground. It is often impossible for one person to do all of this on their own. This is why it is important to have an active board that will help to alleviate the responsibilities. Often times the organization will assign a vice president. This individual works closely with the president and is available to fill in for the president should the need arise. This can only happen in a smooth manner if the vice president is included and in regular communication with the president.
There may be times that the president of the organization is unable to attend a vital program, file a required document, or meet with a funder. This can happen due to health reasons or family obligations. That is why it’s important to have a team of directors that are aware of required filings with the government and are involved with the programming and decision making.
Meet with the Board More than Once a Year
If the organization is only meeting once a year or quarterly for a few hours at a time, and they have no other involvement with the organization, a lot of important actions can be left behind and unattended. The IRS will also ask the organization to report how much time each board member has dedicated to the organization during the previous year. While there is no right or wrong amount of time to report, please keep this in mind and track each board member’s time with the organization.
Employ a Secretary
It is important for the organization to recruit a secretary that has strong organizational skills and can clearly communicate within the organization and outside with community members. This individual is responsible for keeping board meeting minutes. These minutes will track the discussions that took place during the meeting, the agenda for the session and documenting all votes that took place.
The secretary also keeps tracks of contact information for all board members in order to reach out to one another in an efficient manner. Without someone that can keep track of these items, it makes it difficult for the organization to stay on task and keep essential documentation for the organization.
Involved Board Members are the Best Members
Having board members be involved in the fundraising process can be greatly beneficial for the organization. These individuals will often have contacts with the community if they have professional experience or are involved within the community. Their personal connections can bring awareness to the organization and discuss the needs of the programs.
Involved board members are able to detail the main needs of the organization and the importance of its mission to others in a quick and concise manner. Donors are more likely to listen to a fundraising pitch when they meet someone who is not paid by an organization but volunteers their time because they believe in it.
Day to Day Overseers
In the initial stages of a new nonprofit organization, board members may also be a part of the day to day execution of the programs. The board will serve as a governance role, and the staff members will serve as a management role.
As the organization grows, ideally the board members will serve as a leadership team that oversees the organization’s activities, ensure that everyone has completed their responsibilities, and approve budgets and upcoming programs. The staff members, who are separate from the board of directors, will be responsible for the execution of the programs. Together, the board of directors and staff members will work together and extend its mission to as many community members as possible.
If you are seeking assistance with developing your board of directors and do not know where to start, you may contact BizCentral USA. Our company can assist your directors with your bookkeeping, annual reports, and board meeting minutes. We also provide fundraising services, grant writing opportunities, and corporate sponsorship creation. In addition, we also provide nonprofit consultation. All of these services are designed to assist your board of directors in meeting its goals and operate in the most efficient manner possible.