If you hope to start a sustainable nonprofit organization there are many questions you’ll need to answer. For example:
- Would the IRS approve of our mission statement or should it be tweaked before I submit my paperwork?
- How much will it cost to run our programs?
- How many people will we need to hire?
- How many volunteers might we expect to have?
- What kind of people should be on our board of directors?
The good news is that nonprofit organizations are usually required to file an annual return with the IRS, and much of what you’re looking for is right there. The bad news is these forms can be complicated, dry, or incomplete, but with some diligence you can learn a lot by using them as a research tool. Let’s work through an exercise together to illustrate what you can find out.
Finding the 990 for Research
Finding these forms is often very easy. There a few organizations that collect and review information on nonprofit organizations. I find the most useful of these to be GuideStar. You can also contact the nonprofit directly and ask how to get a copy of their latest 990. This is a public form they must make available, and sometimes they are even downloadable from the organization’s website, but it’s usually easier to just start with GuideStar.GuideStar makes it easy to research existing nonprofits before starting one of your own. Click To Tweet
Let’s say you’re going to start a puppy rescue nonprofit.Just type in the word “puppies” on GuideStar’s search box and then click on the search button. This will bring you to a list of organizations that have something to do with puppies. From here you can thin the results by city or state. (You can search in more ways if you pay for a premium account, but I find using the service anonymously or signing up for the free account to be adequate for these purposes.)
Listed along with the name of the nonprofit are a few words about the organization, and a couple of dollar amounts. You can get an idea of how much money they bring in and how much they have in assets. For this exercise, select an organization that has gross receipts of more than $200,000. I picked one that brings in just over $500,000 per year.
This brings you to a page where more information may be listed. It shows a “ruling year”, which is the year the IRS determined they were an official tax-exempt nonprofit organization, giving you an idea of how old the organization is. It may also list their mission statement and some other useful information right there. But the most useful piece is probably the drop down widget off to the right labeled “Forms 990”. Depending on how long the organization has been around and how big it is, you will find up to three years of forms listed there. Pick the most recent one and it will display the form for you.
Some smaller or newer organizations won’t have any forms. This is likely because they weren’t required to file. Organizations that bring in less that $50,000 file a simpler online form 990-N that doesn’t tell you much (but even with just that you can get some contact information). Larger organizations (more than $200,000 in revenue) file a form 990, and in-between groups file a simplified form called the 990-EZ. Both the 990 and the 990-EZ are quite useful for research projects, but this example uses the full 990, so try to find one that brings up a full 990 for this exercise. When you’ve got that, let’s proceed.
What can you learn?
On the very first page there are several items that can prove useful. I’m looking at a 990 form from 2015, but the IRS changes the form occasionally, so if you’re looking at a different year, the line numbers might be slightly different.
- The top section shows contact information including a phone number, website, and postal address.
- Line 1 shows the mission of the organization. Finding a mission that similar to the one you’re considering is a sign you’re on the right track.
- Line 3 & 4 tell how many people are on the board, line 5 shows the number of paid employees, and line 6 shows an estimated number of volunteers. These give you an idea of how large the organization needs to be in order to conduct its business.
- Line 12 shows the total amount of revenue for this and the preceding year and line 18 shows the total amount of expenses for this and the preceding year. This will help you draft a budget.
- Line 19 shows how much profit they made (or what they lost). If they’re losing money it will show up here, and you’ll want to figure out what they are doing wrong and how to avoid it.
There’s a lot more here, and that’s just the first page. You can even guess something about the average pay in the organization. Line 15 shows salaries. Divide that by line 5 to get a very rough number. (Keep in mind that some employees may have left, new ones hired, some may be part time, etc. All that can affect the number.)
On the second page there are spots for program accomplishments. This includes descriptions of what benefit each program did, along with how much it cost to do that and how much income it generated. Sometimes some of this information is missing, but it’s worth taking a look.
A few pages later, in Part VII, there’s a list of board members. This page also often includes the executive director and/or other top leadership in the organization. You can see how much these folks were paid, and an estimate of how many hours they volunteered or worked in an average week. If the number of board members listed here is longer than what we saw on lines 3 & 4 of page one, you know that some board members have stepped down during the year. Finding the people listed here on LinkedIn can tell you what skillsets this organization currently has on its board of directors.
Part VIII shows a more comprehensive breakdown of income, helping you understand where the organization gets the money to pay for its services. With the help of a calculator, I can figure that the organization I’m looking at brings in 69% of its revenue from contributions of some sort and 31% from adoption fees. That information would help you determine a business model that brings in enough money to keep your organization afloat.
Part IX shows expenses in more detail, or where the money went. In my puppy example 37% of the expenses went to paying staff and 44% went to paying veterinarians. I needed to use a little basic math to figure this out, but it’s the kind of thing that’s useful when figuring out your own organization’s budget needs.
After the main form there are several schedules that are required. Some of them are quite useful.
Schedule A shows a snapshot of the last five year’s income year by year. This section’s purpose is to show how much public support the organization gets, but it also give you an idea if the organization is growing or shrinking. The one I’m looking at grew from $40,000 in 2011 to $370,000 in 2015.
Schedule O often contains useful information. This section is just a blank form used for listing notes about the rest of the form. It might help explain mysterious numbers or answers elsewhere in the form.
How do you learn more?
Of course, in addition to examining the organization’s 990, it’s also a good idea to review the organization’s website and do a basic Google search for related press releases and news articles about the group. Sometimes the review of the 990 or this other work doesn’t directly tell you what you want to know, or maybe it even raises questions you hadn’t considered.
I looked at a few of these forms (for a different organization) and noticed that they lost money on a fundraising event for two years in a row. This made me wonder if they were bad at fundraising, unlucky, or something else was going on? To find out more I’d probably need to talk to someone within the organization. Along with the list of the board and officers on page 7, I could use LinkedIn or Facebook to see if anyone I know has a connection with these people, and if so I could work my network to get an introduction. Alternatively, I could visit the website or just call the phone number from page 1 and ask to talk to their executive director.
In the end, it’s really important to actually meet with people in existing organizations before you start your nonprofit. This will give you key insights that you will need to know sooner rather than later. Taking a peek under the hood by scanning their 990s is a great start to this process, and reading a few of them will make you more knowledgeable and help you win points with these community leaders before you sit down with them one on one.
Do you know someone who’s thinking about starting a nonprofit organization? Please share this article with them.
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