The World of Nonprofits

Transcription

1 Slide 1 The World of Nonprofits Presenter: Ceela McElveny, ELS, CAE Chief Communications and Membership Officer American Society of Radiologic Technologists Today s presentation is an introduction to the world of nonprofits and an overview of some of the specific ways that nonprofit organizations differ from other types of businesses. Although this presentation is designed for leaders of the ASRT and its affiliate societies, it is not about the ASRT. Instead, it focuses on the world of nonprofits in general. However, I will sometimes refer to ASRT, use it as an example, or discuss how ASRT fits within the overall context of the nonprofit world.

2 Slide 2 Now, if you think of nonprofits as a world

3 Slide 3 Then you can think of the association segment as one of the continents. That s because there are several different types of nonprofit organizations, and associations are just one type.

4 Slide 4 To take the metaphor even further, if associations are a continent then membership associations would then be one of the countries on that continent. I ve chosen South Africa.

5 Slide 5 And there are different types of membership associations, so professional membership associations like the ASRT could be thought of as one of the cities. This is Johannesburg, the second largest city in South Africa.

6 Slide 6 And finally, any specific professional membership association like the ASRT or an affiliate society could be thought of as a particular neighborhood or community within that city, where people share common interests and pursuits.

7 Slide 7 Nonprofit Tax-exempt Professional Membership Association So groups like ASRT and its state affiliates aren t just associations, each of them are a Nonprofit Tax-exempt Professional Membership Association Let s look at what each of these terms means, starting with nonprofit.

8 Slide 8 Nonprofits Mi$$ ion Nonprofit doesn t mean that an organization doesn t make money. It simply means that it doesn t distribute its profits to owners, investors or shareholders, the way a for-profit company does. Instead, nonprofits use the money they make to serve a need or to benefit the public, not to benefit private individuals. Their earnings must be dedicated to furthering the primary purpose for which they were organized. So nonprofits are allowed to make money but they must use that money to achieve their mission. Some have explained this distinction by pointing out that for-profits do things so they can make good money, while nonprofits make money so they can do good things. Mission is a theme that I will return to repeatedly throughout this presentation, because it is essential to the nature of nonprofits.

9 Slide 9 Manzano Day School Nonprofits are a huge part of the American economy. There are more than 1.2 million nonprofit organizations in the United States, and they employ more than 30 million people. They range from charities and arts organizations to schools and churches to professional membership associations like the ASRT. They can be called a variety of different names -- clubs, coalitions, foundations, unions, associations, leagues, societies. Nonprofits do a lot of the work that the government or the private sector doesn t have the resources to do, such as educational programs, medical research, environmental protection and human rights. The wealthiest nonprofit in America is the Bill and Melinda Gates Foundation, which has an endowment of nearly $35 billion. This foundation is primarily devoted to funding health and education initiatives worldwide.

10 Slide 10 Nonprofit Boards Elected or appointed. Fiscal responsibility. Establish the mission and ensure the nonprofit is meeting its mission. Nonprofits don t have owners. Instead, they are run by a board of some type, which might be called a board of trustees, a board of regents or a board of directors. This is a group of elected or appointed people that oversees the organization. They have fiscal responsibility for the organization, and they also are responsible for ensuring that the organization is meeting its mission.

11 Slide 11 Nonprofit Tax-exempt Professional Membership Association Because they exist for the public good, nonprofits are allowed to seek exemption from paying federal income tax. While nonprofit status is determined by state incorporation law, tax-exempt status is determined by the Internal Revenue Service. In order to obtain tax-exempt status, the nonprofit must apply to the IRS. There are 26 different classifications of tax-exempt groups. The most common are 501c3, 501c4 and 501c6. If you ve been around ASRT long enough, you ve probably heard these terms. What they actually refer to is the section of the IRS tax code that the organization falls under. There are advantages and disadvantages of each category.

12 Slide (c)(3) Charitable, religious, educational, scientific, public safety, animal welfare. 501c3s are the category that most people think of when they think of a nonprofit. These are primarily charitable, religious, educational, scientific, public safety, and animal welfare organizations. An example is Mothers Against Drunk Driving. These nonprofits typically have donors who provide contributions instead of members who pay dues, although they may sometimes refer to their donors as members.

13 Slide (c)(3) Most favored status. Exempt from federal income tax. Exempt from state and local tax. Mail at nonprofit postal rates. Contributions are tax-deductible. 501c3 is considered to be the most favored tax-exempt status to have. In addition be being exempt from federal income tax, c3s are usually exempt from state and local tax, although that can vary from state to state. c3s also are eligible to mail at nonprofit postal rates, and contributions made to these organizations are usually tax-deductible for the donor.

14 Slide (c)(3) Prohibited from political activity. Insubstantial amount of lobbying. There are tradeoffs, however. Because 501c3s are considered charities, they are not allowed to endorse political candidates and they have very strict limits on their ability to lobby. The IRS says that only an insubstantial amount of their activity can be devoted to lobbying, and any lobbying they do must be related to their purpose. The ASRT Education and Research Foundation is a 501c3.

15 Slide (c)(4) Social welfare organizations and civic leagues. 501c4s are social welfare organizations and civic leagues that are formed to further the general welfare of the community. One example is the NAACP, and another is the ACLU. One s called an association and the other is called a union, but both are 501c4s. Both of these organizations could potentially qualify for c3 status because their mission is primarily educational, but they choose to be c4s because they want to be politically active.

16 Slide (c)(4) Lobbying OK in support of mission. Political activity OK if less than 50% of total activity. Contributions are not tax-deductible. Not exempt from state and local taxes. That s because there are no limits on a 501c4 regarding lobbying as long as it is in support of their mission, and they are allowed to endorse candidates and contribute to political campaigns as long as it is less than 50% of their total activity. The trade-offs are that donor contributions to 501c4s are not tax-deductible, and c4s are not exempt from state and local taxes.

17 Slide (c)(6) Business leagues. Members have a common business or professional interest. Trade associations and professional associations. 501c6s are defined in the IRS code as business leagues. Their purpose is to advance a line of business, promote a profession or improve business conditions for their members. Business leagues fall into two categories: those that represent companies, which are known as trade associations, and those that represent individuals, which are known as professional associations. For example, the members of the National Restaurant Association are companies, while the members of the American Institute of Architects are individuals. Both are 501c6s.

18 Slide (c)(6) Unlimited lobbying. Unlimited political activity. Contributions are not tax-deductible. Exempt from federal income tax on revenues earned from activities related to their mission. Revenue from unrelated business activity is taxable. These organizations have no limits on lobbying or on political activity beyond adhering to the normal laws. (They do have to report the amount they spend on lobbying, and if they spend too much on lobbying they may have to pay an excise tax.) Contributions are not tax-deductible for donors, and they don t qualify for nonprofit postal rates. But they are exempt from paying income tax on revenues earned from activities related to their mission. Revenue from activities that are not related to their mission, known as unrelated business income, is taxable. And if your unrelated business income gets too large, then the IRS can say that you aren t really a nonprofit anymore because you are devoting too much time to activities that don t support your mission. You can lose your tax-exempt status. The solution for many nonprofits is to spin off their business lines into a for-profit subsidiary that is taxable.

19 Slide 19 Charity Business Social Politically League Welfare Active OK X 501(c)6 501(c)3 501(c)4 So here s a chart that illustrates some of these differences. All of these organizations are nonprofits. Let s start with the NFL. Despite what Dallas Cowboy fans may think, it s not a charity, right? It s actually a business league, organized to advance and improve a line of business or a profession. It is a trade association. Its members are the 32 football teams in the NFC and the AFC. It has annual revenues of about $207 million and total assets of almost $1 billion, yet it is a nonprofit. It is a 501c6. And I don t know if the NFL is politically active, but as a c6 it could be if it wanted to. How about the American Cancer Society? It is a true charity with an educational and scientific mission. It doesn t have members, it has donors, and their donations are tax-deductible. That means it is prohibited from participating in political activities. It is a c3. Now, what about the NRA the National Rifle Association? It s politically active and it endorses candidates, so it can t be a c3. And it is a membership association, but it s members aren t all in the same profession, so it can t be a c6. It s not a business league. It is a social welfare organization, a c4.

20 Slide 20 Nonprofit Tax-exempt Professional Membership Association The NRA is a membership association, and that brings us to the special category of nonprofit organizations known as membership associations. There are more than 140,000 membership associations in the United States, giving us an annual economic impact of $33 billion. Nine out of every 10 adults belongs to at least one association, and associations represent nearly every industry, profession, hobby, cause and interest imaginable.

21 Slide million members. 2,330 employees. 25,000 volunteers. $1 billion annual revenue. $135 million unrelated business income. The largest membership association in the world has 40 million members, 2,330 employees and 25,000 volunteers. It earns more than $1 billion in revenue annually. About $135 million of that revenue is from unrelated business activities, meaning it is taxable. It is the AARP. The AARP is a 501c4, a social welfare organization. It can t be a c6 because its members aren t all engaged in the same line of business. And it can t be a c3 because it is politically active.

22 Slide 22 Nonprofit Tax-exempt Professional Membership Association Professional membership associations are a subset of membership associations. There are about 85,000 of them in the United States, including the ASRT and its state affiliate societies. The average size of a professional membership association is around 20,000 members, so with about 140,000 members ASRT is considered one of the larger groups.

23 Slide 23 Reasons To Form Enrich and advance the profession. Sense of belonging. Make themselves heard. People form professional membership associations for three main reasons. First, they want to enrich and advance their profession. Second, they want to belong to a group of people who have the same interests as them. And third, they recognize that there is strength in numbers. By banding together, they can make themselves heard, bring about change, and achieve their goals.

24 Slide 24 ABCs of Association Governance Articles of Incorporation. Bylaws. Conflict of Interest Statement. After the decision is made to form a professional membership association, one of the first things that needs to occur is the development of a few key governing documents. These are known as the ABCs of association governance, and they are the articles of incorporation, the bylaws and the conflict of interest statement.

25 Slide 25 Articles of Incorporation Eliminates personal liability of volunteers. Establishes continuity of association. Creates a separate legal identity. Defines nonprofit status. The articles of incorporation are an agreement between the association and the state. 95% of associations are incorporated. Advantages of incorporating are that it eliminates personal liability for volunteer leaders, establishes the continuity of the association (so that it can endure beyond its founders), and creates a separate legal identity for the association so that it can engage in legal actions such as owning real estate. The articles of incorporation also define the association s nonprofit status. They actually include a statement saying that the association is a nonprofit and that earnings may not benefit any individual.

26 Slide 26 Bylaws Membership qualifications and categories. Membership privileges. Officer qualifications and duties. Purpose. As I said, the articles of incorporation are an agreement between the association and the state. The bylaws, on the other hand, are an agreement between the association and its members. The bylaws define who can participate in the association and how they participate. They also define, in broad terms, the purpose of the association.

27 Slide 27 Conflict of Interest Statement Requires disclosure of conflicts. Prevents personal gain. Because nonprofit associations operate for the public good and not for the benefit of any individual, it s also necessary for every association to have a conflict of interest statement. This requires individuals to disclose whether they have any personal or business relationships that may interfere with their relationship with the association, especially if they stand to gain financially from those relationships. The IRS actually requires nonprofits to state whether they have a conflict of interest policy on the books.

28 Slide 28 Mission Statement Why you exist. What you do. Although it s not a requirement, it is also considered best practice for every association to also draft a mission statement. This is something that associations borrowed from the business world, but in many ways it s even more important for associations and other nonprofits. At its most basic, a mission statement explains why your group exists and defines what it does. The group uses the mission statement as a guidepost to measure whether that group is doing what it is supposed to be doing. Let s take a look at one of the clearest, most memorable mission statements ever written.

29 Slide 29 Enterprise Mission Statement These are the voyages of the starship Enterprise. Its five-year mission: to explore strange new worlds, to seek out new life and new civilizations, to boldly go where no man has gone before. Everyone remembers the old Star Trek television show or the movies based on it, right? Well, every episode began with the Enterprise s mission statement, which read as follows: These are the voyages of the Starship Enterprise. Its five-year mission: to explore strange new worlds, to seek out new life and new civilizations, to boldly go where no man has gone before.

30 Slide 30 Enterprise Five-year Mission Explore Strange new worlds Seek out New life New civilizations Go Where no man has gone before Boldly! Now of course they didn t have PowerPoint when the StarTrek TV show debuted back in the 60s, but let s imagine how that mission statement would be presented at a staff meeting of the Enterprise crew. Here s what the Enterprise s mission statement would look like if it was put on a PowerPoint slide. We are going to explore. Strange new worlds. We are going to seek out new life and new civilizations. We are going to go where no man has gone before and how are we going to do it? Boldly. So this is clearly a voyage of discovery and exploration, right? So if someone on the crew wants to conquer a civilization and enslave it, it s easy to say no, that s not our mission. The reason this is such a powerful and effective statement is because of the action words -- explore, seek out, go.

31 Slide 31 Mission The mission of the American Society of Radiologic Technologists is to advance the medical imaging and radiation therapy profession and to enhance the quality of patient care. Having a clearly articulated mission is especially important for nonprofit associations, because they are one of the ways the IRS judges whether you continue to qualify for tax exemption. The ASRT files an IRS form each year called a 990 that is sort of the nonprofit equivalent of a tax return, and it requires us to describe how we have made progress toward achieving our mission. Here s the ASRT s mission statement. Remember the action words in the Enterprise s mission statement were explore, seek out and go.

32 Slide 32 Mission The mission of the American Society of Radiologic Technologists is to advance the medical imaging and radiation therapy profession and to enhance the quality of patient care. The action words in our mission statement are advance and enhance. Each year we need to demonstrate how we ve delivered on those actions.

33 Slide 33 Typical Benefits Publications Educational/networking meetings Access to resources Benchmarking/best practices Credentialing Professional standards Advocacy Benefits and services typically provided by a professional membership association include publications, educational meetings or networking meetings, access to resources and materials, information that can be used for benchmarking or best practices, credentialing services, the establishment of professional standards, and legislative advocacy. Of the items on this list, the only one that ASRT does not offer is credentialing. Many professional membership associations offer accreditation or certification programs to ensure that the profession they represent adheres to best practices and standards, but the ASRT does not. That s because those roles are filled by other organizations within the radiologic science industry, such as the ARRT.

34 Slide 34 Sources of Revenue Dues Meeting registration Meeting exhibits and sponsors Advertising sales Credentialing fees Product sales How do associations pay for these benefits? Typical sources of income include dues, meeting registrations, trade shows, ad sales, credentialing fees and product sales. Remember, sources of revenue that aren t directly related to the association s mission are considered unrelated business income and are subject to tax. For example, income from advertising sales is always considered unrelated. ASRT s main source of revenue is member dues it represents more than 80% of our revenue. For the average association, dues represent about 40% of revenue.

35 Slide 35 Structure Volunteers Association management company Stand-alone Association structures can vary. Some are run entirely by volunteers, where committees of association members are responsible for maintaining the member database, publishing a newsletter or website, and organizing the annual meeting. (Most ASRT affiliates are structured this way.) Some are run by association management companies, which have multiple associations as their clients. And some are known as stand-alone associations, which have fulltime, paid, professional staff, like ASRT. However, every association relies on active involvement from elected and appointed volunteers. They perform committee work and governance work for the association, and sometimes they also provide the business functions. The volunteers you are probably most familiar with are those who make up the Board of Directors.

36 Slide 36 Board of Directors Sets direction and establishes strategic goals. Has fiduciary responsibility for the organization. Ensures that the organization meets its mission. The Board is responsible for setting direction and strategy for the association. The Board also has financial responsibility for the association and, most importantly, is responsible for ensuring that the organization meets its mission.

37 Slide 37 Mission Advancing members and their profession. Advancing society as a whole. And that brings us back to mission. Having a worthwhile mission is what makes leading or volunteering for a nonprofit so rewarding. Professional membership associations have twin responsibilities helping their members and the profession they represent while at the same time advancing society as a whole. It s a way to make a meaningful contribution and a lasting difference in people s lives.