In this inaugural edition of ‘Streetwise,’ in which we speak to West Side experts on their field of mastery, North Lawndale native and resident Valerie Leonard talks about how to measure a nonprofit’s benefit to a community. Leonard advises looking at several criteria. Here she is in her own words:
Does the organization have sound financial management? Nonprofits are still businesses and should be managed that way. The only difference is that nonprofits have no shareholders; they can’t draw money out for individuals in dividends or shares.
Check the group’s IRS Form 990 — it’s a matter of public record — and see who’s getting paid and what their mission is. What do they self-report about their accomplishments on the Form 990 and on the nonprofit directory GuideStar?
Are they spending high amounts on things that shouldn’t cost that much and have little impact? Are people taking more money in salaries than the organization is raising each year? Are board members being compensated as contractors or employees, particularly when the organization’s finances as a whole are not strong? Are there family relationships or any other potential conflicts of interest?
Grant makers, banks and investors look at cash flow: Can the organization survive three to six months without new income? Has the organization met its preferred outcomes in previous grants? In an ideal world, organizations would have a debt coverage of 2 — for every $1 owed in loans, they should have $2 of operating income. What would a bank say — would they put the organization on a high-risk list for a loan?
The state of Illinois has made its grant rules stricter than the federal system, in some cases. If your organization has received a state grant and is not in good standing with a particular agency, the organization will be listed as not qualified to receive grants until it complies.
The state is trying to guard against fraud, but unintended consequences of the rules are that fewer people of color and grassroots groups are eligible, given the capacity issues that often come with operating in under-served communities and the lack of information.
What I have found is, people often start an organization in response to the need; they’re thinking of service rather than maintaining the paperwork. I tell nonprofit leaders that even the most sophisticated attorneys and accountants, if they don’t understand nonprofits, can leave you in trouble with your tax exempt status. Learn about the compliance forms yourselves.
— BONNI McKEOWN