Category Archives: Nonprofits

Starz Series “Flesh and Bone” Illustrates how Little Hollywood Knows About Nonprofits

Between turkey and deadlines, I binge-watched the Starz series Flesh and Bone over the Thanksgiving weekend—on Jake’s recommendation. Like many modern cable shows it’s extremely titillating, but it also displays Hollywood’s misunderstanding of the nature of nonprofits.

Flesh and Bone is a mashup of Rocky, Flashdance, and The Black Swan. While nominally a drama about a newbie ballet dancer with a troubled past suddenly lifted to a starring role at a fictional NYC ballet company, Flesh and Bone provides numerous intentionally or unintentionally funny scenes. This is mostly due to the arch character stereotypes (e.g. tyrannical company director, ingenue with a dark secret, Russian mafia millionaire strip club owner with another dark secret, corrupt French businessman/major donor with yet another dark secret, and angelic homeless guy with still another dark secret), combined with scene-chewing overacting. The series could have been called “Flesh and Bone and Erotica and Dark Secrets.”

While both Jake and I found Flesh and Bone entertaining, I was struck by how the fictional nonprofit ballet company is portrayed—Hollywood simply doesn’t understand how nonprofits actually work. My reaction Flesh and Bone is probably similar to a real cop rolling her eyes at Law and Order and real emergency docs laughing at House MD.

In Flesh and Bone, the nonprofit is run by the megalomaniac artistic director/executive director Paul Grayson, with only vague allusions to “what will the board think?” tossed in every couple of episodes. Otherwise, Grayson runs the show. The rest of the staff and ballet dancers wring their hands and burst into tears at the director’s rants. In today’s world of sensitivity to hostile work environments and sexual harassment, backed up by stringent local, state, and federal laws and regulations, these kinds of outbursts would likely trigger lawsuits; the executive director would soon find himself as a defendant. Most arts nonprofits also have a dedicated cadre of volunteers and few executive directors would act like genius prima donnas in front of volunteers or—even worse—direct his ire at volunteers, no matter how pure or right his artistic vision.

The board chair is a French millionaire (perhaps an oxymoron in itself) and the ballet’s primary donor. This cartoonish figure is more interested in sleeping with ballerinas than art (which may be plausible) and he abandons ship when when our heroine finds a clever way to avoid a fate worse than death. This leaves the ballet company at the tender mercies of the Russian strip club owner, who is committed to the artistic integrity of ballet. He also runs a sex slave operation and turns out to not be quite so pure of heart. While real nonprofits often hope to find a whale, most aren’t beholden to one donor and are unlikely to seek financial salvation from a mobbed-up strip club owner. It’s hard to see Silvio Dante, owner of the Bada Bing strip club on The Sopranos, tossing a few hundred thousand in singles at the New York City Ballet.

A nonprofit ballet company, like most arts nonprofits, supports operations through a combination of donations, ticket sales, merchandising and grants. The word “grant” is never uttered in Flesh and Bone, and the ballet company’s financial travails could be ameliorated by good grant writer. Additionally, many donors actually funnel money to their favorite nonprofits through their family foundation or corporate giving program rather than pulling out their checkbook, as is implied in Flesh and Bone. Foundations and corporate giving programs mean “proposals,” which means somebody has to write the proposals.

Perhaps a knowledgeable reader can help me out, but I’ve never seen an accurate depiction of how nonprofits actually work in either film or television. It seems that screenwriters, producers and directors don’t know or want to learn about nonprofits. It is Hollywood, after all, and make-believe is Hollywood. As Peter’s O’Toole’s cynical director in one of my favorite movies, The Stunt Man, explains Hollywood to an incredulous Steve Railback, “Do you not know that King Kong the first was just three foot six inches tall? He only came up to Faye Wray’s belly button! If God could do the tricks that we can do he’d be a happy man!”

Great foundation grant concept: Food deserts, mass transit, farmers markets, and poor folks

Everyone from the Department of Agriculture to Michelle Obama to national hunger advocacy groups have embraced the concept of “food deserts” in recent years as one way of explaining the conundrum of why poor folks in the US are both obese and food insecure at the same time. Since we often reference food deserts in varied human services proposals in urban areas (and have written posts on the subject), I know that there’s a debate in the literature about whether food deserts actually exist. Faithful readers know that reality matters little in grant writing, so we take the food desert concept at face value to build our “end of the world” arguments in needs assessments.

While cruising around LA last week, I heard a radio piece about how the City of Dayton is addressing its food deserts. Like most economically disadvantaged urban communities of color, Dayton concluded it has a food desert problem. While this is no surprise, their solution is an amazing example of how to structure a winning project concept for foundation funding.

The City formed a partnership with the mass transit agency, a local human services nonprofit and local farmers to operate a small farmers market in the City’s transit hub. The idea is that poor folks can pick up salad stuff on the way to work (thereby avoiding being super-sized at lunch by McDonald’s) or a sack of veggies on the way home, so that they can make a stir-fry instead of calling Domino’s. At the same time, the nonprofit offers nutrition classes and recipes, while Farmer Caitlin has an outlet for her baby arugula. The only thing missing is to have homeless folks pick the produce.

Like the mythical Project NUTRIA I wrote about years ago, Dayton has hit the foundation grant jackpot with this idea. Steal it.

Data-Based Client Tracking Services and Outcomes is a Real Challenge for Many Nonprofits

Jake recently wrote a post on the huge challenges faced by primary care provider organizations in meeting EMR Meaningful Use regulations. This got me thinking about other data collection challenges facing nonprofits. Apart from computers and the Internet,* one of few aspects of grant writing that has changed since I started writing proposals when dinosaurs walked the earth is an ever-increasing RFP/funder emphasis on data tracking to demonstrate services delivered and improved “outcomes.”

The scare quotes around “outcomes” expresses how we feel about many of them. While we’re adept at creating plausible data collection strategies in proposals, regardless of what our clients are actually doing in the real world, we know that demonstrating service delivery levels and outcomes is a major issue for certain types of human services providers. These include many faith-based organizations (FBOs)** and ethnic-specific providers, some of which have been operating since the days of Hull House. We’ve worked for several nonprofits that have been providing services for well over 100 years.

It’s not unusual for smaller FBOs and organizations serving immigrant/refugee populations to provide services in what seems, from the outside, to be a chaotic manner. But the service delivery practices are actually well-suited to their mission. A range of services might be provided to a particular individual, like help with an immigration problem, but the agency will end up helping the person’s extended family members with all manner of issues. In many ethnic communities, the concept of “family” is malleable. A nominal “uncle” or “cousin” is actually not related but hails from the same village or clan in their country of origin.

Such services are usually provided on the fly and the harried case worker, who is typically a co-religionist or from the same ethnicity, hops from client problem to problem without time or interest in database entry. Like pulling a thread on sweater, helping one person in a 30-member extended family can result in dozens of “cases” that may not be separated and documented. The family often does not want the problem documented because of cultural/religious taboos and (often justified) fear of government officials. Thus, much service delivery is provided on the down-low.

Everyone knows that New York City has dramatically changed from the bad old Death Wish days of the 1970s to a glittering metropolis of 70-story apartment buildings for the one-percenters and a well-scrubbed, tourist-focussed Times Square. What isn’t generally known is that an amazing 37% of NYC’s population is foreign-born. This percentage is increasing. NYC has more foreign-born residents than the entire City of Chicago has residents! Rapidly growing NYY immigrant groups include Orthodox Jews from the former Soviet Union, Dominicans, Asians, Central Americans, and so on. We work for many nonprofits that serve these immigrant populations; this client type usually only serves their brethren. These nonprofits have great difficulty documenting the often extraordinary services they provide—one of the main reasons they hire us is because of our ability to weave their stories into the complicated responses required by RFPs, including service and outcome metrics. Like the proverbial centipede, these nonprofits walk perfectly, as long as no one asks them how they do it.

The data capture challenge is compounded because few prospective social workers enter grad school with the idea of becoming bean counters. Like the best doctors and teachers/professors, social workers start off with the idealistic notion that they will spend most of their time helping people, not doing data entry and accounting for every minute of their day. When not extruding proposals or writing novels, Jake is a college English professor. He can attest that much of his best teaching doesn’t show up in metrics.

Many of us have had a “hero teacher” at one point and a conversation or a book recommendation might have changed your life, but will not be reflected in grades or academic honors. Similarly, a case worker who gets a tacoria to hire the “nephew” of one of her clients as a busboy to keep him out of juvenile hall might set the young man on a positive life path, even though “job placement” is not part of her official duties and will not appear in the agency’s reports.


* Which have also made the world worse, at least in some respects.

** This this does not refer to industrial-sized FBOs like Catholic Charities or the Salvation Army, which operate with bureaucratic precision.

Seliger + Associates enters grant writing oral history (or something like that)

Seliger + Associates has been toiling away in the grant writing salt mines for over two decades, and last week we got hired to review and edit a new client’s draft proposal for a federal program we’ve been writing for years.* They emailed their draft and we were delighted to see that it’s actually based on a proposal we wrote for some forgotten client ten to fifteen years ago. While the proposal has morphed over the years, we could easily find passages I likely wrote when Jake was in middle school.

We’ve encountered sections of our old proposals before, but this example is particularly obvious. The draft was also written to an archaic version of the RFP, so it included ideas that were important many years ago but that have since been removed or de-emphasized. We of course fixed those issues, along with others, but we also left some our our golden historic phrases intact for the ages. This version will undoubtedly also linger on into the future.

We’re part of what might best termed the “oral history” of grant writing. We’re the Homer of the grant world, which is a particularly apt comparison because “Homer” may have been more than one person. For the first ten years or so of being in business, our drafts were most sent by fax, but we sent final files on CDs. For the past decade we’ve been emailing Word versions of all narratives and Excel budgets. Our proposals have probably been traded by nonprofits all over the country like Magic: The Gathering Cards.** Still, unlike some other grant writers who will remain nameless, we never post or sell our proposals. But it seems that the digital age has caught up with us anyway.

In some ways, seeing shades of our old proposals makes me feel proud, as our impact will likely last as long as there are RFPs—which is another way of saying forever.

We don’t know what strange ways brought the proposal we wrote to our current client. We’ve had hundreds of clients and written many more proposals of all stripes, and even if we wanted to trace its lineage we couldn’t.

As we’ve written before, grant writing at its most basic level is story telling. Now our stories have assumed a digital afterlife of their own. While Titanic is not my favorite film or movie theme, I’ll paraphrase Celine Dion, as it does seem that . . .”our proposal words will go on and on.”


* Faithful readers will probably know which program I’m discussing, but we’ll keep it on the down low to protect the guilty and and punish the innocent.

** When Jake was about 11, and just before his unfortunate discovery of video games, he was a huge Magic player and was always after me to buy yet more cards. As I recall, he and his little pals endlessly traded Magic cards for “value” that completely eluded me, a classic clueless dad. Eventually Jake grew up and lost interest, at which point the value of the cards became zero for him.

A shortage of jobs for qualified grant writers? Not that we’ve seen!

Mark Peters and David Wessel’s “More Men in Prime Working Ages Don’t Have Jobs: Technology and Globalization Transform Employment Amid Slow Economic Recovery” is an article you’ve already read 10,000 times, and the intro, as usual, is a dubious vignette:

Mark Riley was 53 years old when he lost a job as a grant writer for an Arkansas community college. “I was stunned,” he said. “It happened on my daughter’s 11th birthday.” His boss blamed state budget cuts.

(Emphasis added.)

If there’s a growing industry in America, it’s software development. If there’s an industry growing very fast but slower than software development, it’s grant writing. If Riley really can’t find a job as a grant writer—or become a consultant—there’s something amiss with him, not the industry. At Seliger + Associates we hear all the time about how nonprofit and public agencies can’t find good grant writers.

Axiomatically, however, those nonprofit and public agencies aren’t paying enough to attract qualified candidates—anytime you read about an alleged “shortage” of employees mentally ask yourself, “at what price?”—but nonetheless we are skeptical that qualified grant writers can’t find work. The key word in the preceding sentence is of course “qualified.”

Usually the laid-off-and-can’t-find-work stories are about workers in manufacturing or middle-level office jobs, and that convention exists for a reason: many of those jobs are genuinely disappearing, and the workers in them are either moving up to higher skill jobs, or down. That Peters and Wessel would choose a grant writer as an example is bizarre. That such a convention exists at all is also one small datum that explains why Ezra Klein is trying to build a new kind of news organization, one that perhaps would eliminate the convention altogether or at least deploy it more intelligently.

In Forming a Nonprofit Board, Think “Goldilocks”

When forming a new nonprofit, one of the first issues confronting the sponsor as they apply for a state charter and draft articles of incorporation and bylaws is: How many board members should the new organization have? As with most things relating to nonprofits and grant writing, while there’s no definitive right answer, there are some good answers.

Some states will approve a new profit with just a single board member—and the inherent simplicity and control of a single board member often appeals to a founder—this is a fast way to the exit when you apply for IRS 501(c)(3) tax-exempt status. Other founders, particularly true believers, will think they should have huge boards, perhaps as many as 25 or 30. Unless you’re really good at herding cats, this is an equally bad idea. The care and feeding of 15 or 20 board members is an enormous task and raises the real potential that you might get booted out of your own nonprofit in a coup* when grant money finally arrives. In addition, more opinions does not necessarily result in a better outcome and often results in a worse outcome than fewer. Whatever number of board members you pick, it’s critical that you be able to maintain control of the board.

If one board member is too few and twenty five too many, what’s the Goldilocks number? When we used to set up nonprofits in an earlier incarnation of Seliger + Associates**, we always recommended five, seven or nine members. An odd number of board members prevents tie votes. Five is generally enough to pass the IRS believability test. Also, IRS regs require that not more than half the board be “interested parties,” so you have to go beyond your mother-in-law for members and getting five can be a challenge. With a five member board, only two can be interested parties. Any number of board members more than nine will get unmanageable very fast. In this case, bigger is definitely not better.

Moving beyond the size issue, consider the quality of the members. It’s good if the majority of board does not have the same last name. Many foundation and some government funders will request board member affiliations. Having well-respected, un-indicted business leaders, clergy, public officials and so on is usually better than having all average Joes and Josephines. Still, it’s good grant PR to have one or two potential consumers of whatever service you’re providing. For example, if the organization will be providing affordable health care, have one or two potential patients on the board. Unless you’re forming a national/regional organization or one with a highly specific purpose like research for a obscure medical condition, claim that the board is “community-based,” and plausible evidence of that claim is an advantage. Local residents are usually better than distant “experts,” even in situations where that makes no sense.

One effective approach is to have a small, community-based, but still “respected” board of five members and a much larger “advisory board” of big shots that look good on letterhead and your website. The advisory board doesn’t actually have any power and doesn’t do much except lend their credibility and hopefully a donation every year. The advisory board idea is very common in Los Angeles, as there are many has-been actors and other entertainment industry types who’re willing to serve on advisory boards, as long as they don’t have to do anything. New York has ladies who lunch.


* It’s not uncommon for founders to get booted off their own board or for some board members to be kicked by other members in a putsch. I know because it happened to me when I was in my early 20s and still starry-eyed. I’ve heard lots of similar horror stories from clients over the years. Nonprofit boards can be intensely political, especially because the stakes are often so small.

** We no longer form nonprofits in most circumstances. As we’ve written before, it’s best to use an attorney or accountant who is familiar with nonprofits to help with the paperwork and approvals needed to form a new nonprofit.

Issues Facing Old-Line Nonprofits Differ from Those Facing New Nonprofits: Think Bambi Meets Godzilla

We’ve written various posts on the challenges of starting a new nonprofit (like this one), mostly because we get lots of calls from fairly new nonprofits or folks trying to get one off the ground. Last week, however, I got a call from an agency in a large east coast city that’s been operating for about 200 years. I’m not making this up. The nonprofit originally was an orphanage that morphed into a broad-based children’s services agency.*

Though the caller was delighted to recite the exceptional history of his nonprofit, I didn’t get excited, as we we’ve worked for many nonprofits that have been around for decades—including one in a big Midwestern city that started in 1860s as a “settlement house” in the vein of Jane Adams’s Hull House. By now Seliger + Associates is older than many nonprofits.

While the caller was interested in a standard-issue federal RFP that’s on the street, we also talked over the challenges of keeping an Ancien Régime agency going in the face of an endless onslaught of Nouveau Riche competitors. Nonprofits face the innovator’s dilemma too. They must evolve over time and not get stuck in the “these are the services we provide” trap. It helps that most long-established nonprofits have contracts to provide capitated services or services with handy third-party payers (e.g., foster care, family reunification, residential care, primary health care, substance abuse treatment, etc.). Capitated-service agencies have a base cash flow, which they supplement with fundraising and grants (that’s were we come in).

Unlike new agencies, which are struggling for recognition and any funding scraps they can find, the main challenges old-line agencies face are relevance, ossification, and the inevitable disputes that arise with donors and funders.

Old-line agency must meet emerging needs. For example, there is apparently an astounding, sudden and unexplained surge of unaccompanied Central American children crossing into Texas this year, and they are essentially begging to be “caught” by the Border Patrol. This could reach as many as 100,000 random kids this year, who will overwhelm the current residential care capacity in the border states. The border patrol turns these kids over to Immigration and Customs Enforcement (ICE), which then hands them off to DHHS for transportation and temporary or permanent—depending on your interpretation of immigration laws—resettlement in small and big cities across America.

Not surprisingly, the Obama administration is requesting $2 billion in new funding to address this human tidal wave or humanitarian crisis, once again depending on your point of view. I’m confident much of this money will end up as competitive grant opportunities from the DHHS Office of Refugee Resettlement (ORR). As the former White House Chief of Staff and current Chicago Mayor, Rahm Emanuel put it, “you never want a serious crisis to go to waste.”

Say you’re our former midwestern client and have been around since the Civil War. You provide family and child support services but not residential care, so it’s essential to develop this capacity; thousands of Central American refugee children are likely to be dumped into your service area. You should meet this new crisis, as part of your mandate and mission, while at the same time bolstering your revenue with tidy ORR grants. This is a basic “win-win.”

Regarding ossification, old agencies are usually larger and bureaucratic, mimicking the funders that support them. It’s easy for a large, established nonprofit to become moribund, not only in the services they deliver, but also in the way in which services are delivered. Old agencies are less likely to adopt new technology and cultural practices—like contacting clients and conducing outreach through social media—because they do things the way they’ve always done things. Change is hard and inertia is seductive. This phenomenon is not limited to the nonprofit sector. Examples in business are common: huge companies like Motorola, Sears and IBM (before IBM reinvented itself under the remarkable CEO, Louis Gerstner) rise, lose focus or miss market shifts, and fall.

Finally, old-line nonprofits will often become embroiled in disputes with donors and funders. This can range from rich Mrs. Himmelfarb, who makes $100,000 annual donations, getting pissed off because she got seated at the wrong table at the nonprofit’s annual gala to the agency failing to submit required reports to the DOL for the agency’s YouthBuild grant. Once donors and/or funder program officers get annoyed with a large nonprofit, the organization may suddenly find itself in financial trouble.

Beneath the feet of every lumbering old-line dinosaur nonprofit are tiny new mammal nonprofits scouring around and trying to meet new community needs, provide nimble services in innovative ways, and eventually take away the big boy’s donations and grants.** The old-line nonprofit needs to address these upstarts by acting like Godzilla in Bambi Meets Godzilla, perhaps the best short film ever made.


* Fun fact: although it may be moving against the conventional wisdom to defend orphanages, Richard McKenzie explains why they’re often better than foster-style systems in “The Best Thing About Orphanages.” Saying “They’re better than the alternative” is not equivalent to saying, “They’re great!”

** Some grant programs are explicitly designed to provide challengers to incumbents; Community Health Centers (CHCs), for example, are eligible for “Service Area Competition” (SAC) grants. As readers of our e-mail newsletter know, the last two weeks have seen more than $150 million in SAC grants. Every geographic area in the U.S. is supposed to be covered by a SAC-funded agency, and every time a competition arises, new CHCs can try to wrest the grant from the existing grantee.

Until you get a call from your congressman and sign a contract, grant notifications don’t count

Last week, a client got a federal funding notification e-mail for a proposal we wrote a few months ago, and and the client started celebrating… until an hour later, when the Federal department sent a second e-mail, recalling the first and saying our client hadn’t really been funded.

That hurts, but it’s also not the first time something like this has happened to our clients. It’s a truism that, in any business, until the contract is signed and the money obligated, nothing counts. There are innumerable stories in the venture capital world about analogous shenanigans, including small companies that have picked up and moved, only to be told “just kidding.”

The cliché “money talks” exists for a reason. It’s still a pretty nasty mistake, however, for a federal agency to tell a nonprofit they’ve been funded when they haven’t. Mistakes do happen and one learns pretty quickly in grant seeking that federal bureaucrats are far from perfect.

Many of our clients first learn they’ve funded for a federal grant not from the funding department, but from their congressperson, or from a press release via their congressperson’s office. Every SF-424—which is the cover sheet for all federal proposals—has an input box for the applicant and project area congressional district(s). Congresspeople love to take credit for money going to their district, especially if the congressperson exerts no effort whatsoever.

It is common practice for federal departments to notify the affected congressperson when a grant award is made, often before the applicant is notified. Thus, an applicant may hear from their congressperson or read about it in local newspaper, before they get their notice of funding award email. The good news about this system is that it tends to make the program officers, who send out the funding award emails, marginally more interested in being correct. Congresspersons* get very angry at mistakes like the one suffered by our client. They tend to make a much louder ruckus than any nonprofit or public agency. Imagine Congressman Frank Underwood, as portrayed by Kevin Spacey in House of Cards, learning that the press release he just sent to the Gaffney Picayune Press concerning a YouthBuild grant to a local nonprofit having been sent in error because a DOL GS-12 sent award emails to the wrong list.

With our client, it’s pretty clear that both the proposal and client were fundable, but political machinations (or, more charitably, “considerations”) got in the way and the first email was sent in error. If you’re in the game, not every call goes your way. And the “game” here can refer to grant writing, but it can also refer to “life.”


* Is it “Congresspeople” or “Congresspersons”? Internet authorities appear split. Most seem to agree that it is a good idea to use “congressperson” as a lowercase, non-proper noun unless one is referring to a specific congressperson.

The Challenges of Seeking Grants for a New Facility

Facility grants are among the most difficult grants for a nonprofit to secure and almost impossible for a new organization with no track record.

Last week, a guy in Atlanta called about grants for a transitional living facility for pregnant teens. I immediately asked the caller if his organization had received its IRS Letter of Determination of tax exempt status under Section 501(c)3 of the IRS Code, and the organization’s track record. At first he said he had the letter, but after some questioning he finally admitted that he had just applied to the IRS.*

I know from decades of incorporating nonprofits that the organization was unlikely to get the all-important IRS letter for at least six months to a year. Ordinarily, I would have brought up the potential of the caller finding a fiscal agent to serve as the applicant, but he also eventually revealed that the new organization hadn’t actually done anything yet—and he was seeking capital grants to buy a facility for the proposed transitional living facility.

The conversation declined and he eventually hung up on me. Why? Because I told him, as I always do with such callers, what I told you in the first paragraph of this post: that “facility grants are among the most difficult grants for a nonprofit to secure and almost impossible for a new organization with no track record.” I suggested he consider seeking start-up grants to lease a facility, hire staff and so on. Nonprofits, like most businesses, should test their idea first and worry about long-term real estate second, or really eighth—behind a host of other factors.

It’s also challenging to get grants of any kind for transitional living facilities, which are sometimes called group homes, board & care homes, or sober living housing, depending on the population being served. Most such facilities serve a small number of residents—often only six, because of zoning restrictions, and rarely more than 25 or so.

Let me do the math: the organization seeks $500,000 to buy, renovate and equip a building for use as a transitional living facility to house ten pregnant teens. That’s $50,000/teen, without providing staff, supportive services and so on. If the funder simply gave $50,000 to the teen, she could rent her own apartment, provide child care, hire a personal case manager and have her nails done weekly. There’s really no need for the nonprofit.

Additionally, funders all know that most transitional housing operators charge rent to residents, which is usually provided at least in part by a third-party payer (e.g., SSI, foster care system, child protective services, insurance, family, etc.). Thus, a facility grant request requires a cash flow analysis and sources & uses statement to demonstrate a funding gap. Every real estate developer trying to get investors or a bank loan knows that a positive cash flow must be demonstrated, but in the nonprofit world of facility grants, the reverse is true: a gap must be demonstrated.

This is called a “but-for” analysis; but for the grant in question, the facility can not be purchased or built. In any other condition, the nonprofit faces supplantation problems. Back to my example: a sources & uses analysis might demonstrate that a $100,000 grant is enough to support a $500,000 facility acquisition, taking into account projected revenue, mortgages costs, and the like. Nonprofit executive directors, and especially founders of new organizations, never want to hear this reality; they want money for nothing and chicks for free.

Funders generally will not even fund the gap for new organizations with no track record, for perhaps obvious reasons. Most new organizations that require purchase of a facility are actually funded by a combination of a direct loan from the founder and/or a bank line of credit, secured by the personal guarantee of the founder or an “angel” who loves the project. This, of course, eliminates most would-be facility acquisition proponents, as they either don’t have much money, lack credit, and/or have yet to meet an angel.

The better, more realistic approach is to gather enough capital and/or grants to lease a facility, operate on a shoe-string and collect third-party payments. After a few years of successful operations, the organization can then plausibly seek capital grants, based on demonstrated expenses and documented projected revenues.


* For reasons that elude me, callers often lie to me about their nonprofit and operational status. Since I’ve been fielding such calls for 21 years, I recognize pointless obfuscation immediately. As Long John Baldry put it, “Don’t Try to Lay No Boogie Woogie on the King of Rock & Roll.”

Moreover, there’s little point in lying to your doctor or grant writers: what we don’t know can hurt you.

Seliger’s Quick Guide to Setting Up a Nonprofit Corporation and Getting a 501(c)(3) letter (I Hope You’re Not in a Hurry)

We get a couple of calls a week from folks saying, “I’m in the process of setting up a nonprofit to help _______.” We always say the same thing: “Do you have your IRS 501(c)(3) letter of determination of tax-exempt status, and, if not, have you applied to the IRS?” Too often the response is “No” and “No,” or even-more troubling, “Huh?”, which means the caller doesn’t even understand what she’s doing.

We’ve never had anywhere useful to send these callers, but we’d like to—so here’s Seliger’s Quick Guide to setting up a nonprofit:*

  • Spend some time learning about nonprofits, including the IRS tax-exemption rules, as well as the rules in your state. Presumably one goal of a new nonprofit is to secure grant funds. Most funders expect your nonprofit to be incorporated in the state in which most services will be provided. So, if you want to help cyclopses being emancipated from the foster care system in Owatonna, Minnesota, don’t randomly incorporate in Florida. This step usually takes a few weeks.
  • Apply for a nonprofit corporate charter in your state, following the state rules, as well as the national IRS rules, with respect to board membership, composition, interested parties and so on. To do this, you’ll need appropriate articles of incorporation, but you might as well draft bylaws at the same time, as these will be needed shortly anyway for your state (probably) and your federal tax-exemption applications. This step will likely take a few weeks to a month.
  • If your state has a corporate income tax, apply for state tax-exempt status. This step can take a few weeks to several months—think “several months” in a state like California, which has a very complex application process; Pennsylvania, by contrast, has a simple, quick process.
    At the end of the above steps, you’ll have a conformed copy of your formation documents. “Conformed” is just a fancy way of saying a signed, state-approval stamped copy. You’re going nowhere with the IRS without conformed documents. This is a key point.
  • Apply for a federal Employee Identification Number (EIN). This is the only part of the process that is almost instantaneous.
  • If you haven’t given up or died of old age, you’re finally read to complete your Form 1023, which is the actual IRS application for determination of 501(c)(3) status. You need the letter of determination, because without it, your new organization is not exempt from paying taxes and, even more importantly, donations to it are not deductible by the donor.

Most foundations won’t consider a proposal from nonprofits that lack a letter of determination. You can always try to find a fiscal agent while you’re waiting for the IRS to respond to your application, but that carries its own problems, as we discuss at the link.

Wait you will: it can take the IRS anywhere from three months to several years to approve your 1023. Along the way, you’re likely to get a series of interrogatories from the IRS that are designed to make you crazy, discourage you from continuing, or are genuinely aimed at ferreting out phony applicants, depending on your point of view.

If you do the math, you’ll see the completing the nonprofit formation process typically takes about nine months to two years. This news usually comes as a shock to the hopeful but frequently hapless callers I mentioned at the top of the post. We generally advise such callers to contact an attorney or accountant in their area that works with nonprofits and can help them with the paperwork.

I incorporated my first nonprofit over 40 years ago, when I was a young and starry-eyed intern, but the process is much more complex now. Trying to to this yourself or using one of the $99 Internet incorporation outfits is penny wise and pound foolish. You have been warned; as Robbie the Robot said, “Danger Will Robinson!

There is one way of forming a nonprofit more quickly (and it is not the “expedited review” offered by the IRS for an additional fee, which I don’t think actually speeds anything up). Instead, you wait for a giant disaster and try drafting behind it like cyclists behind a big rig.

After events like 9/11 or Hurricane Katrina, state tax officials and the IRS will often quickly approve new nonprofits because of obvious need, even if the proposed nonprofits have no apparent connection to the disaster. Most of the time the IRS and state tax officials are as motivated as any kind of government bureaucrat. Only the possibility of widespread political heat and anger motivate them to act with the kind of haste one otherwise associates with Amazon.com.

If you have a plausible charitable purpose, don’t be discouraged by the process. Thousands of nonprofits get incorporated and receive their 501(c)(3) status every year. Even the NFL is nominally a “nonprofit,” albeit a 501(c)(6) and it made almost $10 billion last year. Stay the course. Don’t lose heart. And while you’re waiting around for a disaster, you might as well start down the IRS Yellow Brick Road.


* The various state and federal fees are going to run around $800. They’re not refundable.