Leading a nonprofit requires many of the same skills as a for-profit job, since nonprofits are still businesses in many ways. In addition, nonprofit executive directors need to know the basic skills required for running nonprofits based on their exclusive operational needs and reporting requirements. Understanding the best practices for managing a nonprofit will help you prepare yourself for this role and expand your career opportunities.
Different nonprofit organizations receive different classifications based on their missions and operational needs. Many nonprofits never apply for IRS recognition as tax-exempt organizations because they operate on the state level only, have annual revenue typically less than $25,000 and receive state income and sales tax waivers as well as access to state grants or contracts. Federally tax-exempt nonprofits receive one of the more than 25 IRS 501(c) classifications, which come with different benefits and limitations.
One of the main tasks of a nonprofit executive director is managing the business affairs of the organization. A nonprofit with limited staff or only the executive director running the show must still divide its management practices into common departments or functions, such as human resources, finance, membership recruitment and retention, meetings, marketing, information technology and fundraising. In addition to effective management, best practices for nonprofits include transparency policies to offer boards of directors clear information about the organization’s business operations.
The executive must use best practices in human resources, including creating an organization chart, creating workplace policies and procedures and setting employee recruiting, hiring and management procedures. If the board does not have a conflict of interest or nepotism policy, an executive director should present these ideas to his board. This prevents potential PR problems that arise when board members ask for paid jobs for family members or seek contracts from the nonprofit.
Sound fiscal management is critical for nonprofits because their records come under public scrutiny. Best practices include keeping accurate financial records in ways that make it easy for a board of directors to review them during meetings. The executive director should keep the books in a way that a nonprofit tax attorney can easily use them to prepare the organization’s annual returns. A nonprofit executive director should institute strong internal controls for managing the organization’s money, consider external audits on the organization’s books to prevent fraud and be up to date on IRS and state rules and regulations regarding the solicitation and disbursement of nonprofit funds.
Fundraising, often known as development, is a critical responsibility of many nonprofit executive directors. Best practices include setting annual goals, understanding rules and procedures for following legal procedures for fundraising, developing, maintaining and using a donor database, helping to recruit and train effective board members and meeting the goals of the organization regarding its public works.
Membership Recruitment and Retention
Trade association executive directors must bring in new members and retain most of those who join if the organization is to survive. For these reasons, a key skill that trade associations seek in an executive director is membership recruitment and development. This requires understanding the basics of member service, benefits development, administering surveys, billing and renewal procedures and recruiting programs.