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In this presentation, learn the 10 key steps to consider when looking to launch a not-for-profit organisation.
Key learning outcomes:
Good morning. My name's Diane Brown. I'm a chartered accountant and business advisor with SRJ Walker Wayland. Today, I'll be taking you through the 10 key steps to start a successful not-for-profit organisation.
We will first go through each of the 10 steps, and then at the end of the presentation, you will see that I have a detailed list of resources that I would suggest you go through and make yourself familiar with before you start establishing your not-for-profit entity.
Before we start on the 10 key steps, let's talk about what a not for profit actually is.
A not-for-profit organisation is simply an entity that doesn't operate for profit, personal gain, or the benefit of its members. It doesn't necessarily mean that you can't make a profit. In fact, you want to make a profit. Rather that profit is simply reinvested to further the aims of the organisation and ensure its success and longevity.
The first category is a charity, which has registered under the charities act 2013 and governed under the Australian charities and not-for-profit commission, which we refer to as the ACNC
The second category are other not for profits that aren't members of ACNC or registered charities. These are things like sporting and recreational clubs, community, and other service organisations.
As well as not-for-profit we hear about the term ‘social enterprise’. I have a lot of people that come to me and say, they want to set up a social enterprise. But what is it they really mean?
It's important to understand that a social enterprise is not a legally recognised classification. It's simply a business that is designed to achieve a particular social outcome through commercial means, such as selling their goods or services. The social outcomes that the social enterprise want to achieve might be economic, social, cultural, or environmental, but their outcomes are consistent with the public interest.
A social enterprise can actually be both a not-for-profit, or a for-profit entity. The general rule with respect to social enterprises is that they reinvest a minimum of 50% of the profit towards achieving their identified social purpose.
And there are some examples of social enterprises in actions. There are a lot of trading cooperatives and there are organisations that deliver or distribute profit to particular social causes.
So before you start a not-for-profit organisation, you need to do your research and you need to firstly, consider, do you want to be a formal or an informal organisation? And when you're considering these approaches, you need to be asking yourself, what is the core purpose of your group? What is the focus of the work that you will actually be undertaking through that particular organisation or group? And are there any other existing community groups that do the same work as you? Bearing in mind that currently in Australia, there are over 700,000 registered community groups that are in action as we speak.
You need to make sure that you are engaging with the peak bodies that cover your area of interest. Once you've done that, you need to define what your group will look like. Is it simply a group of volunteers, in which case you'll still need to consider the organisation of the volunteers and the management. Or do you want to be a more formal organisation and have paid staff?
You need to think about the activities that your group will actually undertake, and what resources you're actually going to need to be able to perform the service that you want to do.
I can't stress enough how important it is to seek professional advice early in establishing a not-for-profit to ensure that you have your structure, and your set up, correct from day one.
In terms of structure, you need to consider whether you are going to be an unincorporated or an incorporated organisation.
An unincorporated association is not a separate legal entity from its members. What that means is that every member in that organisation has legal liability for any of the actions that are conducted by the group, and any debts that are incurred by that group.
An unincorporated association has set up for a common purpose. It cannot enter contracts in its own name, which means it can't employ staff. It can't lease premises in its own right. It can still register as a charity (if it's conducting charitable acts) and some strong examples of this are usually religious communities, animal welfare groups, and cultural welfare groups.
If you decide to think about incorporating, there are some advantages associated with that. If you are an incorporated not-for-profit, and there are a number of different ways you can go about incorporating. I'll come to those in a minute. The key advantages of incorporating your not-for-profit entity are that it gives you limited legal liability, because the incorporated entity is seen as a separate legal entity.
In other words the members aren't individually liable. It can enter into contracts in its own right e.g. purchase assets, borrow funds, and lease premises. It can employ staff. It can apply for grant funding. It can also achieve deductible gift recipient status, which is tax benefits available to people who donate to that relevant organisation. And it allows for perpetual succession, whereby if your membership base changes, the entity still exists.
Issues you need to consider when deciding whether to incorporate or not.
If you decide to go down the incorporated route, there are full different structures you can consider.
The most common of these incorporated not-for-profit entities are the first two, so we will focus mainly on those areas. Although I will do a quick recap on the other types of entities as well.
The first entity we look at is an incorporated association. An incorporated association is governed by the Associations Incorporation Act 1981 (Qld)
A couple of key things to bear in mind:
More importantly, let's look at some of the advantages and disadvantages of becoming an incorporated association.
Suitable for:
Not suitable for:
The second top of most commonly used organisation in the not-for-profit world is a Company Limited by Guarantee (Ltd).
This one is governed by the Corporations Act 2001, so there are much more stringent reporting and compliance requirements if you set up or establish this particular entity.
Suitable for:
Not suitable for:
The third type is what we call a cooperative organisation, which has governed under the Cooperatives National Act 2020 (Qld)
Suitable for:
Not suitable for:
The final structure that you can have as a not-for-profit is for an indigenous corporation. There are some specific rules around this. You're governed under the Corporations (Aboriginal and Torres Strait Islander) Act 2006.
Suitable for:
Not Suitable for:
In the not-for-profit world, as I said at the beginning, the most common types of organisations you might want to consider will be an incorporated association or a company limited by guarantee.
Once you've decided on whether you're going to be an incorporated, or an unincorporated association, you need to determine whether you want to register as a charity. If you register as a charity, you’re governed under the charities act. Not everyone can register although it is pretty broad.
There are 12 charitable acts, or charitable purposes, which are broken down into three key areas.
So let's look at some of the reasons that you might want to get registered a charity.
Benefits:
Extra Obligations
So determine whether you want to go down, both the charity and the deductible gift recipient status. And you can do one or the other. You don't have to do both. And in fact, a lot of charities will simply become registered charities with ACNC without going to that next step of becoming a deductible gift recipient status organisation through the Australian taxation office.
Once you've decided on, in, on your charity registration, you need to ensure that you are aware of your governance and director duty requirements.
There are four main legal duties for your committee members that you need to comply with.
They are four key duties that you need to understand and be familiar with if you're considering being a committee member of a not-for-profit organisation.
Other legal duties include:
And comply with additional laws including:
There is a raft of laws that, regardless of what type of not-for-profit you're considering setting up, you should be getting yourself familiar with.
Then you need to ensure you have appropriate registrations licenses and insurances.
Then you need to think about what level of insurance do you want or need.
Consider:
I recommend that you seek help early to ensure that you have yourself protected in terms of insurance coverage.
You need to ensure that you've got your record-keeping and your accounting system set up correctly.
Your ATO requirements are that you keep your records preferably in electronic format for five years, starting from when the record was obtained or the transaction is completed - whichever date occurs first. ACNC, however, requires you to keep records of your financial and operational systems for seven years. So you need to use the seven years in this situation.
Set up your integrated systems. So get a cloud-based accounting software program that can link into all of your other relevant modules. Xero and MYOB are two fantastic ones. They can be linked to something like Receipt Bank, which will allow you to simply take photos of all of your expenses and your receipts and have uploaded directly into your Xero accounting file. So it's a great system.
You need to be thinking about a customer relationship management system (CRM) or a volunteer management system, and how that will integrate with your relevant accounting system.
One of the other things that's really important as a not-for-profit is that you develop and document your systems and processes and policies. There's some great templates that are available on the ACNC website to assist you with doing that. And I've put a link (downloadable presentation) up there for you to consider.
There's also a free, fantastic Queensland-based service called Injury Prevention and Management Program (IPM) which is run by the state government. It's a free system that's available to assist you to get your workplace health and safety systems in place. I would suggest you make use of that program in the initial setup phase to help you ensure that you're covered with what you need to do to comply with your WH&S rules. Certainly here in Queensland.
Finally, you need to develop your strategic business plan. So your plan needs to be the process that provides your business direction. You need to be identifying what the goals are for your organisation, and breaking those goals down into strategies and detailed action items.
Your plan will allocate responsibilities and timelines, and have the management committee ensure that it keeps each other accountable to achieving those actions, to work towards achieving your organisation goals.
Your strategic business plan needs to be an evolving document that you need to be revisiting and updating on a regular basis. You need to see that plan as the blueprint for your business success.
As a not-for-profit if you are going for some larger grant funding programs, at a minimum they will require a business plan supported by financial forecasts.
Consider these steps for your business plan:
Supporting all of this though, and I can't stress how critical this is, plan your finances. Develop a startup budget. Determine your initial 12 month to 24 month capital commitment, and map that out in the form of forecast profit and loss, balance sheet, and more importantly, cashflow statements for that critical first 12 months of trading.
Calculate your breakeven point. So what's your breakeven point? It's that point in which you must earn an income level, just to cover all of your associated expenses and you don't start making a profit until such point in time is when your income exceeds that. So know what that break even point is.
Identify and monitor your financial and operational key performance indicators (KPIs).
There's some fantastic, additional learning modules that are also available through Business Moreton Bay region that I would suggest you familiarise yourself with. And they include things like small business accounting 101, financial management for business owners or understanding financial literacy, planning for business success.
All of those, whilst they are business-related topics, still apply to the not-for-profit world, a not-for-profit organisation to be successful and sustainable needs to run with business like objectives in mind. So please go and make use of those additional resources.
Finally, think about how you're going to launch your not-for-profit. How? Where? Who are you going to invite? Who are your key stakeholders? Who are your key suppliers? Who are your key industry groups? Who are your potential key clients? How are they going to get there? Who's going to be involved in organising it?
So for anybody considering starting up a not-for-profit just to remember to follow the ten 10 key steps to start a small business or a small not-for-profit entity, and I wish you all the best and good luck in your successful endeavors.