The path to meeting regulatory requirements isn’t always a clear or easy one. For small nonprofits, just finding out what state and federal regulations apply to their operations can be a challenge. As nonprofits grow, keeping up with charitable solicitation registration and annual reporting requirements can feel like a never-ending task.
But there’s one simple step nonprofit leaders can take to cut the work of meeting regulatory requirements down to size: budget for it.
“Regulatory requirements should be a line item in every budget,” said Brock Klinger, nonprofit account executive at Harbor Compliance. “If you don’t have one at all, you need one. Even if it starts small, organizations should have this line item to make the concept of compliance tangible.”
Brock shared some thoughts on why budgeting is such an important part of the regulatory puzzle and what your budget should include.
Your budget influences your nonprofit in many ways that go beyond dollars and cents.
Budgets become priorities. Your budget doesn’t just reflect your priorities—it influences them, too. If you don’t put dollars aside for regulatory requirements, it’s all too easy to forget to attend to them.
Known costs are easier on your budget than unknown ones. When you identify the costs of registration and reporting requirements, you eliminate uncertainty in your operating budget.
Budgeting creates buy-in. Putting dollars aside to invest in compliance reinforces its strategic importance to your board and other stakeholders.
Budgeting ensures follow-through. Investing in compliance builds it into your operating plans, which encourages staff to maintain requirements.
Budgeting preserves your operating funds. Without budget dollars set aside for regulatory requirements, fees and expenses may have to be pulled from funds dedicated to operations.
Proactive management controls costs. Organizations that invest in compliance are more likely to see positive outcomes over the long term.
Your budget should cover four main areas of regulatory expense.
State registrations and updates: In every state where you operate, you likely need to file annual reports with the secretary of state and maintain a registered agent. You may also have business licenses and permits to maintain at the state and local levels. Whenever you expand into new states, you may also need to register as a foreign entity. Many of these filings require periodic renewals.
Annual financial returns: Your budget should include the time and expense of filing Form 990 or 990-N annually with the U.S. Internal Revenue Service. States may also require annual financial reports.
Tax registrations and exemptions: You may need to file documents for items such as corporate income and sales tax exemptions, payroll taxes, sales and use taxes, and other state and local taxes.
Charitable solicitation registration: A total of 41 states require nonprofits to register before soliciting funds from their residents. If you’re raising funds online or through email lists, you may be required to follow fundraising registration requirements in all of those states. Registrations must be renewed, usually annually.
Many nonprofit leaders assume that registering nationally for charitable solicitation is a major expense and simply fly under the radar, hoping to avoid penalties. In fact, registering nationally can cost less than the penalties from a single missed license or registration. One advantage of including regulatory requirements in your budget is that it gives you a chance to test your assumptions with real numbers and make informed decisions.
Looking at the list of budget items above, it’s clear that keeping up with regulatory requirements is a big task. Whether you pay for it in staff hours, dollars, or both, budgeting for the work up front is a necessary step to controlling the costs. “Maintaining compliance is easier and more cost-effective than coming back from a citation,” Brock pointed out. “It preempts penalties and saves time.”
Failure to budget for regulatory requirements can lead to hidden costs such as:
Maybe the best argument in support of budgeting is that it treats your nonprofit’s good standing as an investment rather than an expense, which pays off in other ways. “Investing in compliance is a safeguard against reputational risk for both the organization and the nonprofit sector,” Brock said. “Groups that are diligent in maintaining good standing elevate the entire industry.”
If you would like help with creating an accurate charitable solicitation registration and reporting budget for your nonprofit, or if you would like to know what it would cost to have us manage all of that work for you, get in touch or give us a call at 1-888-995-5895.
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