This podcast loves healthy, civil discourse. So we immediately said “yes” when Sandy Pfau Englund, founder of MyRenosi, offered to share her counter perspective to our episode “Please Don’t Start Another Nonprofit” with Dahna Goldstein (episode 50)

A successful attorney and founder of her own nonprofit, Parent Booster USA, Sandy walks us through nonprofit start up success stories, advice to maintain exemption and good standing with the IRS and handling underdeveloped business plans.

*****Timestamped Highlights*****

(3:42) Sandy discusses her counter-blog to Dahna Goldstein
(6:42) The biggest mistakes made when starting nonprofits

(8:42) Join the party? Merging ideas with an existing nonprofit
(10:45) A common scenario where merging does not work
(15:50) Know the Signs: How to know if someone is ready to start a nonprofit
(22:05) Sandy’s three problems with automatic revocation by the IRS
(26:37) Knowing the due dates and what’s due
(27:00) Handling the IRS
(29:00) Sandy shares what she wants to see less of

Links:
Sandy’s Firm: www.myrenosi.com
Parent Boost USA: www.parentbooster.org
Sandy’s website: http://www.nonprofitlaw.com
Blog post, Please Do Start Another Nonprofit
Episode 50 with Dahna Goldstein

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Transcript – Episode 77 – Please start another nonprofit: A counter perspective with Sandy Pfau Englund

Dolph Goldenburg: Welcome to the Successful Nonprofits™ Podcast. I’m your host Dolph Goldenburg with a counterpoint conversation. As you may recall, in episode 50, we had a conversation with Dahna Goldstein of the New American Institute about the reasons to not start a nonprofit. I pretty much agree with Goldstein. I do feel like there are too many small struggling nonprofits and that their causes might be better served by working with existing organizations. Today’s guest Sandra Pfau Englund reached out to me and shared her counterpoint blog post on why people should start another nonprofit. I invited Sandra to come on the podcast and present her counterpoint. She and I have communicated to each other that we’re going to have civil discourse about this issue, and isn’t that just a unique idea? Regardless of which side of the fence we fall on, we seem to have a really hard time with civil discourse. Sandra and I are going to model this, and maybe we can get some folks in DC to take on that model and decide to move it forward. Before we bring Sandra on, let me share just a bit about what she has done.

Sandra has provided legal counsel to nonprofit groups for over 20 years and is the founder of My Renosi, a company that helps nonprofit groups manage the growing federal and state filing requirements. Let me just say that I have seen many nonprofits get in some trouble for failing to comply with government regulations. The work that she is doing is critical to the health and wellbeing of the nonprofit sector in addition to a law degree. She also has a Master of Public Administration. She and I have that in common, MBA’s for the win. She has authored two books, Rescue Me: Your Step by Step guide to Starting an Animal Rescue and School Fundraising: So Much more Than Cookie Dough. Join me as we welcome Sandra Fall, England.

Hey, Sandra. Thanks so much for joining us on the podcast.

Sandy Pfau Englaund: Thank you for inviting me. It’s so good to be able to come in and have this discussion.

Dolph Goldenburg: I was genuinely grateful that you reached out and shared your blog post with me. I think so often we say, “Okay, well that person disagrees with me, and I don’t want to have any conversation with them.” I really look forward to the opportunity to explore some of the reasons that you feel people should be starting new organizations and should be starting new nonprofits.

Can you share just a little bit with our listeners about why you think people should be starting more nonprofits?

Sandy Pfau Englund: I don’t know if you should say “more” because I think we are starting enough nonprofits. I know the most recent statistic I saw was that 80,000 new groups got taxes and status in 2016. I don’t think we should be discouraging, I guess is more my point, people from starting nonprofits or as I say in my blog for-profits are b-corps or other corporations. That’s why I decided to write a counter blog to Dahna Goldstein’s, and I agree with you on how we had discussions and civil discourse on these things. I did reach out to Dana as well and shared my thoughts with her before I published because that is the civil way to go about it. You don’t try to throw anybody under the bus but rather saying let’s talk about this. She very warm like just recently replied and had started a discussion with me.

It’s been absolutely fabulous and interesting. I read Dahna’s blog and being in the business of starting nonprofits, I was a little taken aback, and I said, “Wait a minute, wait a minute. This is what I do.” I’ve worked with hundreds, probably thousands. Some succeed, some fail, but I believe in the nonprofit sector with my entire career has been in the nonprofit sector. There are people genuinely are out there trying to make society a better place, and we may not all agree with the direction they’re trying or what they’re trying to fix. We may not all agree that it’s a problem. We may not all agree with their fix, but I think the nonprofit sector is a place where people are sincere about wanting to make the world a better place. Therefore, I think all ideas are welcome. Those that succeed will know, “Hey, that was a great idea,” and those that fail may start another enterprise just like I did all my ideas and that succeeded. In the nonprofit I started, I didn’t pay myself or my dear husband – who retired from the government early to run it – and then didn’t get paid a salary for five-plus years, but it eventually succeeded and said, hey, that’s a good idea. I think that is the way we move society in the world is by creation and not by discouraging creation.

Dolph Goldenburg: Some nonprofits kind of like businesses start and succeed, and some nonprofits, just like businesses, start and fail. I think one of the arguments that we sometimes hear on the other side is that there’s this profit focus in the for-profit sector that then actually causes businesses to fail because they keep losing money.

What are some of those forces that caused nonprofits to shut down?

Sandy Pfau Englund: I think one of the biggest mistakes people make when they are starting a nonprofit is, they don’t think of it like a business. A nonprofit is a different type of business. Basically, it has a different tax status. It gets an exemption from paying federal income tax, and that’s just provided because back in the day when this all started in the fifties, the rationale is like, “Hey, some businesses can succeed on the same playing field. Everybody won’t contribute to them, and everybody won’t support them, and market forces won’t allow them to succeed, so we give them this, this break.” That’s just a different tax status. A nonprofit is a business like any other business with the different tax status for which you have to plan, for which you have to pay employee taxes and so forth.

Businesses succeed or fail because a) it is really a good idea, but it didn’t take off. People didn’t embrace it. We had a great idea, but we didn’t plan on how we are going to have enough money to sustain ourselves, or you’re talking about for-profit businesses is not making enough money. It’s just like our personal lives. We can either succeed by not spending more than we make where we can fail by spending too much. It is exactly the same if you were for-profit, if you spend more than you than you make and are looking at that, you’re likely to fail if that source of your source of whatever funding hasn’t come in. Nonprofits are exactly the same way. There really is very little difference other than their purpose and mission in the world.

Dolph Goldenburg: What do you see as some of the benefits of having a lot of new nonprofits being started every year as opposed to the benefits of new ideas joining in with existing nonprofits?

Sandy Pfau Englund: When I started writing this blog, I did some research because I’m a practitioner. I’m not an academic. I don’t do research for a living, but I said I’m going to look into this. I started looking into it and found a lot of studies. The actual creation is an economic theory called creative destruction, but the very fact of creating a new business – whether it fails or succeeds – the more we create, the more jobs we create, the higher wages become. There’s lots of research that also shows that there is a much more effective success getting more jobs and a healthier economy if they are putting money into business creation than there is in all of those schemes of bringing in new business.

I know it’s Amazon. Everybody wants Amazon, and of course, it would have been nice if they wanted Orlando where I happen to live too. I’m not against getting Amazon, but the statistics show that what you’re doing if you’re just moving a business around, and it’s not growing. Now it went from Pittsburgh to Orlando. You didn’t create anything new. The idea is that if we don’t allow people to or encourage them to create something, there are a lot of good ideas that may be lost. The second part of that question is, “Why don’t we just have people work together?” Because it doesn’t work. I have helped numerous organizations merge. We’re humans. Humans want control, and there’s always a winner, and there’s always a loser in a merger.

Of course, there are examples, but for the most part, it just doesn’t work. One of the things I started as Parent Booster USA, and we have K through 12 school booster clubs, the athletic boosters, the band boosters, you name it, boosters that are raising money to supplement school budgets. There are lots of regulations there. Well, they were like a nonprofit, like everybody else, but nobody knows if there was and so forth. So athletic boosters, take them for example, some schools have one athletic booster organization for all the sports. You say that’s the most efficient way to go about doing this because we don’t want to have the golf boosters, the tennis boosters, the football goes, just the baseball boosters. We get this question all the time. We have all these separate boosters. Should we combine? It’s fine with us. The combined organization can join parent booster. The individual organizations can join parent booster, but time and time again when you join together, the tennis booster parents think that the football boosters are getting too much time, too much money, too much – and it’s not just the tennis and the football. You know what I’m saying? –  It doesn’t work because people want to run their own gig.

Dolph Goldenburg: That’s certainly a fair argument, Sandy. In my experience, whenever organizations and deserves separate organizations, partner on a fundraising event, not only does each organization feel like the other got the better deal, but each organization also feels like they did way more work than the other one. In your example, the tennis boosters are like we did all the work for that cookie dough sale, and the football team got 60 percent of the money, and the football boosters are probably thinking the same thing.

Sandy Pfau Englund: Yeah. I had one that had to split, and they were just the cheerleaders and the dance team. When they were splitting, they weren’t happy with the split because the administration of the school said we’re going to split it 50 50, and they said, “Oh No, no, no. We were saying, no, no, we spent 85 percent of the time on this.” It’s a human issue. That’s how we are as human beings.

Dolph Goldenburg: Hey, I often refer to power struggles like that as what color is the carpet going to be? You see that for organizations that share buildings or for like churches where you know, a church might argue for a year and a half, “Is the carpet going to be red or is it going to be green?” Literally, some split over it.

Sandy Pfau Englund: Yeah, they usually say that that’s how lawyer problem, right? We argue over the words. People just get wound up in those details. In general, that doesn’t mean that there aren’t groups that are doing exactly the same thing and shouldn’t merge together. In my law firm, we’ve helped people merge together when that made sense for whatever reason, whether funders wanted them to merge or whatever pressure. It’s usually an outside pressure, and it’s usually a funding issue that says you guys really need to work together as far as separately. I don’t think there’s enough encouragement and our schools these days for people to think on their own instead of thinking, you know, teaching towards the test or whatever because of forces that are causing our schools to do that and our teachers to do that, but really saying what you said, think on your own and when people think on their own and say, hey, I have this idea.

If I had said, oh, I have this idea for a nonprofit that I started 11 years ago, but said, “Well, I’m just gonna, keep my day job and just kind of, keep my law firm and I’m not going to pursue that,” we wouldn’t have created something that now has a dozen employees. Now that’s not huge. I’m not contributing to the economy like the Amazon. I turned around and never expected to do that. I think a lot of small nonprofits, they don’t have employees but just a lot of small businesses that contribute to the economy, and that helps all of us.

Dolph Goldenburg: Well, Sandra, we’re going to take a short break and when we come back, we’re going to discuss how to know if you are not ready to start a nonprofit.

The Successful Nonprofits™ Podcast is produced by the Goldenburg Group as part of our mission to provide board development, strategic planning, and interim leadership to help nonprofits thrive in a competitive environment.

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Sandy, you’re in a really unique position because you not only help organizations stay within the legal lines once they are started, you also help organizations get started and form as nonprofits. I would assume this probably means that you have helped start organizations that have been tremendously successful, and you’ve probably also helped start organizations that have crashed and burned, not because of anything you’ve done, but as you said, you know, some organizations succeed and some fail. Based on your experience of those that you’ve helped start and you’ve seen be really successful and those that you’ve seen kind of fall off the cliff and end up in a lot of trouble or just close, what are some of those signals when someone walks in your office that you’re able to say, “Yes, you’re ready to start a nonprofit organization,” versus, “You know, maybe you’re not ready to start one?”

Sandy Pfau Englund: I’ve never been asked that question before, so fantastic question. The simple answer is you can tell whether or not they have a realistic plan on how they are going to support themselves. Where’s the money coming from? I asked that all the time, but I asked that for a couple of reasons. When they come into us, and they want to start a nonprofit, where the money comes from is a key factor and what they qualify for. Are they going to be a [inaudible], a charitable organization or are they going to be a fee for service or are they actually a bible, 1c6 trade association? We have to ask, “Where’s the money coming from and what are you going to do? What are the three bullet points or whatever of what are you going to do?” With that information, we can figure out, first, if they qualify because our firm isn’t going to take someone’s money if we don’t think they qualify. Not that we make the decision as the IRS but I’m just not. If I say, Hey, that doesn’t qualify as a nonprofit, you need better off starting that as a for-profit or b-Corp, we let them do that.

Dolph Goldenburg: Every now and then, I’ll say to an organization, “You know, I’m probably not the best person to work with you because for whatever reason, I just feel like I’m not going to get them where they want to go.” So good for you that there are times that you turned down business because you just don’t see it being fruitful for the individual or organization in front of you.

Sandy Pfau Englund: Yeah, I mean absolutely. That’s why I’m in this business, right? So, I can do some good in my own way. So that’s one. Then going back to the question of, how do you know they going to deal the main thing? I’m not God. I’m not God. I really don’t always know if an entity is going to fail or succeed, and I didn’t even necessarily tell them that because, again, that’s not my role. I am more of a cheerleader, always have been, always had been a The-glass-is-half-full person.

I will talk them through that, and I will say, well we need to 1) apply for tax-exempt status. We have a budget, and we need three years budget and where this money’s coming from. It doesn’t have to be exact, just get your best guess, but you need to think that through a plan. That’s a factor number one. Factor number two is if they really seem perplexed or don’t understand tax exemption or don’t understand the sector at all, I’m not that they can’t learn it, but then I have to strongly encourage them more than others that they’re going to want help. They’re going to want help if they are starting a co-branding effort with the fork or something that is trickier, that could get them in trouble with the IRS rules, and they seem not to have any idea that that’s a problem. I try to guide them through that.

All of that said, I think a) you don’t know, and I say you don’t have a plan and I think it’s so much up to the individual. I didn’t have a plan for Parent Booster USA. I said this is a fantastic idea. I’m a PTO mom myself. The PTO was completely messed up, and I knew how to get it back incorporated in tax and status and all of the right stuff. I said other parents are going to need this, and I need to make it simple for them. I had this great idea, but I had no funding, I didn’t have any members I didn’t know, and I said if I ever get a thousand members, that will tell me it was a good idea.

That was my business plan, and we have 3,500 members today, but I can’t put down someone who doesn’t have a complete business plan because I never wrote down the complete business plan. It took them a long time. I mean to be profitable and pay salaries and they always said the good and the bad. So, you don’t, you don’t know.

Dolph Goldenburg: I both in my consulting practice and in this podcast, I started both with a plan, but you know, sometimes you, you rebuild the plane as you’re flying it.

Sandy Pfau Englund: That’s the hardest thing because the staff that works for me because they think there’s going to be just a solid direction and I say everything we do is sailing blue oceans, and nobody else does exactly what we do like with us in MyRenosi. There weren’t when I started 27 years ago saying that they are nonprofits, but there’s a fair number now that are out there setting up nonprofits, but I don’t see anybody out there trying to make sure people keep exemption. I went back to that first quota or statistic 80,000 in 2016; well, the IRS also we both 50,000 the same year for failing to file the 990s, automatic exemption. This churning, they, it’s not especially prevalent in the volunteer types of organizations, volunteers turnover. There’s the corporate mindset out the door and I said, somebody needs to come in here and not only get them tax-exempt, but let’s keep them tax-exempt.

Dolph Goldenburg: I’m a big fan of automatic revocation, but let me ask you, how do you feel about it and if we can just have a brief conversation about automatic revocation.

Sandy Pfau Englund: I’m not a huge band in a lot of respects. The IRS said the original idea was to get these groups that weren’t functioning off the books. That was, at least my understanding, of the original rationale. That’s not what it’s doing though. What it’s doing is it’s kicking off the books organizations that simply don’t understand. A lot of them are volunteer base such as the booster clubs, but also you can look at my son’s into fraternities. These college fraternity guys had no idea that when they graduate, they don’t pass the knowledge onto the next guy to file their 990. I think it is not serving its initial purpose. The other thing is I just, the way it was written; it was written so there’s absolutely no appeal of the revocation. The problem with that is the IRS makes mistakes.

I’m quite aware, well aware of a number of mistakes that the IRS has made, and when they make that mistake because it’s written into the law, there’s no appeal. It’s just like, “Oh, well too bad.”

The third problem. You got me started with this one!

The third problem is the IRS is the method to which you get reinstated. Now they’ve made a little simpler over time with the 1023 EZ. However, by making you start completely over, they make it too difficult, and they defeat the purpose. If the purpose of auto-revocation is they want someone to report their 990 every year that we still exist – here’s how much money we made – then if you fail to do that, you shouldn’t get completely revoked. It should be more like corporate reinstatement; file the returns that you missed, the back returns that you missed and then we’ll reinstate you because that achieves the purpose of knowing how much income these groups have made and gets them reinstated. They’re not achieving their said purpose.

I think there are some big problems, Dolph, in that one.

Dolph Goldenburg: Do you ever feel like getting that automatic revocation notice as a wakeup call to some boards where they say, oh we’re not, we’re not doing the things we’re supposed to be doing?

Sandy Pfau Englund: No,

Dolph Goldenburg: Really?

Sandy Pfau Englund: Yeah, I worked with too many boards of directors. Some are out to lunch, some are just serving, some are very active. No, I don’t think so. I had a board recently that sort of imploded when the organization had some auditing issues and the like. Their 990 was filed way late but I don’t believe that the [inaudible] been filed way late or getting revoked really tells them what they need to do because what they need to do is not just file a 990; they need to be looking at setting a budget every year, amending the budget if things change, looking at the financials monthly or quarterly or what’s appropriate for that organization – being a little more involved and not just a rubber stamping items.

Dolph Goldenburg: This is, I guess where we have some civil discourse, which is awesome because I’ve actually seen some of that and so like there’ve been a couple of organizations that I’ve worked with where I’ve said to them, and I’m always very clear, I say to them, not a lawyer, not an accountant, I suggest you go get a council around this. However, based on what I see, I think you might be at risk in the near future of automatic revocation. You need to go talk to someone and figure out whether or not you are. I’ve actually seen it kind of be this wake-up call for a couple of boards where they’re like, oh my gosh, you know, we, we thought whatever they thought they were exempt from filing requirements, you know, probably the same stuff that you often hear in your firm. Then they go and get counsel audit and they realize some of the regulatory things are supposed to be doing. Then as part of that they end up looking at other aspects of governance. It’s interesting. I have seen it happen a couple times and, and you know, maybe it doesn’t happen every time. I could accept that, you know, like I could totally get. It doesn’t happen every time. Maybe even not the majority of times.

Sandy Pfau Englund: One of the things we do is make sure its groups understand that it’s not just your federal taxes have to file the 990, but most states require you to register before you fundraised. Most states require you to buy all the corporate and report, or you lose your corporate status. Your federal exemption is not your sales tax exemption. Confusion out there. But I think from what I’ve seen with even very sophisticated boards, why we’re working with now and they’re doctors, but they’re doctors, they’re not compliance people, right? They don’t get all of that. And so that’s my big push these days with our MyRenosi dashboard, I feel like it’s an educational tool. You know, you go online, your volunteers or your staff or whoever can see right there. That is not just your 990 gets all items that are due and when they’re due and that I think raises openness. Even though it may help a little bit, I think there’s so many flaws in the way the auto-revocation legislation was drafted.

I talked to the tax payer’s ombudsman. It went all the way to the ANA report to Congress back in I think 2011 or 12, talking to them about all the issues. Maybe it’s helped us move forward. We finally got the 1023 EZ and some other items, but it could be better.

Dolph Goldenburg: You and I can definitely agree that I don’t always liked the way the IRS operates. I mean, in my own personal life, I actually was audited, um, for a couple of tax years ago I was audited. Literally, the IRS ended up having no changes, which means they looked at every single penny in my tax return and had zero changes. The process, the 11-month process from the start of the audit at the end of the audit was not a fun process.

I felt vindicated when I got the ‘Okay, we can’t find anything to change.” I also don’t love the way the IRS operates.

Sandy Pfau Englund: Parent Booster USA was audited twice in 18 months when we were making a gross income of less than $300,000, and it was merely because we have a group exemption and we were adding people which should be a benefit to the government. We are adding all of these booster clubs that were flying under the radar, never filing nothing. All we’re doing is helping them come into compliance, and the IRS couldn’t keep up with the number we’re adding or for whatever reason. Twice in 18… and again, no change, nothing. Everything is fine. Um, and I found that again, why are we auditing someone twice with under 150,000; there’s no money here.

There are bigger fish to fry. Let’s go back, let’s, let’s do some civil discourse. There’s a lot of people that work with the IRS that I’m sure are career employees and do the best job they can and all of that so we can improve anything. Let’s leave it at that. There you go.

Dolph Goldenburg: Sandra, thank you so much for coming on. I can’t let you go yet because we’ve got to ask you the Off-the-Map question. The Off-the-Map is an additional question we like to ask a guest that’s typically either tangentially related or not related to the topic and gives our dear listeners the opportunity to learn a little bit more and connect a little bit better to our guests.

Sandy, obviously, you know, you want to see nonprofits get started. I’d like to ask you the flip side, what would you like to see less of?

Sandy Pfau Englund: Just less other than the world or less of with nonprofits.

Dolph Goldenburg: I’m all about the vague question, and you can interpret it however you want.

Sandy Pfau Englund: I would like to see less discouragement of innovation and change at the outset. I think in your intro you said it’s often, you know, you kind of think it’s better. You kind of agreed with Dana to have people work together and keep the same enterprises and often in our world when candidates are running, they run on this ticket of how they’re going to bolster the local industry that may be dying, you know, that may not have its place, can’t succeed on its own or they’re going to bring an industry from the local town over here. It’s not as popular just say, “Hey, I am going to set up business incubators to such to start new ideas because people are more fearful of that.”

They like things to be supported that they know, and they understand. I would like to see less discouragement of but also just people in general, less discouragement of students in school who are struggling. I’m that half-full kind of person, and I want to see people say, “Good for you. I may not agree with you, but good for you.” Just try anyway. There’s, there’s a lot of discouragement. It’s been a kind of a dark world for a little while here. People are down; people are fearful of things. I want to see less of that. Let’s stop scaring people and discouraging them.

Dolph Goldenburg: I love it. One more thing you and I can agree on let, let’s have less discouragement at this point. Sandy, thank you so much for joining us on the podcast today. I am incredibly grateful that you’ve joined us. I want to make sure the listeners know how they can get ahold of you. So first of all, they can go to www.myrenosi.com, which is your firm and business’s website. This is a great website for organizations to go to, especially if they’re interested in meeting federal and state filing requirements and regulatory requirements. I’m going to do also a quick pitch. I think one of the things that a lot of organizations fail to understand is maybe they’re actually doing work or soliciting and multiple states, especially if you’re near a border of estate… if you’ve not thought through that, give Sandy a call or check out www.myrenosi.com.

I’m sure that’s something she can help with.

Also check out the nonprofit that she started, https://parentbooster.org/. You can check out her author website, http://www.SandrapfauEngland.com. Sandy wanting less discouragement in the world and in addition to you and I both having an MBA, we have something else in common which is I also have three URLs, and one of them is actually my name, just like yours. We’ve got as much in common as we do disagreement, and I really appreciate that. Thank you. The last thing I want to make sure that folks know is that they go to www.myrenosi.com,  they can also read her blog post, Please do start a nonprofit, so if you want to learn more about that perspective, make sure you’ve got a www.myrenosi.com and check out her blog. There’s a lot of great posts, but make sure you check out the Please do start a nonprofit.

Hey, thank you so much for joining us today, Sandy.

Sandy Pfau Englund: Thank you. It was wonderful.

Are you listening to the podcast while riding a unicycle and unable to write down Sandy’s URLs? Fear not, dear listeners, just visit the show notes at www.successfulnonprofits.com, and we will even link her blog post and Dahna Goldstein’s blog post, so that way if you want to read both and make your own decision, you can do that. From http://www.successfulnonprofits.com. You can also subscribe, rate and review the podcast. Your review is a great way to pay it forward for this free resource because it helps others find out about the podcast. If you would rather connect to me on social media, search for Dolph Goldenburg and the social media you use the most. Scroll through the maybe two or three Dolph’s that come up on Facebook and friend, the guy with the shiny shaved head. That’s our show for this week. I hope you have gained some insight that will help your nonprofit thrive in a competitive environment.

(Disclaimer) I’m not an accountant or attorney, and neither I nor the Successful Nonprofits™ provide tax, legal or accounting advice. This material has been providing for informational purposes only and is not intended or should not be relied on for tax, legal or accounting advice. Always consult a qualified licensed professional about such matters.