7 Essential Things Every Nonprofit Should Know

Build Stronger Compliance, Operations, and Impact

Running a nonprofit comes with a unique set responsibilities. From maintaining tax-exempt status to managing donor trust and ensuring compliance, it’s critical for nonprofit leaders to stay informed.

Here are seven key things every nonprofit should know to operate effectively and sustainably:

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1. Maintain IRS Tax-Exempt Compliance

To keep your 501(c)(3) or other tax-exempt status, you must:

• File Form 990 or the appropriate variant each year
  
• Avoid using the organization’s money for personal gain or to pay excessive compensation
  
• Focus on your nonprofit’s main mission, and don’t start unrelated business activities unless you’re ready to pay taxes on the profits.
  

Failure to meet compliance requirements can result in revocation of your tax-exempt status, so vigilance is key.

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2. Track Restricted vs. Unrestricted Funds

Not all donations can be used the same way.

• Restricted funds must be used for specific purposes defined by the donor
  
• Unrestricted funds give you more flexibility for operations
  

Be sure your accounting system accurately tracks both to stay transparent and accountable.

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3. Understand the Importance of Board Governance

Your board isn’t just ceremonial—they’re legally and fiscally responsible for overseeing the nonprofit’s activities, ensuring proper use of funds, and making sure the organization follows all applicable laws and regulations.

• Ensure regular meetings with documented minutes
  
• Monitor conflicts of interest
  
• Require active participation in strategic and financial oversight
  

A strong, engaged board helps your organization stay on mission and out of trouble.

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4. Set Up Strong Internal Controls

Good financial stewardship builds donor trust and protects your organization.
Key controls include:

• Dual signatures for checks or wire transfers
  
• Segregation of duties in accounting processes
  
• Regular bank reconciliations and audits
  

Even small nonprofits need controls to prevent fraud or errors.

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5. Properly Acknowledge Donations

Donor acknowledgment isn’t just good manners—it’s an IRS requirement.
For gifts of $250 or more, nonprofits must provide a written acknowledgment including:

• Amount donated or description of non-cash gift
  
• Whether goods/services were provided in return
  
• A statement of tax deductibility
  

Failing to do so can impact your donors’ ability to claim deductions.

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6. Unrelated Business Income (UBI) May Be Taxable

If your organization earns income not directly related to your mission (e.g., selling merchandise, rental income), it may be subject to Unrelated Business Income Tax (UBIT).

Understanding what qualifies as unrelated income can help you avoid unexpected tax bills.

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7. Keep Your Mission at the Center

As operations grow, it’s easy to drift from the core mission. Always ask:

• Does this program align with our mission?
  
• Are we allocating resources where they’ll have the greatest impact?
  
• Are we communicating that mission effectively to stakeholders?
  

A mission-first mindset builds clarity, credibility, and donor loyalty.

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Final Thought: Knowledge Is Nonprofit Power

Running a nonprofit requires more than passion—it demands smart, strategic management. Whether you’re just starting out or scaling your impact, these seven essentials can help keep your organization strong, sustainable, and mission-driven.

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