Growing your charity

Your charity is running. People are being helped, donors are giving and the board meets. Now the questions change: are we actually making a difference? Can we keep going if the founder steps back? Should we hire someone? Should we grow at all?

Growth isn't always about getting bigger. For some charities it means doing the same work better, or making sure it will last. For others, the wisest move is to join forces with another group, or to close well. This stage helps you think about all of these with a clear head.

What to do

Measure your impact

Impact measurement means checking whether your work leads to the change you promised. Start by knowing the difference between two words:

• Outputs are what you do and how much: 400 meals delivered, 30 children tutored, 12 workshops held. They're easy to count.
• Outcomes are what changes for people because of what you did: children reading at grade level, families no longer skipping meals, seniors feeling less alone. They matter more, and they're harder to measure.

Go back to the theory of change you wrote in the mission stage. For each step, pick one or two simple measures. You don't need a research study. A short survey at the start and end of a program, a teacher's reading scores, or a regular check-in call can tell you a lot.

Share what you learn honestly, including what didn't work. Funders trust charities that learn from mistakes more than ones that claim perfect results.

Develop your board

As the charity grows, your board needs to grow up with it. A strong board:

• sets the direction and approves the yearly budget;
• watches the money, with regular financial reports;
• supports and reviews the leader, whether paid or volunteer;
• helps raise money and opens doors;
• plans for the future, including who would lead if the founder left.

Every year, look at the skills on your board and the gaps. Set term limits in your bylaws so new people can join and tired people can step down with grace. Give new members a short orientation: the mission, the budget, the bylaws, recent minutes and what's expected. Keep minutes of every meeting.

Hire your first staff member

Hiring is a big step. Before you do, make sure you have enough steady income to pay a salary for at least a year, plus taxes and other costs.

First, decide whether the person is an employee or an independent contractor. The IRS looks at the whole relationship, especially how much control you have over what the person does and how they do it. If you set the hours, train them and direct the work, they're probably an employee.

If you hire an employee, the charity becomes an employer. That means:

• Payroll taxes: you must withhold federal income tax, Social Security and Medicare taxes from the employee's pay, pay the employer's share of Social Security and Medicare, and report them to the IRS, usually on Form 941. Your state may have its own income tax withholding too.
• Federal unemployment tax (FUTA): a 501(c)(3) charity is exempt from federal unemployment tax. Your state may still have unemployment insurance rules for nonprofits, so check with your state labor department.
• Workers' compensation: insurance that pays medical bills and lost wages if an employee is hurt at work. It's run by each state, and the rules on who must carry it vary. The U.S. Department of Labor lists every state's workers' compensation office.
• Wage and hour rules: pay at least the required minimum wage and overtime where they apply. Remember that a paid employee can't "volunteer" to do the same type of work they're paid to do for your charity.

Many small charities use a payroll service to handle withholding and filings. It costs money but avoids expensive mistakes. Write a clear job description, a written offer letter and a basic employee handbook.

Build sustainability

Sustainability means your charity can keep going year after year without lurching from crisis to crisis. Some steps that help:

• Spread your income across several sources: individual donors, grants, events and earned income. Relying on one funder is risky.
• Build a reserve: money set aside for emergencies. Many boards aim for a few months of running costs over time.
• Grow monthly donors: small regular gifts add up and are more predictable than one-time gifts.
• Plan for leadership change: write down how things work so the charity doesn't depend on one person's memory.

Consider merging or closing well

Sometimes the best thing for the people you serve is to join forces with another charity, or to close. That isn't failure. It can be the most responsible choice a board makes.

A merger joins two charities into one. A softer option is a partnership or shared services, like sharing an office or bookkeeper. Signs it may be time to talk: another group serves the same people better, you can't recruit board members, or money keeps running short.

If you decide to dissolve (close the charity for good), follow the rules:

• Assets must stay charitable. Your articles of incorporation must already say this: when a charity closes, its remaining money and property must go to another exempt purpose, such as another 501(c)(3), or to a government for a public purpose. It can never go to founders, board members or staff.
• Tell the IRS. File a final Form 990 or 990-EZ and check the "Terminated" box. Complete Schedule N, which lists what happened to your assets. The return is due by the 15th day of the 5th month after the termination date. Charities that file the 990-N indicate on it that they have closed.
• Tell your state. Many states require you to notify the attorney general or another office before or during dissolution, and to file articles of dissolution with the secretary of state. The IRS advises checking with your state attorney general before you dissolve.
• Tell donors with restricted gifts what will happen to their money.

Your checklist

• List the outputs and outcomes you'll track, based on your theory of change.
• Choose a simple way to measure at least one outcome this year.
• Share an honest impact summary with your board and donors.
• Review your board's skills and gaps once a year.
• Add term limits and an orientation for new board members.
• Before hiring, confirm you can pay a salary and taxes for at least a year.
• Decide whether a new worker is an employee or contractor using IRS guidance.
• Set up payroll tax withholding and filing, or a payroll service.
• Check your state's workers' compensation and unemployment insurance rules.
• Set a goal for building a cash reserve.
• Write a simple plan for what happens if the founder steps away.
• If you're considering closing, check the IRS and state steps before acting.