Running day-to-day operations

Once your charity exists on paper, it has to work in real life. That means a bank account, books that someone else could follow, insurance that protects your volunteers and board, fair treatment of the people who help you, and a few written policies.

None of this is glamorous. But this is the part that keeps a small charity safe when something goes wrong, and something always does eventually: a volunteer trips, a laptop is stolen, a donor asks where their gift went. Set it up once, properly, and it runs quietly in the background.

What to do

Open a bank account in the charity's name

Never run charity money through a personal account. Mixing personal and charity money is one of the fastest ways to lose donors' trust and to break the rule against private benefit, which says charity money must serve the public, not individuals.

Banks set their own requirements, so call ahead. They usually ask for:

• your filed articles of incorporation;
• your EIN, the charity's free federal tax ID number;
• your bylaws and the board minutes or resolution approving the account and naming who can sign;
• photo ID for each person who will sign;
• your IRS determination letter, if you have it yet.

Set up two signers, and require two people to approve large payments. Ask whether the bank has fee-free accounts for nonprofits.

Keep simple books

Bookkeeping is recording every dollar in and out. Even a tiny charity needs it to file its annual IRS return and to answer donors' questions.

There are two main methods:

• Cash basis: you record money when it actually arrives or leaves. It's simple and many small charities start here.
• Accrual basis: you record money when it's earned or owed, even if it hasn't moved yet. For example, a grant promised in December counts in December, even if the check comes in February. Larger charities and audited ones usually use this.

Whichever you choose, be consistent and tell your board.

Restricted gifts need special care. A restricted gift is money a donor gives for a specific purpose, like "for the summer camp only." You must use it for that purpose. Track restricted money separately, even if it sits in the same bank account, and report to the donor on how you spent it. A gift acceptance policy helps you decide in advance which restrictions you'll accept.

Free or low-cost accounting software makes this much easier than a spreadsheet once you have more than a handful of transactions a month. Have someone other than the person who writes checks look over the bank statement every month.

Get the right insurance

Insurance protects the charity, its board and its volunteers. Talk to an insurance broker who works with nonprofits about:

• General liability: covers injuries or damage that happen at your events or programs, like a visitor slipping at your pantry.
• Directors and officers (D&O): covers board members and officers if they're sued over decisions they made for the charity. Good board candidates often ask about it.
• Volunteer accident: covers medical costs if a volunteer is hurt while helping you.

Depending on your work you may also need property insurance, auto coverage if volunteers drive for you, or special coverage for events. Costs depend on your size and activities, so get more than one quote.

Treat volunteers and workers fairly

People who help you fall into three groups, and the law treats each differently:

• Volunteers give their time freely, for public service or charitable reasons, without expecting pay. The U.S. Department of Labor says volunteers generally aren't employees under federal wage law, but this only works if they truly aren't paid wages. Paid staff also can't "volunteer" to do the same type of work they're paid to do for your charity.
• Employees work under your direction and control. You must pay at least minimum wage where required, withhold taxes and follow employment laws. More on this in the Growth stage.
• Independent contractors run their own business and decide how to do the work, like a bookkeeper who serves many clients. The IRS looks at the whole relationship, especially how much control you have over what the worker does and how, to decide which category someone falls into.

Use a short volunteer agreement that explains the role, expectations and that the work is unpaid.

Protect people's data

You'll collect names, addresses, phone numbers, donation history and, sometimes, sensitive details about the people you serve. Treat it with care:

• collect only what you need;
• store it in one secure place with strong passwords and two-step login;
• limit who can see sensitive records;
• never share donor or client lists without permission;
• delete what you no longer need, following your document retention policy.

Some states have data breach notice laws, and some programs, like health services, come with extra privacy rules. Ask for help if you handle sensitive information.

Keep people safe

If your volunteers or staff work with children, older adults or other vulnerable people, safeguarding comes first. Safeguarding means the steps you take to protect people from harm. Run background checks before anyone works with these groups, train volunteers on what to do if they're worried, avoid one adult being alone with a child where you can, and write down how to report concerns. Your state may have specific background check rules for some programs, so check before you start.

Adopt the core policies

The full Form 990 asks whether you have certain written policies, including:

• a whistleblower policy, which tells staff and volunteers how to report suspected wrongdoing and promises they won't be punished for doing so;
• a document retention and destruction policy, which says what records you keep, for how long and how you destroy them safely.

You should already have a conflict of interest policy from the formation stage. A gift acceptance policy, which sets out which gifts you'll accept, is also wise.

Your checklist

• Call your bank to ask what documents it needs.
• Open a bank account in the charity's legal name, with two signers.
• Choose cash or accrual bookkeeping and set up simple accounting software.
• Set up a way to track restricted gifts separately.
• Arrange a monthly bank statement review by someone who doesn't write checks.
• Get quotes for general liability, D&O and volunteer accident insurance.
• Use a written volunteer agreement for every volunteer.
• Check whether anyone you pay should be an employee rather than a contractor.
• Store donor and client data in one secure place with limited access.
• Run background checks for anyone working with children or vulnerable adults.
• Adopt a whistleblower policy and a document retention policy.
• Adopt a gift acceptance policy.