The Nonprofit Startup Glossary: A Reference Guide

Welcome to the ultimate blog post of common nonprofit startup terms. Below I am explaining common terms you’ll see conducting your nonprofit’s business. Starting a nonprofit and navigating the startup phase can be hard enough. Imagine having to know all of the acronyms and terms all at once! It’s so tiring. The reality is that you will come across terms that you’ve never heard of, but now you have a resource to come back to when you’re in doubt. This post will be your ultimate guide and reference that you can come back to time and time again to refresh your memory.

If you’re looking for help to start your nonprofit, check out this guide to start a nonprofit ——-> HERE.

Remember, this is a judgment free zone! It’s ok to not know about some of these terms. My job is to get you comfortable so that you can start killing it, and creating a sustainable nonprofit!  So let’s get started.

501(c)(3) Status

The section of the tax code that defines nonprofit, charitable, tax-exempt organizations; 501(c)3 organizations are further defined as public charities, private operating foundations, and private non-operating foundations. 501(c)(3) organizations are organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, for testing for public safety, to foster national or international amateur sports competition, for the prevention of cruelty to children, women, or animals.

990 Form

The tax return filed by nonprofits, referred to as public charities, with the Internal Revenue Service (IRS).

990-PF Form

The tax return that all private foundations are required by law to submit annually to the IRS.

Accounts Payable

Money owed by an organization to its suppliers and/or vendors for goods or services purchased.

Accounts Receivable

Money owed to an organization for goods and services it has sold or that has been committed to it as a grant or donation.

Accrual Accounting

An accounting method where revenue or expenses are recorded when a transaction occurs rather than when payment is received or made.

Advocacy

Advocacy is when nonprofits advise stakeholders, legislators, or citizens on their own behalf to affect some aspect of society. All nonprofits can advocate for measures that will affect their mission or the health and well-being of their clients.

Affinity Group

A group formed around a shared interest or common goal, to which individuals formally or informally belong. Many funders belong to affinity groups aligned with a common funding goal.

Allowable Costs

Expenditures approved for the funded project as determined by the funder’s requirements. Only allowable funds may be requested in grant budgets and charged to the grant account.

Annual Report

A report issued by a nonprofit, foundation or corporation that provides financial data and descriptions of its programming and donors.

Articles of Incorporation

 A formal document filed with a government body to legally document the creation of a corporation.

Audit

An official inspection of an individual's or organization's accounts as of a certain date, usually over a twelve-month period, prepared by a Certified Public Accountant (CPA).

Award

A legally binding document that notifies the recipient that a grant or cooperative agreement has been made. The award contains or references all terms of the award and documents the obligation of the funds.

Balance Sheet

Statement showing an organization's financial position (assets, liabilities and net assets) at the close of business on a particular date.

Board of Directors

The governing body of your nonprofit. Board members are responsible for oversight of your organization’s activities. The board has a legal and ethical right to ensure that that nonprofit adheres to its legal and financial requirements.

Budget

A financial plan or estimate of the expected expenses and revenue for the year.

Budget Adjustment

The act of changing the budget by moving funds from one category or line item to another.

Budget Narrative

A document included with a grant application package which, in written form, describes the budgeted expenditures and activities in greater detail.

Bylaws

A legal document that outlines how your nonprofit is to be governed. It includes information about the composition of your board of directors, criteria for membership, the procedures for meetings, and rules around committees, board recruitment, and tenure on the board.

Capital

The funding and financing available for an organization to achieve its mission over the long term.

Capital Campaign

A fundraising drive that takes place outside of (and in addition to) annual operating fundraising, usually to raise funds for a facility (or capital project), an endowment, and/or reserves.

Case Statement

A case for support that outlines an organization's history, current status, future plans, justification for needed funding, and fundraising objectives.

Cash Accounting

An accounting method where transactions are recorded when payment is actually received.

Cash Flow Statement

This statement reports the organization's change in its cash and cash equivalents during the accounting period. The statement include a list of how much cash your organization generated from three main sources: operations, investing and financing. See example here.

Cash Reserves/Reserves

An amount set aside to be used for needs that are outside of the regular annual budget. For example, you may put away reserves for a rainy day fund, or to help fund the purchase of a building.

Certificate of Occupancy

A document from a local government building department which authorizes use of a certain space for specified activities by a certain number of people.

Challenge Grant

A grant that is paid only if you are able to raise additional funds from other sources. Challenge grants are often used to stimulate giving from other donors.

Charitable Activities

Charitable activities include religious, educational, assistance to the government, promotion of health, relief of poverty or distress and other purposes that benefit the community. These categories are recognized as exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code.

Common Grant Application

A common grant proposal format that has been adopted by a group of grantmakers to allow grant applicants to produce a single, standardized proposal.

Community foundation

A 501(c)3 organization that makes grants for charitable purposes in a specific community or region. The funds available to a community foundation usually come from many donors and held in an endowment that is independently administered; income earned by the endowment is then used to make grants.

Company-sponsored foundation/Corporate foundation

A private foundation whose assets come primarily from the contributions of a for-profit business. It is an independent organization with its own endowment and has the same rules and regulations as other private foundations.

Conflict of Interest

A conflict occurs when a board director or key staff member has a barrier that prevents them from being impartial and loyal to the nonprofit organization. Conflicts can arise from personal, professional or volunteer positions or relationships.

Corporate Giving Program

A grantmaking program established and administered within a for-profit corporation. Corporate giving programs are not subject to the same reporting requirements as corporate foundations.

Cost Reimbursement

An agreement that requires your organization to invoice the vendor after-the-fact for reimbursement of allowable costs incurred in the performance of a project.

Demographics

Statistics that describe the characteristics of a population, such as age, gender, income, schooling, occupation, etc.

Direct Costs

Direct costs are activities or items associated with a program, product, or service. This may include project materials, program staff salaries, and other fees that pertain only to the program.

Disallowed Costs (Unallowable costs)

Charges to an award that the awarding agency determines to be unallowable in accordance with the federal regulations or other terms and conditions contained in the award.

Donor

An individual or organization that makes a grant or contribution to your nonprofit.

Donor management/Nonprofit Customer Relationship Management (CRM) system

A system or software that provides a centralized platform to track and analyze donor data, transactions, and relationships.

DUNS Number

The Dun and Bradstreet Data Universal Numbering System number, or "DUNS," is a nine-digit figure given by Dun and Bradstreet to applicant organizations and serves as a means of identifying those organizations and businesses. As of 2020, the federal government no longer requires a DUNS number to apply for federal grants.

Earned Revenue/Income

Revenue or income received by an organization in exchange for a products or service provided. An example may be earned income from a training you provide, or goods sold in a thrift store owned by the nonprofit.

Employee Matching Grant

When an employee donates to a charity of their choice, and their employer provides a similar amount to that same charity.

Employer Identification Number (EIN)

A nine-digit number assigned by the Internal Revenue Service. Every IRS-designated tax-exempt nonprofit organization has its own EIN. You receive your EIN before you apply for tax-exempt status. Once you achieve your tax-exempt status, your EIN becomes your 501c3 number.

Endowment

A donation of money or property to a nonprofit organization, which uses the resulting investment income for a specific purpose. Most are designed to preserve the principal amount intact while using the investment income for operations.

Evaluation

A process of assessing the effectiveness and efficiency of a program.

Expenses

The costs off operating the organization, including payments made to employees and other parties, operating expenses, debt, principal payments, capital expenditures, non-cash expenses, fixed assets, and funds set aside for future use.

Family Foundation

An independent private foundation whose funds are derived from members of a single family. Family members often serve as officers or board members of family foundations and have a significant role in their grantmaking decisions.

Federated Giving Program

A joint fundraising effort usually administered by a nonprofit "umbrella" organization that distributes the funds to several nonprofit agencies. Examples include United Way and the United Negro College Fund.

Financial Statement

A written report that describes the financial health of an organization. A complete financial statement includes a balance sheet, an income statement, a statement of cash flows, and often a statement of functional expenses.

Fiscal Agent/Sponsor

Any organization that provides financial oversight, financial management, and other administrative services to help build the capacity of charitable projects. Nonprofits without tax-exempt status can use fiscal agents/sponsors to accept donations or grant awards on their behalf.

Fiscal Year

A 12-month period around which an organization operates. You will operate either on a calendar year (January – December) or a fiscal year (October – September).

Foundation

A nonprofit corporation or charitable trust that makes grants to organizations, institutions, or individuals for charitable purposes such as science, education, culture, and religion.

Fringe Benefits

Compensation given to employees in addition to base salary. Common fringe benefits include health insurance, life insurance, tuition assistance, childcare reimbursement, cafeteria subsidies, below-market loans, and employee discounts, etc.

Full-Time Equivalent (FTE)

This represents the  hours worked by one employee on a full-time basis.. The annual FTE count is considered to be 2,080 hours, which breaks out into eight hours per day, five days a week. FTE is used to convert the hours worked by part-time employees into those worked by full-time employees, to make it easier to standardize hours when reporting and with budgeting. Go HERE to calculate your FTE.

Functional Expenses

Nonprofit organizations report their expenses by both functional and natural class. Organizations record expenses according to these functional classifications:

• Program: Program expenses are any costs related to running the various programs and services offered by a nonprofit organization, as per its mission. For established nonprofits, program expenses often make up the majority of their overall costs.

• Management and General (M&G): Management and general costs are supporting expenses associated with funding the day-to-day operations of the organization. These expenses don’t directly relate to the mission of the nonprofit and usually include costs like governance, bookkeeping and management.

• Fundraising: Fundraising costs are supporting expenses associated with an organization’s call for financial support or monetary contributions. This would include all expenses related to fundraising events, direct mail campaigns requesting donations and the salaries of employees working on fundraising.

Funder

A donor, corporation, foundation, etc. that provides a grant to a nonprofit organization for projects and/or programs.

Funding Cycle

A time period that includes proposal review, decision-making and award notification. Some funders make grants at set intervals (quarterly, semi-annually, etc.), while others operate under an annual cycle.

Fundraising Plan

A document that organizes all of your fundraising activities over a certain period of time.

Generally Accepted Accounting Principles (GAAP)

A widely accepted set of rules, conventions, standards, and procedures for reporting financial information, as established by the Financial Accounting Standards Board.

General Operations Grant/Operating Grant

A grant made to further the general purpose or work of an organization, rather than for a specific purpose or project; also called an unrestricted grant or basic support.

Grant

An award of funds to an organization or individual to undertake charitable activities.

Grantee

Any legal entity that receives an award and assumes responsibility for fiscal accountability for managing awarded funds, supervision of grant-supported activities, and submission of final reports.

Income Statement/Profit and Loss statement/Statement of Activities

A summary of the revenue and expenses of an organization during an accounting period. Also known as statement of activities or profit and loss statement.

Independent Contractor

 A person or entity contracted to perform work for or provide services as a non-employee. Independent contractors must pay their own Social Security and Medicare taxes.

Indirect Costs

Overhead or administrative charges related to a project but not easily and separately identifiable; e.g., utilities, clerical, office space, accounting, library, and custodial services necessary for proper implementation of the project. Sometimes you can establish an indirect rate that is assessed for each project.

In Kind Contribution

A non-cash commitment (i.e. time and effort, use of facilities, goods, etc.)

IRS Determination Letter

A document issued by the Internal Revenue Service to a nonprofit organization confirming its status as exempt from paying federal income taxes and stating the type of exempt organization.

Letter of Inquiry / Letter of intent (LOI)

A brief letter outlining an organization's activities and its request for funding that is sent to a funder in order to determine whether it would be appropriate to submit a full grant proposal. In some instances, the LOI is the only requirement in the proposal process.

Letter of Support

A letter from an "expert" or supporter of your project who tells why he/she believes that your project should be funded.

Lobbying

Efforts to influence legislation by influencing the opinion of legislators, legislative staff and government administrators directly involved in drafting legislative proposals. The Internal Revenue Code sets limits on lobbying by organizations that are exempt from tax under Section 501(c)(3). Public charities may lobby as long as lobbying does not become a substantial part of their activities.

Logic Model

A graphic depiction that presents the shared relationships among the resources, activities, outputs, outcomes, and impact for your program.

Matching Funds/Grant

A dollar amount that a grantee agrees to contribute to the project that matches the amount or a portion of what a funder provides.

Memorandum of Understanding (MOU)

A written agreement between two or more parties which outlines the tasks, responsibilities, standard operating procedures or other matters between them.

Mission Statement

A statement that describes an organization's fundamental, unique purpose. It essentially communicates why the nonprofit exists, whom it service, and how that happens. It should be concise and impactful.

Narrative

The written portion of your grant proposal.

Need Statement

The part of the grant in which you explain why you should be funded, provide data on your target population and their needs, and present data on what works to address those needs.

Nonprofit

A corporation or an association that conducts business for charitable activities for the benefit of the general public without shareholders or “owners”. Nonprofits are not automatically tax-exempt. There is a separate approval process to become tax-exempt.

Objectives

Specific, measurable aims for a project. Objectives should be SMART - specific, measurable, achievable, relevant, and time-bound.

Operating Expenses

The regular costs of doing business that may or may not be used be traced back to a specific program. Operating expenses occur whether or not any of your programs are running.

Outcomes

Expected change in behavior, attitude, skills, knowledge, or perspective. Outcomes are used to measure the success of your programs.

Output

Detailed, quantifiable activities carried out by your nonprofit.

Overhead

See indirect costs.

Pledge

A promise to make future contributions to an organization.

Private Foundation

A nongovernmental, nonprofit organization with funds (usually from a single source or specific sources, such as an individual, family, or corporation) and program managed by its own trustees or directors.

Program Officer/Portfolio Manager

A staff member of a foundation who is in charge of the administration of grants. Only a small percentage of foundations have program officers.

Project/Program Grant

Funding for a specific program or project, not for general operating purposes.

Proposal

A written application, often accompanied by supporting documents, submitted to a foundation or corporate giving program to request grant monies.

Public Charity

A nonprofit organization that qualifies for tax-exempt status under section 501(c)(3) of the IRS code. Public charities are the recipients of most foundation and corporate grants. Some public charities also make grants. Many public charities rely on contributions from the general public. Donations to public charities are tax deductible. 501c3 organizations that are not designated as private foundations are designated public charities by the IRS.

Public Foundation

Public foundations are grantmaking public charities that gain their funds from a variety of sources, which includes foundations, individuals, corporations, or public entities. Most community foundations are also grantmaking public charities.

Request for Proposal (RFP)/Request for Applications (RFA)

A document released by a funder that asks for proposals in support of a project or endeavor. The RFP specifies what the funder is looking for and describes each the criteria in which the proposal will be assessed.

Request for Qualifications (RFQ)

A request sent to prospective consultants or contractors asking for basic information about areas of expertise, references from former clients, services, methods and fee structure.

Reserves

Money set aside to pay for future anticipated expenses.

Revenue

Money received from payments for services, donations from individuals, foundations and corporations, support and contract payments from government agencies, income from fundraising activities, and investments.

Seed Money/Seed Grant

Money or resources used to start a new project or organization.

Strategic Plan

An organization's process of defining its strategy, or direction for a set timeframe, and the detailed plan associated with implementing the strategy.

Sponsorships

A form of marketing in which a payment is made by a company for the right to be associated with a project or event.

Subcontract

A contract for a company or person to do work for another company as part of a larger project.

Sustainability

When referenced in grant proposals, it refers to how the project will continue when the grant funding ends.

Tax-exempt

Refers to organizations that do not have to pay taxes such as federal or state corporate tax or state sales tax. Individuals who make donations to such organizations may be able to deduct these contributions from their income tax.

Unique Entity Identifier (UEI)

A unique number assigned to all entities (public and private companies, individuals, institutions, or organizations) who register to do business with the federal government. You no longer need a DUNS number to do business with the government - this replaced the DUNS in 2020.

Unsolicited Proposal

Represents a proposal that is submitted to a funder, that is not requested by that funder.

Unrestricted Funds

Donations the nonprofit may use for any purpose.

Vision

The desired end state that you want your organization to accomplish. It should be an inspiring, bold statement that describes the change that will occur because of your organization’s work.

There you have it! Are there any definitions missing on this list? Let me know in the comment box and I will add it!