Nonprofit organizations serve a critical role in providing vital services and support to communities all over the world. However, running a nonprofit is not an easy task, and one of their primary challenges is financial management. Understanding the financial health of a nonprofit organization is crucial to measuring its impact and sustainability. It is where the 990 information comes in handy.
What is 990 information?
The 990 is a tax form that tax-exempt organizations, including nonprofits, must file with the Internal Revenue Service (IRS). This form provides comprehensive information about the financial health and the governance of a nonprofit organization. The form must be filed annually, and it includes details on the organization’s revenues, expenses, assets, and liabilities.
Why is understanding 990 information important?
Nonprofit organizations rely heavily on donations and grants to fund their activities. As a donor or grantmaker, the 990 form provides information about how the organization manages its finances and whether it is fulfilling its purpose effectively. Analyzing this information helps donors and grantmakers to make informed decisions about which organizations to support financially.
Moreover, understanding 990 information can reveal the financial performance of a nonprofit organization over time. It can help identify any trends or changes in the organization’s income and expenses. For example, a drop in revenue over multiple years may indicate a concerning problem with the organization’s programs or fundraising methods.
Additionally, the 990 form includes information about the organization’s governance, such as its board members, policies, and procedures. It provides a level of transparency to the public, indicating how the organization operates and whether it adheres to its mission.
Examples of How 990 Information Can Be Utilized
Suppose a donor is considering supporting a local arts-based nonprofit. By reviewing the organization’s 990 information, the donor can assess how the nonprofit has allocated its resources over time, the salary of key personnel, and the level of the organization’s revenue generation. This information can help determine the value and effectiveness of support.
Another scenario is when a nonprofit organization applies for a grant from a foundation. The foundation can use 990 information to determine if the organization is financially capable of carrying out the proposed project. Moreover, the foundation can verify whether the organization’s governance policies align with their foundation’s mission.
In conclusion, understanding 990 information is crucial for measuring the financial health and sustainability of nonprofit organizations. This information aids in making informed decisions about supporting nonprofits as donors and grantmakers. Furthermore, understanding 990 information can indicate an organization’s progress over time, offer insights into operational inefficiencies and risks, and identify opportunities for improvement. Nonprofits must file their 990 information annually, making it readily available to the public, promoting transparency and accountability.
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