Introduction

Starting a nonprofit often begins with a mission. Someone sees a need, gathers support, and decides to build something that can serve the community. Once the idea becomes real, though, the organization needs more than passion to operate effectively. It needs structure!

A well-structured nonprofit team helps clarify who is responsible for what, how decisions are made, how money is handled, and how the organization stays accountable to donors, board members, regulators, and the community it serves. Without that structure, even the most meaningful mission can become difficult to manage.

For new nonprofit leaders, one of the most important early decisions is how to build the team. That includes defining the role of the board, officers such as the treasurer, executive leadership, employees, contractors, and volunteers. It also includes understanding how compensation should be approved, documented, and reported.

Start With the Difference Between Governance and Operations

One of the first concepts every nonprofit should understand is the difference between governance and operations.

Governance is the responsibility of the board of directors. The board oversees the organization’s mission, financial health, compliance, executive leadership, and long-term direction. Board members are not typically involved in every daily task; Instead, they help make sure the organization is managed responsibly.

Operations are the day-to-day activities of the nonprofit. This may include running programs, communicating with donors, managing staff or volunteers, bookkeeping, fundraising, vendor relationships, and service delivery. These responsibilities often fall to an executive director, staff members, contractors, or volunteers.

In a newer nonprofit, the same people may wear several hats. A board member may help with fundraising. A founder may also serve as executive director. A volunteer may manage social media or events. That is common in the early stages, but the organization should still document each person’s role clearly.

When governance and operations are not separated, confusion can develop quickly. Board members may accidentally involve themselves in staff-level decisions. Staff may not know who has authority to approve spending. Volunteers may not understand who supervises them. Clear structure helps prevent these issues before they become larger problems.

The Board of Directors: Oversight and Accountability

The board of directors is responsible for guiding the nonprofit at the highest level. A strong board helps keep the organization focused, financially responsible, and aligned with its mission.

Common board responsibilities include:

• Approving budgets and major financial decisions
• Hiring and evaluating the executive director, if applicable
• Reviewing financial reports
• Approving compensation for key leadership
• Monitoring compliance and risk
• Supporting fundraising and community relationships
• Reviewing the organization’s Form 990 before filing
• Maintaining policies such as conflict of interest, whistleblower, and document retention policies

The board should meet regularly and keep minutes of major decisions. This is especially important when decisions involve money, compensation, conflicts of interest, or major changes in organizational direction.

For new nonprofits, it can be tempting to fill the board with friends, family, or early supporters. While those people may be passionate about the mission, the organization should also consider whether the board has the right mix of skills. Financial oversight, legal awareness, fundraising, program knowledge, community connections, and leadership experience can all be valuable.

The Treasurer: Financial Monitoring and Oversight

The treasurer is one of the most important officer roles in a nonprofit. This person helps the board understand the financial position of the organization and supports proper financial oversight.

The treasurer is not always the person who does the bookkeeping. In fact, for internal control purposes, it is often better to separate bookkeeping duties from financial review duties when possible. The bookkeeper may record transactions, reconcile accounts, and prepare reports. The treasurer reviews those reports, asks questions, and helps communicate financial information to the board.

Typical treasurer responsibilities may include:

• Reviewing financial statements
• Monitoring cash flow
• Helping prepare or review the annual budget
• Reviewing bank reconciliations
• Presenting financial updates to the board
• Helping establish internal controls
• Supporting tax filing and Form 990 preparation
• Making sure financial records are organized and complete

The treasurer should help the organization answer basic financial questions: Do we have enough cash to operate? Are donations being used as intended? Are expenses properly approved? Are records being kept in a way that supports tax reporting and donor transparency?

For smaller nonprofits, the treasurer may be more hands-on. For larger nonprofits, the treasurer may work closely with accounting staff, an outside accountant, or a finance committee. Either way, the role should be clearly documented.

The Executive Director: Leading the Day-to-Day Mission

The executive director is typically the senior staff leader of the nonprofit. This person manages operations, leads programs, supervises staff, works with donors and community partners, and carries out the strategic direction set by the board.

In many nonprofits, the executive director is the bridge between the board and the organization’s daily work. The board sets direction and provides oversight. The executive director turns that direction into action.

Common executive director’s responsibilities include:

• Managing day-to-day operations
• Leading staff, contractors, and volunteers
• Implementing programs
• Supporting fundraising efforts
• Managing relationships with donors, partners, and community stakeholders
• Preparing reports for the board
• Helping develop budgets
• Monitoring performance against goals
• Ensuring policies and procedures are followed

A common challenge for new nonprofits is determining when the organization is ready to pay an executive director. At the beginning, the founder or executive leader may volunteer their time. As the organization grows, paid leadership may become necessary to maintain consistency, accountability, and efficiency.

The key is that compensation should be reasonable, properly approved, and well documented.

Volunteers, Contractors, and Employees:

Nonprofits often rely heavily on volunteers, especially in the early stages. Volunteers can be a tremendous asset, but the organization should still define expectations clearly. Volunteer roles should include who supervises the volunteer, what tasks they may perform, whether they handle money or sensitive information, and what training is required.

When a nonprofit begins paying people, it needs to determine whether those individuals are employees or independent contractors. This classification matters for payroll taxes, reporting, workers’ compensation, unemployment insurance, and other compliance requirements.

Employees are generally subject to payroll withholding and receive a Form W-2. Independent contractors are generally paid without payroll tax withholding and may receive Form 1099-NEC if payment thresholds are met. The classification should be based on the nature of the working relationship, not simply the organization’s preference.

New nonprofits should be especially careful when paying founders, board members, or related parties. These arrangements are not automatically prohibited, but they should be reviewed carefully, approved by disinterested board members, and documented in the minutes.

Structuring Pay: Keeping it Reasonable, Approved, and Documented

Compensation is one of the areas where nonprofit structure and compliance overlap most directly.

A nonprofit can pay reasonable compensation for services performed. The issue that comes into play is whether the pay is reasonable, properly approved, and aligned with the organization’s charitable purpose.

Before setting compensation for an executive director, officer, or key employee, the board should consider:

• The person’s duties and responsibilities
• The time commitment required
• The organization’s size and financial resources
• Comparable compensation at similar organizations
• The person’s qualifications and experience
• Whether the compensation arrangement creates any conflict of interest

Best practice is for compensation decisions to be made by individuals who do not have a financial interest in the decision. The board should review comparable data, discuss the decision, approve the compensation, and document the process in meeting minutes. This documentation shows that the organization made a thoughtful decision rather than simply paying insiders without oversight.

How Compensation Affects Form 990

Form 990 is more than a tax form. It is a public-facing report that communicates the nonprofit’s finances, governance, leadership, and activities. Donors, grantmakers, watchdog groups, and the IRS may all review it.

Compensation can affect several areas of Form 990, especially when the nonprofit pays officers, directors, trustees, key employees, highly compensated employees, or independent contractors.

Organizations filing Form 990 generally report certain leadership and compensation information in Part VII. This includes officers, directors, trustees, key employees, and certain highly compensated individuals. Some compensation arrangements may also require additional details on Schedule J.

Even if board members are unpaid, they may still need to be listed in the governance and compensation sections of the return. This is one reason accurate records are important. The organization should know who served in each role, whether they were compensated, how much they were paid, and in what capacity.

Compensation reported on Form 990 should also tie back to payroll records, Forms W-2, Forms 1099, accounting records, and board approvals. Inconsistent reporting can create confusion and may raise questions.

For new nonprofits, the best approach is to build the recordkeeping system before the organization becomes complex. Track payments by person, role, service type, and reporting category. Keep payroll records separate from contractor payments. Maintain copies of contracts, board approvals, and compensation support.

Internal Controls Help the Organization Run Smoothly

Internal controls are the policies and procedures that help protect the organization’s assets and prevent mistakes. They do not need to be overly complicated, especially for a small nonprofit, but they should exist.

Examples of useful internal controls include:

• Requiring approval before expenses are paid
• Separating the person who writes checks from the person who reconciles the bank account
• Having the treasurer or another board member review bank statements
• Using written reimbursement policies
• Keeping receipts and supporting documentation
• Requiring dual approval for large purchases
• Reviewing financial reports at board meetings
• Limiting access to bank accounts, credit cards, and accounting software

These controls help the nonprofit operate more efficiently. When everyone knows the process, fewer things fall through the cracks.

Policies New Nonprofits Should Consider Early

As a nonprofit grows, written policies become increasingly important. Policies help create consistency and reduce uncertainty.

New nonprofits should consider adopting policies for:

• Conflict of interest
• Document retention
• Whistleblower protections
• Expense reimbursement
• Gift acceptance
• Compensation approval
• Volunteer expectations
• Financial controls
• Credit card use
• Donor restrictions and restricted funds

A conflict of interest policy is especially important when board members, founders, employees, or related parties may have personal or financial relationships with the organization. The policy should explain how conflicts are disclosed, reviewed, and handled.

Written policies also support the organization’s Form 990 reporting. Form 990 asks governance-related questions, including questions about board review, conflicts of interest, and certain written policies. Having these policies in place can help demonstrate that the organization is operating with accountability.

Build the Structure Before You Need It

Many nonprofits wait to build structure until something goes wrong. A payment is questioned. A board member resigns. A grant application asks for financial reports. A donor wants more transparency. A Form 990 question is harder to answer than expected.

A better approach is to build structure early.

That does not mean a new nonprofit needs a complicated corporate system. It means the organization should define roles, document decisions, establish basic financial procedures, and keep clean records from the beginning.

A well-structured nonprofit is easier to manage, easier to fund, and easier to grow. Board members understand their oversight role. The treasurer has access to reliable financial information. The executive director knows what authority they have. Volunteers and staff understand expectations. Donors and community partners see an organization that takes its mission seriously.

Strong structure does not distract from the mission. It protects the mission.

Conclusion

A nonprofit’s impact depends not only on the strength of its mission, but also on the strength of its organization. Clear team structure, thoughtful compensation practices, accurate reporting, and reliable financial systems all help the nonprofit operate with confidence.

For new nonprofit leaders, the best time to create these systems is before the organization feels too busy to slow down. With the right structure in place, the nonprofit can spend less time reacting to confusion and more time serving the people and communities it was created to support.

If your nonprofit is forming, growing, or trying to improve its financial organization, Volpe Consulting & Accounting can help you build practical systems that support smoother operations and better decision-making.