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So You Want to Be a Consultant!

AFP’S RE A D Y RE F E R E N C E SE R I E S

PROS AND CONS

SERVING YOUR CLIENTS

MANAGING YOUR

BUSINESS

MARKETING AND

BRANDING

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THE ASSOCIATION OFFUNDRAISING PROFESSIONALS

(AFP)

WHO WE ARE:AFP, an association of professionals throughout theworld, advances philanthropy by enabling people andorganizations to practice ethical and effectivefundraising.

The core activities through which AFP fulfills thismission include education, training, mentoring,research, credentialing and advocacy.

AFP members abide by the highest ethical standardsin the fundraising profession and are required to signannually the Code of Ethical Principles and Standardsof Professional Practice.

OUR VISION STATEMENT:AFP will be the recognized leader in the promotion ofphilanthropy by empowering fundraisers to servehumankind throughout the world.

To purchase additional copies, contact AFP at (800) 666-3863 or email [email protected].

4300 Wilson Blvd., Suite 300Arlington, VA 22203

U.S. and Canada: (800) 666-3863Mexico: 001+(866) 837-1948

Fax: (703) 684-0540Web: www.afpnet.org

41206_cover2_4 7/27/07 9:47 AM

So You Want to Be a Consultant!

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◆◆ MMaannaaggiinngg YYoouurr BBuussiinneessss

◆◆ MMaarrkkeettiinngg aanndd BBrraannddiinngg

AFP’s Ready Reference SeriesAssociation of Fundraising Professionals

BByy HHeennrryy ((HHaannkk)) GGoollddsstteeiinn,, CCFFRREE

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Disclaimer: The information contained in this booklet is believed to beaccurate as of the time of publication, but is subject to change andshould not be construed as legal advice. For questions regarding legal, regula-tory, accounting and similar matters a qualified professional advisor should be con-sulted.

This booklet is the seventh in AFP's Ready Reference Series for profes-sional fundraisers.

Text by Henry (Hank) Goldstein, CFRE.

©2006 by the Association of Fundraising Professionals (AFP), 1101 KingStreet, Suite 700, Alexandria, VA 22314.

All rights reserved. No part of this publication may be reproduced, storedin a retrieval system or transmitted, in any form or by any means—elec-tronic, mechanical, photocopying, recording or otherwise—without theprior written permission of the publisher. Printed in the United States ofAmerica.

.

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Table of Contents

Is Consulting for You? ...................................................................... 1

Weighing the Pros and Cons ...................................................... 2

Be Ready for a Challenging Start ................................................ 4

The Marks of a Successful Consultant ...................................... 6

Experience Counts ........................................................................ 7

Serving Your Clients ........................................................................ 9

Making the Correct Diagonosis ................................................ 10

Making the Service Proposal .................................................... 12

Roles and Responsibilities ........................................................ 14

Defining Your Deliverables ...................................................... 16

What Services Will You Offer?.................................................. 16

Managing the Business .................................................................. 19

Setting Up Your Business .......................................................... 19

Planning Your Finances ............................................................ 22

Finding the Capital .................................................................... 24

Staying on Top of Ongoing Expenses ...................................... 25

A Primer on Fees ........................................................................ 27

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Marketing and Branding .............................................................. 31

Promoting the Brand ................................................................ 31

Leveraging Your Telephone ...................................................... 32

Print vs. Electronic .................................................................... 32

Doing Well by Doing Good ...................................................... 34

Paid Advertising.......................................................................... 34

When All is Said and Done........................................................ 35

Resources

Non-compete Agreement .................................................................. 2

Pre-Proposal Interview .................................................................. 12

Registration Required? .................................................................. 21

Pro Forma Financial Plan .............................................................. 23

Sources of Capital............................................................................ 24

Business Model................................................................................ 28

Additional Resources ...................................................................... 35

AFP Code of Ethical Principles and Standards of Professional Practice................................................ 36

A Donor Bill of Rights .............................................. inside back cover

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Have you ever thought about becoming anindependent consultant? Do you dreamof running your own business one day?

At some point in their careers, many nonprofitexecutives entertain the idea of venturing out ontheir own. Numerous scenarios might lead some-one to starting a consulting business. Maybe oneof the following situations sounds familiar:

■■ You have been testing the waters, taking ona client or two in addition to your full-timeemployment.

■■ You have just left or lost your job, and youare wondering if this could be a decisivemoment to start a new consulting career.

■■ You already work for a consulting compa-ny, but you want to run your own firm onyour own terms.

■■ You are returning to the marketplace afteran absence, such as pursuing further edu-cation or taking care of young children orelderly parents.

Is Consulting for You?

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WARNING! IS THERE A CONFLICT OF INTEREST?An employer should always be made aware of a staff member’s

paid service to other nonprofits. Ask permission first.

Many consulting firms have non-compete policies with staffmembers, or agreements with clients that prohibit their hiring thefirm’s personnel. Know your firm’s policies and get approval inadvance before you take that moonlighting assignment.

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Weighing the Prosand Cons

So You Want to be a Consultant!

Those contemplating a consultant businessoften mention their frustration with aspects ofstaff employment, such as bureaucracy and inter-nal politics, unrealistic expectations or goals,forced specialization, limited job satisfaction, adifficult boss, or a loss of interest in the cause ororganization. These common complaints canoften be the inspiration for starting a new ven-ture. However, leaving an unsatisfactory situationdoes not guarantee a new business will be a suc-cess. Is your new venture just a rebound romance?Or do you have the fire to make it last?

Whatever your circumstances and motiva-tions for launching a consulting practice, yoursuccess will ultimately depend on accuratelyassessing your personal and professionalresources and your strength in three key areas:managing clients, managing the business, andmarketing the business.

Before quitting that job and hanging out your ownshingle, it is a good idea to do a thorough pros-and-cons assessment to determine whether independentconsulting is for you. Running your own businessoffers many potential benefits, such as:

2

KEYS TO CONSULTING SUCCESS

Managing client relationships

Managing the business

Marketing the business

SAMPLE NON-COMPETE AGREEMENT

———- agrees that for a period of —— months follow-ing the termination of our relationship he [she] shall not acceptas a client any organization that was at the time of terminationa client of this firm without this firm’s written permission.

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■■ Setting your own goals and objectives, per-sonally and professionally

■■ Enjoying more personal freedom and set-ting your own schedule

■■ Working with a wider range of clients

■■ Developing competency in all facets of theprofession

■■ Gaining the tax and financial advantagesof an incorporated business

■■ Determining your own compensation andbenefits package

The possibilities are attractive, but you willneed to consider the challenges of going out onyour own. Here are some issues you might expectto face:

■■ Balancing the hunt for new business withserving your existing clients

■■ Managing dysfunctional clients

■■ Handling the inconsistent flow of work

■■ Hiring and firing staff

■■ Bearing the responsibility of regularlymeeting a payroll and paying the bills

■■ Accepting that you may earn less than pre-viously

Most people leaving staff life start the newbusiness alone or with one other person, such as afriend or relative. In a solo practice, the principaldoes everything. As a principal, you are responsi-ble for all aspects of the business, bringing in andservicing clients and managing and marketing thepractice. Your duties stretch from the executive tothe mundane, handling tasks of the CEO and thefile clerk, the receptionist and the chief financialofficer.

In a small firm or as a business expands, spe-

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cific roles may be developed and assigned, oractivities may be highly informal. Howeverresponsibilities are divided within the office, aprincipal should expect to interact with clients atsome level—clients always want to meet with the“person in charge.”

When starting up a consultancy, there are two rulesto keep in mind. First, it is easy to start a business.Second, it is much harder to survive in business.

Early on, you should meet with a number ofadvisors to glean helpful advice. You should meetwith an accountant or a financial counselor tolook over your business and marketing plan.Preparing detailed business plans is essential to

4

Be Ready for aChallenging Start


DO YOU HAVE THE RIGHT TEMPERAMENT?What are the qualities of a successful consultant? What

makes a great institutional staff member does not necessarilytranslate into being a winning consultant—although you willstill need those staff skills too! When you are thinking aboutstarting out on your own, consider your disposition as well asyour strengths and weaknesses.

TThhee CCoonnssuullttiinngg PPeerrssoonnaalliittyyMulti-taskerSelf starterRisk-takerSelf-regulator and disciplined EntrepreneurialNeeds less structureBored by the same work day in and day outWants to be his or her own boss

TThhee SSttaaffff PPeerrssoonnaalliittyyOne situation at a timePrefers structureWorks well with other staff membersTolerates bureaucracy and internal politickingAccepts administrative responsibilityLoyal to the institutionCan accept responsibility without authority

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survival, let alone success. Talk toother independent consultants whohave already made this transition,and see if you can find a mentor.Someone who has taken this roadbefore can be a great source ofongoing—and free—advice.

From the outset, be preparedfor the possibility of earning lesspersonal income than in your staffemployment. You will need to con-sider what your minimum monthly requirementsare for cash and set goals accordingly. How longone can go without an assured pay check andhealth and retirement benefits obviously variesfrom one person to another—for example, somepeople are fortunate enough to be supported by aworking spouse or partner during the startupphase. It is a good idea to plan for the worst:Expect that for at least a year you will earn no per-sonal income from the business.

Three years is a good benchmark for long-term survival because the risk of failure is highestin the early years. Often, if you can make it to thethird year, the odds for success will begin toimprove going forward. Every budding enterprisepasses through a startup phase—establishing thebusiness, attracting and retaining the first clients,hiring employees,financing the firm, thendrawing the next set ofnew clients, and sus-taining a cash flow.

A consultancy floats on a minimum numberof paying clients, below which viability cannot besustained without additional infusions of cash.The critical moment comes for the business whenthe firm has gone through its first set of clients.Their contracts may or may not expire at the sametime, but you need to be strategizing for drawingnew business early in the life of the firm.

THE FIRST CLIENTS

Previous employer

Contacts made through work

Friends and family

Other consultants

Professional colleagues

Word-of-mouth referrals

ASK YOURSELF. . .“How long can I go without a regular income?”

“Will I still be in business in three years?”

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The consultants who succeed are entrepreneurialand have solid business experience and stayingpower. They are professionally competent, aware ofpertinent laws and are committed to the highestprofessional and ethical standards. More often thannot, they are already well known in the nonprofitcommunity. The No. 1 cause of failure is a lack ofexperience in running a business. Someone who is atop-notch staff person may lack the risk-takingnature and business savvy of the best independentconsultant.

Financially, successful consultants have accessto the required capital and can “float” the busi-ness with personal investment or through loansor credit. Often, underestimating the amount ofworking or startup capital needed leads to failure.A business has to have to have cash to function;low overhead does not mean no overhead.Furthermore, any money you borrow, eitherthrough a credit card, credit line, or a loan, willhave to be paid off whether your business makesit or not.

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The Marks of aSuccessfulConsultant

BUYING AN EXISTING BUSINESS

One opportunity that may pave the way to success is to buyan existing consulting firm. In some cases, such as when theowner is preparing for retirement, the purchaser has the chanceto learn the business before taking on full financial responsibili-ty. Usually the transaction will involve a payout to the ownerover time, earned out of fee income and the owner’s services arecontracted for a number of years.

Striking the right price for an existing business depends onthe firm’s net worth, subtracting the owner’s salary and expens-es. In private companies, salaries are often modest, but expens-es are high because everything is run through the company. Inservice businesses, the purchase price is usually three to seventimes the real profit, and even more for a business that gener-ates a lot of cash.

If you buy an existing business, first determine whether ornot you get to keep the clients as the new owner.

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Frequently, the most successful new consult-ants are able to attract one or more clients imme-diately after starting the business—and then cansustain and renew those contracts. Highly moti-vated and truly committed to the nonprofit sec-tor, new consultants often start with formeremployers as their first clients, and they can con-vince potential clients they will serve them betterthan competitors. However, new consultantsmust have a plan for the future and have realisticexpectations. Taking on too many clients canlimit your ability to effectively lead those projects,resulting in failure.

Be tenacious and keepyour eyes open. Often themost successful consultantsare just plain lucky and takeadvantage of unexpectedopportunities. As in any undertaking, motivationis as important as specific business skills, whichcan be learned. Trial and error is a great teacher,and a mentor or two along the way mark mostbusiness successes.

A consultancy grows out of the principal’s past expe-rience, and generally follows one of two main paths:

■■ Specialization

■■ General services

Knowledge of the nonprofit sector and non-profit experience is often a precondition for latersuccess as a consultant. Consulting can be learnedon the job, however, experience is acquired overtime. Some people with board service or othervolunteer roles may do well as consultants, andothers may enter from other service careers suchas law, banking or public relations and thrive.

However it comes about, knowing the non-profit culture and fundraising, as well as having

Experience Counts

TIP

Find a mentor in a successful consultant.Most are willing to help if asked.

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skills in marketing, communications, generalmanagement, governance/board relations andstrategic planning, define the work of a generalconsulting practice. At some point, you can expectto help your clients achieve either earned or con-tributed revenue objectives. Although mission andprogram define nonprofits, they are driven bybudgets. Clients may ask for help with the stew-

ardship of financialassets as well.

In the day-to-daywork life, a consult-ant has to be flexible.

You are juggling payroll, serving clients and mar-keting your business at the same time. In somerespects, consultants have more control of theirtime; in reality, the work week is 24/7, not 9 to 5.The work can be fun but, it is demanding. Youmay find it is the most challenging yet rewardingwork you have ever done.

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ASK YOURSELF. . .What do I offer?

Why would someone want to hire me?

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At the heart of your consulting business areyour clients—winning them, serving themand keeping them. Your mission is to take

care of their business needs, putting them first.And you will find if your clients are pleased, youlikely will be too. Most consultants say that satis-fied clients are the most important source of newbusiness.

Clear communication, perhaps even morethan depth of expertise, is key to winning and sat-isfying clients. The essence of a successful client-consultant relationship is not so much in whatone knows, but in each party clearly understand-ing the roles and responsibilities of the otherfrom the very beginning.

The question is, how do clients really chooseconsultants? Almost always, clients find andchoose a consultant through a referral. Almostnever do clients hire a consultant from an adver-tisement, although ads may result in inquiries.Often, the selection process comes down to intan-gible qualities, such as “feel” and “fit” rather thana concrete reason.

Serving Your Clients

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NONPROFITS HIRE CONSULTANTS . . . For general or specialized expertise

To provide fresh perspective

To analyze problems objectively and to report dispassionately

To extend their staff ’s reach

To provide ongoing advice and counsel

Because the consultant “fits” the client’s needs professionally and personally

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If you have ever been on the client side of thetable in selecting and working with a consultingfirm, you may have a significant advantage inbeing able to anticipate your potential customer’sneeds and expectations. Quickly and correctlydiagnosing the client’s situation is a real gift anda key tool. Not all consultants, even experiencedones, are good at it. For the newcomer, it can bean enormous challenge.

Your ability to study your client’s situation andmake a correct diagnosis is crucial. However, whatthe client often presents as the issues of concerndoes not always tell the full story. More often thannot, you will have to look beneath the surface tomake an accurate assessment that reflects an under-standing of your client and all presenting and hid-den issues, so do as much fact-gathering and in-depth analysis as possible.

The assessment defines your consulting strat-egy and tactics for the client—in the same way aphysician’s diagnosis defines the course of treat-ment. Be sure you have considered each of the fol-lowing elements:

■■ The nature of the client’s project forwhich funds will be sought, and an esti-mate of funds required.

■■ The scope of work you expect to under-take, and how much time you think wil berequired.

■■ An estimate of your fees and expenses.

■■ General information on the organization,including its mission, vision, and strategicplan.

■■ Fundraising materials, including what theclient already has available and what elsemight be required.

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Making theCorrect Diagnosis

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■■ A description of current fundraising activi-ty and fundraising history.

■■ The organization’s most recent certifiedfinancial statement.

■■ The current operating budget.

■■ A list of the governing board with eachtrustee’s affiliations.

■■ A description of how the client views theboard’s understanding of its role andresponsibilities.

■■ A roster of senior management: biographi-cal information on the chief executive offi-cer, chief financial officer and the chiefdevelopment officer and an indication oftheir understanding of and commitment tofundraising.

Some of this information will inform yourinitial proposal for services. However, the detailsof the fundraising effort, the time line, stages ofthe campaign, personnel and infrastructure needswill more likely be included in the feasibility orplanning study that usually precedes a fundrais-ing assignment.

Once a planning study is completed, and yourrecommendations made, the next challenge isequally critical—getting the client to accept thediagnosis. Once the client accepts your assess-ment, you can move on to put the plan intoaction and begin the heart of your work.Occasionally, you will have a client who will nottake your professional advice. Perhaps the organi-zation is experiencing pressure from a boardmember or the CEO or there is another factorthat is influencing the decision. Whatever the rea-son, the client has the right to turn down youradvice. Be polite and leave the door open forfuture work, but consider moving on to the nextclient. You should be paid for all work up to thetime you resign or are asked to leave.

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In the service proposal, also called an engagement orcontract letter, you and the client will negotiate yourformal relationship. This contract, which describesthe services and terms of the agreement, is a legallybinding document setting forth the terms of theservice you will render. As a new practitioner, youshould seek legal advice on contract structure for atleast the first few agreements, and especially if aclient counter-proposes with legalities. Usually, theservice proposal is prepared by the consultant, butin some instances the client’s institution may have adefined format, in which case, the essence of theagreement is incorporated as a rider or attachment.

There is no standard contract form, but aservice proposal should include the following con-tractual elements:

■■ General description: A brief summary theproject.

■■ Scope of work: An outline of the services youwill provide.

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Making theService Proposal

PRE-PROPOSAL INTERVIEW

Before potential clients ask for a business proposal, often they willinterview you to get a feel for your experience and how you do busi-ness. You can expect these types of questions from someone shoppingfor a consultant:

■■ Why are you interested in serving us?

■■ How long have you been in business? (If you are new as a consult-ant, you are new. Focus on your overall professional experience, anddiscuss how you have solved similar problems in the past.)

■■ Who will do the work?

■■ What are your professional qualifications?

■■ What is your fee and what expenses are anticipated?

■■ How much of my time will be required?

■■ Who are your current and recent clients?

■■ Why should we hire you instead of another consultant?

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■■ Objectives: Details of each element of theproject.

■■ Methodology: How the work will be accom-plished.

■■ Deliverables: The work product.

■■ Timeline: A breakdown of days estimated tocomplete the work, and what activities takeplace in each segment, including the client-consultant orientation, preparation of studymaterials, compilation of interview lists andresearch, interviews, preparation and submis-sion of report.

■■ Personnel: A list of who is involved in theproject, including the person(s) who will per-form the work, the client representative, andsometimes the client’s board leadership andkey staff.

■■ Fees and expenses: Details of estimated coststo the client. Most agreements provide for aretainer on execution of the agreement, and apayment schedule thereafter.

■■ References: An optional list of previousclients who can recommend your work; some-times references are supplied only whenrequested.

■■ Enabling (acceptance) action and signatureblock: Document area where the clientaccepts the agreement by [a] agreeing to, ormodifying its terms; [b] paying the specifiedretainer; and [c] signing the agreement. Bothyou and your client date and execute theagreement.

■■ Registration: If your state or other jurisdic-tion requires fundraising consultants to regis-ter before delivering services, include thisinformation as part of the enabling action.

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Once the client has approved your assessment andstrategy, you should each sign a contract for thework to be completed. Although a written contract,also called an engagement letter, defines the legali-ties of a client-consultant relationship, no contractever saved a bad relationship. Your relationships willwork when each party is clear about what is expectedof the other. Be sure you and your client understandand agree on the following:

■■ the purpose of the engagement and whyyour services are needed

■■ the assignments you will complete

■■ materials produced

■■ projects finished

■■ the reporting relationship

■■ client’s information is held confidential

■■ measures of performance

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Roles andResponsibilities

RESPONDING TO “RFPS”As your business and reputation grow, unfamiliar potential clients

will submit “Requests for Proposal” (RFPs). Established firms vary inhow they handle RFPs. Some do not reply at all if they regard the RFPas poorly prepared or not of interest; others may follow up with aphone call to learn more. Frequently, however, unsolicited RFPS do notcontain enough information to make a winning response possible, andpreparing proposals is time-consuming, and therefore costly.

Also, you will need to beware of “wired” RFPs. Many institutionsrequire employees to procure a certain number of vendor bids, butoften in reality, they have already made the hiring decision. To saveyourself from wasting time, do a little research before putting togethera proposal. Call the potential client, and ask how many firms are inthe mix. Do not be afraid to ask outright if the process is open. Publicinstitutions often operate under “sunshine” provisions, and arerequired to provide information equally and fully to all inquiries. If youfail to get satisfactory answers, you should probably just walk away.

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❑ Work delivered on time ❑ Work delivered on budget ❑ Specified goals met ❑ Quality of the finished product(s)

When you work for an organization as a staffemployee, usually you are directly responsible formeasurable projects, such as raising money. As aconsultant, your involvement is not as hands on;you are less a player and more a coach. A success-ful consultant must persuade the client to do theright things at the right times in the right way asoften as possible. Yours is a position of influencemore than control. Many variables will be out ofyour hands—the client’s commitment to the proj-ect, whether the client can allocate requiredresources and personnel or what the attitude ofthe board or CEO will be like, to name a few. Yourcommitment will be to provide the best servicepossible, whatever the circumstances.

Clarifying roles will help determine responsi-bilities and establish reasonable expectations. Forexample, it is the client’s job to raise the money; itwill be your job to help the client do so. Your suc-cess is measured by the client’s success, so be care-ful not to take direct credit for your clients’achievements. Instead, enjoy basking in reflectedglory.

REASONS A CLIENT RELATIONSHIP . . . SSuucccceeeeddss .. .. ..

◗ Correct diagnosis

◗ Clear expectations◗ Attainable goals and objectives◗ Defined deliverables◗ Reasonable fees and expenses◗ Attentive professional service◗ Good chemistry between the

parties

OOrr ffaaiillss .. .. ..◗ Client ignores or does not like the

consultant’s advice◗ Unrealistic expectations◗ Unattainable goals and objectives◗ Client demands more service than

agreed on for same fee◗ Board or staff leadership lacking◗ Poor “fit” between consultant and

client personnel

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For the solo practitioner in particular, a clear defini-tion of deliverables has several positive outcomes.Not only will delineated expectations ensure goodclient relations, they also will help you project timerequirements, which in turn will help you estimateyour fees accurately. A very common mistake for thenew consultant is doing too much work for too littlepay. Even when everything is writing and the scopeof work is well defined, new consultants oftenundercharge, probably in an effort to please clients.

Referring to the contract throughout theproject will help you stay on target, both for yourclient and yourself. As new issues arise within aproject, it can be helpful to remind your clientwhich services are covered in the fee and which arenot. You might need to reiterate that attending anextra meeting, reviewing and editing a proposal orappeal letter, or providing advice on a new prob-lem are outside the agreed-upon scope of workand there may be an additional cost involved.When you assess your client’s needs at the outset,be sure to include provision for unanticipatedwork.

Consulting services generally fall into three cate-gories: strategic, ongoing and special services.

■■ Strategic Services. ❑ Feasibility or planning study: Most of your

client-consultant relationships will begin withthis initial assessment of a client’s projectedgoal. The process usually relies on confiden-tial, personal interviews involving the client’skey constituents, as well as the consultant’sassessment of the organization’s case for sup-port, leadership and infrastructure.

❑ Strategic planning: You will need to help yourclients develop a clear picture of where theorganization is going, how it will get thereand how to evaluate outcomes. Although itseems counterintuitive, it is not rare for

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Defining YourDeliverables


What ServicesWill You Offer?

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organizations to produce elaborate long rangeplans without well defined dollar goals andbudgets. Many clients will benefit from theconsultant’s ability to design an overallfundraising strategy or develop other sourcesof revenue.

❑ Governance: How a board governs an organi-zation can impede or lead its success. A non-profit might hire a consultant to help withboard-related issues, such as:◗ Facilitating board-CEO interaction◗ Clarifying the board’s roles and responsibili-

ties, especially in regard to transparency,legal requirements, accountability, self-deal-ing, and ethical behavior

◗ Encouraging the board’s capacity for andcommitment to giving and raising money.

■■ Ongoing Services. While a consultant mightmake a modest profit on a one-time service,building and sustaining client relationshipscarry greater long-term rewards. Usually dur-ing your first assignment with a client, youcan identify other ongoing services you canoffer. These might include:

❑ Conducting a development office audit ❑ Writing or rewriting the strategic plan ❑ Writing the case statement ❑ Guiding a fundraising campaign ❑ Conducting board and staff retreats or train-

ing and briefing sessions❑ Recruiting personnel

■■ Specialized Services. Given your personalbackground and expertise, you may specializeand offer services exclusively within a givendiscipline such as

❑ direct response ❑ planned giving❑ events

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❑ prospect research❑ information technology❑ major gifts

The advantages of focusing on one disciplineinclude clarity of purpose, efficient use ofyour time and resources, doing what you liketo do best and the reputation you develop forthat particular skill.

If you do not have these skills yourself, youcan use subcontractors or recommend anoth-er consultant who will be directly hired byyour client. By building your relationshipswith other consultants, you will develop anew source of referrals, as they may recom-mend your services for a particular expertise,as you have for them.

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Your clients are the bread and butter of yourconsultancy, but your back-end business iscritical to the success of your consultancy.

By setting up, financing and managing your busi-ness well, it will run smoothly in the backgroundand allow you to focus more on your clients.

Typically, a new consultant structures the initialbusiness as flat model enterprise, delivering all pro-fessional services personally. In the flat model, youmay or may not hire part-time administrative help,and you can bring in subcontractors if the workflowwarrants. (If you use subcontractors, be sure to havethem sign a work agreement with non-compete andconfidentiality clauses.) Flat model consulting prac-tices can be very rewarding, but profit margins arelimited by the number of clients you can take on at

Setting Up YourBusiness

Managing the Business

THE FLAT BUSINESS MODEL

If you prefer to keep your business small and deliver servicespersonally to your clients, there are alternatives to staffing up asyour business grows.

■■ Forge strategic alliances with specialists or with other consult-ants to work with you on certain jobs. In today’s virtual envi-ronment, even large consulting firms rely increasingly on sub-contracting to professionals to accomplish specific tasks. Also,large firms often will refer extra business out, so these connec-tions may lead to more work for you. It cannot hurt to ask!

■■ Use subcontractors. If you take on an assignment that isbeyond what you can do on your own or requires a depth ofexpertise you lack, hire another independent consultant towork for you on the project.

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any one time and serve well. For consultants servingnonprofits, a 10 to 20 percent pretax or 5 to 10 per-cent aftertax return is healthy. Even for those com-mitted to building a larger company, the flat modelmay be the safest course for the first year or twountil the consultancy is firmly established.

Once your business matures, you may want togrow into a hierarchy model, building a staff andhiring full-time professionals. By extending yourstaff, you can offer a range of skills, cover a broad-er market area and take on more clients. The dis-advantages are that you will have increased yourfinancial liability, taking on a responsibility forstaff salaries and benefits and increased overhead.

Also, a staff needs managing,which means less time to attractand serve clients and therefore, lesspersonal profit.

Depending on the nature ofyour business and the country youare operating in, your practice maybe unincorporated (usually a soleproprietorship), or set up as a part-

nership or corporation. Each has its own advan-tages and disadvantages, so check with a lawyer,accountant or financial advisor to help determinewhich form is best for your situation and country.There are several ways to organize a practice in theU.S.:

■■ A limited liability corporation (LLC), a limit-ed liability partnership (LLP), sub-S and C-corporations (IRS designations) all offer pro-tection from personal liability. An LLP firm,or a corporation, enable the owner to runsalaries and business expenses through thecompany, rather than commingling with per-sonal funds, and limit or eliminate most per-sonal liability (except for payment of federalwithholding taxes).

■■ A sub-S corporation set up by a sole practi-tioner looks much like a sole proprietorship

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WHICH ARE YOU?Sole proprietorship (SP)

Limited liability corporation (LLC)

Limited liability partnership (LLP)

Sub-S corporation

C Corporation

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because the business’s net income flowsdirectly to the owner who is directly and per-sonally liable for federal income tax. (Stateincome tax rules vary widely, so visit an advi-sor early on.)

■■ A C-corporation (also called a “regular” cor-poration) may be the right choice because thetax or benefit situation may be more advanta-geous, and because companies incorporateunder state law. There are other factors thatvary from business to business and state tostate.

■■ Establishing a partnership or corporationcarries upfront cost, ranging from a few hun-dred to thousands of dollars, depending onhow complex the situation is.

■■ An unincorporated business leaves you per-sonally vulnerable, but an advisor can helpyou decide whether that risk is worth taking.Setting up an unincorporated business costsalmost nothing but the obvious runningexpenses. It may be a way to get the enterprisestarted. However, as soon as it is clear that the

21


REGISTRATION REQUIRED? Not every state requires fundraising consultants to register, so

you will need to check with your state’s attorney general, or you canvisit www.afpnet.org or www.aafrc.org to get this information. Termsof registration vary as well, but often states require it stipulate thefollowing:

■■ AAnnnnuuaall rreeggiissttrraattiioonn aanndd rreenneewwaall

■■ BBoonnddss

■■ FFiilleedd ccooppiieess ooff ccoonnttrraaccttss wwiitthh cchhaarriittiieess

■■ RReeppoorrtt oonn oouuttccoommeess

A list of states that require registration is also available on AFP’swebsite. In other countries, you will need to check with the proper gov-erning agency about possible requirements. The AFP Resource Centermay be of assistance here as well.

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business is a go, the principal should considerconverting from the sole proprietorship to aform that limits personal liability.

After you weigh the pros and cons of becoming aconsultant, you need to estimate what your start-upcosts and ongoing expenses will be, and then findthe investment capital to fund the new business.First, draw up a financial plan for at least the firstyear. To give you an idea of the expenses you need toanticipate, a pro forma financial plan appears on thenext page. Not all the elements may be immediatelyapplicable, but you should find the categories gener-ally helpful in building your own financial plan.

While starting a business requires a sizeablecash outlay, new technologies enable “virtual”consulting that can reduce expenses significantly.A good business can feasibly be run off a laptop(backing up all the data of course), and a solopractice or small shop can book as much net prof-it for the owner(s) as a large one. Many successful

practices operate out of a homeor modest office, which cutsoverhead. With a smaller opera-tion, you will not need as muchclerical help, saving the majorexpenses of salaries and benefits.

However, even if you runyour business off your laptop,you will still need some cash toget started. A home office mayrequire separate land lines fortelephones, more sophisticatedtechnology than you already haveand maybe a paycheck for theowner! Also some people canwork from home happily; otherscannot. You may find that youcan easily divide your businessand personal life easily. On the

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Planning YourFinances

TIPS

■■ Consider sharing an office withsomeone for a period of time as acompromise between having a homeoffice and renting expensive space.Another consultant or colleague mayhave rentable space available, andthat may save you from having tolock into a prolonged lease. Figureon needing about 200 to 250square feet.

■■ Invest in technology only to ensureproductivity, connectivity, and mobil-ity. Keep current, and own ratherthan lease.

■■ If possible, avoid so-called “executivesuites.” They are usually pricey.

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other hand, you may quickly realize that you needa separate office for discipline and sanity.

Furthermore, a practice cannot be sustainedin a home environment once employees (evenpart-timers) are added to the mix. For a time youmay outsource administrative support, but as the

PRO FORMA FINANCIAL PLAN

IInnccoommeeFeesExpense reimbursementsOther

Loans

EExxppeennsseessSalaries, payroll taxesHealth benefits, 401k

RReenntt aanndd ooccccuuppaannccyyStart up (non-recoverable)

FFuurrnniittuurree//ffiixxttuurreessOne-time capital costs or leasesMaintenance

GGeenneerraall//aaddmmiinniissttrraattiivvee ((GG&&AA))Bank chargesWebsite developmentComputer(s): hardware, software, maintenance

PPhhoonnee//IInntteerrnneett

AAccccoouunnttiinngg sseerrvviicceessPrintingPostageSuppliesMarketing/.advertising/promotion Travel and lodging (non-reimbursable) Provision for business taxes and other business expenses

SSttaattee rreeggiissttrraattiioonnss

LLooaann rreeppaayymmeennttss

PPrree--ttaaxx iinnccoommee oobbjjeeccttiivvee

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business grows—even in the virtual practice—out-sourcing becomes unwieldy. In that event, fittingout an office, including rent deposits, upfrontpayments, capital outlays for furniture, equip-ment, phones and so on, need to be in the first-year pro forma.

As any small business owner knows, a commercialbank is the least likely source of funding. Banksrightly regard small businesses as inherently highrisk, so they rarely grant them conventional loans.You might be able to get a home equity loan (a sec-ond mortgage) or a bank line of credit, but both of

24


SOURCES OF CAPITAL

CCrreeddiitt

■■ Credit cards

Advantages: Easy access, fairly high limits

Disadvantages: Usually very high interest; a revolving trap

■■ Home equity/second mortgage

Advantages: Easily obtained; interest at prime plus

Disadvantages: One’s home is on the line

PPeerrssoonnaall oorr ffaammiillyy iinnvveessttmmeenntt

■■ Savings

■■ Liquidating investments

■■ Borrowing against a 401k or 403b account

■■ Loans from family members or friends

Advantages: May be forgiven

Disadvantages: Dynamics of the relationship may change

PPrrooggrraammss tthhaatt eennccoouurraaggee eennttrreepprreenneeuurrsshhiipp

■■ Government

■■ Private

Finding theCapital

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Staying on Top ofOngoing Expenses

those sources will put your personal finances at risk.Venture capital investors are also uninterested infunding a business serving nonprofits because ofthe unlikelihood of your going public. Accordingly,you must explore other routes to capital.

Government or private programs that encour-age entrepreneurship may have funds available. Inthe United States, the Small BusinessAdministration (www.sbasmallbusinessloans.com)offers loans, although they can be cumbersome toobtain. In Canada, the Small Business FundingCentre (www.grants-loans.org) finances smallbusinesses at various levels; first time loans aremodest.

You may find other government programs atthe state or province levels, and nonprofit privatesector sources that fund specific business peoplealso may be available. For example, the state ofNew York, has a program encouraging businessamong minority women (www.nybdc.com/minor-itywomen), and the foundation Count Me Inmakes modest first-time loans to women entre-preneurs (www.count-me-in.org).

Beware of commercial lenders that imitategovernment or nonprofit sources. You may beable to get a loan, but you will probably pay usu-rious interest rates.

Ideally, your firm’s operations will generate feeincome sufficient to carry the business. Income andexpenses may be predictable on paper, but rarelyturn out as expected. Although nonprofits are gen-erally responsible payers, many are slow, so be pre-pared for the lag time between cash payments. Payattention to your accounts receivable and try tokeep the turnaround on fee collections at no morethan 15 working days. No matter what invoices youhave outstanding, it is your cash in hand that willkeep you in business.

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Daily, you need to be on top of three key indi-cators of your business:

■■ Cash in the bank

■■ Accounts receivable

■■ Accounts payable

If you are not comfortable handling the book-keeping, hire a bookkeeper. Simply installing anaccounting software package will not be sufficient

unless you are making entriesproperly and allocating itemsto the right expense line. Fora small business, having apart-time bookkeeper may beenough to keep up with yourfinances. For tax planningand preparation, hire anaccountant. An accountantwill help you sort through

such tricky issues as tax deductions, depreciationand the alternative minimum tax (AMT).

In a solo practice, it is comparatively simpleto manage revenue and expenses and to controloverhead, especially if the start-up is operatedfrom a home office or low-rent location. Revenuemanagement is little more than billing out feesand billable reimbursements (for example, travelor auto expense) by the first of the month. Moredetailed expense management includes payingpayroll taxes, benefit costs, overhead and loanrepayments. Based on what is available after theseexpenses are met, you can decide whether to takea salary that month or not.

You need to be prepared for hard times whenthere is a lull in fee payments coming in. A com-mon mistake new consultants make is when they

are lucky enough to start outwith a healthy cash flowfrom client fees and they donot anticipate leaner days. Be

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THE CONSULTANT’S BLESSING

May all your time be billable.

TIP

■■ Do not forget to back up all your dataon another computer or on CDs—thisincludes all your documents, email,financial data, accounting packages andsoftware programs. To lose this informa-tion or for it to be corrupted would bedisastrous to your business.

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sure to have a good picture of the minimum out-lay required to keep the business going and whereexpenses can be cut. That may mean foregoing asalary that month to pay expenses that cannotwait, such as taxes, rent and phone bills. If youhave employees, they always must be paid. Duringthese times, having a credit line or other personalfunds can help bridge the gap temporarily.

Fees are set in a free market. You are free to chargewhatever you wish; at the same time, the client isfree to shop around. The economic value of profes-sional services is the interaction of competitiveforces, the cost of service delivery (overhead, time,and personnel) and the consultant’s assessment ofprofessional worth and earning power. Your practiceultimately rides on whether it can generate enoughrevenue to sustain itself. The key variable is whatyou personally expect from the effort. Begin there.

Your draw from the business should consistof salary, health and pension benefits, and legiti-mately chargeable expenses. In a new practice, oneof the most difficult decisions for the owner isdetermining a base compensation. As mentionedbefore, you might find it necessary to begin with alower salary than you are used to earning; justremember your compensation can be adjustedlater as your business grows. A realistic startingpoint is your base salary at your last job, pluswhat will cover taxes and benefits, usually anadditional 30 to 35 percent. In a home setting, a50 percent add-on may cover all other overheadexpenses. For a business in a rented office, the

A Primer on Fees

WHAT EXPENSES CAN YOU CHARGETO YOUR BUSINESS?

Your travel, entertainment and fuel costs may be consid-ered reasonable and necessary to your business, but are yourclub membership and your car? Ask your accountant.

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add-on may be 100 to 150 percent, depending onrent, the greatest variable after compensation.

For illustration, consider the business modelof a home-based consultancy below.

In this model, the monthly net revenue need-ed to sustain the business is more than $12,000 amonth. The question is whether the firm can gen-erate that kind of business each month or not?What happens if expenses are greater than esti-mated? Should cuts be made now?

For planning purposes, assume you will workseven hours a day, five days a week and 50 weeks ayear, yielding 1,750 hours. (This is just a model—you will be working much harder and longer!) Intheory, every one of those 1,750 hours is billable.In fact, however, this is unrealistic. Usually a 70 to75 percent “application rate” is considered goodand 80 percent or higher is very good. In otherwords, of those 1,750 hours, you should set 1,225

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BUSINESS MODEL

FFiirrsstt YYeeaarr

Salary $ 75,000

Taxes, benefits @ 32.5 percent 24,375

9999,,337755

Other expenses @ 50 percent of draw 48,688

Promotion and marketing

Startup

Ongoing

Overhead/occupancy (% of mortgage or rent)

TToottaall 114488,,006633

Monthly net revenue 12,339

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hours a year (70 percent or just over 100 hours amonth) as your minimum billable goal. The other525 hours are necessary but nonbillable time,such as accounting, business planning, marketing,networking in the community, making new busi-ness calls, proposal drafting, negotiating contractsand other housekeeping.

To generate at least $12,000 a month, youhave to be billing at least 70 percent of your hoursand your rate needs to equal $100 per hour. (Youcan charge fees based on a monthly, daily orhourly rate, or charge a flat rate per project,depending on what you and your client haveagreed upon.)

Again, it is a question of the market. Will aclient pay $100 per hour? A mentor can offervaluable insights on the going rates, as can otherconsultants, and what is considered a reasonablefee for your expertise in your community. If themarket does not bear your charging a theoretical$100 hourly rate, you will have to make adjust-ments to your expenses or your salary expecta-tions. Successfully setting your fee comes down to

BILLABLE VS. NONBILLABLE COSTS

You need to track both billable and nonbillableexpenses. Nonbillable items are any expenses that can-not be directly assigned to a client. Billable expenses arecosts that you and your client have previously agreedupon. These might include:

■■ travel and lodging

■■ use of personal vehicle

■■ non-routine administrative services

■■ long-distance calls

Keep receipts and good records for your client andavoid haggling over small items. You might want tobuild into your fee an amount to cover small operatingexpenses that can add up.

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doing your homework on your expenses and bal-ancing that with what a client will accept. (All ofthis should be researched before going into busi-ness.)


HOW WIDE IS YOUR NET?In setting up your business, you need to consider

the scope of your service area. Depending on your expe-rience and expertise, you may have access to national orinternational nonprofits, which could widen your servicearea considerably beyond a regional reach. However, alarge service area may not result in greater profits. Inthis line of business especially, time is money, and timeon the road cannot be billed. If you are used to travel-ing extensively you have probably already learned howto work in airports, in hotel rooms and on planes, buteven those who travel extensively tend to have a practicebase that is local or regional because it is more effi-cient—and therefore potentially more profitable. Usethe computer and fax, or conference call efficiently toreduce travel and cut the hours of nonbillable time.

BUSINESS PRINCIPLES

A new consultant should never consider charging a commission or apercentage of funds raised to a nonprofit client. Technically, there is noth-ing illegal about this, but it is considered unethical. All leading professionalorganizations and others strongly discourage commissions and percentagefees and prohibit them in their members’ code of ethics. For example,AFP’s Code of Ethical Principles and Standards of ProfessionalPractice (see the inside back cover) clearly states: “Members shall notaccept compensation that is based on a percentage of contributions norshall they accept finder’s fees.”

Associations such as AFP, CASE and the Giving Institute (AAFRC)offer resources to their members that can be helpful in negotiating thenuances of business. When you are working as an independent consultant,it can be advisable to join a professional organization for networking andeducational opportunities and help with business guidelines.

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In the consulting business, your clients are yourgreatest means of marketing. Caring for themensures a good source of recommendations to

future clients and a solid reputation in your field.However, one of your greatest challenges will bebalancing servicing current clients with huntingdown new business.

Irrespective of the size of your business, yourmain source of new clients will always be word-of-mouth. Encouraging relationships and promotingyour business among the following should gener-ate a good supply of referrals and signed con-tracts:

■■ Board members and other volunteer leaders

■■ Previous employers and clients

■■ Other consultants

■■ Friends, colleagues and family members

Because of the depth of word-of-mouth busi-ness, some new practices overlook the value ofdeveloping a strategic plan for marketing andbranding. Business leads can be generatedthrough launching a website, buying advertisingand posting listings in directories, but you needto have well-defined tactics and a cohesive strate-gy to be most effective.

One key to marketing is developing your brand.Your brand begins with the name of your businessand extends to include an identifying logo, businessstyle, communication materials and your employ-

Marketing and Branding

31

Promoting theBrand

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ees—anything that communicates the value of theproduct or service provided.

A strong, positive brand enhances the cred-itability of the product or service. Brandingshould shape all external communications to pro-vide consistency, clarity, and concentration, thusreinforcing mission and vision.

What is it that your firm does, or can do, bet-ter or differently from all the other firms thatoffer the same services? How do you make it clearthat a potential client should employ your firm?A clear brand answers these questions and setsyou apart from competitors.

The telephone is your firm’s most important brand-ing tool. How you and your employees answer thephone shapes how clients see your business.Whether you, a receptionist, or voice mail answersyour phone, this initial contact will influence yourbranding, for good or ill.

Train any personnel to always see themselvesas bringing in new business, with the next phonecall being a potential future job. You never knowwho will be on the line when you answer thephone. If you have a voice-mail system, make sureit does not frustrate the caller with endlessprompts. The menu should be simple to navigate.A firm’s unique personality comes through on thetelephone, and sends an important signal of howbusiness will be conducted.

One of the great bonuses of current technology isthat the small or virtual practice can create promo-tional materials at low cost—most importantly adynamic website that is interactive and easy to navi-gate. Most firms still produce printed materials, buthaving a winning site with good information can beeasily updated, and it may be just as useful as print-ed pieces.

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Leveraging YourTelephone

Print vs. Electronic

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Whether in print or on the Internet, use yourmaterials to communicate:

■■ Who you are

■■ What you do

■■ Who the firm’s principals are

■■ Who some of your clients are

■■ How to reach you

To get a feel for how you might want to setup your own website, visit other consultants’ sites.Look for layout and navigation ideas that effec-tively communicate information. Beyond thebasics, there is room for creativity and specializ-ing, but avoid the temptation to be so showy thatthe medium overwhelms the message.

When you have developed your website, askthe designer to create a distinctive logoto use on the site. It can then be usedfor letterhead, business cards andprinted materials. With the onset ofwebsite technologies, businesses do nothave to invest in printed materials asmuch and are cutting back on direct-mail marketing. While you will stillneed printed materials, limit the quan-tities or the types of items produced

TIPS FOR DEVELOPING A WEBSITE

Use a web designer to construct your site. The one-time cost and regular maintenance should be far lessthan a compendium of printed material.

Be sure the designer creates “meta-tags” that willcome up on key search engines like Google or Yahoo.

Get design ideas and leads for webs developersfrom other consulting firms’ websites. Associations alsoare good sources of information (www.afpnet.org orwww.aarfc.org).

TIP

A PDA device, such as aBlackBerry or Treo, is useful forgetting back to a client quickly.Even if you cannot solve theproblem immediately, clientslike to know their consultant ispaying close attention.

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and take advantage of your website for respond-ing to inquiries and disseminating new informa-tion to your clientele.

Another effective means of marketing your businessis through doing volunteer service through profes-sional associations. Organizations such as AFP,CASE and AHP rely heavily on volunteers in theirchapters, so your service will stimulate word-of-mouth referrals. Remember to balance your volun-teer time with your paid time—this can be a chal-lenge for a consultant with a flexible schedule.

Participating in chapter or international con-ferences offers networking opportunities, and isanother means of promotion. Serving as a sessionspeaker or panelist will help build your brand andreputation. Keep in mind, though, that a confer-ence audience may hold only a few people whocan actually make a hiring decision.

Many conferences run exhibition areas andyou may be able to rent a booth, but you will needto weigh the costs and the benefits of this invest-ment. Displays can be costly, and many firmsreport mixed results. Some of the variables thatyou should consider include the quality of the dis-play, location of the booth, cost vs. solid inquiries,time required to staff the booth and the numberand kind of attendees who come to the confer-ence. A booth at a conference that does not drawat least 500 people is probably not worth theinvestment in time or money, but a larger confer-ence might bring a lot of traffic to your booth.

When considering paid advertising, take intoaccount your service area and specialties. You maywant to concentrate closer to the home base beforeinvesting in media that have a far reach, even if yourfirm is national or international. Buying a listing ina “consultants’ section” of a trade paper such as The

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Doing Well byDoing Good

Paid Advertising

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Chronicle of Philanthropy and The NonProfit Times, or inassociation consultants’ directories of AFP andCASE may help extend familiarity, but track theresults of your marketing efforts over time.

Larger consultancies often will take the same advicethey give their clients and hire a marketing expert toassist them in promoting and marketing their busi-ness. As firms grow, hire more people and delegatemore and more work, the aura attached to thefounder fades, so marketing expertise may be need-ed. In your new business, however, you are the brand(and you probably cannot afford outside advice justyet), so take advantage of it. Your credibility, yourreputation, your availability, and your professionalskills are what build the business and the brand.And do not forget about the intangibles of fire andvision. Just about everything else can be learned.

Good luck!

When All is Saidand Done

ADDITIONAL RESOURCES

AFP Resource Center. Contact the Resource Center for questions relating tofundraising, philanthropy and nonprofit management. Phone (800) 688-FIND(3463) or email [email protected]

The Giving Institute (formerly American Association of Fundraising Counsel)is an association of selected consulting firms who embrace a code of ethics similarto AFP’s and others. Membership is open to firms that have been in business atleast three years. Non-member firms may attend the annual Summer Institute,but just once and they must already be in business. The Institute devotes two anda half days to topics on managing client relationships, running the company andmarketing it. Visit www.aafrc.org for more information.

The Nonprofit Handbook: Fund Raising (Third Edition) edited byJames M. Greenfield, ACFRE, FAHP (John Wiley & Sons, 2001).

Managing the Professional Service Firm by David H. Maister, a formerHarvard Business School professor (Free Press, 1997). Although not writtenspecifically for the consultant serving NPOs, the book concentrates on how tomanage a consulting practice.

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AFP Code of Ethical Principles and Standards ofProfessional Practice

STATEMENT OF ETHICAL PRINCIPLESAdopted 1964; amended October 2004

The Association of Fundraising Professionals (AFP) exists to foster the development and growthof fundraising professionals and the profession, to promote high ethical standards in thefundraising profession and to preserve and enhance philanthropy and volunteerism.

Members of AFP are motivated by an inner drive to improve the quality of life through the caus-es they serve. They serve the ideal of philanthropy; are committed to the preservation andenhancement of volunteerism; and hold stewardship of these concepts as the overriding princi-ple of their professional life. They recognize their responsibility to ensure that needed resourcesare vigorously and ethically sought and that the intent of the donor is honestly fulfilled. Tothese ends, AFP members embrace certain values that they strive to uphold in performing theirresponsibilities for generating philanthropic support.

AFP members aspire to:· practice their profession with integrity, honesty, truthfulness and adherence to the

absolute obligation to safeguard the public trust;· act according to the highest standards and visions of their organization, profession and

conscience;· put philanthropic mission above personal gain;· inspire others through their own sense of dedication and high purpose;· improve their professional knowledge and skills, so that their performance will better

serve others; · demonstrate concern for the interests and well-being of individuals affected by their

actions; · value the privacy, freedom of choice and interests of all those affected by their actions;· foster cultural diversity and pluralistic values, and treat all people with dignity and

respect; · affirm, through personal giving, a commitment to philanthropy and its role in society;· adhere to the spirit as well as the letter of all applicable laws and regulations;· advocate within their organizations, adherence to all applicable laws and regulations;· avoid even the appearance of any criminal offense or professional misconduct; · bring credit to the fundraising profession by their public demeanor;· encourage colleagues to embrace and practice these ethical principles and standards of

professional practice; and· be aware of the codes of ethics promulgated by other professional organizations that

serve philanthropy.

STANDARDS OF PROFESSIONAL PRACTICEFurthermore, while striving to act according to the above values, AFP members agree to abide bythe AFP Standards of Professional Practice, which are adopted and incorporated into the AFPCode of Ethical Principles. Violation of the Standards may subject the member to disciplinarysanctions, including expulsion, as provided in the AFP Ethics Enforcement Procedures.

Professional Obligations1. Members shall not engage in activities that harm the members’ organization, clients, or pro-fession.2. Members shall not engage in activities that conflict with their fiduciary, ethical, and legalobligations to their organizations and their clients.

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3. Members shall effectively disclose all potential and actual conflicts of interest; such disclosure does not preclude or imply ethical impropriety.4. Members shall not exploit any relationship with a donor, prospect, volunteer, or employee forthe benefit of the members or the members’ organizations.5. Members shall comply with all applicable local, state, provincial, and federal civil and crimi-nal laws.6. Members recognize their individual boundaries of competence and are forthcoming andtruthful about their professional experience and qualifications.

Solicitation and Use of Philanthropic Funds7. Members shall take care to ensure that all solicitation materials are accurate and correctlyreflect their organization’s mission and use of solicited funds.8. Members shall take care to ensure that donors receive informed, accurate, and ethical adviceabout the value and tax implications of contributions.9. Members shall take care to ensure that contributions are used in accordance with donors’intentions.10. Members shall take care to ensure proper stewardship of philanthropic contributions,including timely reports on the use and management of such funds.11. Members shall obtain explicit consent by donors before altering the conditions of contribu-tions.

Presentation of Information12. Members shall not disclose privileged or confidential information to unauthorized parties.13. Members shall adhere to the principle that all donor and prospect information created by,or on behalf of, an organization is the property of that organization and shall not be transferredor utilized except on behalf of that organization.14. Members shall give donors the opportunity to have their names removed from lists that aresold to, rented to, or exchanged with other organizations.15. Members shall, when stating fundraising results, use accurate and consistent accountingmethods that conform to the appropriate guidelines adopted by the American Institute ofCertified Public Accountants (AICPA)* for the type of organization involved. (* In countriesoutside of the United States, comparable authority should be utilized.)

Compensation16. Members shall not accept compensation that is based on a percentage of contributions; norshall they accept finder’s fees.17. Members may accept performance-based compensation, such as bonuses, provided suchbonuses are in accord with prevailing practices within the members’ own organizations, and arenot based on a percentage of contributions.18. Members shall not pay finder’s fees, or commissions or percentage compensation based oncontributions, and shall take care to discourage their organizations from making such pay-ments.

Amended October 2004

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THE AUTHOR

Henry (Hank) Goldstein has served philanthropic institutions for severaldecades. He is CEO of The Oram Group Inc. (www.oramgroup.com), foundedby Harold L. Oram in 1940.

An alumnus of New York University, Hank majored in journalism and pur-sued graduate studies in American government, specializing in urban politics. Hehas worked as a weekly newspaper editor, freelance reporter, political campaignmanager (two wins, no losses) and as an intelligence specialist in the U.S. Army.He is presently adjunct professor of philanthropic management, MilanoGraduate School of Management at The New School in New York.

Hank is former chairman and past president of the National Society ofFund Raising Executives Inc. (now AFP), and he is also a past president of theassociation’s New York Chapter. He is immediate past chairman of Giving USAFoundation. In March 2002, Hank delivered the inaugural Frantzreb Lecture inPhilanthropy at the Center on Philanthropy, Indiana University.

He is vice chairman of PICO National Network, an alliance of communityorganizers, treasurer of the Women’s Prison Association; a member of theNational Scholarship Awards Committee of the Jackie Robinson Foundation; andtrustee emeritus of the Berkshire Theatre Festival.

He is co-author of Dear Friend: Mastering the Art of Direct MailFundraising and speaks and writes widely on philanthropic issues. His lively col-umn, “Against the Grain” ran for three years in The NonProfit Times, and henow contributes occasional essays to The Chronicle of Philanthropy.

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NOTES

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NOTES

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I.To be informed of the organization’s mission, of

the way the organization intends touse donated resources, and of its capacity to use donations effectively for their intended purposes.

II.To be informed of the identity of those serving

on the organization’s governing board,and to expect the board to exercise prudent

judgement in its stewardship responsibilities.

III.To have access to the organization’s

most recent financial statements.

IV.To be assured their gifts will be used forthe purposes for which they were given.

V.To receive appropriate

acknowledgement and recognition.

VI.To be assured that information about

their donations is handled with respect and withconfidentiality to the extent provided by law.

VII.To expect that all relationships with

individuals representing organizations of inter-est to the donor will be professional in nature.

VIII.To be informed whether those seeking

donations are volunteers, employees of theorganization or hired solicitors.

IX.To have the opportunity for their

names to be deleted from mailing lists thatan organization may intend to share.

X.To feel free to ask questions when making

a donation and to receive prompt, truthful andforthright answers.

A Donor Bill of RightsPHILANTHROPY is based on voluntary action for the common good. It is a tradi-tion of giving and sharing that is primary to the quality of life. To assure that philan-thropy merits the respect and trust of the general public, and that donors and prospec-tive donors can have full confidence in the not-for-profit organizations and causes theyare asked to support, we declare that all donors have these rights:

D E V E L O P E D B YAMERICAN ASSOCIATION OF

FUND RAISING COUNSEL (AAFRC)

ASSOCIATION FOR HEALTHCARE PHILANTHROPY (AHP)

COUNCIL FOR ADVANCEMENT AND

SUPPORT OF EDUCATION (CASE)

ASSOCIATION OF FUNDRAISING PROFESSIONALS (AFP)

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Have You Read All the Publications in the AFP Ready Reference Series?

● Establishing Your Development Office:Staffing & Reporting, Budgets & Planning, Boards &Volunteers, the Seven Must-Have Documents (Available in French and Spanish)

● Getting Ready for a Capital Campaign:Your Blueprint for Evaluating Internal and External Readiness(Available in Spanish)

● Bring a Development Director on Board:Assessing Needs, Recruiting, Interviewing, Hiring(Available in Spanish)

● Reviving Your Donor File: Prescriptions for Healthy Direct Marketing Plan

● Building an Effective Board of Directors:Demographics, Performance, Recruiting, Fundraising, Vision(Available in Spanish)

● Asking for Major Gifts: Steps to a Successful Solicitation(Available in Spanish)

● So You Want to Be a Consultant!

For an up-to-date list of publications in this series, prices and quantity discounts, please contact the AFP Resource Center

at (800) 688-FIND or email [email protected]

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