How to Pay Yourself from Your Nonprofit For Beginners

Many individuals venture into the world of nonprofits with noble intentions, driven by a passion for a cause rather than monetary gain. However, overlooking the importance of compensating oneself can hinder both personal sustainability and the organization's long-term success. In this guide, we'll explore practical steps to ensure that as an executive director, you're able to pay yourself adequately while still prioritizing the mission of your nonprofit.

Understanding the Need for Compensation: It's crucial to recognize that paying yourself as an executive director isn't just about personal financial stability. It's about ensuring the sustainability of your organization and its ability to attract and retain qualified staff. By compensating yourself, you set a precedent for valuing the work done within your organization and demonstrate to potential hires that their contributions will be respected and rewarded.

Setting the Stage for Salary Allocation: Begin by opening two bank accounts: one for all revenue inflows and another specifically designated for salaries. Determine a target allocation percentage for salaries based on your organization's financial situation and operational needs. This percentage can vary but should reflect a fair compensation for your role and responsibilities.

Implementing a Profit-First Approach: Adapt the profit-first theory commonly used in for-profit businesses to your nonprofit setting. Allocate a predetermined percentage of incoming revenue to salaries, ensuring that this allocation is prioritized alongside operational expenses. Whether it's 10%, 20%, or 50%, choose a percentage that aligns with your organization's financial goals.

Monthly Money Management: Regularly transfer the allocated salary percentage from your revenue account to the designated salary account. This disciplined approach ensures that funds are earmarked specifically for compensation, facilitating transparency and accountability in financial management.

Building a Salary Buffer: Initially, you may be working without compensation or receiving minimal stipends. However, aim to accumulate at least six months' worth of salary in the designated account before initiating regular payments to yourself. This buffer provides financial security and stability, allowing you to weather fluctuations in revenue.

Gradual Salary Implementation: Once your salary account reaches a sufficient threshold, gradually transition to taking a regular monthly salary. Start with a manageable amount, ensuring that it aligns with your organization's financial health. As revenue grows, revisit your salary structure periodically, adjusting it to reflect both personal needs and organizational capacity.

Board Engagement and Approval: While ultimate salary decisions may require board approval, as an executive director, you have autonomy in determining appropriate compensation levels. Communicate transparently with your board, involving them in the process and seeking their support for sustainable salary practices.

Planning for Expansion: As your organization grows, replicate the salary allocation process to accommodate additional staff positions. Prioritize building salary reserves for future hires, ensuring that compensation practices remain equitable and sustainable across the organization.

By adopting a proactive and strategic approach to paying yourself from your nonprofit, you not only safeguard your financial well-being but also foster a culture of professionalism and sustainability within your organization. Remember, prioritizing fair compensation is not just about personal gain—it's a testament to your commitment to the mission and those you serve.