By Cliff Ennico
For the past several years, I’ve given a talk to local business groups on “the secrets of nonprofit success.” Each year, my audiences get bigger and bigger. It sometimes seems that nobody wants to make a profit anymore.
I always begin my talk the same way: I offer to give a free, autographed copy of one of my books to anyone who can answer the question “What is the first, and most important, challenge facing any nonprofit organization that is just getting started?”
You wouldn’t believe how few books I give out.
Most people answer the question by referring to the organization’s purpose: “We need to draft a mission statement.” “We need to figure out how we will get our Section 501(c)(3) exemption from taxes.” “We need to figure out who we are serving and how we will serve them.”
All of these are important activities, of course. But they are not the first, or most important, challenge facing the newly-formed nonprofit organization.
The correct answer? “We need to figure out how we will make a profit.”
Just because an organization is designated as “nonprofit” does not mean it cannot make a profit. It simply means that the organization’s profits are not distributed to the owners of the business as would be the case with a “for profit” business. The profits of nonprofit organizations are required (by law) to be plowed back into the company to achieve its charitable goals.
Without profits, a nonprofit will struggle to pay its rent, meet its payroll and cover its other expenses each month, just like any other business. There will be nothing left over to carry out the charitable purposes the organization was formed to fulfill. So making a profit is, or should be, Goal Number One for any nonprofit startup.
If you are planning to start a nonprofit, you need to be good at fundraising, because you will spend 80% to 90% of your total time on that activity. But where do you look for revenue?
There are four ways – and only four ways – that nonprofits can generate revenue.
1. Government Grants
Many nonprofit organizations will qualify for grants from the federal, state or local governments. To find out how to research federal grants, go to www.grants.gov, or search the Catalog of Federal Domestic Assistance at www.cfda.gov. Finding state and local government grants will require much more research, but a good place to start is www.grantwatch.com.
Filling out grant application forms is as much an art as a science – you have to know what the granting agency’s “hot buttons” are and hit them hard. There are over 2,000 books on “grant writing” listed on Amazon.com. Many local community colleges offer affordable evening courses in grant writing.
Looking to hire a professional grant writer or fundraising consultant? Go to the Association for Fundraising Professionals website at www.afpnet.org and click on the green “chapter” button to find the AFP chapter closest to you.
2. Individual Donations
If you want to raise money from wealthy individuals in your state or community, you will need to register with the IRS as a 501(c)(3) “public charity” – these are the only organizations allowed by federal law to accept donations that can be deducted on the donor’s tax return. And make no mistake – no matter how charitably motivated, these people will want to deduct their donations.
Solicitations for donations are best made by people the donors already know, so plan on having some well-connected “rich folks” on your board who are comfortable hitting their friends and country-club cronies up for donations on a regular basis. And be prepared to bite your tongue when a prospective donor utters those fateful words, “we love your organization, we just have one small condition . . . “
3. Sales of Products and Services
The bake sale. The “car wash” for the local high school cheerleading squad. The hospital gift or thrift shop. The black-tie silent auction. You get the idea. People donate stuff and then you sell it.
Watch out for what the IRS calls “unrelated taxable business income” (www.irs.gov/publications/p598/ch04.html). If the IRS thinks you are raising income in a way that is “unrelated” to your organization’s “exempt purpose,” you may have to pay taxes on that income.
Also have your attorney look into local gambling laws that may affect your ability to conduct “Las Vegas Nights,” bingo games or similar activities, and be mindful that many states put a limit on the number of selling events you can host each year without having to charge state and local sales taxes.
For the past 10 years, crowdfunding websites such as kickstarter.com, gofundme.com and indiegogo.com have enabled nonprofits to raise funds from total strangers. For a list of the “top 10” crowdfunding sites by traffic ranking, go to www.crowdfunding.com. For advice on putting together a crowdfunding campaign, check out “Nonprofit Fundraising 101” by Darian Rodriguez-Heyman or “The Ultimate Guide to Nonprofit Fundraising with Crowdfunding” by Steve Vick (the latter available only as an e-book).
Cliff Ennico (email@example.com) is a syndicated columnist, author and host of the PBS television series ‘Money Hunt’. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at www.creators.com. COPYRIGHT 2016 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. @cliffennico.