I have worked with nonprofit organizations for the past 10 years and one of the most common reasons that many don’t succeed is because most owners don’t treat it like a business. I think the title “non-profit” lends itself to the misconception that it’s not a business.
Let me take a moment to explain what it means to be a “nonprofit” organization. What that means is the organization is not allowed to take the profits they earn from the business to pay out dividends or stocks to board members or the like. Instead, the profits they earn must go back into the organization to be used for services.
The other thing I’d like to clarify is that an organization can be classified as a “nonprofit” organization without having a tax exempt status. However, it’s more advantageous to get the 501 c 3 designation from the IRS because that is what makes the organization eligible to receive grant funds. If you are nonprofit organization without a 501c3 designation it will be difficult to obtain grants. Most donors give to charitable organizations so they can get the tax break, which they cannot receive if they don’t give to a tax exempt organization. Therefore, when they file their taxes to write off that donation, they have to submit documentation to the IRS that shows it was a gift and doesn’t need to be repaid. So, the donor will request a copy of your 501 c 3 designation letter before they make an award.
The reason it was important to get into the grant discussion is because it’s one of the primary reasons new entrepreneurs assume they don’t need “business” skills to operate a nonprofit organization. I can’t tell you how many people I have met who’ve told me the way they plan to sustain their organization is through grant funds. That’s it—that’s their plan! They assume that because they have that tax exempt status the money is going to start rolling in. I will tell you what I tell them: “That is NOT going to happen.” The reality is grant funds are highly sought after, and there just isn’t enough money to go around. If you want to be successful, you must have a plan.
Think about it, if you were going to open up a retail store or a Subway franchise, there is no way you’d go into that endeavor without a plan. First and foremost you’d have an official business plan (including a budget) to show to investors and lending institutions. Second, you’d have some money set aside for initial start- up costs, and finally, you’d have employees identified and a plan to pay them. So, it should not be any different to start up a nonprofit organization.
Unfortunately, the majority of people starting a nonprofit organization do so with very little preparation and no plan for success. Running a successful nonprofit organization requires more than just a good idea and a heart to serve. It starts there, but it requires so much work!
I don’t want to discourage anybody from starting a nonprofit organization; I just want you to do it right so you’ll be set up for success. Greater Vision Consulting can help you with that. We’re offering a FREE introductory workshop: “So, You Want to Start a Nonprofit”. Get more information on this workshop as well as our other services at www.greatervisionconsulting.com. I hope you found this blog helpful and I hope you’ll continue to follow me!