Guest post by Leslie Hendry (learn more about Leslie at the end of this post)
What do nonprofits and for profits have in common? A lot. Ask anyone who is running either type of organization and you end up talking about the business at hand, which inevitably is how to sustain the organization through hard earned cash. Both for profits and nonprofits seek revenues and incur expenses. Both have to perform in order to succeed and survive. But many who start and run nonprofits oftentimes don’t operate as though they were running a business. The word nonprofit relates to doing good, and doing good can take our minds far from bottom line pressures and business vernacular such as mergers, acquisitions and commercial co-ventures.
Yet nonprofits experience revenue pressures all the time. Most newly formed nonprofits tend to do everything on a shoestring. Any money raised is hoped to go to the nonprofit’s mission or goal. Yet, as any successful start up knows, money must be spent wisely in formation in order to get those wobbly knees to a full and upright position. Investing in a proper accountant and an attorney with initial funds raised will not only put the founder and nascent board at ease, it will create the structure and long-term relationships needed to keep the nonprofit’s activities transparent and healthy. Such service professionals will offer guidance and advice. With the new Form 990, the IRS is looking for more transparency from nonprofits. Making sure a nonprofit raises and uses funds abiding by the Internal Revenue Code is the job of your attorney. The job of the Executive Director or Founder is to keep the wheels moving.
Fast forward to a nonprofit operating for 5 years. Then put that nonprofit in the middle of a world wide economic crisis. Donations are scarce and capital projects are severely put on hold. Donors are stretched and asking probing questions of where their money is going. In fact, donors are becoming more like investors in expecting a greater return on their nonprofit investment. As the pressures mount, the nonprofit would serve its donors and community well by seeking the advice of a lawyer or consultant who can provide direction. Board members are valuable and provide important input and energies, but service professionals should be near at all times.
Your lawyer or consultant might suggest re-evaluating your actual structure in order to survive in today’s economic atmosphere.
Many in the nonprofit world are hearing more and more about mergers. The benefits can be many: merging fundraising activities, databases, legal, technical, accounting to name a few. Mergers can also provide opportunities for organizations looking to penetrate new markets, or gain knowledge and access to new technologies. If it’s survival, a merger can oftentimes be a wise and useful direction.
Hybrids have additionally become popular. Combining nonprofit missions with for profit activities can help both organizations tremendously. In this way, nonprofits may create a subsidiary for profit as a way to increase revenues, where the company’s profits can go directly to the nonprofit.
A commercial co-venture is another structure to consider. A for profit donates a portion of its proceeds to the nonprofit. Thus the nonprofit moves towards new revenue creation without risking its tax-exempt status, and the for profit raises its profile within the community or provide its employees with the benefits of working with a socially conscious mission. Think The Gap and Bono’s One campaign with their red t-shirts and inspiring words on the front.
Social Entrepreneurship or Social Business is also strengthening in its form to provide a business structure with a social mission. These businesses can attract traditional investors, however once the initial capital is paid back all the profits go towards the mission. Legislation will need to advance with the innovative thinking pushing organizations with missions may generate profit to aid society and have the same incentives that nonprofits and for profits benefit from.
Challenging economic times call for though decision making. Organizations should reach out to the experts to understand what their options are to becoming an innovative and sophisticated nonprofit.
About the Author
Leslie Hendry is an attorney licensed in New York and Texas. She lives in Los Angeles where she consults nonprofits. She serves on the board for Yoga Gives Back, a pending 501c3 organization that creates micro loans from the goodness and fondness of yoga.
Susan Gunelius
Susan Gunelius is the Founder and Editor-in-Chief of Women on Business. She is a 30-year veteran of the marketing field and has authored a dozen books about marketing, branding, and social media, including the highly popular Ultimate Guide to Email Marketing, 30-Minute Social Media Marketing, Content Marketing for Dummies, Blogging All-in-One for Dummies and Kick-ass Copywriting in 10 Easy Steps. Susan’s marketing-related content can be found on Entrepreneur.com, Forbes.com, MSNBC.com, BusinessWeek.com, and more. Susan is President & CEO of KeySplash Creative, Inc., a marketing communications company. She has worked in corporate marketing roles and through client relationships with AT&T, HSBC, Citibank, Intuit, The New York Times, Cox Communications, and many more large and small companies around the world. Susan also speaks about marketing, branding and social media at events around the world and is frequently interviewed by television, online, radio, and print media organizations about these topics. She holds an MBA in Management and Strategy and a Bachelor of Science degree in Marketing and is a Certified Professional Career Coach (CPCC).
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