Please, Don't
I teach 4 online classes in various aspects of nonprofit work—grantwriting, management, marketing, fundraising. And the vast majority of those taking the courses tell me that they plan on starting or just have opened their “own” nonprofit. I used to get on my soapbox and remind them a nonprofit does not belong to anyone, including the founder. It is “owned” by the public at large. And then I would go on to talk about the huge number of 501(c)(3) organizations and the vast majority who have minuscule operating budgets. Which didn’t seem to ever get anyone to rethink their plans. Now I simply focus on one reality—if you don’t have a stream of revenue that will carry your organization through at least 3 years while I you plan for additional revenue streams, you have what is know as a “nonstarter.”
Why people think that nonprofit means there is no need to have revenue pouring in so you can put out your product, serve your mission, help your clients or your cause is one of the great mysteries of life. Would you start a for profit business with no thought of how you will make enough money to sustain yourself? Of course not. So why start a nonprofit unless you have guaranteed income streams (or a lot of savings you are willing to put into the day to day operations of “your” nonprofit)?
It is, I think, the lure of doing good. And you are doing good, surely there is no need to consider the tacky side of things like paying rent, salaries, equipment, marketing. it is yet another fantasy of If you build it, they will come (from the 1989 movie, Field of Dreams). But they won’t. You will struggle and struggle, accomplish little, and then you will quietly go away.
Not what you hoped for and not what our sector, our community, our country really needs.
Considering revenue streams must be at the heart of your business plan—and yes, Virginia, nonprofits are businesses and must be run as such. For most nonprofits, more than 60% of revenue comes from earned income. This income comes from both private and government sources. Most of this earned income comes as fees for services—what individuals and institutions will pay for the work you do. Think tuition at nonprofit private schools, medical fees at hospitals and clinics. If your clients cannot pay, often the government will. But 60% of your budget still leaves a lot out there.
For some organizations that gap is filled with government grants, investment income, and fundraising. For others, a social enterprise element—think thrift stores, restaurants, etc—play a part. Often, these earnings are known as unrelated business and can be subject to UBIT or Unrelated business income tax. Be knowledgeable before you jump!
Fundraising, of course, is the thing everyone wants but no one seems to want to actually do. Get over it. Either fully commit and make sure that everyone connected with your organization understands the importance and need, and can articulate both your purpose and why others should support you. And everyone means everyone—staff, board, other volunteers, clients, donors. Everyone, also, must understand the importance of gratitude. Saying thank you matters. Showing the value of someone’s generosity is critical. Having more than the staff person who has fund development as part of their job description be engaged with this stewardship will make the difference between retaining and losing donors.
But still, there’s this great idea you have and it is crying out to be a nonprofit! Or is it?
Do you really need to start an entire organization or are you really focused on a program that might be able to comfortably live inside an existing nonprofit? Given that not everyone is collaborative, this may take a while to develop. Or you could approach a fiscal agent and see if that works well for you.
If, after all, starting a nonprofit is what you feel you must do, then absolutely go for it. But be wise, be realistic, and be prepared to work harder than you’ve ever worked before.