Get your NFP into fighting shape
Athletes training for major competitions don’t go on starvation diets. To ensure optimal fitness and performance, they eat high-protein meals with plenty of muscle-building nutrients.
Not-for-profits aren’t so different. If you’ve constricted spending to cover only the bare essentials, you’ll have a hard time resuming prerecession programming, let alone expanding your reach. As the economy rebounds, actively seek new sources of funds so that you can invest in the people, facilities and other resources that organizations require to thrive and grow.
Is now the time?
You may wonder whether you’re ready to shift gears from subsistence to expansion mode. As a group, smaller not-for-profits — which usually don’t have endowments or substantial savings cushions — have struggled more than their large counterparts over the past couple of years. And your organization may grapple with unique challenges that prevent it from growing just now.
But a recent survey of 1,602 U.S. and Canadian organizations conducted by the Nonprofit Research Collaborative found that the not-for-profit sector is bouncing back faster than many for-profit industries. Of the respondents, 53% reported increased donations in 2011 over 2010 and 71% claimed to be optimistic that donations will again increase year over year in 2012.
If you plan to rejuvenate programming by tapping existing income sources exclusively, think again. Although donors remained relatively supportive of their favorite charities during the recession — even giving money they couldn’t afford — donor fatigue is a real risk and you need to tread lightly with fresh funding appeals. And if you’ve traditionally relied on government grants, getting new ones in this era of big budget deficits is about as easy as squeezing blood from a stone.
So you’ll probably need to start looking for creative new sources of operating capital. Start with grantmakers you might have overlooked in the past, such as large family and community foundations. These groups generally have knowledgeable staff and are capable of making big awards.
Smaller family foundations usually make less-sizable grants, but if they have a particular interest in your not-for-profit’s mission, you may find it easier to qualify for them. And don’t forget federated funds such as the United Way, which supports social-service providers, and United Arts, which lends to arts organizations.
Your not-for-profit might also consider a moneymaking venture such as running an on-site café or selling charity-related goods on your website. Even if such activities aren’t directly related to your mission, they don’t have to threaten your exempt status. Just make sure you:
• Limit the revenue and resources used to produce unrelated business income (UBI) so that it doesn’t become your organization’s primary activity,
• Keep track of expenses incurred to deduct against revenue,
• Report UBI on your Form 990, and
• Pay federal income taxes on it.
If you have a bigger income-producing project in mind, consider creating a for-profit subsidiary. You’ll need legal and financial assistance, and the setup process can take time. Also, many organizations that go this route have trouble keeping the two entities completely separate, so this might be a challenge for your nonprofit, too. But the rewards — including the ability to raise unrestricted funds from angel investors and venture capital funds — can make the effort worthwhile.
Other forms of not-for-profit/for-profit hybrids are emerging. For example, certified B corporations are companies structured to benefit both shareholders and charitable causes. Although they must pay corporate income tax, one city — Philadelphia — offers B corporations a tax credit, and other cities seem likely to follow.
Use your strengths
These are only a few ideas for boosting your not-for-profit’s income. For others that take into account your financial requirements and organizational strengths, talk to your financial advisors.
Kerry Roe is a shareholder with Clark Schaefer Hackett and can be reached at [email protected].