Readiness for Earned-Income Ventures
By Betsy Rosenblatt
Overall, the nonprofit sector's biggest source of revenue is government, and its second biggest source is earned income. Earned income can include fees-for-service, sales of books or other items, tickets to performances, or third-party payment systems. In this article, Betsy Rosenblatt of the National Center for Nonprofit Boards discusses some questions to ask before a nonprofit initiates an income-earning venture.
Even the word "nonprofit" implies that tax-exempt organizations designed to accomplish a social purpose cannot make money. It's not true. Nonprofits certainly can make money, but surplus revenue must be returned to the organization to further its mission rather than going home in the pockets of staff or board members. Nonprofits should also check to see whether a new business venture will generate tax-exempt or taxable income. In general, activities related to its mission or for the incidental convenience of clients are tax-exempt; examples are book sales, ticket sales, or a soda machine in the lobby.
Before you begin any new venture, it's important to assess your organizational readiness. Here are a few questions to ask.
1. Is your financial situation solid? Yes, you want to bring in additional revenue, but if your organization's finances are in crisis, now is not the right time. Starting a new venture requires capital and stability-a cushion to fall back on in case it fails.
2. Is the idea a good one? Is someone else doing it already? Can you do it better? Research what the market is already carrying and make an educated decision about whether your organization is in the right place and the right time to succeed.
3. Does this venture have strong support from executive staff and the board? Has the board examined the business plan for the new venture? Is the organization as a whole willing to go the extra mile to make this work?
4. Can you secure funding? Do you know of a venture philanthropist willing to back you? Have you formulated a business plan that appeals to funders willing to take a risk?
5. Do you have experts to call on? Before beginning any serious moneymaking venture, it is advisable to consult with experts in nonprofit law and accounting, and with experienced businesspeople to help you determine if your plan is sound.
Many nonprofits have advanced their charitable missions with the help of successful for-profit subsidiaries. Yours could be the next one, provided that you plan ahead and work smart.
Original publication date: 5/30/2001
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