You’ve seen it. The thrift store down the street that supports a local church or a jobs training program. A car wash that supports a treatment facility or even a manufacturing facility that supports jobs training. The list is extensive of the types of business ventures that are supporting nonprofit organizations; coffee shops, restaurants, book stores, and so many more. As a leader of a nonprofit organization you understand the need to understand business and operations. It can be a challenge to keep the wheels turning grant after grant, event after event, and ask after ask. A well-managed nonprofit seeks a balanced portfolio of revenue streams, from earned income to philanthropy. From partnerships with businesses, licensing, sponsorship and cause marketing to holding events and awareness campaigns, we have tried it all!
Earned income is not a ‘cure’ for the nonprofit sector, nor is it a realistic expectation for every organization. Some critics view these activities as synonymous with commercialization and raise important warnings….we will get to that later. For some, it’s not all about money. Many nonprofits have found pursuing earned income also helps them advance their mission. Some have found that starting a business has forced the entire organization to become more focused and has sharpened its’ goals and management skills.
If you are thinking about an earned income strategy for your nonprofit organization here is a simplified process you’ll want to follow as you are identifying business opportunities that fit your mission:
First you must identify your organizational assets; 1) things you have 2) things you do and 3) things you know.
Next is the feasibility study. This is when you will look at both inside the organization to ensure that you have the capacity to undertake, and outside to gain knowledge of market demand and competitors. Write it all up and assess if your organization has what it takes!
Development of a full business plan is an intensive and time-consuming effort but it is a necessary step. There are many formats for this but most of the time it includes an executive summary, a description of the business, a market analysis and a marketing plan, a description of the products/services to be offered, an operational plan, clarification on financial assumptions, a detailed financial plan and projection of cash flow for at least three years, a summary of uncertainty and risks and plans to manage them, and a plan for growth or exit from the business.
So what’s the big deal? Earned income ventures for nonprofits have generated controversy. Some have raised questions about the impact of commercialization on nonprofits commitment to the mission. It is important to understand ventures that threaten the mission should be avoided and nonprofit boards have a responsibility to develop policies and guidelines to ensure that nonprofit enterprises are consistent with their organizations mission and values and that financial and public relations risks also are weighed with the mission. I must say I am a fan of well balanced portfolio of revenue streams – just please, no more thrift stores!
By: Michelle Cole, MA and Lisa Lopez, MPA