STARTING A NONPROFIT GROUP

Ashley H. from Montana Women’s Prison wrote in with several great questions about nonprofit groups, and also was asking for advice about how to start one. 

I’ve been asked about nonprofits a lot, and decided to finally talk about them here in my column. I apologize to everyone else who also wrote and asked about non-profits and I didn’t answer. I hope you can now get the answers you wanted. 

Over the years I’ve been involved with numerous nonprofit groups as a volunteer, board member, and sometimes grant writer. 

To name a few I served: 

• On the board of Big Brothers/Big Sisters in my town.
• As an Associate Trainer with John Maxwell’s nonprofit group Equip. 
• On the board of a community development organization that developed a Latino cultural center
• On numerous church boards.

I also work with several reentry and prison advocacy nonprofits around the country.

I have more business experience than nonprofit experience, although I have owned a business that didn’t turn a profit! LOL.

Businesses and Nonprofits Have Some Similarities:

• The process of writing a business plan and launching both are similar.
• Both can earn revenue. (More on that below.)
• Both must have a product, service, or purpose to survive. 
• Both need your hustle to succeed.
• Both entities need to have a federal tax ID# (free at irs.gov), and some states require a separate state tax ID number (also free, check your state’s department of revenue to see).
• Both must file annual tax returns.  Nonprofits have additional reporting requirements as well. Often the financial reports, and staff salaries, from the nonprofit group are public record. 
• Depending on the source of revenue, nonprofits might have to pay taxes like a for profit. 

I tell people to start a business on the side (part time) then once it grows make it your full time career. I recommend doing the same with a nonprofit.

Earning Revenue is Crucial

I mentioned both businesses and nonprofits can earn revenues.  I should’ve said they MUST earn revenues, because without income neither can survive. It’s not really the “profit” part that makes these two entities different, it’s whether: any income tax is owed; the extra reporting the government requires from a nonprofit; what restrictions are on the money you receive in donations, services, grants; and if there are restrictions on leftover money after expenses. That’s “profit” in the business world, reserves or savings for nonprofits. 

If a grant, donation, or service is for a specific purpose (and most are) you will be watched to ensure you do just that. A nonprofit group cannot distribute profits, but can pay (generous?) salaries of course. They can create savings, reserves, even investments from the income they receive. 

Nonprofit income can be:

• Donations and Grants; both of which are very competitive, especially when you’re starting out. You can’t imagine how many nonprofit groups have admitted to me they are saddened by the fact they have to spend more time fundraising than helping others.
• Certain business operations, like bingo or gaming revenues, or business or investment income.
• Revenue from services.  Look at the nonprofits involved with foster children – they collect a fee from the State for every child they serve. Another example is some reentry services get paid by the government per case they handle. 

The Biggest Difference Between a Business and a Nonprofit? Accountability.

Unless you have partners or investors, with a business you’re only accountable to yourself. With a nonprofit, you are accountable to the government, even if you don’t get government grants, and you likely are accountable to donors or groups that use your services (if any). There is A LOT more paperwork and procedures to keep a nonprofit legal than a business, and the news is filled with stories of people arrested for misusing funds from non profit organizations. 

For me I really think I can help more people with for-profit solutions than with nonprofit ones.  I’m not against nonprofits, I love helping good ones, personally I just never had the patience to start my own. Things progress much slower with a nonprofit than with a business, as with a non-profit you’re always waiting or begging for funding, or for someone else to do their part. With my own business I control more of my destiny. I’ve always said “I make money solving problems” so for profit businesses can help others too. Please don’t ask me for help starting a nonprofit, as businesses are my thing. 

If you were to ask me, is starting a nonprofit or a for-profit harder? 

Nonprofit, hands down, because you are dependent on other people, and have to be super super careful to follow all the rules and regulations or you can easily get in trouble. 

Which is harder to operate? 

Also a nonprofit, for the same reasons. I’m not trying to scare anyone away from starting a nonprofit, but I will be direct about my opinion and experience. 

I know some people dream of having a nonprofit organization to help others, and I admire and want to encourage that. If you are starting it to make a living, there are easier ways of surviving, in my opinion. 

Others have asked me about grants and seeking donations for nonprofits, so I will do an Ask Bob about that soon. 

Tune in for more!

Bob

© 2022 Pelshaw Group, Inc. Used with permission.

Ask Bob is an advice column by Bob Pelshaw, successful entrepreneur, speaker, consultant, formerly incarcerated citizen, and author of the award winning Illegal to Legal: Business Success for the (Formerly) Incarcerated. (Book and workbook available on Amazon). Bob also provides content to Edovo, GTL, PayTel, and jails and prisons nationally.

Ask Bob answers questions about life, successful re-entry, starting a business and entrepreneurship, and most anything that adds value, except the column does not cover legal issues, sentencing matters, or case issues. To ask Bob a question, write to him at ASK BOB at the address below. Thank you!