Should I Start a Nonprofit Business?
I was recently asked this question (see title) by a good friend and colleague of mine who is doing some wonderful things in a nearby city! At that point, I was suddenly reminded of all the things that should be considered if someone wants to start a charity! So, now I’m happy to share with you how I think this question needs to be approached.
If you have the goal of starting a nonprofit business, then one of your fundamental questions should be, “What benefit will I be providing to my target demographic?”
Keep in mind that the benefit you will be providing can be either a good, a service, or the combination of both. Once you identify that benefit, you need to figure out if it lends itself to being a charitable benefit or a retail benefit. This is where things get a little tougher.
What I often notice, when people branch out to create nonprofit organizations, is that they sometimes pursue them unnecessarily. What do I mean by this? Well, there are a lot of efforts that don’t require nonprofit status (501c3 identification by the IRS) to achieve the mission and purpose of the new business. In fact, partnerships can be formed with already-existent nonprofit organizations in a lot of cases! Nonprofit organizations can “loan” you their nonprofit status to launch mutually beneficial charitable efforts. Contact me, and I can explain that later.
Nonprofit organizations exist because they are not easily funded by conventional means. These businesses have missions that require outside funding because the consumers of their benefits do not have the resources to purchase them. Thus, nonprofit businesses step in and get the funding necessary to develop and provide benefits for their target consumer groups. Meanwhile, donors are kind enough to donate, and they get TAX WRITE-OFF BENEFITS! See how that works? Everything has balance, and everyone does something in return for something else…
How does the for-profit business compare?
Well, for-profit businesses provide benefits (goods and services) to target demographic groups that can purchase them. Additionally, for-profit businesses have the conventional means (primarily shareholder equity or bank loans and grants) to purchase resources to develop and provide their benefits.
What’s next after you identify your target consumer group?
A hundred more questions! For instance, consider the thought that you may want to provide benefits to an underprivileged consumer group, but another organization has already covered that need. Well, why would you even want to compete? Maybe the need is not covered as well as it should be by the already-existent business, or maybe you have absolutely no chance of competing at all. I can’t help you with that one; your further analysis has to reveal your chances for success.
For the sake of simplicity, I’m going to sum up this blog post by offering some cases for which you SHOULD NOT start a nonprofit business, as well as some cases for which you SHOULD:
DON’T START a nonprofit business if you cannot identify a target group that is not currently being adequately served by another charitable business.
DON’T START a nonprofit business—out of haste—because you think it is a good idea; yet, you do not know the facts about the scope of need of your target consumer group (and how you can uniquely benefit that target group).
DON’T START a nonprofit business with a “get rich” plan in mind. Nonprofits are, well, NONPROFIT LOL. As a matter of fact, the rule-of-thumb estimate for nonprofit overhead budget allocation is 25% or less. This percentage allows nonprofits to receive higher ratings from donors when they are compared to other similar nonprofit businesses with higher operating expenses.
DO START a nonprofit business if you are servicing a target group with a need that is unfunded through conventional means in society.
DO START a nonprofit business if there are target donors (individuals, businesses, and/or corporations) who are willing to give to your cause, and all you have to do is ask!
DO START a nonprofit business if you are passionate about the cause, and you know that the world will be a better place because you (as well as your supporters and champions) have a unique vision that must be realized!