NonProfit or ForProfit

By: Chyla Tuesday December 24, 2019 comments Tags: nonprofit, accounting, for profit


Any accounting business or tax advice in this podcast is not intended as a thorough in depth analysis of specific issues nor subs too far for an opinion, nor is it sufficient to avoid tax related penalties. If you need any help with that, please reach out.

This is going to be another Q&A episode. This one was inspired by some questions I got from my purpose to platform sisters. If you haven't checked that purpose to platform, the link will be in the transcript. One of the questions was, "Is there a list of questions you should ask yourself to decide on whether your new business should be a nonprofit or a for profit business?" This is a great question, so I would say that there are five questions you should ask yourself if you're debating between starting a for profit, for profit or not for profit business.  Number #1, how open to scrutiny are you?


A nonprofit is a public business, so it's records are open to public scrutiny. People can say, Hey, I want to take a look at your tax return. Or they can say, Hey, can I see your board minutes? Can I see your financial statements? So one thing is what level of scrutiny are you willing to do?  Number #2, who is going to help you?

 

So I mentioned this early in the last Q &A  episode, but really who is going to help you? Who's going to be on your board? Who is going to be in the trenches with you figuring out how to make this work? You have to have a plan of attack, because you don't want to say, Hey, I'm just gonna, I'm gonna wing it. I remember I had a call one time with someone who said, Hey, I'm sorry I'm not a prophet. I really would like to talk with you about it. So is that okay? Cool. Let's talk about it. And they said that they were having a fundraiser the following week. It was like their first fundraiser. I was like, okay, cool. I called them a couple of weeks later and said, Hey, how did the fundraiser go? And they said it was horrible. No one showed up. We're not going to do this nonprofit anymore.  If all it takes is that one no, you shouldn't be in business. Quite frankly, there are lots of no's when you're running a for profit business, just because you're trying to get your customers to believe in what you're doing. You're trying to say, Hey, I see the need. I'm fulfilling this need. Pay me this price. That's hard. It's even harder to say, Hey, I see a need. I'm fulfilling this need. Can you give me money?

No, I'm not going to give you anything in return, but some other people will benefit. So if you can't handle that first no you're going to have a hard time so you can see who else is going to be there to help you. Who's going to be there to say, I know that went badly. It's okay. We can keep going.

 

Another question to ask yourself is what happens when you're ready to leave? Okay. Lots of people think, oh well it'll just stay going. That's not always the case. I'm just like with a business, there can be an end of life cycle. And so you have to think about how am I building this organization to survive past me? So I know it seems like, oh wait, it's really early to be talking about the end of our life. But if you don't talk about it now, you're not gonna know what to do and you're going to have a harder time when it's time.


You're going to have a harder time making those tough decisions when you're like, I don't know how we're going to make payroll. I don't know if we can hire this person. I don't know if we can pay this person. So think about that. How are you going to make those tough decisions? Also think about what happens when you are approached by a donor that you are not necessarily comfortable with. Because nonprofits are constantly just getting money. You have to think about it like if it was an investor, is this someone you want to be associated with? You don't necessarily want to take all money because if you're taking money from a donor that does not necessarily align with your beliefs, that could negatively affect you. Because again, nonprofits are public. So your donor information, if they're a significant donor that'll be on your tax return and the public can see that.  So think about that, do they align with your organization and does taking money from them reflect well on you?

 

And one last question I think I can get in before this timer goes off is who are you serving when you're thinking about starting your business for profit or not for profit? You need to understand your customer and what you're looking to do and why you're even wondering if you should be a for profit or not for profit. Another call I've had with someone who said, Hey, I want to start this organization and it's going to be a nonprofit. And so I asked, well what are you doing? And they described what they were doing. There's a lot of sales and ultimately the money would go to a nonprofit. And so I tried to see like, well why is it that you want, you think they should be a nonprofit and their only reasoning was because that's where they wanted their profit to go.

If the only reason you're trying to determine if you should establish your business as a not for profit is because you want your money to go to a specific cause. You can be a for profit business and do that. You can be a for profit business, make money and then decide, hey I want to go over and give all my money to save the whales. I want to go give them all my money to the Struggle Exchange or to Present Future Foundation to Fort teens. Okay, your business can give its money away if that's what you choose. So don't let that be the only deciding factor on whether or not you should be a for profit or not for profit because the work that it takes can be a lot, you know, and the last episode where I talk or not last episode, but last Q &A episode where I talked about the cost of establishing your nonprofit without assistance. You want to think about that level of transparency that I mentioned at the beginning of this episode.

How willing are you to have your laundry, clean or dirty out there for the public to scrutinize and how confident are you that you can adequately tell people, "Hey, this is what we do and this is how we're going to spend the money." If you aren't able to tell them how you're going to spend the money and articulate that in a way that really connects with them, you're going to struggle. You're going to struggle really, really hard. And that is the one of the biggest challenges between running that a nonprofit and a for profit business is that you can't just sell them a product, you have to sell them on your mission and sell them on your why.

And if you realize that you are having a little trouble figuring out that piece, if you're having trouble figuring out, "Hey, what do we do? Is this a thing for us? Is this, how are we going to explain that impact? How are we going to tell people about what we do?" Check out the six week course that we're doing. The links will be in the transcripts, but during our six week course, we are going to talk about the four areas to really hone in on when you're thinking about how your organization is making an impact. And you will have weekly Q & A's with me to really flush out those challenges and get some clarity about what you really need to be focusing on and how to tell that story so that you can get some money. So I look forward to hearing about what you decide. Did you do a for profit business that just wants to donate to a non for profit or did you go ahead and start a nonprofit and why?

 

Use the hashtag #nonprofitnuggets?

 

Talk to you soon. Bye 

 

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About the Author: Chyla