Could a Non-Profit Structure Be Right for Your Business?
If you have a business idea, or an idea for a service
for your community, there's one decision you must make
early on: are you going to structure your project as a
for-profit business, or as a non-profit corporation? Now, it may be that you already have a clear idea about
this. Some business ideas are clearly "for profit".
For example, if you want to sell insurance, or stocks,
that's undoubtedly a for-profit business. On the other
hand, if you want to raise money for research into a
cure for juvenile diabetes, that project will best be
served by forming a non-profit corporation. One difference between for-profit and non-profit
organizations is that grants funding is generally
reserved for non-profits. Some grants are available to
for-profits (and to individuals), such as government
grants to promote affordable housing or job creation in
economically depressed neighborhoods. Most grants,
however, and particularly grants from foundations, are
given only to non-profit corporations designated by the
Internal Revenue Service as 501(c)3 corporations. In many cases it is not so easy to determine into which
category a business idea should fall. One question to
ask is: will my planned project deliver a service to
clients? A beauty shop located in Beverly Hills,
catering to wealthy women, is certainly a service
business. The clients, however, are not needy. They
can easily pay for the service without assistance. So the second question to ask is: will the project
assist clients who are in need? A beauty shop located
in a Medicaid-supported nursing home will serve clients
in genuine need - clients who could not pay for this
service from their own resources. What are the benefits of a for-profit business model?
Well, first of all, the owner of the for-profit
business holds personal (or corporate) title to the
business and all its assets. Any money that is made by
the business can be used according to the discretion of
the owner. The owner can borrow against the business,
or sell it and keep the profits. When the owner dies,
he or she can leave the business and/or its assets to his
or her heirs. For-profit businesses exist not just to support the
owner, but also to build wealth. So if you have a
business idea that has the potential to build wealth
for you, I recommend you stick with the for-profit
business model. For example, if you have designed a
widget that is apt to revolutionize its market niche,
and you hold the patent, by all means produce and sell
it through a for-profit business. That widget could
make you rich, while offering a great benefit to your
customers. Does this mean that non-profits can't earn money?
Not at all. In fact, I always encourage my non-profit
clients to look for ways to become self-supporting.
Many non-profit agencies generate income through
contracting with other organizations to provide
services. Other agencies operate businesses such as
thrift stores. The difference is that the income generated by a
non-profit organization always belongs to the
non-profit agency, not to the organization's founder.
If the non-profit organization decides to cease
operations, its assets, by law, must be donated to
another non-profit agency. While a non-profit organization may not generate wealth
for its founder, a non-profit can be a vehicle that
provides a very good ongoing income. Many people
create non-profits to do work they love, and to create
a job for themselves. The founder of a non-profit
organization can become the agency's Executive
Director, and draw a salary that is comparable to
salaries in the for-profit sector. In some cases, the
founder may choose to occupy another staff position,
and turn ongoing management over someone else who
functions as Executive Director. There is also a third possibility, one that I call a
dual for-profit/non-profit structure. If you have a
business that provides a service that could potentially
be made available to clients in need, this structure
may work for you. For example, if you teach painting,
you may want to charge some clients a high fee for art
lessons. But you could also teach painting to
disadvantaged children, and use grant funds to
reimburse yourself for the work. In order to use this structure, you could join forces
with an existing non-profit, such as the YMCA, and
assist them in writing a grant to underwrite art
lessons. You could also set up a new non-profit agency
devoted to providing arts education to needy children,
enlist interested people to operate the agency, and
contract with that agency to be paid for teaching.
This dual for-profit/non-profit structure can work for
a variety of different businesses. Jillian Coleman Wheeler is a Grants and Business Consultant to businesses and non-profit organizations. Her website, http://www.GrantMeRich.com, is a resource site for entrepreneurs, grant writers and consultants, and offers online training for grants consultants. She is also author of The New American Land Rush: How to Buy Real Estate with Government Money. For more information, visit: http://www.NewAmericanLandRush.com
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