Why Running a Nonprofit is Like Running a Business

Why Running a Nonprofit is Like Running a Business

Running a nonprofit is not easy.? It takes skills and expertise in areas such as fundraising, operations, relationship building, and more.? Running a business is not easy either.? You would be surprised to learn how many similarities exist between running a nonprofit and running a business.? Here are just a few:

Profit is not a concern for nonprofits, but revenue is

As a nonprofit, profit is not a motivating factor.? However, it takes revenue to pay the bills, pay your people, and run your programs.? Nonprofit revenue can come from grants, capital campaigns, individual giving, earned revenue, in-kind donations, and other sources of revenue.? As a nonprofit leader, you cannot be afraid to ask for money.? Every successful nonprofit leader must have the skill set to build relationships, develop effective earned revenue models, and deploy sophisticated grant-seeking and fundraising strategies to generate revenue.

Nonprofits must be accountable to the public and a Board of Directors

Publically listed for-profit organizations have to be accountable to regulatory bodies and investors who expect a certain return on their investment - nonprofits are different. Nonprofits are deemed nonprofits by a tax determination letter, better known as a 501(c)(3), issued by the IRS.? One of the requirements of a 501(c)(3) is to have a board of directors.? The responsibility of a board of directors is to provide oversight and governance over the nonprofit organization.? Most boards of directors are volunteers who dedicate their time to support causes they are most passionate about.

Although nonprofits don’t have investors to be accountable to, nonprofits are still accountable to the IRS and various stakeholders, including their Board of Directors, staff, and those they serve.

Nonprofit and for-profit budget concepts are similar, but slightly different

If you have seen a for-profit budget, you have seen a nonprofit budget - with a few caveats.? The goal of a for-profit budget (or financial forecast) is to maximize revenue by increasing the difference between revenues and expenses.? Many people believe the goal of a nonprofit organization is to show “no profit.”? Showing “no-profit” implies revenues must equal expenses.? Although running a nonprofit does require nonprofit organizations to have enough revenue to cover expenses, I challenge nonprofit leaders to consider creating reserve accounts.? Reserve accounts are, in essence, a forced savings account of emergency funds to use for a rainy day.? There is usually some sort of process and procedure in place that outlines the circumstances of using funds in a reserve account.? These circumstances are usually avoiding laying off staff, if prices of goods and services the nonprofit uses increase exponentially, and other items that may put a nonprofit organization in financial peril.

When a nonprofit has revenues in excess of expenses and not included in a reserve account, it is called having a surplus.? When a nonprofit has expenses that are in excess of revenues, it is called having a deficit.? When a nonprofit organization operates at a surplus, there are generally no taxes owed hence the nonprofit designation.? In the case of a for-profit organization, this would be a profit. For for-profits, excess revenue, or profit, some sort of taxes would be owed.

The metrics of success for nonprofits and for-profits differ

Thank you to the fearless nonprofit leader.? Instead of metrics of success being rooted in profits, your metric of success is based on how much good you do in the community.? Some metrics include the number of people served, increases in desired attitudes or behaviors, or improved state or status in those served.? In the nonprofit world, metrics of success can include goals, objectives, but most commonly, outcomes.? In the for-profit world, the term is mostly known as key performance indicators or KPIs.? Of note, I do see nonprofit organizations borrow the business term “KPIs” to use for organizational performance metrics, but continue to use the term “outcomes” for program KPIs.

Running a nonprofit is indeed similar to running a business. To the fearless nonprofit leader, be motivated by the impact your work has in the community, and don’t be afraid to borrow some business concepts and use them to advance your nonprofit organization.

Are there any other business concepts that nonprofit leaders may find valuable to add to this list?

-Shavonn

#grantwriter #grantswriter #nonprofitconsulting #grantwriting

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About Shavonn Richardson, MBA, GPC

Shavonn is Founder and CEO of Think and Ink Grant Consulting. As a former nonprofit leader and grantmaker, Shavonn has over 20 years of experience delivering practical, real-world advice to nonprofit leaders across the country.??Shavonn also serves on the Board of Directors of the Grant Professionals Association and is a Sustainer member of the Junior League of Atlanta.

Shavonn earned the GPC (Grant Professional Certified) credential from the Grant Professionals Certification Institute in 2020 and is a Grant Professionals Association Approved Trainer.?Shavonn earned a BBA from Howard University in Washington, DC, and an MBA from Emory University in Atlanta, GA.

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