Monday, October 27, 2014

The questions you're asking.

Sometimes a lot of question topics I receive start to repeat themselves, so to cover more of them for more readers, here is a round-up from the last few weeks.

Q. How can I get a stable income for my nonprofit administrative expenses?

A. The only way to have a reasonably secure source of nontaxable income is to have a product or service that you sell that aligns with your mission. For instance, healthcare related organizations generally contract with a government agency to provide services paid by Medicare, Medicaid or a state or city department of health. Community organizations might have a thrift shop. After-school government-funded programs may utilize nonprofits as paid caregivers. In some cases, and assuming a large enough base, you might try a membership model with the dues being allocated to general support (must elect this when applying for IRS determination).

Alternatively, if you are in a position to pay the upfront costs, some larger NPO's rely on one or two large fundraisers each year.

Q. I want to start a nonprofit, but I hate fundraising. Can't I just apply for grants?

A. Even grants are a form of fundraising, but in the practical sense, if you hate fundraising then you need to recruit people for your board or as volunteers that love it. Nonprofits spend a lot of time (as much as 40 to 60% in the early years) securing funding, and grants are a small percentage of the total. Grant income during your first two to five years is likely to be very small, and it's nonexistent during the first year. Nationwide, grants only comprise about 12-14% of all nonprofit income. That makes ongoing fundraising a necessity.

Q.  I keep applying for grants but I either never hear back or they reject me. What am I doing wrong?

A.  Grant applications are usually not funded for one of three reasons. One, your organization goals are not closely related to those of the grantor. Two, you are not in their geographic focus area. Three, your proposal doesn't show why you would be the best choice for success of the grantor' s mission. Of the three, it is the last that usually gets a " thanks but no thanks" response. Very new or very small organizations often aim for very large grants, but are not prepared or able to deliver the level of results the grantor expects. And of course sometimes they just run out of money before they get to your needs. If allowed, I would definitely try to contact the organizations and get feedback on your application.

Q. It seems like every foundation doesn't accept applications. Why are they in business if they don't want to make grants?

A. To a large extent, this is the result of oversupply in the nonprofit market. Simply put, there are too few foundations trying to fund far too many nonprofits. Sometimes it is due to adverse economic conditions, and they are putting their grant-making on hold until their funding catches up. Other times they have simply become comfortable with the grantees they already know, or the staff is overwhelmed with the sheer volume of responses to an open application period.

Q. I applied for a business start-up loan from my bank, but they told me my financial projections (in my business plan) are unrealistic. They're projections!  To me that means my best guess. What now?

A. Without seeing the plan, I can't comment specifically. However, typically I would expect that they were either based on insufficient real data (market research, competitive stresses) or you were too optimistic regarding your growth. I would ask if you can meet with the bank's development officer or loan manager and ask for clarification. If that isn't possible, then you need to have the plan reviewed by a knowledgeable third party. If you are projecting growth rates in the first two or three years outside the norm of 10-30% a year, and can justify that, it could even work for you instead of against you.

Have a question?  Drop me a line at rightwords@ida.net, I'll answer it and maybe even use it as a topic for a future post (without using your name, of course!).