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!).
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