Are you starting a nonprofit for the right reasons?

Passion and commitment aren’t reasons enough to start a nonprofit. Understanding that there are many ways to “make a difference” besides starting the arduous task of starting a business may save you a lot of time, money, and—quite frankly, joy.

Often, Founders start nonprofits because they are passionate about a cause and want to make a difference. But that, sadly, is not enough. Nonprofits are required to file taxes, comply with IRS rules and regulations, and operate according to Generally Accepted Accounting Principles (GAAP). If there is a staff, there are basic labor relations and human resource management principles the organization must abide by.

There are several types of insurance a nonprofit organization must have: Directors and Officers and Liability; if there are company vehicles, you will need commercial auto insurance. If your nonprofit provides services to children, it will need to perform background checks on your employees and volunteers (that costs about $78 a scan). I can go on and on, but the bottom line is that, as a business, your organization needs to have a solid infrastructure built on policies and procedures and processes by which to implement them. 

Needless to say, these infrastructural requirements cost. Payroll, insurance, marketing, materials and supplies, rent, utilities, and consulting services (IT, accountant, grant writer, web designer, etc.) are all basic necessities a business has in order to operate. Yet, many Founders are caught off guard when it comes time for them to put these things in place in order for their nonprofits to function.

There is a lot of misinformation about what a nonprofit is, what it takes to make it successful, and what the Founder’s role is in making it all come together.

Many Founders start their organizations not fully understanding that nonprofit organizations have a pre-defined role in society. With that comes legal and social implications. This one misstep often sets Founders on a difficult course that is challenging to course-correct.

Nonprofit does not mean that the organization will not make a profit. A nonprofit is a business. All businesses need to generate revenue to cover operational expenses. A nonprofit needs to generate revenue to fulfill its mission. 

The nonprofit designation means that the organization has no owners, and revenue generated in the operation of the organization will not be used to benefit any owners. The use of surplus revenues must be used by the organization for its self-preservation, expansion, or plans.

Nonprofits do not automatically qualify for grants simply because they have 501(c)(3) tax exemption status.  Funders award nonprofits grants to help accomplish the Funder’s mission. Nonprofit organizations provide services for a specified amount of time to a specific target audience in exchange for a specified amount of money. 

There are several common myths many Founders have about starting and running nonprofits. These myths mislead them into starting an organization. I want to dispel five common misconceptions right away.

Myth #1: Nonprofit organizations are easy to run.

Nonprofit organizations are businesses. And just like for-profit businesses, nonprofits require business skills such as management, accounting, marketing, human resources, fundraising, board development, program, and collaboration skills to effectively run a nonprofit. They are probably more difficult to run than a for-profit because the rewards are purely altruistic. In the for-profits, the owner at least has the profit/revenue as an incentive for their hard work and sacrifice. Nonprofit organizations are not easy.

Myth #2: Nonprofits are easy to fund.

“Just start a nonprofit and get some grants to fund it.”

It’s what many new Founders say they thought was the process. But it takes more than a tax-exempt status to qualify for funding. It usually takes between 2-4 years before a nonprofit is eligible for serious grant dollars. Nonprofits are not easy to fund.

Myth #3: Nonprofits can sustain themselves on grant dollars.

It takes between 6 months–12 months before a grant is awarded. And that’s if you get the grant—they are not guaranteed. Grants take a lot of time to prepare (between 20-100+ hours each). Even if the Founder spent every day writing grants (or paid a grant writer to write them), there would be gaps in the funding. Nonprofits need multiple funding sources in order to remain sustainable. 

Myth #4: Grant Money is Free money.

Donors give grants to nonprofits that do not have to be repaid; but failure to spend the money according to the terms and conditions of the agreement may result in the organization being cited for mismanagement of funds, fines, penalties, and possibly revocation of their tax-exempt status—or worse, imprisonment. Nonprofits certainly have to work for the grant money.

Myth #5: The Founder owns the nonprofit.

A nonprofit is a public charity. Even though the Founder started it, used personal funds, and invested sweat and tears to keep it operational, no one person or group owns the nonprofit. It is not your nonprofit. If a Founder takes the paid role of Executive Director s/he can be fired by the Board of Directors. The IRS is the governing body that controls nonprofit organizations. It is not your company.

Nonprofit organizations are businesses. Just like any business, it requires hard work and financial investment. Before you jump into this time and financial responsibility, be sure to do your homework and research what it takes to run a successful nonprofit organization. Be sure you have a clear understanding of what it is the government requires you to do to maintain your nonprofit status—but more importantly, be sure you understand what it actually takes to run a nonprofit. Don’t go off of “what you’ve heard.”

Not sure you’re ready to start a nonprofit? Look at these sexy alternatives where you can still make a difference.