Not sure if you should start a nonprofit or for-profit? Learn what the difference between the two, and which one you should start.

Link to "How to Define Your Nonprofit" for $79

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This episode spotlights the nonprofit "A Step to Freedom". We would like to thank AS2F for all the advocacy work they are doing on behalf of justice-involved individuals in their community. Check out A Step to Freedom!

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Website: https://asteptofreedom.org/

Instagram: https://www.instagram.com/astep2freedom/

Facebook: https://www.facebook.com/AStep2Freedom

YouTube: https://www.youtube.com/channel/UCLb7PJ9aAfuXdbKHe4-l3NQ

Podcast Transcript

Speaker 1 (00:04):

Welcome to On Air with Amber Wynn, where nonprofit leaders learn to fuse passion and commitment with proven business strategies to create long-term funding, impact, and sustainability. And now, here's your host and resident Philanthrepreneur Amber Wynn.

Speaker 2 (00:28):

Hello everyone, and welcome to On Air with Amber Wynn. I'm your girl, your resident Philanthrepreneur, and my goal here is to support the most amazing people in the world, which is our nonprofit founders and executive directors. And how do I do that? I do that by providing you with the roadmap to long term funding and sustainability. And at the end of the day, that's really what it comes down to because if it don't make dollars, it don't make sense. And we know in this world of it is or it isn't, that if you don't have the dollars, then you can't fund your staff, you can't fund your programs, and you're not making an impact in your community. So what sets me apart from most other consultants is that I do, I focus on the money because the reality is you're doing the work. I know you're doing the work, you're just not getting paid to do the work.

(01:20):

So my goal is to shore you up because you know how they say on the airlines, you gotta put your oxygen mask on first before you can take care of other people. Well, you need to put your oxygen mask on. You need to make sure that your organization is well funded so that you can continue to have the quality of life that you deserve while you're taking care of your community. And so that's why I'm here. In the last episode, I talked to you about the nonprofit success path, and it's where you stage yourself. You go through this nonprofit success path and you identify where you are on that path. Knowing that is gonna help you identify what it is you need to do next is gonna help you to create a strategy so that you're strong and so that you're resilient. And so today we're gonna talk about stage zero. Thinking about starting a non-profit. Should you even start a non-profit? What your options are, or should you start a for-profit? We're gonna jump into that, but before we do, we're gonna pause for some information from one of our amazing sponsors.

Speaker 3 (02:25):

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(02:51):

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Speaker 2 (03:37):

Welcome back to On Air with Amber Wynn, your resident, Philanthrepreneur. Today we're talking about the non-profit success path and specifically we're gonna break down stage zero thinking about starting a non-profit. Now, this is a really important stage. You're not quite on the path, you're thinking about starting a non-profit. When I meet with individuals who are thinking about starting a nonprofit, I am excited because nine times out of 10 I can really convince them not to start a nonprofit. Starting a nonprofit is starting a business. Let's be clear, it's not something that's easier than running a business. It's not something that you should consider because you think all of this grant money is out there waiting for you because it's not. It is competitive. And typically it takes about two years before a nonprofit can really qualify for grant funds. That doesn't mean that you can't get revenue in until you're ready for it, but you need to know going into it that once you get your 501(c)(3) tax-exempt status, there's not this pot of money that's waiting for you.

(04:44):

You have to compete against organizations that have been established for 10, 20, 30 years. And so coming into that arena, you need to powerfully position yourself to qualify. Having a 501(c)(3) tax-exempt status means that you're eligible, meaning that if you don't have that tax-exempt status, you can't even apply. Having that tax-exempt status simply means you can apply. It doesn't mean that you qualify for the funds. And I say that to all of the individuals thinking about starting a non-profit because for some reason people say, Oh, you need to start a non-profit, you know, need to get money in to cover that. And it's not that simple. And I want you to understand that yes, it's a possibility that you can get funding for programs, but it doesn't mean that you need to start a non-profit. Starting a non-profit is starting a business.

(05:38):

And so I say to a lot of people who are thinking about it, maybe you shouldn't start a nonprofit. Maybe you should simply partner with a nonprofit, right? Leverage their 501(c)(3) and accomplish what it is you're trying to accomplish. We're gonna have plenty more episodes where I go into details on how to create those type of collaborations. But I really want you to pause right now. If you're thinking about starting a non-profit because you're struggling with the for-profit, if that is indeed the case, then I'm going to suggest that you do not start a non-profit because it's more work running a non-profit than there is with a for-profit. But if your for-profit is solid, but you really would love to work with the community, if you have a heart for the community, you believe that maybe you can provide job training opportunities for youth or you know, you could support seniors or homelessness.

(06:36):

It doesn't mean that you need to start a nonprofit. What I would suggest is that you create a collaboration, you would use an MOU or an agreement and you partner with the nonprofit, right? You sign an agreement that says, I will be your subject matter expert and I will do the training for your clients in that grant or in the funds that they receive. You are a sub-awardee, you get your money and it's perfectly fine that you're a for-profit because in a grant, the lead agency or the grantee can subcontract out parts of the grant for specific organizations who have subject matter expertise. So you don't need to start a non-profit, you just need to find a reputable non-profit organization that's looking to enhance their programs. And so that's what I would suggest. But if you are ready to start a non-profit and you think this is something that you really wanna do, I'm not trying to discourage you not, I just want you to set your organization up powerfully for success.

(07:44):

So what does that mean? Well, the first thing you wanna do is to determine if what it is you're trying to do is even...is something that aligns with the IRS definition of what a non-profit charity is. Sometimes people start non-profits and they're not really public charities, they're pass-throughs, right? They're pass-throughs for a person to get money to do things that they aren't really supposed to be doing. And then sometimes when I'm talking to non-profit leaders, they're not sure. What I have for you today is an opportunity before you jump into it to find out, it's something that I call, it's a workbook. It's called Defining your Nonprofit Organization. And I'll provide the link in the comments section. But you wanna go through actually looking to see if your idea is even fundable. People will start non-profits and they're like, There's no grants out there.

(08:46):

I can't get any money. There are grants out there, but if it's saturated, if what you're doing is being done a hundred times over, then no, you're not gonna get funded. And you wanna know that before you actually get into that pool. So the offer that I have for you is a workbook where you get to go through the whole process of looking at what it is that you wanna do. It walks you through how you can look at what's going on. Like when you're for a business and they tell you, Oh, you need to determine who your competitor is. Does the market support that? It's the same thing but for a non-profit. And so $449, which is a small investment because I tell you 40% of all non-profits actually get into starting a non-profit. They invest hundreds of hours and thousands of dollars and then they shut down.

(09:38):

But for $449, you can figure out right away should you even start a non-profit. If you do start a non-profit, is what you're doing going to be fundable? Is it in the community where it's going to be successful? And if not, how can you identify another community where it can be? So what I have for you is defining your non-profit organization. It's a workbook that walks you through all of that. When I work with my non-profit founders and executive directors thinking about starting a non-profit, this is what I take them through the exercise that I take them through. Where are you trying to set up your organization? Let's look to see if it'll be successful. So you can do that for a fraction of the cost cuz your mama ain't cheap. However, I want you to know that it's important that you know can determine whether or not you should start what you're thinking about starting before you do so that you can save money and really just be sure that you can be successful.

(10:33):

So that's the offer. I'll put it in the link but let's really talk about if you're thinking about starting a nonprofit. So there are five myths, right? I mean there are five must-haves that you should have if you're thinking about starting a nonprofit. The five must-haves, right? Number one, you need to have money to start a nonprofit. I'm gonna sit with that one for half a second because people think that since it's non-profit, something that should be started without investment and you cannot. First of all, you need to have money to file, right? Even if you do it yourself, if you decide that you want to fill out the paperwork and you don't want to pay a professional, which by the way, I don't necessarily recommend because a professional knows exactly what it is that the IRS is looking for and can help guide you with answering those questions.

(11:26):

But that's another topic for another episode. You need to pay a filing fee. You can't get around it depending on what your budget is. If it's less than $50,000, it's gonna be $400. If it's more than 50,000, it's gonna be $800. And it depends on which state you're starting in. But you have to have money. You have to have money to file. If someone's going to complete the paperwork for you, that can be anywhere between $300 to $2,000 just depending on the caliber of the professional. So right there, we're probably at around $2,500. That's just to start. So you need to know, you cannot start a non-profit without any money. And to be real, you can't run an organ... a non-profit organization without money like your own capital, not banking on grant money. So number one of the five must-haves is you must have money to start a nonprofit.

(12:22):

Number two, you need to have an annual budget. When I talk to founders, the first thing I ask them is, how much is your annual budget? They'll tell me, Oh, about $24,000 because they think that's how much it costs last year for them to operate. That is not an annual budget. An annual budget is not how much you fundraise. An annual budget is the actual amount that it costs to run an organization. And I'm just gonna share with you from a funder's perspective, if your annual budget is anything under $150,000, I'm not gonna take you seriously. So if you're saying your annual budget is 32,000 or 50,000, cuz that's what you were able to raise last year, if you submit that to a funding agency, they're not gonna take you seriously. There is actual template and a process for developing an annual budget, and we'll talk about that a little bit later.

(13:14):

But number two, you need to have an annual budget. Number three, you need to have a succinct mission. A lot of people will go in and just throw all kinds of garbage into their mission. Our mission is to broaden the horizons of people through Los Angeles so that they could have a better future. And what did you say? You said nothing. That was googlygop. It needs to be succinct because funders use your mission to determine whether or not it is a match with what they're trying to fund. So having a succinct mission that is clear and inspiring and impactful is huge. Number four, program description. When I talk to my founders and I say, What do you do? If they go on forever and ever, then I know that they don't have a clear understanding of what it is that they do. And maybe they do.

(13:58):

But from a funders perspective, what the three things that they're looking for is in your program description, who are you serving? Where do they live? And what's the criteria, right? You've got goals, which should be measurable in objectives, which should be actionable. So in your program description, that's specifically what your funder's looking for. The next, you should have a seasoned board, right? A seasoned board. So that's not Aunt Em and Uncle Jim it's not Mookie, Pookie, Shika, and 'em... a seasoned board is someone who can say, Hey, I've got this board, this organization whose board I sit on and I need you to give them access to. They can give you access to a venue or they can give you access to somebody who can help you accomplish your goal. And if that's your cousin, then great. I don't ever recommend that people put family members on the board, but sometimes it happens, especially in those inaugural boards.

(15:00):

We'll talk about all of that a little bit later. But a seasoned board is gonna help you scale a lot faster. If you have somebody on your board, they can help guide you, especially if you've never been in the nonprofit sector before. Because if you've never been in a nonprofit sector, that means that you can't work in partnership with your board. And then if you have people on your board who don't know what they're doing, then it's like the blind leading the blind. Seasoned board members are essential for success in the nonprofit sector. And we're gonna talk about how you can recruit them a little bit later. And then finally like I said before, measurable goals, actionable objectives. So let's recap the five must-haves. If you're thinking about starting a non-profit, money, at least $2,500 to start. And then to manage and maintain, I'm gonna say you need to have at least between 25 to $3,500 a month. And if you don't have that and that's like not counting grant money, then you should really think about considering starting a nonprofit. So one, money to start. Two, an annual budget. Three, a succinct mission. Four, the program description. Five, measurable goals, actionable objectives, and a seasoned board. So there you have it. If you are thinking about starting a non-profit, those are the things that you really should think about.

(16:26):

And if you don't have them, it's okay. Either you can wait cuz that's what I did when I started my non-profit. I waited until I had the money to do it. I didn't jump into it cuz I knew that these were the requirements. And I want you to know what the requirements are, so that you can set yourself up powerfully for success and so that you're not a part of that 40% that close their doors within two years. All right, so we're gonna pause here and we are going to hear from our sponsors. And when we come back we'll finish talking about, thinking about starting a non-profit.

Speaker 4 (16:58):

You're a school, a foundation, a healthcare provider or an environmental group, a museum, a church, a shelter, or a community service. You're starting a non-profit on a startup budget and you need to get this right the first time. No mistakes, no misunderstandings, and no costly do-overs at Non-Profit Elite, we know what you need because we've been there too. Accurate information, mistake-free filings and peace of mind assurance that your 501(c)(3) application will be successful. This is what we do and we are very good at it. All backed by our industry-leading guarantee and 100% IRS approval rate. But forming your non-profit and obtaining tax-exempt status is just the beginning. Once you're up and running Non-profit Elite will consolidate the bulk of your operations into one place, including your accounting, compliance, website, fundraising, and more. We do the work of several full-time staff for just a fraction of the cost so that you can remain focused on advancing your mission, contact Non-profit Elite for expert preparation of your formation documents and 501(c)(3) application. And for a full range of accounting, fundraising, and administrative solutions.

Speaker 2 (18:19):

Welcome back to On Air with Amber. It's your girl, Amber Wynn, your resident Philanthrepreneur. Today we're talking about thinking about starting a nonprofit. Should you start a nonprofit or for-profit or do something else? And we've been talking about the five must-haves. If you're thinking about starting a nonprofit, you need to have money to start a budget, a succinct mission, program description, measurable goals, actionable objectives, and a seasoned board. Now is the time of the program where I field questions and today's question with Ask Amber is how do I know if I should start a nonprofit or for-profit? Well, there are a couple of things. Number one, do you wanna own the business? A lot of people start their non-profits and they say, my non-profit. And as a funder, I know just from that statement that you don't know anything about your organization cuz it's not yours.

(19:24):

Number one, a non-profit cannot be owned. It is a public charity and the IRS set it up as such. How do you know you don't own it? Because if you step in as the Executive Director the board can fire you. As a matter of fact, I just had one of my clients call me and say, after 20 years of starting this organization, my blood, sweat and tears, all of the money, my board just fired me. Because it's not your nonprofit. You will always, always be the founder, but you can never, ever own. Not you, not you and your family. The difference between a public charity and a private foundation, there are nonprofits that are private foundations, family-owned, private foundations, but they're giving out money, right? Don't conflate that with the public charity that's asking for money. The family foundation, they set it up so that they're giving out money so it can be theirs in their family for decades.

(20:27):

But that's different than what you're doing. You're a 501(c)(3) tax-exempt status designated organization. So you can never own it. That's important. I don't care if you're the executive director or you're a president. So if you want to own a business, if you want the money to come in to go directly into your pocket, then start a for-profit. If you want to impact your community and you understand that all of the revenue that comes in, and let's be clear, you have to have consistent revenue coming in that the money that's coming in has to go back in to strengthen the non-profit organization. Then you start a non-profit. That's the most important thing to understand. My non-profit doesn't exist. The non-profit is the truth. So secondly, it has to serve the public, right? It has to be something that anyone can access. You can have a specific goal where you serve African American youth, where you serve Jewish youth, where you serve teens or you serve seniors.

(21:30):

You can have an area that you focus on, but it can't be exclusive. So for some of my nonprofits that say, that has a religious tent, that's not to say that you can't, but as a public charity, you're going to reduce the amount of funding that you're able to give because as a public charity, it should be open to the community. What else is the mission inclusive? So again, I've had some people say that God has given them a vision. I'm not, listen, I'm not touching that. You and what God has given you is what God has given you. But as a consultant, I'm gonna say, if it's restrictive, then you are going to have a challenge. There's some organizations out there that fully fund religious organizations, so that's not what I'm saying. But when we talk about sustainability, we talk, we're talking about the ability to bring in consistent funding.

(22:24):

And when you cut things off so nearly, then that helps to cut off some of those funding streams. Do you have experience? I have so many people starting nonprofits, like it's easy. And then when they get into it, they're like, Well, I didn't know I was gonna have to do all of that. What are you gonna have to do? You're gonna have to do human resources, marketing, volunteer management, you're gonna have to do fundraising, financial management, fiscal management. There's so many things that you have to do to have a successful nonprofit. So if you don't have those skills, my recommendation is either go get them first or just wait. You can serve your community by getting on a board. You can serve your community by participating in some of these certificated programs. Go get the experience first. Don't start a nonprofit thinking that it's easy because it's not.

(23:20):

And make sure that you recruit a seasoned board because if you don't know what you're doing and your board doesn't know what they're doing, you're gonna be in a world of trouble. All right? And then finally, can you partner, right? Can you partner with another organization to accomplish your goals? Because funders want you to partner. They don't wanna just fund one organization. They want as much bang for a buck as possible. So if you are like, This is my organization and I'm not trying to do that, then you shouldn't start a non-profit because you won't really be successful. And then of course, finally, how do you, you know, if you should start a non-profit or a for-profit? Do you have money to invest? Do you have startup money? That's for both the for-profit and the non-profit. But I'm specifically stating that because if you don't have any money, then you should not start a non-profit.

(24:10):

If you are broke, do not start a non-profit. So that's our Ask Amber question. It was a relatively long answer, but I want it to be specific. If you wanna own the business, if you have no experience, if you don't have any startup money, then you should not start a non-profit organization. All right, so that's that for Ask Amber. You can reach me people, my fam, if you have any questions, you can post them on my social media. I am on Facebook, I am on Instagram. I have a website that you can go check out. I have resources on my website. I'm also on Twitter. I'm here for you to support you in any way that I can. But if you have any specific questions you'd like for me to read on Ask Amber, just hit me up on any of my social media, post your question, and I'll be happy to read them here on air.

(25:09):

And now we're gonna go to the part that I really enjoy most about my podcasts, which is featuring our nonprofits. As I've said to you before, a key element of your success is being visible. So I wanna do my part in spotlighting nonprofits all throughout the country if I can. I'm not limited to just Los Angeles because I'm here, but visibility is the key. Number one, you use your visibility to leverage, leverage your collaborations. If people hear about what you're doing and there's a missing gap, and you can partner with somebody, that's gonna help build your credibility. Visibility also gets you in front of funders, so they may not know what you're doing, but if you're out and about and they see what you're doing, they may wanna fund you. So I'm always, you're always gonna hear me talk about you need to get visibility.

(26:04):

All right, so let's talk about today's nonprofit spotlight. And it's A Step to Freedom. A Step to Freedom is a transitional living home that was founded in 1987 by Kenneth Croom after he struggled to find resources and support after being released from prison. Despite having no formal training, Kenneth had passion, commitment, and an entrepreneurial spirit, and he leveraged every one of those to form this organization. He led the organization until 1997 when his daughter, Kenya Kirkland took over the organization and officially incorporated it as a 501(c)(3) tax-exempt nonprofit in the year 2000. So under Kenya's tenure, she has expanded her father's dream, taking it from a seven-bed facility to a 78-bed at three sites, and welcoming women, veterans, ages 18 to 65 and their families by addressing psychological issues that perpetuate cycles of subversive behavior such as trauma, lack of coping skills, life management skills, educational attainment, and job readiness skills. She also provides quality wraparound services. So we're gonna take a look at a video from a case worker that shares her reason for working at a step to freedom.

Speaker 5 (27:34):

Hello, my name is Shaab and I am a case manager here at a Step to Freedom Reception site. What inspires me to do this type of work is being a part of the solution. Homelessness is a large issue in the Los Angeles County. And homelessness with substance abuse, addiction and mental health component are an even larger issue. And I am so very proud to be a part of the solution, helping those gain permanent housing, gain resources and get their lives back on track.

Speaker 2 (28:09):

And individuals with justice-involved backgrounds really have multiple challenges. And so I'm really excited about the work that's happening. At a Step To Freedom, they have been actually doing this work for over 30 years. They're celebrating 30 years of quality services, compassion, passion, and advocacy for justice-involved individuals. And if you'd like to support them, reach out to Kenya Kirkland at www.asteptofreedom.org. Thank you, A Step to Freedom for all you do to transform lives in our community. And so here we are wrapping up stage zero of the Non-Profit Success Path. As I said to you before, it's important for you to know where you are on that non-profit journey because once you know which stage you're in, you have a clear understanding of what it is you need to do. We don't want you to be in stage one doing the work in stage seven because it's just gonna have you spinning your wheel.

(29:16):

So it's important for me that you understand all of the stages so that you can put yourself in where it is you need to do, and then you can be laser-focused on all of the things you need to do to get you to the next stage. At this time, I really would love to thank my sponsors Small Biz Pro. When we talk about building infrastructure, it's important that you have what you need in order to give those statements and to give those documents to your funders. Small Biz Pro helps you to create that solid infrastructure and have access at a drop of a dime. Non-profit Ready is really important for this stage because if you're thinking about starting a non-profit, you wanna start it the right way. And non-Profit Elite, I'm sorry, Nonprofit Elite allows you to do that. They have a hundred percent guarantee, which not too many people have.

(30:05):

And so it's important that, you know, have a resource to help you actually form your nonprofit. And then finally, we'd like to thank A Step to Freedom for all the work that they're doing in their community. And so if you wanna reach me where you can reach me, I'm on social media, I'm on Facebook, I'm on Instagram, Twitter, and if you need to visit me on my website, today's offer was defining your nonprofit organization. I'm gonna provide that link for you and you can use it for $149. You can use it to determine whether or not you should even start your nonprofit, whether or not it would be viable and whether or not what you're thinking about even qualifies as a nonprofit idea. And so we're gonna wrap up today's session with Mindset Minute. Why do you want to start a nonprofit? I ask this question of anybody in this stage.

(31:04):

If you're thinking about starting a nonprofit Stage Zero, why do you wanna start a nonprofit? Because if it's for the wrong reason, you will fail. I had a gentleman once who wanted to start a group home and it was clear to me that he wanted to start it because as he stated, you can get a lot of money for, you can get a lot of money for a child who starts fires. You can get a lot of money for a child who is violent. And so it was clear that he was going into that for the wrong reasons. Now, I'm not saying...cuz you know I'm all about the dollars...you need to make sure that you generate revenue. But starting and running a successful nonprofit requires a lot of work. It does require compassion and passion and energy. So if you're starting a nonprofit because you think you're going to easily start a business, then don't do it.

(31:57):

If you're starting a nonprofit because you think there's this slush fund of grant money, free money waiting for you, don't do it. If you're starting a nonprofit because you think it's something that you can do not having experience or that you won't have to fundraise, then don't do it. Just don't do it because you will struggle and eventually you will close your nonprofit organization. So I want you just to take a minute and really be honest with yourself. If you think that starting a non-profit is something that you can own and something that'll be yours and you can control, then don't start a non-profit. But if you're willing to do the investigation, do the work to learn what the IRS has defined and to obtain the skills that it needs to be successful, which is volunteer management, board management, staff management. If you're ready to put in the work, then I'm gonna encourage you to start a nonprofit. I'm gonna encourage you to see where you are on that nonprofit success path. And not only am I gonna encourage you, but I'm gonna give you the resources that you need to be successful because that's who I am. That's what I'm here for. I am the philanthrepreneur and I am your biggest cheerleader, and I'm so excited that you joined me today, and we look forward to seeing you next week when we talk about stage one on the nonprofit success path.

Speaker 1 (33:21):

Thanks for listening. If you enjoyed this episode, subscribe and leave a review on iTunes. Head over to www.amberwynn.net/podcast for the links and resources mentioned in today's podcast. See you next time.