Intricacies of non-profit world Can befuddle private operators

Yes, we work with several non-profits here at the Grand Enterprise Initiative. Heck, this initiative is a non-profit.

That being the case, I sometimes get approached by people with good business propositions who have suddenly realized their business might not make any money or won’t make much money. That usually is realized after doing cash flow projections or budgets.

The most common issues are that the markets here aren’t big enough or that the expenses of operating the business far outstrip the revenue. Despair sets in and then the bright light comes on: ‘I know, I’ll become a non-profit.’

The idea is that, well, perhaps the business can make up for the low revenue with grants and donations. Or maybe people will donate space to a non-profit, taking out one of the big expenses. Or, well, heck, people just might give us stuff.

But not just any business can suddenly become a 501 (c) 3 non-profit. Here’s what the “exempt purposes” for which a business operates that can help it to qualify as a legitimate non-profit (please forgive the government lingo):
“The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.”

I know, that’s a lot to digest. But what it suggests rather clearly is that not just any old business can suddenly be a legit non-profit just by saying it’s a non-profit. The government likes to be clear about this because it just doesn’t want to give preferential tax treatment to normal, regular businesses or operations that aren’t really doing what’s spelled out above.

As well, the government knows that some unscrupulous individuals use the non-profit status to feather personal nests by, say, employing a relative and paying that relative absurdly large amounts of money because the tax liability for the company as a non-profit is more generous than for a regular corporation. And, yes, this is a common way that people abuse non-profits.

As well, the government gives donors good tax benefits for donating to non-profits and it wants to be sure that the donations are being made to enterprises with altruistic intentions and good motives that are generally a plus for society. And, I might add, that help to fill in the safety net that government can’t provide for every single American.

All that being said, I wouldn’t want anyone to think that being a non-profit is somehow any easier that being a regular, for-profit enterprise. That’s because asking for money to support a non-profit is much more difficult and, really, riskier than many people believe. Yes, there are grants out there for non-profits, but they aren’t always easy to get, is what I’m saying. And it’s stressful to have to rely on what are essentially gifts for your survival.

As well, the bookkeeping and accounting requirements for a non-profit exceed, in many ways, what’s usually required for a regular business. The government, non-profit funders and the community want to know, and deserve to know, if a non-profit is a functioning, worthwhile non-profit. It’s good accounting good for accountability.

All that being said, I consider non-profits I work with as if they were “businesses.” They don’t general profits to benefit shareholders and owners. Instead, they generate “margins” that all must be funneled back into the mission of the non-profit.
It’s still business. It’s just business for a good cause.

Patrick Brower is the Enterprise Facilitator for the Grand Enterprise Initiative. He provides free and confidential business management coaching for anyone who wants to start or expand a business in Grand County. He is also the author of the book “KILLDOZER: The True Story of the Colorado Bulldozer Rampage.” He can be reached at 970-531-0632 or at patrickbrower@kapoks.org.