What Is a Non-Profit Business?
A non-profit business, also known as a not-for-profit organization, is a tax-exempt organization formed for religious, charitable, literary, artistic, scientific, or educational purposes. It is an incorporated business from which its shareholders or trustees do not benefit financially. Any money earned must be retained by the organization, and used for its own expenses, operations, and programs. A few well known non-profit organizations include Habitat for Humanity, Red Cross, and United Way. There are many types of not-for-profit organizations, however, the most common is a 501(c)3.
There are several benefits of becoming a 501(c)3, including:
- Exemption from federal income taxes
- Exemption from the Federal Unemployment Tax Act (FUTA)
- Ability to accept contributions that are tax-deductible to the donor
- Eligibility for government and foundation grants
- Possible eligibility for some local and state tax exemptions
Business Planning for Non-Profit Organizations
Business planning is a very similar process for both non-profit organizations and for-profit businesses. The business plan is used to help you determine the feasibility of your business idea, potentially attract capital for a start-up, and provide direction.
In essence, all business plans have the same basic shape. Just like a for-profit business, the business plan for a non-profit organization will include a cover sheet and table of contents followed by an executive summary, which explains the concept of the organization, its history, its mission, and why it deserves funding. A non-profit has both a social and a financial mission. Next, the business plan is generally broken up into two sections: information about the organization and financial information.
Information about the Organization
The section on information about the organization is where you expound on the concept and customer portion of the plan. What is the history of the organization? Who founded it? When? Why? Where is it located? What products, services, and/or programs are provided, and to whom?
Evidence that a market exists for your business is much more convincing than an unsubstantiated claim or guesswork. Present facts you have gathered on the size and nature of your markets. Identify your target market. What are the market trends? How will you promote your business to your audience? Who is, can, or might provide the same services as you? These are your competitors.
What are the internal strengths and weaknesses of the organization? What strengths can you build on? What do you need to change? No nonprofit is without strengths and weaknesses, but you must know what they are in order to do something about them.
Board governance is where the business plan for non-profit and for-profit businesses differ the most. For-profit organizations are not required to have a board of directors. However, non-profit organizations must have a board of directors to oversee all legal and financial activities of the organization. Members of the board of directors are volunteers who oversee decisions such as incorporation, fundraising, hiring an executive director, and setting personnel policies.
Initially, the non-profit will consist of the Executive Committee and the Executive Director. As the non-profit becomes bigger, the rule of thumb is that no more than five people should report directly to the executive director without good cause. If the non-profit will have employees, what will their job descriptions look like? What are the education and/or skill requirements needed for the job?
The non-profit world turns on personal relationships, so it is important to seek out opportunities to work with others. What agencies can you work with to achieve your mission? Which agencies might be allies in the future?