I was speaking recently to a man I know who runs a children’s based business that is now a year old. From the outside looking in, everything about his venture seems like a typical non-profit organization, but it is not.

Instead of creating a board of directors, applying for his 501 (c)(3), and getting his clients excited by the thoughts of tax-exempt donations, he just plowed ahead on his own and created the business.

He used his own money, kept within a strict budget, and opened with what he could. He told everybody the business would be a work in progress, so he kept expectations in check. Along the way, he’s closed down for a week here and there to finish work on various aspects of the business, but he communicated absolutely everything he was doing on his Facebook page, so everybody would know what he was up to.

I asked him why he didn’t pursue the non-profit route right off the bat, and he told me that he was much more of a “go it alone” kind of person. He hadn’t had a lot of experience with non-profits, but the idea of a board of directors wasn’t very appealing to him, and neither was the arduous application process involved with gaining tax-exempt status. Basically, he had a vision of what he wanted to achieve, and he was going about doing that.

However, just over a year has passed since he shared those sentiments with me. He’s had twelve months of serving his population, marketing his business, and busting his tail to pay the bills on time. In this period, he’s done his best to build up a new business, which is always a challenge. But now, he may have had a change of heart regarding the non-profit status question.

After a year of trying to build community, he is starting to wonder if he would be more successful if he were to get his 501 (c)(3). Here are some of the questions he is asking himself:

  • Would more people in the community volunteer their time to help the business if he were a legitimate non-profit organization? (Everything from serving clients to helping with fundraisers?)
  • Would more people in the community feel comfortable donating money to the business if it were a non-profit?
  • Would his standing change in the community, if he were the director of a non-profit, not simply a business owner? Would more people be open to network with him?
  • Are the hours that it will take to become a non-profit, added onto the hours (and stress) it takes to manage the specific needs and requirements of a non-profit (vs. a for-profit business) worth it in the long run? Will attending to the governmental requirements of a non-profit take his eye off the very basic needs of growing a business?
  • What does he risk in giving ultimate power of the organization he created over to a board of directors? We all know that boards are highly political bodies and they change over time. Even if this man stays on as the executive director for years, will his vision be altered by a future board?
  • The town he lives in and operates the business in is not large. However, there are, already, a high number of non-profits. Can the town support yet another organization with an auction, a golf outing, a car wash, a bake sale, etc?

Readers of StepByStepFundraising.com are, I would assume, mostly employed by non-profits. I would also guess that our readers been around the non-profit industry for a while.

Therefore, I would love to hear your thoughts on his concerns, as well as the question: “What would you do in this situation?” Would you go for the tax-exempt status or would you just continue to build what you already have going, which although still new, is doing ok for itself?

Please share your thoughts with all of us in the comment section. I know this man would greatly appreciate thoughtful, outside opinions.

Photo by: bm.iphone

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Posted on 10 August 2011

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2 Comments For This Post

  1. Sandra says:

    Hi Jim, I think your list of questions would all be of use to this individual as he considers his options. If he went the nonprofit route he would definitely have to get over the “do it alone” mindset. Boards are not there to just rubber stamp everything the ED’s wishes.

    There are many social enterprises that are for-profit corporations and this works well for them. In some states, such as California, they are called B Corporations. Most of them do not ask for donations like a nonprofit. They must be profitable just like a regular business would, but the ultimate goal is often to support a particular cause.

  2. Jensen Calleemootoo says:

    Jim

    I like the idea of running a ‘business’ for a good cause. The reason I say this is because in the UK many charities could do better if the Board of Trustees have commercial experience. Of course, being labeled as a business does close many doors.

    Jensen Calleemootoo
    LIFE Fundraising

    http://www.lifefundraising.com


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