Business February 18, 2019 Last updated February 24th, 2019 337 Reads share

How to Finance Your New Nonprofit

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A nonprofit business is a tax-exempt organization intended for various purposes such as religious, charitable, artistry, literary, or educational. Although earning a profit is not the goal, starting a nonprofit organization requires funding just like any other kind of business. This means that even though they have different goals, financing a new nonprofit is similar to financing a new startup or small business.

Just like startups, a nonprofit business needs to convey a message to their would-be financiers that they are worth investing in. They need to present their organization in a good light and show how they can make a difference to society or to the community of their choosing. You need to follow simple yet important steps to raise funds for your new nonprofit, which include the following:

1. Create a Mission Statement

A mission statement is a piece of brief information that typically sums up the essence of your nonprofit business. It will become the foundation of your organization’s marketing and communications. This should give people a general idea about what you do, why you exist, whom you serve, and how you deliver that service in just a sentence or two. Though mission statements are ideally concise, it must also be specific about what makes your nonprofit different from others in a similar field.

2. Write a Nonprofit Business Plan

Similar to regular for-profit business, writing a proper and realistic business plan is just as important for nonprofit organizations. Business plans help both for-profit and nonprofit businesses acquire financing. A business plan conveys the comprehensive planning and strategies that should help the organization reach their goals and grow. The properly laid-out plan can help your organization in persuading donors and other finance providers to fund your business.

3. Update the CV of Your Leadership Team

The leadership or management team plays an important role in every organization. If you are looking into attracting donors, lenders, and other finance providers to fund your nonprofit business, it is essential that you present your management team in the best light possible. Their CVs must be updated properly to show their individual duties for the organization and what they can bring to the table.

4. Measure Your Nonprofit’s Viability

Is a nonprofit business sustainable? Does it have the necessary personnel, skills, and other resources to unfailingly support its core programs, purpose, and services? What is the probability that the nonprofit business will become successful and financially stable?

These are just a few of the important questions that you need to ask yourself (and be able to answer) when trying to measure your organization’s viability. Funders want to make sure that the nonprofit business has the ability to put their funds to good use. The organization’s leaders should be able to show that they have a solid plan to achieve financial stability, and the organization generally needs to have the capabilities to put those plans to work.

5. Seek Nonprofit Funding

Once your mission statement, business plan, management team, and organization’s viability are well established, it is time to seek funding. In many ways, financing a nonprofit is similar to financing a small business startup. Below are a few of the funding sources for nonprofit organizations:

Grants

Grants are usually made by charitable foundations or the public sector. Typically, the money from grants are financed by non-government organizations, does not have to be repaid, and is also usually tax-exempt. However, most grant funders will only fund nonprofit organizations that are engaged in charity. Moreover, grants often come with certain conditions, such as:

  • Agreed milestones
  • Certain results from the funded programs
  • The excess fund must be returned to the funder
  • Reporting requirement on how the funds are used

Grants are usually not ideal for social enterprises that cannot meet the conditions, and those whose missions are not in line with the goals of the grant funders.

Fundraising Groups

Nonprofit fundraising groups help you find financiers according to your specific group type, either by the nature of your organization or by a specific project. Joining a fundraising group specific to your purpose is a great way to raise money for your nonprofit business while growing your network at the same time. Fundraising groups work together to promote their cause and raise funds in their area.

Crowdfunding

Donation-based crowdfunding is an online fundraising campaign ideal for those organizations that intend to raise funds for social causes. There are different crowdfunding sites for nonprofits available, and each offers different features and terms. Because this is online-based, it needs a reliable social presence to be successful.

Donors can directly donate funds for your social project through the crowdfunding platform, and the funds raised will then be transferred to your organization’s account once the campaign is done. Crowdfunding platforms usually charge a certain percentage for every donation received as fees. Still, they have the added benefit of becoming its own marketing effort, which can make it worth the cost from fees.

Debt Financing

Debt financing occurs when a person or organization takes out a loan that requires repayment plus interest. This type of financing is typically used by for-profit businesses and is less common for nonprofit enterprises, especially early on in their life. It is difficult to secure a loan for nonprofit organizations because a loan needs to be paid back with interest. Because nonprofits do not earn income from their projects, it’s difficult to convince lenders that you can repay the loan.

However, there are non-profit lenders and organizations that arrange to finance for nonprofits and charities. These loans usually need personal guarantees from nonprofit leaders and other members of the management team. Alternatively, it can be secured by an asset as collateral.

Bottom Line

Starting a nonprofit business is equally challenging and exciting. You need to gather the right people who can share your ideas and cause. Aside from putting up the perfect team of skillful and like-minded individuals who can contribute positively to the organization, you also need to put up enough money to start the organization. Generally, preparing and seeking financing for a new nonprofit business is similar to financing a startup.

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Marc Prosser

Marc Prosser

Marc Prosser is the co-founder of Marc Waring Ventures, which operates websites related to financial services and small business. Previously, Marc Prosser was the first employee and Chief Marketing Officer at a brokerage firm, which went public on the New York Stock Exchange. He spent over ten years in the role of CMO, where he was a pioneer in the fields of customer relationship management (CRM), search engine marketing, and email marketing.

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