Cover Story: Safety Line
Peeler says a lot of nonprofits right now are struggling with adapting to the current economy and asking her firm if now is a good time to consider earned income. She stresses to them that if the market and organizational capacity are there, it could be a very good time.
“If they’re trying to think more strategically, long term over the next three to five years, ‘How are we going to diversify our revenue, and how do we become more self-sufficient as an organization?’ then yes, this is the right strategy,” she adds.
Because of the length of time until breakeven, it’s vital that organizations set aside enough startup capital. Be realistic about how much money is going to come in from the venture and what it’s going to cost until breakeven. And look at the UBIT question to determine whether or not taxes are going to have to be paid. Though UBIT is not necessarily a bad thing and in most cases won’t jeopardize an organization’s tax-exempt status, it is a cost and needs to be taken into consideration during the planning process because it can make what might seem like a profitable venture unprofitable.
And while some ventures won’t necessarily become profitable from a business point of view, Bromberger notes that if an organization can get a third or half of the revenues for a program earned by the program itself, at least it doesn’t have to raise as much money to cover it, so it acts as an internal subsidy.
One thing’s for sure: There has to be a commitment to success throughout the entire organization, from the executive director and the board of directors on down, even to outside stakeholders — constituents, communities, government officials, donors, etc. Peeler recommends engaging stakeholders, letting them know about the earned-income venture early on, and being transparent about why the organization is doing it and what the benefits are going to be. In addition, support from the board can be vital not only for the different perspective it will bring to the table, but also because board members often are in business or run businesses and might know of people who can be brought in to help with initial planning and/or making the business operational.