Nonprofit organizations are unique businesses with different funding requirements than most companies. Instead of shareholders, they have members or donors to keep happy. And instead of profits and dividends, they have mission statements and social goals to fulfill. But that doesn’t mean nonprofits operate in a different world when it comes to funding their operations. They still need money to pay employees, lease space, buy supplies, and so on – the same things that any business needs. Even though the financial details may be different, the core principles of finance remain the same: non-profits need capital from somewhere outside the organization to continue operating. This involves choosing an appropriate funding model and figuring out where you’ll find that money now and again in the future.
Basics of Nonprofit Finance
There are two basic ways to fund any company or organization: equity and debt. Equity is money that comes from the organization’s owners. Debt on the other hand is money that comes from outside the company. In the context of nonprofits and fundraising, debt is just another word for grants – money that’s given to you without expectation of repayment. Equity, on the other hand, refers to investments made by individuals or organizations in exchange for partial ownership of the company.
Grant Funding
Large foundations and government organizations spend billions every year funding research and charitable activities. Much of this money goes to charities and non-profits engaged in health, science, and education. Don’t forget that much of it is available to you and your organization as well. Government funding has become increasingly available to non-profits in the wake of the 2008 financial crisis. Grants come in many shapes and sizes. Fellowship programs for university students are one example. Another is the National Institutes of Health’s Small Business Innovation Research program, which provides grants to non-profits engaged in medical research. The funding requirements for grants vary widely. Some might ask that you provide matching funds as a condition of receiving the grant. Others might ask you to list specific goals or outcomes you hope to achieve as a condition of receiving funding.
Earned Income
One way that many non-profits make money is through earned income. This is any type of revenue that the organization brings in through its daily operations. It’s the same way that most companies make their money. Earned income for a non-profit can include: Fees for services provided by the organization (i.e. renting out meeting space) Fees for services provided by employees of the organization (i.e. professional consulting services) Sales from goods produced by the organization Sales from goods produced by employees of the organization Internal fund-raising activities can also count as earned income. For example, a non-profit might run Radio Bingo as a fund-raising event. It can also include membership dues and fees for services like insurance.
Membership and Sponsorship Fundraisings
When people donate to your organization, they’re putting their money on the line. But when they sign up as members, they’re essentially making an even bigger commitment. Members often pay a periodic fee (monthly, quarterly, annually) to support the organization. This can be a great way to start bringing in funds while your organization is still in the planning stages. It’s also a great way to help existing non-profits get the money they need to keep going. Membership and sponsorship drives can also be a good way to fund special projects. For example, a local theater company might offer “premium” memberships for patrons who want to help fund the production of a new play.
Asset Driven Fundraisings
In most cases, fundraising is an activity. You’re raising funds to help the organization survive from one day to the next. Sometimes, however, fundraising is a goal in and of itself. This is often the case for organizations that own physical assets like real estate, equipment, or other items of significant value. These organizations often sell pieces of their assets to raise money. This is one of the reasons why companies sell stocks and bonds. There are even some sophisticated non-profit organizations that trade shares in their physical assets on the stock market.
Conclusion
Now that you’ve seen all the different ways that non-profits can fund their work, it’s time to start thinking about which funding models make the most sense for your organization. To do that, you’ll first need to figure out your organization’s mission and goals. You’ll then need to figure out how much money you need and when you’ll need it. With that information in hand, you can start searching for the right funding sources. Good luck with your fundraising efforts!
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