Do you want to give back? Pay it forward? Change the world?
There are many ways to accomplish that. In the business world, many with those goals decide to start a 501 (c) (3) nonprofit organization.
Navigating the world of nonprofits can be tricky. To learn more, I talked to Jill Dominguez, the founder and CEO of Essergy, a consulting firm for nonprofits about what it takes to be a nonprofit entrepreneur.
Rieva Lesonsky: In general, why do people start nonprofits?
Jill Dominguez: For the same reasons people start businesses—they see a problem and want to solve it. The same business principles apply, but your income is derived from getting donations and your success is measured by performance and trust. You don’t pay taxes on income, but you’re still operating a business—making payroll, paying payroll taxes, insurance, employee benefits, etc. A 501 (c) (3) is a tax status, not a profit margin indicator.
The biggest difference is you are selling a cause, not a widget.
Lesonsky: How do you get paid?
Dominguez: Salaries for executive directors of nonprofits are far below those of for-profit CEOs in similar fields. An executive-level salary review is required annually by nonprofits. IRS regulations keep your salaries and expenditures in line. A nonprofit has the American public to answer to as shareholders and the IRS as the “hall monitor.”
Lesonsky: When starting a nonprofit, what factors should you consider?
Dominguez: Questions to ask yourself before taking the plunge:
- Know the need—and the market. Are you solving a problem that is already addressed by other nonprofits? Is what’s really needed a good volunteer and more money? Do your homework!
- If the need is not being met, what’s the best usage of your time and effort? Should you serve on a Board of Directors and make that unmet need part of the mission of an existing nonprofit?
- Assess your passion. Are you willing to work numerous unpaid hours, invest startup funds for your 501 (c) (3) application, learn a new skill set, new business operation rules, tax rules, accounting policies, answer to a Board of Directors? Non-profits are not for the faint of heart.
The real question is—can you ask for money? This is not as easy as it sounds. My rule is, “no blinking, no blushing.” If you believe in your cause enough to convince others to give you money and can spend it wisely and solve the problem you are promising to address, then go for it!
Lesonsky: Are there go/no go signs startup nonprofits should look for?
Dominguez: Yes, market drivers. Is the societal problem you are trying to solve best served by a nonprofit or are you crossing into business income territory? Do you need a 501 (c) (3) to develop a cure for what ails society? Do you need a nonprofit to tutor kids in reading or will a new education for-profit model do the same thing? Can you honestly say your nonprofit is serving a mission for public benefit that should be tax free? If in doubt, ask an expert.
Lesonsky: What’s the biggest challenge in starting a nonprofit?
Dominguez: Raising money.
Lesonsky: How are most nonprofits initially funded?
Dominguez: They’re self-funded. It takes about 18 months to get approved for 501 (c) (3) tax status and a professional to complete an application for nonprofit status. While you are waiting for approval you musttell funders all donations are pending a charitable contribution receipt. Or a fiscal agent can manage your startup.
Lesonsky: You’re a nonprofit guru. When you initially meet with nonprofit entrepreneurs, do you have a good idea if they’re going to succeed?
Dominguez: Yes, it only takes me a couple of hours. Here’s what I look for:
- Do you know the problem you intend to solve?
- Do you know your audience (those you’re helping and those who will fund you)?
- Do you have the passion?
- Do you have a “true believer” attitude?
- Are you fearless?
I look for honesty, integrity and trust. Nonprofits are transparent. I check up on everyone. My reputation is at stake if I take you on as a client.
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About Rieva Lesonsky
Rieva Lesonsky is CEO and Co-founder of GrowBiz Media, a custom content and media company focusing on small business and entrepreneurship, and the blog SmallBizDaily.com. A nationally known speaker and authority on entrepreneurship, Rieva has been covering America’s entrepreneurs for more than 30 years. Before co-founding GrowBiz Media, Lesonsky was the long-time Editorial Director of Entrepreneur Magazine. Lesonsky has appeared on hundreds of radio shows and numerous local and national television programs, including the Today Show, Good Morning America, CNN, The Martha Stewart Show and Oprah.
Lesonsky regularly writes about small business for numerous websites and for corporations targeting entrepreneurs. Many organizations have recognized Lesonsky for her tireless devotion to helping entrepreneurs. She served on the Small Business Administration’s National Advisory Council for six years, was honored by the SBA as a Small Business Media Advocate and a Woman in Business Advocate, and received the prestigious Lou Campanelli award from SCORE. She is a long-time member of the Business Journalists Hall of Fame.
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