Pros and Cons: Earned Income
You'll hear it called by many names - venturing, earned income, business spin-offs, entrepreneurial activities, enterprise endeavors, revenue-generating projects, business ventures, for-profit undertakings, commercialism, profit-making operations. Some of the names have an ominous sound. That's unfortunate, because earned income is one of the best ways for nonprofits to raise funds.
Earning income can be as simple as taking a workshop you already provide and figuring out how to expand its scope and make a profit doing it. Or perhaps your clients tell you they need a certain product or service, which you can develop and sell.
Because we at Nonprofit World consider earned income such a vital component of a nonprofit's fundraising tool kit, we include a department called "Entrepreneurial Spirit" in Nonprofit World. Reading these articles will help you gain an entrepreneurial, risk-taking perspective. Often, that's all you need to start earning money!
PROS
- There are no strings attached to the money you earn. You may use it however you wish.
- It allows you to be self-sufficient, not dependent on "the kindness of strangers."
- It strengthens your organization by diversifying your offerings.
- It can help improve your organization's image and visibility.
- It forces you to be sensitive to your customers, which will improve the way you serve your clients.
CONS
- It's time-consuming to do the market research, prepare the business plan, and come up with
financial projections. But it's vital that you do all these things before you start an earned income venture.
- You may have to educate board and staff members about what earned income is and what its advantages are. All must be committed to the idea of entrepreneurship.
- The caliber of management will make or break your enterprise. You must have top-quality, business-minded people and pay them accordingly.
- In most cases, you'll need some money up-front.
- You need a cushion of cash on hand, or the ability to get a quick loan, to help you through inevitable down turns in the market.
- For-profit businesses may feel you're competing unfairly and may challenge your tax-exempt status.
TIPS TO REMEMBER
- To be successful at earned income ventures, you must be willing to take calculated risks. Before you start a venture, do a risk-taking assessment.
- Part of being entrepreneurial is being able to make quick decisions. The time from a proposed idea to a yes-no decision should be no longer than 90 days.
- Good relations with bankers are essential.
- Know your financial goals. Don't just make a profit. Make enough of a profit to justify the time and effort.
- The key to successful venturing is to be extremely responsive to your customers. To do so, you should understand total quality management principles.
You should also have mechanisms in place to poll your customers.
- Aim to do fewer ventures with larger payoffs rather than many ventures with smaller returns.
- Be sure your venture makes the best use of your staff time, expertise, and program strengths. The exercises you did in
step 5 will be helpful here.
- You need to continually monitor the marketplace. You must be ready to adapt quickly to a fast-moving, constantly changing world.
QUESTIONS TO ASK TO IDENTIFY YOUR
EARNED INCOME POTENTIAL
- What programs, products, and services does your organization already have in place that you could adapt for the marketplace? (See your responses to the exercises in
step 5.)
- Does your organization have a lot of people coming through it to whom you may be able to sell a product or service? Example: a museum that operates a museum store.
- Do you have access to a pool of available labor in the form of under-utilized staff or clients? Example: a sheltered workshop.
- Does your organization have any special expertise that may be marketable? Examples: If you have skills in serving disabled people, you could counsel professional groups whose clients include disabled people. If you operate an art gallery, you could sell appraisal services.
- Does your organization own or have access to special equipment and facilities not being used to capacity? Examples: a camp, a computer, a kitchen, meeting rooms, word-processing equipment, an auditorium. Consider renting these out during off-times.
- Can you think of ways you can spin off ideas from your organization's mission? Or can you expand your mission to encompass new earned income projects? Hold a board-staff retreat to brainstorm ideas.
7 STEPS TO EARNED INCOME
- Choose an idea. Pick something related to your organization's mission. (You can choose something unrelated, but you'll have to pay tax on your proceeds, and you won't know as much about the subject. Better to stick with your mission, at least at first.)
- Gain the support of your staff and board.
- Do a market survey. Be sure there is a need for this new venture.
- Write a business plan - a comprehensive description of the proposed venture, including a detailed budget.
- Raise the capital needed to launch the venture. (Here's where corporate partners are helpful.)
- Market the enterprise to your targeted audience.
- Gradually expand the business as it proves itself.
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