Several readers of this column have asked that we talk about some start-up topics for nonprofits. Therefore I will do a few columns dedicated to that specific area of business start-up activity.
SCORE is a 50-year-old non-profit with over 10,000 volunteers who provide free business counseling and no or low-cost workshops to new and emerging small businesses nationwide. While most of SCORE’s work has focused on small businesses, over the years it has assisted some start-up and emerging non-profit organizations, particularly on business issues. As a result of these experiences, SCORE strongly believes that to be effective, competitive and sustainable, nonprofits must not only be caring and creative, they must run their operations as businesses.
In our democratic society, we ask non-profit organizations to fulfill several important responsibilities, from providing public benefit and serving the underprivileged to advancing education and science and reducing the burden of government. We also expect nonprofits to operate on a higher, more noble plane than other organizations, and we insist that they focus on public good rather than private gain in accomplishing their goals.
The role of this so-called “third sector” of our economy has become a vital part of our national culture. Nonprofits have proven to be effective instruments for addressing social needs outside of government. To perform effectively, however, they must be free to take risks, try new approaches and invest in solutions as they see fit. This means developing the strategies and skills to build the capacities to serve their communities, to become self-sufficient and to compete for resources needed to achieve their missions.
Without financial self-sufficiency, non-profit organizations cannot choose their direction or concentrate on their mission. Instead, they remain subject to the demands of finding their funding sources and in turn meeting donor demands. As a result, in today’s world, financial self-sufficiency is nothing less than a critical requirement for non-profit organizations and, together with strategic planning and marketing, their highest priority. To secure ongoing resources free from constraints imposed from the outside, nonprofits must pursue a long-term planning process and use business tools to assist them.
Charities, foundations, social welfare organizations, and professional and trade associations are the major categories of non-profit organizations. The following summary illustrates some of the most recent data on the scope of nonprofits.
National nonprofit size and scope
- Charities (501(c)(3) organizations): 654,000
- Social welfare organizations (501 (c)(4) organizations): 140,000
-Religious organizations: 341,000
- Total independent sector organizations: 1.14 million
- Total independent sector revenues: $621.4 billion
- Percentage of the national economy: 6.2 percent
- Independent sector employees: 10.2 million
- Percentage of total U.S. workforce: 6.9 percent
Non-profit organizations also receive support in the form of cash or in-kind services through grants and contracts from government agencies or foundations, contributions from individuals and businesses and earned income from fee-for-service activity, investments and other ventures.
Charitable giving represents the major funding mechanism for nonprofits outside of government. Of all charitable giving, approximately 75 percent is contributed by individuals. Non-profit income from private foundations, estates, bequests and corporate donations ranks second, third and fourth respectively, and together amounted to approximately 24 percent of total charitable giving.
Other statistics help to paint a picture of the giving population: Those who contribute time to a charity are three times more likely than non-volunteers to contribute cash as well, and approximately 75 percent of those who volunteer as children will go on to do so as adults.
Besides funding from individual donors, estates, private foundations and corporations, non-profit organizations also raise funds through membership fees and fee-for-service arrangements (which involve charging clients a portion of the cost of services).
Dean L. Swanson is a volunteer SCORE mentor and South Central MN Chapter 710 (www.scmnscore.org) district director for SCORE Minnesota.