Fighting Shape: It's Time to Bolster Your Nonprofit's Budget

Athletes training for major competitions don't go on starvation diets. To ensure optimal fitness and performance, they eat high-protein meals with plenty of muscle-building nutrients.

Nonprofits aren't so different. If you've constricted spending to cover only the bare essentials, you'll have a hard time resuming pre- recession programming, let alone expanding your reach. As the economy rebounds, actively seek new sources of funds so that you can invest in the people, facilities and other resources that organizations require to thrive and grow.

READY, STEADY, GO?

You may wonder whether you're ready to shift gears from subsistence to expansion mode. As a group, smaller nonprofits, which usually don't have endowments or substantial savings cushions, have struggled more than their large counterparts over the past couple of years. And your organization may grapple with unique challenges that prevent it from growing just now.

But a recent survey of U.S. and Canadian organizations conducted by the Nonprofit Research Collaborative found that the nonprofit sector is bouncing back, albeit slowly. As of June 2012, 46% of respondents had experienced increased donations over the first six months of 2011, even though the organizations hadn't significantly changed their fundraising strategies.

BULKING UP

If you plan to rejuvenate programming by tapping existing income sources exclusively, think again. Although donors remained relatively supportive of their favorite charities during the recession and some higher-income donors may be motivated to give more now that their tax rates have increased, donor fatigue is a real risk and you need to tread lightly with fresh funding appeals. And if you've traditionally relied on government grants, getting new ones in this era of big budget deficits is about as easy as squeezing blood from a stone.

Instead, start looking for creative new sources of operating capital. Consider grantmakers you might have overlooked in the past, such as large family and community foundations. These groups generally have knowledgeable staff and are capable of making big awards.

Smaller family foundations usually make less-sizable grants, but if they have a particular interest in your nonprofit mission, you may find it easier to qualify for them. And don't forget federated funds such as the United Way, which supports social-service providers, and United Arts, which lends to arts organizations.

GOING INTO BUSINESS

Your nonprofit might also consider a moneymaking venture such as running an on-site café or selling charity-related goods on your website. Even if such activities aren't directly related to your mission, they don't have to threaten your exempt status. Just make sure you:

• Limit the revenue and resources used to produce unrelated business income (UBI) so that it doesn't become your organization primary activity

• Keep track of expenses incurred to deduct against revenue • Report UBI on your Form 990

• Pay federal income taxes on it

If you have a bigger income-producing project in mind, consider creating a for-profit subsidiary. You'll need legal and financial assistance, and the setup process can take time. Also, many organizations that go this route have trouble keeping the two entities completely separate, so this might be a challenge for your nonprofit, too. But the rewards, including the ability to raise unrestricted funds from angel investors and venture capital funds, can make the effort worthwhile.

Other forms of nonprofit/for-profit hybrids are emerging. For example, certified Benefit (B) corporations are companies structured to benefit both shareholders and charitable causes. As of February 2013, there were more than 600 in over 24 countries, and seven U.S. states had passed B corporation legislation. Although B corporations must pay corporate income tax, one city, Philadelphia, offers them a tax credit. Other cities seem likely to follow in the next few years.

USE YOUR STRENGTHS

These are only a few ideas for boosting your nonprofit income. For others that take into account your financial requirements and organizational strengths, talk to your financial advisors.