Could a Non-Profit Structure Be Right for Your Business?

If you have a business idea, or an idea for a servicefor your community, there's one decision you must makeearly on: are you going to structure your project as afor-profit business, or as a non-profit corporation?

Now, it may be that you already have a clear idea aboutthis. Some business ideas are clearly "for profit".For example, if you want to sell insurance, or stocks,that's undoubtedly a for-profit business. On the otherhand, if you want to raise money for research into acure for juvenile diabetes, that project will best beserved by forming a non-profit corporation.

One difference between for-profit and non-profitorganizations is that grants funding is generallyreserved for non-profits. Some grants are available tofor-profits (and to individuals), such as governmentgrants to promote affordable housing or job creation ineconomically depressed neighborhoods. Most grants,however, and particularly grants from foundations, aregiven only to non-profit corporations designated by theInternal Revenue Service as 501(c)3 corporations.

In many cases it is not so easy to determine into whichcategory a business idea should fall. One question toask is: will my planned project deliver a service toclients? A beauty shop located in Beverly Hills,catering to wealthy women, is certainly a servicebusiness. The clients, however, are not needy. Theycan easily pay for the service without assistance.

So the second question to ask is: will the projectassist clients who are in need? A beauty shop locatedin a Medicaid-supported nursing home will serve clientsin genuine need - clients who could not pay for thisservice from their own resources.

What are the benefits of a for-profit business model?Well, first of all, the owner of the for-profitbusiness holds personal (or corporate) title to thebusiness and all its assets. Any money that is made bythe business can be used according to the discretion ofthe owner. The owner can borrow against the business,or sell it and keep the profits. When the owner dies,he or she can leave the business and/or its assets to his or her heirs.

For-profit businesses exist not just to support theowner, but also to build wealth. So if you have abusiness idea that has the potential to build wealthfor you, I recommend you stick with the for-profitbusiness model. For example, if you have designed awidget that is apt to revolutionize its market niche,and you hold the patent, by all means produce and sellit through a for-profit business. That widget couldmake you rich, while offering a great benefit to yourcustomers.

Does this mean that non-profits can't earn money? Not at all. In fact, I always encourage my non-profitclients to look for ways to become self-supporting.Many non-profit agencies generate income throughcontracting with other organizations to provideservices. Other agencies operate businesses such asthrift stores.

The difference is that the income generated by anon-profit organization always belongs to thenon-profit agency, not to the organization's founder.If the non-profit organization decides to ceaseoperations, its assets, by law, must be donated toanother non-profit agency.

While a non-profit organization may not generate wealthfor its founder, a non-profit can be a vehicle thatprovides a very good ongoing income. Many peoplecreate non-profits to do work they love, and to createa job for themselves. The founder of a non-profitorganization can become the agency's ExecutiveDirector, and draw a salary that is comparable tosalaries in the for-profit sector. In some cases, thefounder may choose to occupy another staff position,and turn ongoing management over someone else whofunctions as Executive Director.

There is also a third possibility, one that I call adual for-profit/non-profit structure. If you have abusiness that provides a service that could potentiallybe made available to clients in need, this structuremay work for you. For example, if you teach painting,you may want to charge some clients a high fee for artlessons. But you could also teach painting todisadvantaged children, and use grant funds toreimburse yourself for the work.

In order to use this structure, you could join forceswith an existing non-profit, such as the YMCA, andassist them in writing a grant to underwrite artlessons. You could also set up a new non-profit agencydevoted to providing arts education to needy children,enlist interested people to operate the agency, andcontract with that agency to be paid for teaching.This dual for-profit/non-profit structure can work fora variety of different businesses.

Jillian Coleman Wheeler is a Grants and Business Consultant to businesses and non-profit organizations. Her website, http://www.GrantMeRich.com, is a resource site for entrepreneurs, grant writers and consultants, and offers online training for grants consultants. She is also author of The New American Land Rush: How to Buy Real Estate with Government Money. For more information, visit: http://www.NewAmericanLandRush.com