10 Tips for Earned Income

Every year, myriad nonprofits use earned income projects as a way to generate revenue. When I was the executive director of the Colorado-based Community Resource Center, we developed the Colorado Grants Guide as an earned income project; we sold more than 1,000 of these guides at $100 each. All across the country, you can find nonprofits selling products to earn money for their cause. In Denver, a women's day shelter sells greeting cards designed by local homeless women. A Mississippi nonprofit makes and sells barbecue sauce. As funding gets tighter, nonprofits are seeking strategies to diversify and broaden their income.

In the for-profit world, two out of three businesses fail within the first three years. So what makes a nonprofit think their business won't fail? There are clear risks involved in taking "mission driven" organizations and turning them into businesses. However, many nonprofits have been very successful.

Obviously, this topic is complicated and we don't have the time or space to go into all of the facets of setting up a business venture, but we do have some tips to help you get started. For those of you who want a more in-depth understanding of this topic, pick up the book "Selling Social Change, Without Selling Out," by Andy Robinson.

1. You need to love making money. Even though you're a nonprofit, you need to really like making a profit for your organization. Look at money as a tool that will help you accomplish your mission. There is nothing wrong with making a profit!
2. Businesses generally fail for two reasons. The first is the lack of management skills and the second is insufficient capital. It's important to develop your skills and capacity first, and then create the business. If you have management skills, a good business idea and business plan, money will likely follow. It's not enough to have compassion and passion -- you must have business competence to make the business venture work.
3. What is the goal of your enterprise? Are you trying to generate jobs? Are you trying to generate profits that could be "pumped" back into the nonprofit? Is it job training that you're after? Stay focused and know what your priorities are.
4. Respond to market needs, not social needs. Make sure you're not trying to set up a business venture to solve a social problem. Know your market, and understand the pricing and quality of your product.
5. Pick a business venture that you know something about and that's related to your mission. Don't try to develop an enterprise that is totally outside your realm of experience.
6. Organize a business venture committee. Develop a group of five or six people who will help evaluate and shape the venture, and who can support you with marketing, raising business capital, and conducting a feasibility study. Try to recruit an established corporate person, an entrepreneur, the "champion" inside the organization, a marketing expert, and a financial expert.
7. Allow at least 12-18 months to generate real income. Look at this as a long-term opportunity rather than a quick fix. You have to be in it for the long haul.
8. Use an appropriate legal structure. If the venture is substantially related to your mission, you generally don't have to pay unrelated business income tax. It is valuable to invite a knowledgeable attorney to attend a planning meeting to discuss the legal structure of the business.
9. Some excellent web sites to use: www.co mmunitywealth.org ; www.guidestar. org ; www.socialent.o rg ; www.redf.org .
10. Make sure you have enough seed capital and time to analyze the venture. It takes more than prayers to make business ventures succeed. Make sure you conduct a feasibility study or develop a business plan, and then raise enough seed capital so you have a decent chance of success.