Startup nonprofits should consider financial viability early on

October 25, 2013

Startup nonprofits should consider financial viability early on

It has been tough times for for-profit and nonprofit businesses alike since the recession. However, while a sluggish economy has slowed down new business growth, entrepreneurs continue to chase dreams and start new companies. This also holds true for nonprofit ventures and the two groups face many of the same obstacles.

While nonprofits and for-profits have one obvious difference in their business models, they also have many similarities. Because of this, they are met with the same successes and failures and usually flourish under similar minds.

Lizzie Bildner, founder and president of Sharitive, described the early goals of her nonprofit startup with with Forbes:

"In order to ensure Sharitive's successful transition from beta to business, I need to bring on a team that has experience in sales, growth strategy and implementation, nonprofit management, mobile payments, and design and product development. Most of all, I need people who are creative, flexible, and passionate about Sharitive's mission. A real passion for what Sharitive is doing trumps the rest because at this stage passion and commitment to the idea is what gets you out of bed in the morning."

While passion is at the core of nonprofits, it is also the case for for-profit startups. While revenue may be the driving force as opposed to a mission, it still takes dedicated people to get any startup off the ground. The early stages often require staff that can wear many hats and help to quickly grow the business.

It is no different for startup nonprofits. Founding members should surround themselves early on with employees and volunteers who believe in the mission, but also understand the business. Even with the help of volunteers and the benefit of tax exemptions, nonprofits are not impervious to failure early on. While the mission of a nonprofit may sound great, founders should prepare for as many scenarios as possible before taking their idea from beta to the real world.

Nonprofits shouldn't underestimate early financial security
Startup organizations should also familiarize themselves with the nonprofit landscape as quickly as they can. Tax exempt is a general statement and nonprofit leaders should be aware that they will incur costs they may not expect.

While nonprofits are exempt from federal unemployment taxes, that is not the case for state unemployment taxes. This is because while FUTA taxes are used to pay administrative costs, SUI are used directly to pay the cost of benefits paid to unemployed workers.

Nonprofits are required to contribute to unemployment insurance but they also have the option of becoming a reimbursing employer. There are a few options for nonprofits that choose to opt out of state UI tax pools to save money and startups should familiarize themselves with those options early on. Groups such as First Nonprofit Companies can provide nonprofits with advice and membership in an LLC to help lower UI costs.

First Nonprofit also offers financial services that can help organizations develop fundraising plans, review financial statements and develop financial data. Financial data can help nonprofits react more quickly to budgetary and funding variances. 

Like any business, nonprofits that can begin utilizing cost-saving measures early on stand a greater chance of success down the road.

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The Ensight Skills Center has enjoyed working with First Nonprofit for several years. We are enrolled in their Unemployment Savings Program and although we have not required a lot of intervention, there have been a few times. I know others have dealt with the same problem of unemployment fraud over the last year and in our case, a call to First Nonprofit (they actually answer their phones) cleared up the issue. They also sent us a letter to send to all our employees telling them what they needed to do to prevent this in the future and protect themselves. What a relief! Over the years if I have questions or concerns, they are happy to listen, advise and help if they can. Another BIG advantage of using First Nonprofit is that all the money that is paid into the Unemployment Savings Program lives on my balance sheet as an asset. The money continues to be Ensight’s not the governments. First Nonprofit has certainly given me peace of mind.

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It has been our sincere pleasure to maintain a strong, vibrant business partnership with First Nonprofit. We greatly admire their strong industry knowledge, technical expertise, constant professionalism, knowledgeable and dedicated staff. They are always extremely responsive, personable and provide us with the necessary guidance and recommendations on a numerous variety of employment scenarios. We are impressed with the accuracy of their employment decisions, integrity of their employees and efficiency of their claim handling. We greatly respect and value the consistent, impressive cost savings from the utilization of their outstanding services.

 

Thresholds, Chicago, IL

Because INCS advocates for the operating conditions that allow charter public schools to provide high quality public education, partnering with First Nonprofit was an easy decision. First Nonprofit’s unemployment programs provide our member schools two operating elements crucial to their ability to provide high quality public education: savings and budget certainty. Capable, committed teachers are the key to student success. By participating in the unemployment insurance savings plan, charter public schools gain peace of mind and are able to invest more money in their teachers.

Illinois Network of Charter Schools, Chicago, IL

Throughout our membership in the Unemployment Savings Program, First Nonprofit understood our demands, community dynamics, and the importance of seamless services; that allowed us to serve our constituents better.

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