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Tuesday, March 28, 2017

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You Must Read This: A Nonprofit Income Primer
Karen Eber Davis

January, 2014

 “Let’s start at the very beginning, a very good place to start. When you read you begin with A-B-C, when you sing you begin with do-re-mi….”

Do you recognize these lyrics from The Sound of Music? Maria sings them to teach music to the Captain’s seven children. She starts at the beginning and with the basics. Over time, the von Trapp family became famous. To create sustainable nonprofit income and perhaps be famous for it, start at the beginning with basics.

Below are the seven basic nonprofit income “notes.” I’ve designed them as a quiz you can take and share with your staff, board and volunteers. A scoring tool follows.

1. What are the two types of nonprofit income?

DO: Donated and Earned. As a sector, nonprofits earn 60 percent of their income. Forty percent of it is donated. Therefore, if you are an average nonprofit, out of $100 you receive $60 will be from customers and $40 from donors.

2. What are the seven source of nonprofit income?

RE: Based on who provides the money to your nonprofit, the seven sources of nonprofit income are: 1) mission earned, provided by customers, 2) individual donations, 3) government customers, 4) foundations and other grant-giving entities who provide donations, 5) corporations who act as both donors and customers, 6) other income provided by customers, and 7) in-kind donations. Each source is explored in-depth in my forthcoming book, Nonprofit Income without The Mystery.

3. Sector-wide, what are the three biggest sources of nonprofit income? 

MI: Nonprofits make most of their cash income from three sources:

a. Mission Earned: This is earned income related to the nonprofit’s mission. It includes rents received from clients, theater tickets, and tuition.

b. Individual Donations: This is donated income from individuals and families. This is everything from dollars given online to bequests in wills.

c. Government. This earned income includes public funding from municipalities, states, provinces, the federal government, and other public entities. If you compete and win a grant from your state, you will receive government income.

If you guessed that in-kind was one of these three, take credit. While not cash, in-kind donations are huge. For instance, in one recent year volunteers gave 15 billion hours of time. Sector-wide, their value may exceed any of the top three sources.

4. What are the two minor sources of nonprofit income that many believe are much larger?

FA: The first is grants from foundations and other grant-giving entities. One example is a grant from your community foundation.  The second is corporate income. That includes a donation you receive from a bank. It includes ad income from your newsletter.

Together, sector-wide, foundation and corporate income equal less than 10 percent of all nonprofit income even though people believe these sources have huge potential to solve nonprofit income challenges.

The last type of income is unrelated income. Nonprofits earn this type of income without moving their mission forward as they earn it. Other income includes the interest your investment firm makes on your endowment and rent you receive from weddings held at your site. It equals about 10 percent of the sector’s income.

5. True or false:  Nonprofit income is the result of excellent mission work.

SO: False, obtaining consistent income requires disciplined, hard work to obtain income, not only quality mission fulfillment. Excellent mission work does not by itself guarantee income. Too many wonderful nonprofits are underfunded and hoping to be recognized financially for their contributions. Nonprofits obtain adequate income when they harness their power and interact with their people and provide value to them.

6. What are the best sources of income for a specific nonprofit?

LA: Each nonprofit must discover its own path. To succeed, you do not need to obtain income from all seven sources. So that you don’t miss opportunities, you need to understand all the sources. Nonprofits in similar genres tend to obtain their income in like ways. Therefore, theaters tend to earn income from the same sources as other theaters and food banks like other food banks. To find your path, study successful nonprofits in your field and adapt their success to your situation.

7. True or False?  Successful nonprofits can hire development staff to handle donated income. 

TI: False. You can’t hire a development director to handle donations. Nor can a CEO handle it. Both positions can help organize the nonprofit’s donation efforts. Significant donated income requires an organization-wide effort to identify and encourage donors to be involved in the nonprofit because of the value it provides to donors. At its heart, donated income involves partnerships where everyone donates and encourages others to join them.

How Did You Do?

6-7: You’re well on your way to obtaining the income you need. Continue to educate your supporters.

3-5: You have a good start. Build on it. Remind people of the basics. Then, introduce more in-depth knowledge about income sources that are critical to your nonprofit.

0-2: Invest in learning the nonprofit income basics.

. . .  And that brings us back to do (dough)

While nonprofit income is not nuclear engineering, it does contain unique nuances and complexities. Most people do not understand it. To succeed obtaining nonprofit income, first, educate everyone. Start with the basics. Use them to help everyone sing.

How to use this article:

  • For the next thirty days, begin every meeting at your nonprofit with the quiz.
  • Include this quiz in your welcome packet for new staff, board members, and volunteers.


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