Nonprofit Myth Busters: Starting a Nonprofit May Not Be Right for You

So, you want to start a charity? Exciting!

If you’re like most of the people I work with, then you have been dreaming and planning and mulling and stewing and talking about this for a long time. Or the idea struck you like a lightning bolt, and now you’re possessed with executing it RIGHT NOW.

But before you start running down the road to nonprofit land, think about whether you’ve fallen prey to these myths about starting a nonprofit…

1. If I start a nonprofit it means I’ll get FREE STUFF!

Hate to break it to you, but being a nonprofit can be more expensive than being a for-profit business. First of all, while you may get a free SalesForce account or some Google product at free or discounted rates, you will also need to hire a specialist accountant, buy Directors & Officers insurance, do a lot more government reporting, and so on.

This is not to mention the time and money you’ll spend on fundraising for every dollar, and then spending MORE time and money complying with IRS requirements to acknowledge each gift and spend it legally.

Besides – do you even know how to use SalesForce??

2. Once I get my “c3” status, then the MONEY comes!

This is one of the most common myths I hear time and time again.

“Jess, we want to be a c3 to help with our fundraising.”

Ahhh yeah, having a tax deduction to offer donors is great. But let’s really think about this – there are literally hundreds of thousands of charities in the US alone. They aren’t all flush with cash, even though they all have c3 status.

What makes you think that the tax-exempt label will suddenly spur people to give if they haven’t been interested yet?

The truth is, fundraising is HARD. It’s really hard.

Plus, there’s a valuable argument that people give to things they care about, regardless of the tax deduction. I’m talking real people, the small gifts that your new org is going to LIVE on in the years before major gifts come into play.

Yes, the big gifts are motivated in part by tax planning. If a big gift was going to a nonprofit that lost its charity status, yes, the donor would probably find a new charity for their big donation. But would it be because the donation wasn’t deducible?

Yes, AND equally because of their fear about giving to an organization that isn’t doing well or isn’t being responsible. So then where do they send their must-donate-for-tax-advantage-money? To a random charity? No. Of course not. The donor will make a gift to another group, another cause, another mission that they feel passionate about.

So…focus on that – be a cause that people care about. The c3 status is nice once you have that figured out.

3. This idea makes a difference in the world…we should be a nonprofit!!

I’m not trying to be a kill-joy here, but not every great idea needs to be a nonprofit.

Deciding to be a nonprofit just…because…is about the worst decision a founder can make. Just because you want to do good deeds doesn’t mean you should automatically start a charity. In fact, it doesn’t even mean that your idea will even work best as a charity. When people have a knee-jerk “this should be a nonprofit” reaction, they usually are buying into myths 1 and 2.

If you’re going to start a nonprofit you have to have a really, really good reason why. A lot of businesses can just be businesses, and it will cause everyone a whole lot less agony that way.

Yes, that’s right. The nonprofit lawyer who gets paid to start nonprofits for clients is telling you to think, and then think again, about whether you should even be a nonprofit.

Look at Tom’s Shoes – does good deeds, but is not a nonprofit. Finnegan’s Beer (tag line “here’s to doing good”) makes beer and does good deeds – also not a nonprofit. Terracycle – does amazing things and partners with schools and nonprofits, has donated more than $15.6M to charity – NOT a nonprofit.

There are tons of businesses with different sizes and purposes that make a difference in the world or give back, and they don’t have to be nonprofits to do it.

A lot of times what I do in my consults (which, if you’re interested in, you can book here) is to talk myself out of a job. This is because I know that NOT everything that does good should be a nonprofit. There are lots of factors to consider and, frankly, sometimes it’s easier to run a for-profit that does good deeds.

So, now what?

If you’re thinking about starting a nonprofit, it’s really important to slow down and get educated. Figure out your purpose, your “why,” and do the research. Not just about how to fill out the IRS forms or whose bylaws you can cut and paste from, but do the research into the unknown unknowns.

Bust the myths and make sure you know what you’re doing and why you’re doing it. Don’t get so caught up in the magical thinking that it takes you down a path of wasted time and money. Slow down and do it right – your co-founders and your wallets will thank you. : )

If you want to learn more about the mistakes that nonprofit founders often make, get my free e-book Starting a Nonprofit: Five Things Every Founder Must Know, available here.

Birken Law Office – Law firm serving nonprofits organizations, and foundations – Birken Law

Birken Law Office – Law firm serving nonprofits organizations, and foundations – Birken Law

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