Leaders of nonprofit organizations are often proud to be in the nonprofit industry and don’t wish to budge from their position. However, once an organization grows, the benefits of shifting to a for-profit can become enticing enough to sway some leaders into making the change.
Deciding to shift from a nonprofit to a for-profit organization is a significant one that should not be taken lightly. Here, nine members of Forbes Nonprofit Council share the considerations they believe are most essential to keep in mind when leaders are thinking of making this monumental transition.
Members of Forbes Nonprofit Council share considerations for leaders thinking of their transitioning their nonprofit into a for-profit organization.
Photos courtesy of the individual members.
1. Your Customer Pool
Targeting a different audience is essential when transitioning from a nonprofit to a for-profit organization. You can’t make a meaningful profit and further your mission if you don’t broaden your original philanthropic base to a more diverse customer pool. Serving multiple groups allows you to continuously reinvest in your work, further your growth and turn a profit at the same time. – Nada Hosking, Global Heritage Fund
2. Results And Relationships
Instead of seeing this transition as a deficit in the transfer of beliefs from one sector to the next, I would offer that one remains focused on the assets. Attention to results and relationships is paramount. Remembering that all consumers essentially want a service that has demonstrable success and is delivered by an admirable person (or persons). Both results and relationships matter. – Desmond Blackburn, New Teacher Center
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3. The Mission
When shifting towards a social enterprise business model, remember to keep the focus on the mission. We do what we plan to do and that’s based on how we’re measured. So it’s critical to include social mission-driven metrics in addition to financial metrics. Earning profits on your mission-related work can be used to reinvest and grow your impact. – Anne Evens, Elevate
4. Future Plans
Strategic planning is the key to successfully transition a nonprofit to a for-profit organization. Every single aspect should be treated like a startup business as the plan is developed, reviewed and executed. SWOT (strength, weakness, opportunity, threat) analysis of both the internal organization and the competitive environment is imperative to help establish goals and the steps to obtain them. – Ripley Tate, Web Fire Communications, Inc.
5. Reasons For The Transition
The first consideration in transitioning from nonprofit status to for-profit is questioning why. Organizations endure time, energy and paperwork to apply and get approved as nonprofit organizations because there’s a problem that they are trying to solve. Can you solve that problem better as a for-profit? Does the risk of losing your tax-exempt status outweigh the economic benefit of not paying sales tax? – Kimberly Lewis, Goodwill Industries of East Texas, Inc.
6. ROI Potential
Will this business generate a return for the nonprofit? Nonprofits commonly diversify to create new income streams. However, setting up a new business has a very different set of challenges than a nonprofit. Thus leaders have to be savvy and know how to delegate time so that neither the nonprofit nor the for-profit are harmed in the process. – Aneri Pradhan, ENVenture
7. Access To A Legal Council
The nonprofit CEO and board of directors need to consider identifying the best strategic alternatives with regard to the nonprofit enterprise and a new for-profit opportunity. For instance, there are many models whereby the nonprofit may have a for-profit subsidiary and meet all IRS, legal regulatory requirements. In this regard, it is important that the leadership have excellent legal counsel. – Jesse Bethke Gomez, Metropolitan Center for Independent Living
8. Mission Alignment With Future Plans
Make sure your plan to secure resources aligns with your mission. Retaining the involvement and participation of passionate supporters, whether they be board members, funders, volunteers or donors, will be critical. Transitioning to a for-profit organization may be the right decision, but in the process be careful not to lose the human capital that provides the heartbeat of your organization. – Victoria Burkhart, The More Than Giving Company
9. Future Financial Performance
Nonprofit is just a tax code. Organizations have to create profit to further their vision. However, it is about the culture of the organization and its overall mission. If that focus of achieving the strategic goals of the organization in support of their mission is replaced with financial performance alone, one may leave behind the talented and committed people who make things happen. – Magdalena Nowicka Mook, ICF (International Coach Federation)
