Should You Rely On Grant Funding To Start Your Business?
Any new business that is started must generate some income to stay in business. The number one cause of business failure is lack of sufficient funding. To further complicate this, the people who start nonprofits often have big hearts and little knowledge about how to generate income. Some even want to provide all of their business services for free because the people they serve may not be able to afford them. To be successful, all businesses, including nonprofits, must achieve a level of financial self-sustainability.
Some of these struggling businesses resort to granting money to try to pay all their bills. They are under the mistaken belief that “self-sustainability” is when you get other sources (like grants) to pay your bills.
Grant funds are generally not designed to start a business, pay annual salaries, or pay off debt. Most grants are designed to help pay part of the cost of new or expanding programs/projects.
When a grant applicant has no income from work or another source of income, it is a financial risk. Grant funders don’t like to give their hard-earned money to a business with high financial risk. Therefore, before a nonprofit organization applies for any grant, it must first develop a couple of other sources of income to strengthen its financial status.
Perhaps the most common activities for nonprofit organizations are organizing fundraisers. Fundraising events can range from car washes and bake sales to naming rights sales. The most successful fundraising event is the walk.
Another option is the UBI. UBI (Unrelated Business Income) is income generated from an activity that is completely outside of the nonprofit’s mission. An example could be having a place that serves food to the public in a hospital. Serving food as a restaurant is outside the mission and scope of work of the general hospital. When a fundraising activity is very successful, it could become its own independent for-profit business.
Earned income. On the financial statement, earned income is much stronger than donations or gifts. Depending on the nature of the non-profit business, there are various methods of generating income from work. Almost all nonprofit organizations can sell products and services. Additional sources of earned income include membership dues and interest earned.
A non-profit organization is a corporation and must be run as such.
