Blue Ribbon Consulting Newsletter

Blue Ribbon Consulting, LDO, LLC PO Box 435, New Ipswich, NH 03071 603-878-1694 Email: Lisa@horseconsulting.com

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Equine Non-profits: Nine Myths

Non-profits are a large part of the horse industry and encompass horse breed associations, sport organizations, horse welfare and rescue groups, therapeutic riding programs, and riding instructor training and certification to name a few. They are frequently misunderstood in many ways because lots of people are uncertain about what a non-profit really is and how it operates. Nine of the most common myths follow.

1) Non-profits are supposed to lose money.

This is perhaps the most common myth that there is, and is largely a result of the name itself. According to Wikipedia, “A non-profit organization is a legally constituted organization whose objective is to support or engage in activities of public or private interest without any commercial or monetary profit.” Even this description can lead someone to erroneously think that non-profits are supposed to lose money. One difference between a nonprofit and for-profit business is that a non-profit does not have shareholders. In a for-profit business, the profit goes to the shareholders and owners. A non-profit can have surplus revenue, and is in stronger and more sustainable position if it does. This excess revenue goes to advance the organization's goal rather than being distributed to shareholders. Surplus revenue may be used to run existing programs, develop new ones, or be invested. If a non-profit operates with a deficit continually, just like a for-profit they would face bankruptcy. The general purpose of a for-profit business is that it is organized for a commercial and profit producing reason. The general purpose of a non-profit is to meet one of more needs of the community. Generally speaking, for-profits have a monetary bottom line, while non-profits have a social bottom line.

2) The other name for non-profit is 501(c)(3).

Non-profits are tax exempt, and there are actually many beginning with 501(c)(1) and going all the way sequentially to 501(c)(28). There are others as well: 501(d), (e), (f), (k), (n), (q), 521(a), and 527. The IRS Publication 557, Tax-Exempt Status for Your Organization has a great Organization Reference Chart, pages 65 – 66, at www.irs.gov/pub/irs-pdf/p557.pdf, that describes the organization and general nature or the activities of these various designations.

The 501(c)(3) status refers specifically to a religious, educational, charitable, scientific, literary, testing for public safety, to foster national or international amateur sports competition, or prevention of cruelty to children or animals organizations. This designation is the one that people typically think of when they think of a non-profit because it allows for donations and contributions to be tax-deductible to the donor.

3) Its easier to get money to run a non-profit than to run a business.

It is often thought that money grows on trees for non-profits. The perception is that people are lined up waiting to make contributions and that grant money simply requires submission of a proposal. Though these are funding streams for non-profits, it is no easier for a non-profit to access these funds than it is for a business to get a loan. Preparing a grant proposal takes a parallel process to a business that is preparing a business plan. And soliciting donations and contributions requires the same marketing efforts that a business requires to make a sale.

4) You can’t get money to start a non-profit before you have received your non-profit status.

Some funding sources are interested in seeding non-profits in their initial stage of development and provide start-up funds while a non-profit is applying for their non-profit status. During this initial start-up phase, the non-profit should conduct research for potential future funding sources that will carry it beyond start-up. Funding sources that provide start-up resources most often are NOT interested in funding the subsequent stages of development.

5) Non-profits are a drain on the economy and are always asking for a handout.

Non-profits create jobs and spend money in their local economy. According to the Nonprofit Almanac 2007 published by The Urban Institute, there are approximately 1.4 million non-profits, including 949,000 charitable organizations, registered with the IRS. They account for 5.2 % of gross domestic product and 8.3% of salaries and wages paid in the US.

Gifts, or “handouts”, are also not the primary funding source for non-profits. Kathleen S. Kelly, Ph.D., states that gifts amount to 25% of total non-profit revenue. Approximately 38% comes from dues and fees, 30% from government grants and contracts, and 7% from investment earnings.

6) Business skills have no place in a non-profit environment.

Non-profits have the same need to plan, budget, seek out finance options, deal with human resources, track inventory, manage projects, develop marketing and PR campaigns, make presentations to sell their concept and program, and deal with clients that for-profit businesses have. Grant writing skills parallel business plan writing; developing and evaluating program budgets parallels product and service delivery budgeting; and supervisory and leadership skills are the same because people are people wherever you go.

7) People will want to donate time and money to our organization, because no one else is doing what we do and/or because our clients need our services/programs.

Another difference between non-profits and for-profits lies with who the customer is. In a for-profit

the customer is the person who pays for the product or service and also receives the product or service. In a non-profit, donors and grantors pay for the program or service and the clients receive them. In the non-profit, the clients may need the service or program, but the donor/grantor is the one that has to be sold. Solicitation for donations and grants is a highly competitive environment that requires strategic planning, development of credible PR materials, and a comprehensive implementation and follow-up action plan.

8) Non-profits can’t hire qualified people because they don’t pay enough.

Non-profits may have limited funds for hiring and keeping their staff, but hiring unqualified people costs more in the long run than not hiring anyone at all. Historically non-profits have often paid less than the for-profit sector, but that is changing and non-profit salaries are becoming much more competitive. The 2005 Nonprofit Times Salary Survey shows these overall averages for the following positions:

Executive Director/ CEO/President $90,422/$90,411
Chief Financial Officer: $65,382/$66,482
Program Director: $54,166/$55,869
Planned Giving/Major Gifts Officer: $63,630/$64,730
Development Director: $57,675/$57,511
Chief of Direct Marketing: $60,651/$63,621
Director of Volunteers: $37,177/$38,428
Web Master: $40,499/$35,360
Chief of Technology: $62,085/$60,163

The Center for Equine Business Studies reviewed the 2004-2006 IRS filings of top non-profits in the horse industry and here’s what they found. There are almost 4,000 non-profits in the horse industry whose mission it is to “protect the horse while providing education, funding, management, programs and services to members. Average salaries for the top 11 organizations:

Executive Director/CEO: $225,288

Highest ~ $630,000 Lowest ~ $70,000

Non-profits are also often able to offer other benefits, such as flex time, that can make up in intangible ways for this sector salary difference.

Additionally, with the aging and retirement of the baby boomers, there is great opportunity to hire a lot of talent that does not have the same salary requirements as before retirement. This group may also have chosen that it is time to “make a difference” by working for a non-profit and giving back to their community.

9) If non-profits want to be more sustainable, they should write more grants.

Relying on one source of funding is like putting all your eggs in one basket. If that funding source does not come through or dries up, the non-profit faces serious sustainability issues. Sustainability is better achieved by diversifying revenue streams. In recent years many non-profits have successfully developed a social enterprise that provides a steady income source as a sustainability strategy.

For Your Consideration: Non-profit is a tax status, not a management philosophy. ~ Bill Shore