Grant funding versus earned income

Should You Trust Grant Financing To Start Your Business?

Any new business that is starting must generate some income to stay in business. The main cause of business failure is lack of sufficient funds. To further complicate this, the people who often create nonprofits have big hearts and little knowledge of 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 pay for them. To be successful, all businesses, including nonprofits, must achieve a level of financial self-sustainability.

Some of these struggling companies turn to grants to try to pay all of their bills. They have 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 wages, or pay off debts. Most grants are designed to help pay part of the cost of new or expanding programs / projects.

When a grant applicant has no earned income or other source of income, they pose a financial risk. Grant funders do not like to give their hard-earned money to a company with high financial risk. Therefore, before a nonprofit applies for a grant, it must first develop a couple of other sources of income to strengthen its financial status.

Perhaps the most common activities for nonprofits are organizing fundraising events. Fundraising events can range from car washes to bake sales to naming rights sales. The most successful fundraising event is the walk-a-thon.

Another option is the RBU. UBI (Unrelated Business Income) is income generated by an activity that is completely outside the mission of the non-profit organization. An example might 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 turn into your own independent for-profit business.

Earned income. In the financial statement, income from work is much stronger than donations or gifts. Depending on the nature of the non-profit business, there are several methods of generating income from work. Almost all nonprofits can sell products and services. Additionally, sources of income from work include membership owed and interest earned.

A non-profit organization is a corporation and must be managed as such.

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