The Nonprofit Guide to Income Diversification
A lot of people talk about the importance of diversifying your income, and it makes sense. Even within a household, it would likely be preferable to have income coming from more than one place. If something happens to one job, for example, there’s another salary to help support daily operations in the interim. The same is true for nonprofits, though it can be a little bit trickier to arrange and oversee.
Nonprofits are incredibly diverse, so there isn’t a “one size fits all” solution for income diversification--but there are still a lot of options.
When a for-profit business seeks to diversify their income streams, they need only look to their product and service line and existing and new customer base. If they’re selling apples to businesspeople on their lunch break, they might diversify by offering oranges to the open campus high school next door. In fact, they can diversify in so many combinations--oranges to business people, apples to students, combos of fruit to parents picking up. They might even begin to deliver fruit baskets to company luncheons, responding to a market need and changing as the business does.
But nonprofits aren’t subject to the same whims of the for-profit market, and they’re certainly not trying to do the same thing. Of course, a good nonprofit accountant can help determine sustainability, but they aren’t operating by the same rules. The person giving money is often not the person receiving goods or services, which complicates things.
What you can do--the basics
If you’re looking to diversify your income stream, there are a few options. First, think about services you can offer to people outside of the population you’re serving. Can you charge for them? Maybe your CEO is a dynamic speaker and can offer guest lectures for a small fee. Perhaps you’ve got a great graphic designer that can build your logo into cool merchandise you can offer year round or for a special event.
You may also look into business activities that operate tax free alongside your service--a thrift store, or room rental for a building you own.
With the help of a nonprofit bookkeeper, consider what you could be doing to raise more money. If you rely on private contributions, start writing more grant proposals. If you depend on one-time gifts, find ways to cultivate relationships with regular donors. Maybe a partnership with an organization that donates a percentage of sales is just the ticket. You may also want to search for endowment gifts, which will provide investment income and are not taxable for public charities.
Finally, nonprofits can diversify income by thinking more broadly about their services. If they seek to provide service to a particular group at no cost, they may offer the same service or a version of it to the public for a fee.
The bottom line
There are a lot of ways for all businesses to diversify, including nonprofits. But there are rules--taxable income cannot make up a significant portion of your total income if you’re running a nonprofit, so be weary. Seek help from people who are experts in this sort of thing and raise those funds!