I came across a really interesting article the other day about how some nonprofit organizations are setting up for-profit subsidiaries to help generate additional revenue and to further their mission.
You can find the article, "Safety Line", in the June 2009 issue of Fundraising Success Magazine. The author gives several examples of nonprofits that have set up for-profit subsidiaries, including Open Hand, based here in Atlanta. This local organization delivers meals and nutritional information to low-income people with chronic diseases. In 2005, they began a for-profit arm, Good Measure Meals, in response to a demand for nutritious meals for people who could afford to pay for them. Although it wasn’t initially set up as a fundraising venture, Good Measure Meals contributed $430,000 to Open Hand in 2008.
The article stresses the importance of mission fit—aligning the work of the for-profit subsidiary with the mission of the nonprofit. This will help at tax time when the nonprofit doesn’t have to pay unrelated business income tax (UBIT) on the revenue that comes from the for-profit venture.
Another key point discussed is that starting a revenue-generating venture may not be right for every organization. Along with profits can come risks, but those risks can be lowered through proper planning. A nonprofit considering starting a for-profit subsidiary should consider 3 important characteristics to make sure doing so is right for them:
- Organizational assets: brand or reputation, skills and expertise
- Market opportunity: potential customer base
- Organizational capacity: able to handle checks, process invoices, manage customer service; appropriate managerial talent in place
For additional information on earned income, look in our Catalog of Nonprofit Literature using the search terms “Nonprofit organizations-entrepreneurship” or “Social entrepreneurship”.
Has your nonprofit set up a for-profit subsidiary? Share your story with us.
Kayron Bearden, Reference Library, Foundation Center-Atlanta
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