What Non-Profits and For-Profits Can Learn From Each Other

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I’ve been involved with non-profits for many years as a volunteer and a leader. My experience has primarily involved church and community organization, health and human services, education, outdoor recreation, international, youth, and performing/visual arts. I’ve done fundraising and worked events. I’ve worked as a leader and have served on Boards.

My daytime job is assisting business leaders with growth, profitability, and cash flow, but during my time with non-profits, I’ve observed key similarities and differences between the for-profit and non-profit worlds. Where practical, I’ve tried to bring "for-profit" thinking to "non-profit" management. In turn, I believe there are lessons the non-profits can also teach the commercial sector.

Successful non-profits excel at mission discipline and governance. They understand the need for clarity of mission and report to a Board that preserves focus and creates accountability. Many Fortune 500 companies understand the need for these, but entrepreneurial companies overlook them (until an event like a private equity investment is presented.) Many entrepreneurial leaders have never reported to a Board, and sometimes they realize (too late) that mission discipline and revenue focus are important in company valuation. I believe many commercial companies can benefit from an Advisory Board to gain new insights, solve business problems and explore new opportunities (I currently use one at a non-profit I am associated with).

Non-profits are often more thinly capitalized than their for-profit brethren. I like to see between six months to a year of operating costs in cash on the balance sheet for a non-profit. This enables you to be bold with a multi-year strategy that focuses on mission increase. Planning a capital campaign? Make sure to add one- or two years’ operating dollars into the campaign budget.

There are huge implications for all-profits if some of the proposed tax law changes are implemented, including:

  • Increasing tax rates for individuals and corporations
  • Eliminating capital gains
  • Reducing the size of a taxable estate
  • Eliminating the step-up in basis on inherited property (as well as increasing the overall effective rate for many taxpayers)

Non-profits note, this could be an opportunity to talk with donors about structured giving, which would maximize the value of their future gifts.

On the subject of tax law, I have an advantage because I work with some talented tax partners and professionals. I invite you to join next week's webinar presented by BKM Sowan Horan and Meadows Collier. The panelists will cover the important topics around estate planning concerning the anticipated upcoming changes the Biden administration could be making. Changes to existing estates and trusts will likely need to be made before years' end. For your convenience, click here to register. It's next Wednesday, June 2, 2021, from 11:30a to 12:30p. In the registration process, you can submit questions to the panelists.

Have a non-profit management question or comment? I'd love to help you with any challenge you may be facing. Email me, and we'll talk about it. As always, I welcome your comments and suggestions.