Nonprofit founders, just like business entrepreneurs, are dreamers. They have a mission and vision, and are desperate to turn those big ideas into something useful in the world. And while many folks out there will say that there are too many nonprofits, this “third sector” represents nearly 6% of the overall GDP, contributing significantly to the U.S. economy. And with government support and services shrinking on a daily basis, the nonprofit sector is more important than ever in filling the gap to meet basic needs, provide healthcare, solve for society’s general ills, drive research and innovation, and much, much more.
This team would say to all the nonprofit dreamers out there, keep dreaming! But head into the process with your eyes wide open. Starting a nonprofit is not as easy as it seems. Beyond the required IRS filings (and often a long wait to be granted tax-exempt status), building a Board of Directors, and creating a business plan, you will need start-up money to get your operation going and funds to sustain your programs and operations as you develop or firm up your revenue model. Recognizing the importance of sufficient funding early on, many new nonprofit leaders are advised to pursue grants right away. Here’s why that actually ISN’T great advice:
1. Foundations can have lengthy application review processes, varying from 30 days to an entire year. When you write and submit grants, expect to do a lot of WAITING.
2. Most foundations are risk-averse. While some foundations do specifically seek out new and exciting ideas and will invest in young nonprofits, most prefer to make “safe” investments in proven organizations with strong financials that can deliver on results.
3. Foundations require paperwork – lots and lots of paperwork. In addition to the time required to write compelling grant narratives (anywhere from a few hours to many days), organizations are typically required to submit detailed financial information, including Board-approved budgets, copies of IRS Form 990 returns, and more. Most start-up nonprofits struggle to provide these documents, or simply haven’t been around long enough to generate them.
When it comes down to it, most young nonprofits simply aren’t “grant-ready.” They don’t have the required documentation, proven results, and financial planning and accountability measures that foundations are looking for. This doesn’t mean you shouldn’t pursue grants; in fact, we would argue that there is a ton of value in getting your name and mission in front of prospective foundation donors as a relationship-building tool for the future. But you should not depend on grants to supply the revenue for your organizational budget in your first few years of operation. Focus instead on leveraging the network you do have – not just potential individual donors, but other community organizations as well. Create and foster a group of stakeholders that can support your mission and operations as you grow, not just financially, but with sound advice, guidance, and partnership.