Opening a not-for-profit
To open a not-for-profit business, you’ll first need to choose a business structure. You can use any ordinary structure such as a partnership or limited company if you like, but if you’re operating as a social enterprise there are a number of other options available. These include setting up as a charity, a cooperative or a community interest company.
These structures are subject to different management and oversight requirements, and benefit from different tax breaks and other funding opportunities, so the one you choose will depend on the nature of your business and how you want to run it. For example, charities don’t pay tax on most kinds of income, but they must be run by a board of at least three trustees.
Growing your not-for-proft
Growing a not-for-profit business is all about maximizing the potential of your funding sources. This could mean diversifying into new kinds of fundraising activities, but it could equally mean narrowing your efforts to just one or two lucrative revenue streams. Which approach is best for you will depend on the status of your business (e.g. if it’s a registered charity) and its aims.
Some non-profits, such as those supporting health research on common conditions like cancer, benefit from focusing on big campaigns and celebrity endorsements. Other causes are better suited to courting wealthy private donors in a more discrete way. In both cases, honing your message and spreading awareness of your brand amongst your target donors is key.
Turning a profitable business into a not-for-profit
First, consider whether you’re effectively already running your business as a not-for-profit. If you’re thinking of converting to charitable status, it will help if your business practices are already fairly compatible with the legal requirements for charities.
As a registered charity you’ll get tax breaks and you may become eligible for certain funding streams. However, you’ll be more restricted with regard to your trading practices, and you’ll have to comply with certain governance structures. You’ll need to weigh the costs of converting against the benefits.
You could also consider whether other types of not-for-profit structure might be more appropriate for your business, such as a cooperative or a community interest company.
Turning a not-for-profit into a profitable business
You will need to think carefully about the pros and cons of abandoning your not-for-profit status, and consider whether profit-making will be good for your overall aims.
Profit-making businesses can still focus on the same philanthropic or socially-responsible goals, and they’re free to reinvest their profits in worthy causes. As a profitable business you’ll have more freedom to diversify your business activities into different areas and to reward investors with returns.
However, you’ll no longer qualify for certain funding opportunities or charitable tax breaks you may have previously enjoyed. You’ll also lose any publicity benefits associated with being able to advertise yourself as a not-for-profit organisation.