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Transitioning a Business from For-Profit to Nonprofit

September 24th, 2014 Leave a comment Go to comments

If your business already has a philanthropic vision, then making the transition to nonprofit status may be a wise move. It’s not as simple as applying for tax-exempt status with the IRS, though. You’ll need to carefully plan your transition, taking great care to complete all the necessary federal, state, and regional requirements.

Start With Your Mission

Before you make the move, you’ll need to decide on an overall mission. A nonprofit organization doesn’t exist to generate profits for owners or shareholders—the main objective is its charitable mission.

Your business may already have certain aspects that qualify as charitable activities. Use this as a starting point, and build your new nonprofit organization around it. You may still be able to use your old company’s name, but the fundamental purpose of your new organization needs to change so that it is centered on a charitable mission.

Write Your Nonprofit’s Business Plan

Despite the fundamental differences between for-profit and nonprofit organizations, there are many similarities. For example, you will need to write a “business plan” for enacting your nonprofit’s mission, much like you would write a business plan for launching a new product or service.

Your nonprofit’s business plan should include:

  • Your strategy for gathering revenue
  • An outline of operational and management processes (how you’ll achieve your mission)
  • A financial plan (how you’ll track expenses and generate reports)
  • A marketing plan

Coming up with a business plan is more about the process than about creating a physical document. The act of creating a business plan (doing market research, strategic planning, etc.) will help you focus your nonprofit’s mission and make the transition a smooth one.

Find Passionate Board Members

All nonprofits must have a board of directors. The first thing you should look for in potential board members is a passion for your nonprofit’s cause. You may also benefit from people who come from diverse backgrounds and who can provide fresh perspectives.

There are many places you can look to recruit board members, including:

  • Current staff and volunteers
  • Donors
  • Local organizations that help match nonprofits with board members
  • Referrals from colleagues

Cover All Your Bases

You may be surprised at the many reporting regulations required of nonprofit organizations. Even for a small organization, you’ll need to provide extensive documentation to the IRS and other government agencies not only when you’re starting out but also on an ongoing basis.

There are no shortcuts when it comes to running a nonprofit organization. You can have a successful transition as long as you:

  1. Focus on your charitable mission
  2. Put an effective business plan in place
  3. Find the people who are passionate about your cause
  4. Do your research

Much of your success will depend on accurate and transparent financial accounting. For more information, read our recent blog post on how to avoid common nonprofit accounting mistakes

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