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Before launching their urban, college prep boarding school, The SEED School, in Washington, DC, co-founders Eric Adler, 42, and Rajiv Vinnakota, 35, applied their experience from major management-consulting firms to concoct numerous financial plans, which they then bounced off experts. Even then, the pair had to regroup when expenses outstripped their forecast A former private-school teacher, Adler was frustrated with the way scholarship students from tough neighborhoods often floundered.
His idea: board students, providing a safe, quiet place to study and mentors to keep students focused on college. Most of their finances come from state and federal charter-school funds. Buoyed by graduation rates substantially higher than the district average, the pair hopes to open two more schools in the area within three years. Finding funding: Although many nonprofits collect fees for services of some kind, most rely at least in part on funds raised from private donors, foundations or government grants.
As a startup nonprofit with no track record, fundraising can be tough, says Adler. Most funders require documentation on how well the nonprofit is meeting its goals--data startups lack. Adler had the most success with individual philanthropists in the DC area with personal knowledge of the district's problems, rather than national foundations. Social entrepreneurs: Instead of relying on fundraising, some nonprofit entrepreneurs create a nonprofit business that generates the needed revenue. Though this model has been around for years, it's blossomed in the past seven years into a major movement nonprofit managers call "social entrepreneurialism.
A prime example is Athena Partners, a Seattle-based, nonprofit bottled-water company founded by former marketing executive Trish May. After surviving a bout of breast cancer, she spent six years investigating how to help fund a cure. Her answer: bottled water adorned with the pink breast cancer-awareness ribbon. Founded in , Athena has since made a deal with food-distribution giant Sysco that will take Athena nationwide next year. May, 52, says being a nonprofit allowed Athena to tap volunteers who'd been touched by cancer, and it brought free advertising.
For instance, Alaska Airlines provided the necessary funds to put giant pictures of Athena's bottle on the Athena delivery trucks. Nonprofit status also opened many doors in the highly competitive world of bottled-water retailing. When May landed Safeway as her first big account, the grocery chain waived the promotional fees Athena would otherwise have paid for shelf space.
Other chains followed suit. Operating in the nude: Another difference between for-profits and nonprofits is that nonprofits' tax forms are public records. Small, privately held businesses can keep operating details secret, but anyone can read a nonprofit's tax form, known as Form , online, learning salaries, revenue, expenditures and more.
Getting paid: Salaries in the nonprofit sector vary widely. But with many nonprofit heads overseeing large and complex organizations, salaries can be quite substantial.
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At nonprofit startups, salaries tend to be lower. Because of her dedication to the cause, May chose not to take a salary. Rohr takes a salary she says is "one-fourth of what I used to make. Soul satisfied: At the end of the day, nonprofit entrepreneurs say they're hooked on the satisfaction that comes from knowing their efforts improve the world. It's just so rewarding. Register with the state. Nonprofits must register with their state to legally do business as a nonprofit corporation.
You'll need to create articles of incorporation--states usually offer examples to work from--and file them with your registration. See your secretary of state or department of licensing office for forms. Apply to the IRS for nonprofit status. This is crucial because without the IRS' nod, donors won't be able to use their contributions as a tax deduction. Most nonprofits seek what's known as c 3 status, which allows tax write-offs for donors.