Going The Non-Profit Route: Some Things You Should Know
We’re big believers in for-profit, advertising-supported business models for local sites and blogs. Our business at GrowthSpur is based on helping sites with that model. But what happens if you want to go the non-profit route?
Some nascent bloggers seem to think the “non-profit” option for setting up their business is some sort of a magic bullet for financial success. Apparently they figure that non-profit status exempts them not just from taxes, but from many of the seemingly harder parts of running a business—selling advertising, finding investors, having to turn a profit, etc. So they incorporate their new local startup operation with non-profit tax status.
Unfortunately, it’s not that easy. Non-profit status doesn’t remove a basic fact of business life: You still have to break even. You’ve got to find a way to bring in enough money to cover your costs. That simple rule of economics isn’t repealed when you’re a non-profit. (By the way, unless you work hard at making money, you’re likely to be non-profit even without non-profit status. But that’s another story.)
We’re not lawyers, so please don’t take this as definitive advice—but what non-profit status affects is how the IRS views your business (as tax-exempt), how you can raise money (basically, by soliciting donations), what you can do with any money left over after you pay the bills (you have to reinvest it in the business.
It also affects whether you can supplement your funding through other means—like, say, selling advertising. We get asked a lot if non-profit sites can sell advertising, and as it turns out, you’re limited there, too, by non-profit status. Again, we’re not lawyers—but we have friends who are. So we’d like to share an interesting article by some of the best digital-media lawyers around, the folks at Dow Lohnes, in Washington, led by Jon Hart, who’s been active as a leader in the Online News Association and speaks at many ONA events, and has literally written the book on digital media law.
One of Jon’s partners at Dow Lohnes, Corinne Antley, has written a very helpful article called “Intentionally Non-Profit Journalism: A Tax Lawyer’s Perspective” that explores the limitations non-profit sites face in trying to add advertising revenue. The article is available here as a PDF.
If you’re thinking of starting a non-profit site, you should read it (and other resources) and be sure you fully understand what it means to be, as Corinne puts it, “intentionally non-profit.” And, of course, get some firsthand advice from a lawyer before you choose between for-profit and non-profit. Contrary to what many people seem to believe—perhaps influenced by the success of organizations like NPR and PBS—being non-profit doesn’t necessarily make it easier for you to run your new business.
Update: There’s a good read here about the reality of being non-profit, making the key point: It’s a tax status, not a way of operating a business.