A business model of an organization or company is simply a road plan for that body, which outlines the steps needed to reach its collective goal.
An organization’s business model varies with different factors, such as industry, market, business properties, etc. Every trademark takes all these factors into consideration before making any business plan for its growing base.
What Is A Non-Profit Organization (NPO)?
A non-profit organization is a lawful entity that works for the sole purpose of a collective public or social benefit.
Unlike normal business models, a non-profit business runs solely on distribution constraints. Hence, any revenue the trademark generates is spent on the organization’s purpose.
Any non-profit institution is based on the key aspects of loyalty, trustworthiness, and dedication to its purpose. Usually, non-profit organizations are accountable to donors, investors, and the public.
The most important thing in a non-profit business is public confidence. The more support they have from the public, the faster they will be able to achieve their mission.
Moving onwards, let us highlight an example of some of the most famous NPOs working around the globe.
- Fidelity Investments Charitable Gift Fund.
- The Global Fund.
- National Philanthropic Trust.
- Silicone Valley Community Foundation.
- Edhi Foundation.
- Bill and Melinda Gates Foundation.
Even though there are vast differences between non-profit and for-profit organizations, a plethora of regulations applies to both sides. In fact, the non-profit might even need more detailed and structured planning, just like any potentially scaled business.
Besides, developing an effective business model is one of the core tasks of any business entity or organization. The model may differ from industry to industry, but the basic plan remains the same.
Now that we have talked about non-profit organizations let’s dive right into understanding how a company, which is not driven by profits, works and establishes itself as a successful identity.
Types Of Non-Profit Business Models
Non-profit businesses do not only mean charities that run on funding and donors. Non-profits are found in various industries providing different services to serve their cause.
The mainstream types of non-profit businesses are given below.
1. Tech Nonprofit
Various technological enterprises work on a non-profit business model in order to impact society on a large scale rather than make profits. These tech startups build original or distributed software and hardware solutions for their clients and use the profits earned to support their cause.
2. Benefit Corporation
Benefit corporations have earned a certification that requires a commitment to promise a positive impact on society, corporation workers, and the community. In addition to that, they are also obliged to work effectively for the betterment of the environment. Moreover, they are permitted to profit as their legally defined goals.
3. Social Enterprise
A social enterprise may work to maximize the social impacts alongside profits for the owners and shareholders. Enterprises work by applying commercial strategies to make feasible improvements in their financial, social, and environmental well-being.
4. Hybrid Model
The model in which both the non-profit and for-profit organizations are linked is called a hybrid model. Generally, they are tied through a subsidiary relation between them. The two organizations are bound by a long-term contract in which one entity fulfills a requirement for the other and vice versa.
How Does A Non-Profit Business Model Work?
Non-profit organizations do not constitute owners since their driving force doesn’t include earning profits. Owing to that, many non-profits do not have their separate identity as a statute as they work as an incorporation.
Hence, NPOs do not need to distribute their surplus among the owners and investors. This excess revenue is used to meet the organization’s primary goals, which might include public or social services.
Just like any other business operation, revenue and cash flow are equally important for a non-profit business body.
Any volunteer work may setback the labor costs, but the administrative, distributive, and conductive charges are still incurred in a non-profit organization. Usually, non-profits cut back on these expenses, so their surplus can help their causes furtherly.
2. Fundings & Donations
A major chunk of cash flow in a non-profit organization is based on the funding and donations acquired from various investors, individuals, and businesses. These fundings help an organization increase its revenue and, in turn, provide investment for various ongoing operations that the NPO is conducting.
3. Government Support
In general, legally binding non-profit organizations are greatly appreciated by their local governments and are given various incentives, such as tax evasion and sponsorships, for various projects. This support from the government helps non-profits operate without any hindrances.
To summarize, a non-profit organization gathers funds, donations, and surplus revenues from its ongoing operations and uses its resources towards its supporting causes.
Components Of A Non-Profit Business Plan
A non-profit business plan can vary from organization to organization, but every business plan needs to have a strong base that can provide support to further modifications in the future as the organization matures. These four pillars are as follows:
1. Expected Revenue Sources
The business plan should describe the revenue sources that would support the non-profit’s activities. The method of revenue generation, the estimated amount generated, and the surplus generated after the expenses are all factors that should be constituted in the non-profit’s business plan.
2. Costs Incurred
The plan should conclude and explain the everyday running costs associated with the non-profit’s operations, as well as the administrative and labor expenses associated with various projects or activities.
Any technological expense needed in the non-profit would need to be described in the business plan so that a reader knows about the revenue gap in the organization.
2. Competitive Analysis
Just like any other market, saturation also plays a role in the non-profit business market. A competitive analysis allows the non-profit to analyze and assess the services they are providing and compare them with the other competitors in the market.
This increases donor loyalty and public trust in the non-profit and, in turn, leads to an increase in donations and revenue generation.
3. Important Policies
Finally, the non-profit’s business plan should include all the important withholding policies associated with the organization’s reserve.
For instance, the amount of operating cash that an organization needs to have on hand and policies regarding different types of cash reserves in a non-profit organization is a must to include in the plan.
Requirements Of A Non-Profit Business Plan
The business plan of a non-profit organization helps strategize its growth and guides the organization through the measures they need to take in order to provide staunch support to its cause.
1. Sustaining The Mandate
The non-profit’s business plan can undergo changes whenever necessary, allowing the organization to make plans as they mature. However, the organization needs to work hard in order to sustain its mandate, the original motive of the organization, whether it be helping the poor or fighting against the climatic changes of the world.
The more sustenance they show, the more engagement they would receive from their donors, thereby boosting their economy.
2. Gathering Sufficient Funds
In order to be supportive of their cause, non-profits need to have a strong funding chain so they can continue their ongoing operations without any hindrances.
However, gathering funds is a complex task. It can take somewhere around a hundred to a thousand donors to gather a favorable amount for a project. So, the monetary funding gaps are very closely assessed and monitored by the organization to keep a check on their funding.
3. The Efficiency of a Non-Profit Organization
Governments and donors often review program expenses to assess the efficiency of a non-profit organization in the preceding activities.
As explained earlier, a non-profit body is accountable to donors, investors, and the public government. So, NPOs need to asses their funding growth and donor retention in order to analyze their efficiency and effectiveness.
Business Outlook For Non-Profit Organizations
Globally, the market for non-profit businesses has grown at a striking Compound Annual Growth Rate (CAGR) of 3.6%, surpassing the $255 billion budget cap. The market trend went nothing but up for six straight years when the pandemic struck. Unlike other businesses, the non-profit business market only took a dive of 0.9% and normalized in 2021.
However, the market normalized and saw an increase at a CAGR of 5.1%, reaching almost $300 billion. The market is expected to grow steadily at a CAGR of 4.5 percent in the upcoming years till 2027.
Hence, the business outlook for non-profit organizations is, indeed, very promising. The major portion of this growth is due to an increase in international issues, including global warming, hunger, and poverty.
The market for non-profit organizations is proportional to corporate social responsibility. Corporate social responsibility is a concept through which social issues are addressed while conducting your corporate tasks.
As time passes, companies are strongly emphasizing corporate social responsibility. This concept allows them to work hand in hand with the corporate and social circles, keeping in the loop all the social problems related to their operations.
Influential Funding Models For Non-Profit Organizations
Up until now, we have talked about various aspects of a non-profit business model. Let us now have an insight into how the world’s most influential non-profit organizations perform their task dominantly and create a supporting image in the world.
1. Make-a-Wish Foundation (Heartfelt Connector)
Make-a-Wish foundation focuses on the causes that are already a concern for a major population at all income levels. They then devise a structured way for these people to connect and work for a supportive cause to help others.
Organizations like these work on a funding model called the “Heartfelt Connector.” This model often tries to build direct relations between volunteers through special fundraising activities. They also arrange different events throughout the year, allowing individuals to donate their time, money, and solidity to the team in order to work for a better cause.
2. Cleveland Clinic (Beneficiary Builder)
Cleveland Clinic is another type of non-profit organization that works by reimbursing for services that they offer to specific individuals. However, they rely on people who have benefitted in the past from their services to provide additional donations.
This type of funding model is called “Beneficiary Builder.” Usually, all the institutions that provide non-profit healthcare and education use this funding model for their business plan. The best examples of this funding model are
- Non-profit Hospitals
- Non-profit Universities
- Non-profit Shelters
3. Saddleback Church (Member Motivator)
Some non-profits like Saddleback church still works on the funding model where members of the non-profit donate money because the issue is critical to their everyday lives. This allows them to draw a collective benefit from that organization.
These organizations often cater to matters related to religion, environment, culture, and humanities. The funding gathered through their operations is usually used to solve local problems regarding the abovementioned topics.
4. Success For All Foundations (Public Provider)
Many non-profits work with government agencies to provide essential social services to the public, thereby increasing the living status of a normal human being in their jurisdiction.
This is essentially done by providing housing, education, and other related human services. The funding for such non-profits is offered by the government, and such a funding model is called “Public Provider.”
The government may outsource the service delivery function but ensures that all the non-profit requirements are met, and services are provided to people as promised.
Besides, along with government funding, a non-profit may seek other funding from other sources as it grows to augment its funding base.
Benefits Of Forming A Non-Profit Organization
Non-profit organizations don’t strive to make profits. However, they do have their benefits for non-profit organizations. Let’s dig in deeper to talk more about their advantages.
1. Status of a Separate Entity
Despite being a non-profit body, NPOs have their own separate existence as an entity. They are permitted to pursue their own contracts. Moreover, they are obliged to follow all the legal bindings regarding the corporation, or else they can be sued in their own name. In addition, they are responsible for their contractual and other obligations.
2. Tax Exemption
Non-profit organizations are allowed to ask for tax exemption from both federal and state tax laws. Being a non-profit corporation, it is relatively easier for such corporations to get IRS approval. This tax exemption can, in turn, lead to more gross income for the corporation, thus helping them furtherly provide for their cause.
3. Limited Liability Protection
A non-profit corporation can protect its workers, members, and directors from being held accountable for the corporation’s debts and liabilities. Being a statute, they get protected with limited liability protection, which is not given to an informal organization.
The credibility of a non-profit corporation might be more established than that of a person who is informally trying to start their own non-profit. This credibility plays a great role in gathering funds for a non-profit corporation since the donors usually prefer to donate to a non-profit corporation with high credibility.
5. Eligible for Grants
In general, non-profits are eligible of receiving public and private grants, making it easier to gather operational costs for different ongoing projects. Non-profits can host various fundraising events through which multiple people and donors can donate to a greater cause for which the organization works.
Disadvantages Of Forming A Non-Profit Corporation
Every good comes with an opposite. Besides offering a plethora of benefits, there are some cons that come associated with following the non-profit business model.
Forming a non-profit organization is not a job of a single person. Usually, a team of multiple people is associated with running a corporation.
The team has to bear expenses such as administrative costs, delivery costs, and various other filing fees. Moreover, there is a specific cost associated with the payment of the workers. Although volunteer work may reduce these costs, overall expenses still remain there.
2. Political Regulations
Non-profit organizations that are exempted from tax laws are strictly prohibited from promoting any political campaigns, which affects an organization’s ability to support its political activities and causes.
Moreover, if the organization is heavily funded by any political party, it may lead to a conflict of interest between both parties and might lead to a loss of donors for the non-profit organization.
3. Public Expectations
Working for the welfare and social services of human beings, people might develop expectations from that non-profit organization. In order for them to meet these expectations, they need to work hard and be brutally honest with the public. This aspect brings credibility and increases donor loyalty to that organization.
The non-profit business model allows a company to work for greater causes and provides support for various social problems around the world.
Around 10% of the employed people in the whole world belong to non-profit institutions. This describes the scalability of this market. Keeping this upward trend in view, the market is expected to reach $345 Billion by the end of 27 at a CAGR of 5.3%.
Therefore, non-profit organizations need to be managed effectively, just like any other business or enterprise. The most suitable and effective way to manage it would be by developing a business plan.
In a nutshell, the business model provides a roadmap for the company to follow throughout the years. It works just like a normal business. However, it exclusively outlines the non-profit’s objectives and the main driving motive behind them.