Are leftovers your favorite meal? They require minimal preparation, and when the flavors have melded they are even more delightful than the original dish. And—leftovers can be fun. Who does not like to find containers of forgotten goodies in the fridge? For nonprofit leaders hungry for income, other income is a lot like leftovers. It is usually simple, it pays for unappealing needs thus making it delightful, and when an unexpected resource, can be a fun surprise. This article provides a primer to help you earn more other income.
1. What is other nonprofit income?
This income is money you earn that has little or nothing to do with your mission. For many, it is an eclectic mix of dibs and dabs. You obtain it because someone wishes to buy an asset from you, either permanently or for a short time. Some common assets include your money (interest earned on your bank account), site (rent paid from corporate events on your site) and staff expertise (you lend your IT expert to another nonprofit to help them update their website for a fee).
2. What are some other examples of nonprofits earning other income?
- The Morkami Museum and Japanese Gardens in Florida offers their grounds for weddings. Fees range from $350 to $4,500.
- The $1,250 in revenue you earn from a beverage machine in your lobby each year.
- At their ReSale Connection Store, the Assistance League in Rochester, Michigan earns $200,000 to support four community needs.
3. What forms of support does other income take?
Other income is the broadest type of nonprofit income. It is a catchall category. One simple rule organizes it: it is money you collect that is only vaguely related, if at all, to your mission.
4. What are the tax consequences of other income?
You might need to pay taxes on this income. Listen to Podcast #11: Karen Eber Davis Interviews Tax Managers for an overview on the subject’s complexity. This area is detailed and continually changing. You accountant will, most likely, need to research your obligations before offering advice. Do not try to figure this out yourself; consult your accountant.
5. Is this a common source of nonprofit income?
Surprisingly yes, it represents one of seven sources of nonprofit income. (Read about the others here.) Other income equals about ten percent of all nonprofit income. Nonprofits use this income to fund necessary but unappealing-to-donor needs, like driveway repairs, payroll taxes, and utility bills.
6. Besides the money, what are the benefits of this type of support?
- Simplicity. While earning these funds you do not seek to create any outcomes. The goal is to make money.
- Minimal Ongoing Obligations. You provide the service or lend the asset and work to provide it well. Building an ongoing relationship is optional or unlikely, i.e., earning interest on your savings account or forming friendships with out-of-town wedding guests.
- Familiar Territory. The business experience of many board members is useful for evaluating and enhancing this income source.
- Stability. Many sources of this income are stable year-to-year. For example, if your site is a great meeting venue, it is likely you can obtain this income regularly.
- Ease. Over time, overworked nonprofits favor other income opportunities that require minimal effort.
7. What are the risks?
- IRS Complications. Can you lose your IRS status if you earn too much other income? In 2011, the IRS revoked the 501(c)(3) status of about 50 organizations. Assuming similar future patterns, your odds of revocation for any reason are 1.5 million to 50 or .00003 percent. Nonetheless, check with your accountant to avoid this foul and to develop systems for tracking any taxable income before you collect it.
- Community and Donor Complications. In some cases, your service may compete with supporters and others in the market. By offering a competitive service, you may loose their support. Also, when other income is significant, current donors, if not educated, may decide you do not need their gifts.
- Step Child. Earning this income will never be the main focus of efforts. You may invest too little attention in it.
8. What is your organization’s experience with other income?
Leaders need to learn about their nonprofits’ experience with income unrelated to mission. Here are some starter questions:
- First, learn the sources of other income you earn and then ask, what is the history of this income?
- How much time do you spend on earning it? Is the income worth the effort and the risk involved?
- Does it make sense to continue earning it? If yes, can you expand it or make it more efficient?
- Have you checked with accountants to help you to minimize any tax consequences? See Questions #4.
- Do you have the necessary infrastructure in place to excel with these funds?
- What sources of new other income should be researched?
9. What is the role of the board?
Overall, the board’s income work is to create strategies for all income, including other income. For this source, the board will want to balance any efforts to obtain it with the income produced. If you rent space for weddings, earn $200,000, and spend $50,000 in resources per year to earn it, it is likely you have a good balance. If you only clear $10,000 in good years, your leaders need to examine the opportunity. Is it a matter of skill? Pricing? The offer? The goal for all income is to maximize mission. Do your returns justify the resources required to obtain them? Does it allow you to maximize your mission? The board leads by analyzing this and all income sources.
10. How might we identify new sources of other income?
Start by identifying opportunities. Look at your current portfolio. Then, consider your assets. Listen to requests for services. Might you expand existing services to non-mission customers? Study similar organizations in other locales. What other income are they earning? Finally, innovate. Consider opportunities unique to your setting and skills.
Better than Leftovers
Other income is possible and likely for most nonprofit organizations. Since it provides 10 percent of all nonprofit income, it is worth some discussion and thinking. With a little focus, odds and ends of other income can provide you significant funds for your work—making other income even better than leftovers.
Other income is only one of seven nonprofit income sources. Visit our website for the earlier issues of Added Value for articles on five of the other sources.
For more on nonprofits and funding opportunities, listen to our collection of audio downloads, especially Money-tastic #2: Nonprofit Income Opportunities and Money-tastic #3: Creative Revenue Streams for Your Nonprofit. Both are great ways to learn new income ideas to help your nonprofit.