Grant Funding Vs Earned Income

Should you rely on grant funding to start your business?

Any new, start-up business must generate some revenue to stay in business. The number one cause for a business to fail is lack of sufficient funding. To further complicate this people who often start non-profit organizations have big hearts and little knowledge on how to generate revenue. Some even want to provide all of their business services for free because the people they serve may not be able to afford it. To be successful all businesses, including non-profit businesses, must achieve a level of financial self-sustainability.

Some these struggling businesses turn to grant money to try to pay all of their bills. They have a mistaken belief that “self-sustainability” is when you get other sources (like grants) to pay your bills.

Grant funds are generally not designed to start a business, to pay for annual salaries, or to pay off debt. Most grants are designed to help pay some of the cost of new or expanding programs / projects.

When a grant applicant has no earned income and no other source of revenue, they are a financial risk. Grant funders do not like to give their hard earned money to a business with high financial risk. Therefore before a non-profit applies for any grant funding they should first develop a couple of other sources of revenue to strengthen their financial statement.

Perhaps the most common activities for non-profit organizations are hosting fundraising events. Fundraising events can range from car washes to bake sales to selling naming rights. The most successful fund raising event is the walk-a-thon.

Another option is UBI. UBI (Unrelated Business Income) is revenue generated by an activity which is completely outside the mission of the non-profit. One example might be having a place that serves food to the public in a hospital. Serving food like a restaurant is outside of the mission and scope of work of the general hospital. When a fund raising activity becomes very successful it could develop into its own separate for-profit business.

Earned income. On the financial statement earned income is far stronger than donations or gifts. Depending on the nature of the non-profit business there are any number of methods to generate earned income. Nearly all non-profits can sell a product(s) and service. Additionally sources of earned income include membership dues and earned interest.

A non-profit is a corporation and should be managed like one.