Profit Making in a Non-Profit Organisation

1

 

Philanthropy has held neither my attention nor my interest beyond those few marathons and walkathons that I participated in. Do not get me wrong, I do not detest social work but I never got around to think of it much.

I recently bumped into an old friend and asked her what she was up to. (Let’s call her Ms. Phila.)

Ms. Phila: “I work for an NGO”

I:  “What?! That’s your job?”

Ms.Phila: “Yeah, why, I have a master’s degree in social work.”

I: “A master in social work?!  :O So you are being paid! Um, ya cool.”

I felt so stupid then. I had no clue that academic courses are conducted on social work. And c’mon, she said she was working FOR the NGO. So I shamelessly forgave myself for the blooper. :D

I always thought (or let’s say assumed without thinking) that NGOs are run by lazy daughters and wives of deep pocketed business tycoons/movie actors. Now we ought to know that we don’t have to be super rich or take a vow of poverty to start-up an NGO. If you are a do-gooder or simply want to take a break from the maddening corporate world, starting up an NGO is NOT suicidal. Legal recognition as an NGO will grant it a tax-exempt status and this provides us  access to local, national and international grants and funds & donations from big hearts with deep pockets.

How different is an NGO from a Corporate business?

NGOs are simple organizations and thus their setup is essentially like any other commercial enterprise:

Administrator(s)–>Board of executive members–>Managers–>Employees and other staff

An administrator in a for-profit organization is legally its owner. But an NGO has a legal identity of its own.  So there are no owners of it, only founders. If you setup an NGO you will legally be its founder and thus there is nothing like distribution of the revenue generated to the owners. In blunt words, profit from a non-profit organization must be put back into its programs or it loses its identity as an NGO. The surplus revenue generated itself is subjected to legal restraints. If the NGO goes out of business, the assets are liquidated and donated to another charity and not allowed to be split among the founders/ directors.

This is the reality of the ‘philanthropist’ NGOs.

Lets check out the other face of reality.

Consider a hugely successful non-profit organization. The revenue of such an international NGO  is thus split:  90% goes into its programs, 6% to the administrative expenses (staff and employees salaries) and the rest is for overhead expenses. Now how much do you think a manager might be earning at this NGO (keep in mind about the 6% figure)? Well I don’t want to quote numbers but he/she would easily earn 3 times more than their counterpart in a corporate organization of the same worth. Reason is that there is lot less staff in an NGO when compared to a corporate setup. This is to reduce the incurrence of administrative expenses and since there is not much competition to be faced, the NGO can make do with a total of 5 managers instead of 50.

Now, you being the founder, the idea of paying such hefty salaries to your manager could be frightening and you could ask me “How am I to benefit?” :) Well now, name your mom as the founder and you be the manager… :) There are ultimately innumerable ways to exploit an opportunity once you spot it.

How to set up an NGO?

Social statistics are as important to an NGO as market analysis to a corporate business. Thus it would be better if different mathematical methods are learnt. Study of psychology, culture, society and social sciences concepts is recommended for further enhancement of capabilities and efficiency.

An NGO can be dedicated to any one of these 5 causes.

  • Charity
  • Education
  • Literacy
  • Religion
  • science

And Indian NGOs can be registered under any of the following:

  • Trust
  • Society
  • Section- 25 company
  • Special licensing

After the choice of a cause, a mission is to be developed and explained concisely in 1 or 2 lines while applying for the tax-exempt status. The approval is a tedious process, usually taking about a year. It would help if a strategy called as “Track 2 Diplomacy” is applied. It means that the founder could use his/her contacts and make unofficial members of the government and former policy makers to get down with unofficial numbers and demand for the mission to be launched. For example, if you want to set up an NGO for women empowerment, you could get lecturers and professors from a government women’s college making statements about the lapse in security for women and demand the setup of workshops/programs for their empowerment. This is where you as the founder can step forth and advocate for the cause by demanding the approval of your organization as an NGO.

Once the tax-exempt status is achieved, funds and grants can be used for your mission, with zero investment from your side. You could accept government funds or entirely depend on private funds. The successful NGO Green Peace doesn’t accept government funds.

Stereotyping of Non-Profits:

It is said that the stronger the will, the stronger the criticism. And not even the good Samaritan can escape the whiplash of brickbats. Critics claim that the whole idea of non-profit organizations is an autocratic form of politics. They say that NGOs are ‘tunnel-visioned ’ in scrutinizing every global/national event in their own interest. And we have seen too many such cases- The government plans to set up a dam somewhere and Bam!, some NGO crops up at the spot immediately and strikes against the decision, no matter what. The law decreases the age of juveniles and a hundred dormant NGOs spring to life and start campaigning against it.

I believe that good-will should better the society and not hinder its growth. Also, when you call it a non government organization and claim it to be an independent body, how much ‘independent’ is it? Doesn’t the NGO depend too heavily on the funding to run its mission? What about the well-being of the NGO’s target community once it falls short of funds? Finally here’s a case where only money can buy happiness. :p

How to build up more revenue?

There are about 1-2 million NGOs running only in India. But the best part is that there can’t be market competition among NGOs (even among the ones with same cause). The one which reaches out more will be more successful. What can make an NGO stand out is how personalized the fund raising is. People will not donate for empty collection jars. Entertainment events with a subtle yet hard hitting indication of the plight of the concerned will definitely lead to more funds. However collection jars need not be avoided altogether. :) Beautiful posters on or around the jars will boost the stature of the NGO and this is very important in giving the donator a good feel about where his money is going.  Memberships can be granted for a fee and the benefits of newsletters and exclusive campaign drives can be promised. Serious pledge driven events with publicly declared targets can be organized.  Banquets can be arranged for the top contributors of the NGO and a few celebrities to gain more news coverage (the money for the banquets can be quoted as a donation).

More Rules, but More Goodies:

 If at times (sometimes more often than not) the NGO is running low on funds, unrelated business activity can be done to generate revenue for the NGO. This business activity cannot be deemed as tax-exempted. The rule for this unrelated business activity (apart from paying taxes on it) is that it should not consume substantial time and effort of the NGO staff. If In a given period of time, the revenue generated is more via unrelated business activity when compared to revenues from funds and grants, the tax-exempt status of the NGO could be cancelled.

There also must be a balance between the net worth of the charitable work done and the salary being given to the employees. In most cases the salaries in admin expenses should not cross 40% of the total funds raised. But though there is a restriction on salaries, we have seen earlier how huge the salary can be permitted to get when the revenue built up is high. Also there can be legal personal benefits for the directors (now you know where the money is coming from), like vehicles for transport, petrol/travel expenses, meals allowance, etc. Apart from these there can be other compensations also like an extended vacation at the city/state where the fund raising events are being organized.

Okay, so you don’t have plans to be the founder-cum-manager… you want to be an employee-cum-manager. There is news for you too. Due to the low level organization of the NGOs with minimum number of levels of hierarchy, working in an NGO can be an assured fastrack way to success. One can very easily ‘go up the ladder’.

And, if absolutely nothing works out for the NGO, there still is benefit. Suppose there’s credit/loan that has been taken by a poorly manged NGO from a parent NGO, the owners of the NGO that is in debt are subjected to very nominal and very limited liability. The owners/ the decision makers are not liable to repay for the loss incurred, and thus the remnants of the revenue are simply liquidated and donated to other NGOs before closing down. All is well even if the end is not well. :)

Share.

1 Comment

  1. Pingback: Basic Introduction to Business

Leave A Reply