Profit or salary, can I make one as a nonprofit founder? Real Talk Q+A
I had a couple questions come through from Cynthis and Tony . Tony mentioned in a comment that because we are a non-profit you shouldn’t be making a profit or salary. Basically where does the money come from? And then Cynthis had a very similar question which was, where does the money come from if you are a non-profit?
And one of the things that I say all the time is when you start your non-profit you have to understand that you are still an entrepreneur, you are still someone who is starting a business, and basically, the only difference between a non-profit and a for-profit is that the way that you’re taxed. And so, you are tax exempt, meaning that any funds that come in are not taxed by the federal government. They are giving you that because you’re making a charitable contribution, and you’re a charitable entity. So, if you were someone who started something and whatever that may be and you’re a non-profit, if you’re a non-profit all that means is that your whole goal is truly running off of purpose, and your whole makeup of your organization is to do a charitable outcome, to provide charitable outcomes, and to provide social impact.
So with that all being said, you still have to be paid, you still have to … and you don’t have to be obviously, there are a lot of non-profit founders that don’t get paid, but when you think about like your health, let’s just use that as an example. You can’t do any job if you don’t have your health, right? You can’t be productive if you don’t have your health. If you have a business and you don’t pay yourself you can’t be productive in your business without putting that money back into your business, which would be paying yourself, paying for administration costs, paying for operations, and having all those types of things in your budget.
So I guess the real question here is, where does the money come from and how can you pay yourself? So, the money really comes from putting that into your budget and making the sustainable plan. Now, when you create a business generally most people create a business plan, a marketing plan, operations plan, operations budget, things like that. So, you need to be thinking about, when my donations come through what percentage of your donation … and this is the simplest way I can put it. What percentage of your donation needs to go towards admin costs, which would include your salary or any staff salary that you may have, which would include still providing the services that you have and the operations that you need. So, if you need ink, or you need to print papers or whatever it is stamps. I have to pay for a mailbox because a lot of the ways that our program works, works off of a P.O. Box. And so, I don’t necessarily have the overhead of a building but I do have the overhead of printing, and stamps, and website updates, and things like that, that I have to pay for in order for the program to work.
When you have your sponsors and things the most important thing you can do is really just be transparent and provide that information for your sponsors and the people who support you so that they know where those funds are going. And that’s really the key to running a non-profit and paying for those types of expenses.
In some of my other videos, I talk about benchmarking, knowing exactly what you do and how much other people who do that same thing in the for-profit sector also make. And so, if you’re raising enough funds to pay yourself then absolutely you should be making a profit and paying yourself. And, profit is not a dirty word. I say that all the time, but I think a lot of people have that misconception that if you start a non-profit, that if you say, “I’m making a profit,” or, “I am paying myself,” that, that’s a dirty word. And that’s my goal here on The Social Life, it’s like you still are running a business, and you’re basically running a charitable business, and that in itself is you’re giving a social impact and you are also running a business. And in order for the business to continue working, you have to be compensated for that, for your time, for your effort. If you’re not there then the program can’t work and then you don’t provide the social impact. And that’s why you see a lot of fledgling organizations because you can really get burned out on some of the work that you’re doing with a non-profit. If you’re an executive director, you’re the founder of the non-profit, you have to set it up as a business. There’s just no two ways about it. You’re not going to survive if you don’t set it up like a business.
So, my main goal with this video is to give you three tips when you’re thinking about how to pay yourself, where does that money come from, and what to do with it. When you’re thinking about your budget think of a percentage that you want to take out for your non-profit. As an example, in my non-profit we sponsor kids. And so, for every child that gets sponsored, we take out a 10% fee because I have to do that work. My staff or anyone else that works with me has to do that work. And so, somehow I have to be able to keep that talent, I have to be able to have people who are willing to work with me to do that. And yes, I have interns and I would absolutely have volunteers before I would have someone that I also have to pay, but right now what I do with that 10% that is for my administration fee, I put that money back into my non-profit. I personally don’t need to be paid at this point, and I want to see my non-profit thrive. And so, you have to make those decisions.
I think it’s easier to not get burned out with your non-profit, and your responsibilities when you know that you can see it moving forward. As an example, right now we are revamping our website and that’s something that is actually very important to me. It’s the whole basis of how my non-profit runs, and so rather than pay myself I rather take those funds out to actually make the website better. And so, that’s the number one goal for me. You have to figure out for yourself, what’s the number one goal for you, and your admin fees, and your costs that you’re taking out of your non-profit and taking away from the social impact, is it enough for you that you need to be paid? If this is your full-time job then yes, you need to be paid enough so that you can take care of your family and so that you can also take care of the business.
Where people get in trouble here is that they focus too much on paying themselves and they’re not being transparent with their supporters on where those funds are going. When you go to create your yearly report and people look at your funds, you shouldn’t be having 70% of the funds going to you and only 30% going to your project, or your services, or programs. You have to figure out what you’re comfortable telling your supporters that you take out for your admin costs, and where those admin costs go. It should be very simple for people to understand that, yeah okay she takes out 30% of all donations that come into her program and she puts them toward admin costs, and this is the breakdown of those admin costs. You should be just fine explaining to people where those funds are going, and how they’re being used, and showing that your salary is reasonable for the level of work that you do.
So what profit means to me and the non-profit sector or the social entrepreneurship world and The SociaLife World, basically means that you have enough to take care of your programs and services but you’re also taking out admin fees for you to actually do the job, put back into your business just like any other for-profit business would do. And my goal with The SociaLife is to say that you can still be giving social impact as long as you are showing your supporters where your funds are going, and you’re being transparent with that, and you’re showing them exactly what that looks like, then you absolutely could be making a salary from your non-profit, it is not a bad thing.
I don’t know how else to say this, and I feel like I’m a little bit on a rant, but it is important to take care of the founder and it is important to put money back into your non-profit so that your non-profit can be successful, so that you can attract the talent that you need to provide good services and good customer support for your recipients of your non-profit. If you look at big non-profits they absolutely have a budget for their administration, they have salaries for their executive directors, they have salaries for the staff that work for them, you have got to have those things in order for your non-profit to work.
So, I don’t want to split hairs on what profit actually means, and whatever, but for my purposes in The Social Life and when I use that term profit means that this is money that you are not putting towards programs or services to run your non-profit, these are the administrative costs that you need to make the non-profit run. And a lot of people forget that there is someone behind this non-profit making it run, keeping track of things, and you have to value what you do as a non-profit executive director or founder. And you have to value the work that you put in and write out what you believe that’s worth.
And if you have a board this is a great place for them to tell you if it’s reasonable or unreasonable, because they are deciding your salary. You’re not just coming up with your salary just out of the blue or taking funds from your non-profit to pay yourself, this is something that has to be voted on, this is something that has to be decided with your board, this is something that you have to recuse yourself from if you are sitting on your board as a board member, because you are deciding on your salary and so, you have to recuse yourself from those meetings and let your board decide what your salary should be based on all of the information that you’ve given them. Maybe you’ve given them a job description of what you do, you’ve done some research on benchmarking on what other people who do the seam type of work that you do get paid. So, if you’re doing more administrative assistant type of work then you should be benchmarking with an administrative assistant in the for-profit sector. If you do more of the heavy lifting and you do the everyday work write out that job description and then find another job description or two or three that are doing the same thing so that people can compare the salaries to see where your specific job description works.
Now, sometimes you have to remember that you’re in the non-profit sector and even though I believe that you should be getting paid what you’re worth, you may take a lower salary than someone who’s working in the for-profit sector so that more of your funds can go into your program. But these are things that you have to keep in mind. You are working and you are doing a job, and you are running a business. And in order to make that business work, you have to put money back into your business, your non-profit, whatever it is. So absolutely you should be taking a salary when you can, and when it makes sense, and you have to be able to stand behind what you’re taking out of your programs so that you can pay yourself. You have to stand behind that when it comes to supporters, you have to be able to show that your board was on board with this, you have to show that … no pun intended there. You have to show that your board approved this and that you have now taken out a salary, and you are now getting paid from your non-profit. But there is absolutely nothing wrong with that.
Synthesis and Tony X these are the types of things that you want to think about. So number …
You want to think about how much you’re taking, what percentage you think is fair to present to your supporters that you are taking out for your admin costs. You want to be open and upfront about what you’re taking from your non-profit to pay yourself. And you should feel comfortable being open and upfront about this when you’ve done all of your research and you know this is what you are worth. And really it does come down to, this is what you’re worth. And just like any other for-profit business, you may not take a salary for quite some time. There are tons of for-profit businesses that don’t take a salary for a couple of years because they’re putting their money back into their business.
Now when you decide to make that shift from, “I’m no longer putting this money into my business, and now I have my business where I want it and I want to start paying myself and taking a salary,” that is the same trajectory that a for-profit business would take. And I keep saying that and comparing it to a for-profit because I don’t want you to feel bad about taking out a salary, this is completely normal and most non-profits that’s what they do. That’s how they hire good executive directors, and they hire good talent. They have to pay their executive directors. So you need to go back and pencil out, how much would I need to make in a year to be able to take out a salary or pay my staff or whatever I need to do? And that ownness is on you. You have to then go out and be able to find those funds to be able to pay for that through your program. So maybe you need to get three $10,000 grants so you can make $30,000 a year for your program, and maybe you take out a percentage of that where you make a certain amount per month. And that’s just going through and doing the numbers, just like any other business.
The last thing I would say is the most important part of those three things that you need to keep in mind, is the reporting. You need to make sure that if you do start taking out a salary, the reporting is more important than ever before. When you’re just working on your mission and you’re putting funds back in reporting is always important, but it becomes even more so important and you become under more scrutiny when now you’re taking out funds to be the executive director or for the founder, where you now need to show that yes, we are completing all of these programs and services. Here’s where that money has gone. Here’s what I take out as a salary, and that’s a percentage of what percentage that is of the funds that come into your program.
So, there are a few things you need to think about before you do start taking out a salary, but I absolutely believe that you should always be looking towards taking out a salary. Now, we all come to that in different phases. For example like I said, I don’t get paid for my non-profit and I’m okay with that. I like what I do, I love what I do, and I put the funds that do come in that I could take out as a salary, I put those back into my business. As far as doing the website, taking out ads, creating events, doing things that I feel further the non-profit, and the things that are important to me, rather than putting those funds in my pocket right now.
At some point maybe later I may hire an executive director, and I may want that. Of course, I’ll need to pay them if I hire them, or I will take on the role of executive director myself and I will pay myself. But, this is not a shotgun approach, you really need to take your time. You need to do research on how much you need to get paid. You need to do research on how much money you need to bring in, in order to substantiate the amount that you want to be paid. So those are the types of things that you need to look into when you’re thinking about creating a salary for yourself as a non-profit founder or executive director.
So, I know that was a long winded video. I feel like I actually kind of went on a little bit of a rant, but I don’t want people out there thinking that when you go into the social sector, or you create a non-profit, or you create a social enterprise that you can’t pay yourself. It’s just not true, and it’s been a long time of people thinking that way. But I believe that you should run your non-profit as a business, and have a business mindset, and be savvy about what you’re doing with your non-profit in order to make it grow and increase your social impact.
So, I hope that helped you. I will see you guys on Thursday and I want you to get out there and unleash your something amazing. Thank you so much for watching, I’ll see you on Thursday.
The Socialife Diaries
Are you ready to join 200+ other entrepreneurs on their journey to UNLEASH their 'something' amazing?! Let's do this!