Ask the consultant: Should I organize my new company as a nonprofit?

Question

As a holistic nurse in private practice, I want to set up a nonprofit. Since I don't know what I don't know, what are the more common pitfalls of running a nonprofit?

Jonathan Steele, RN, www.watercures.org

Answer

The starting point for establishing any organization, including a nonprofit, is creation of vision and mission statements. The vision statement describes an improved state of the world to which your organization, in whatever legal form it takes, has made a credible contribution. The mission statement briefly states how your organization will make that contribution. For example, your website currently has no "About Us" tab or link, which would ordinarily lead curious visitors to the mission statement.

One distinguishing characteristic of a nonprofit business plan is the array of revenue sources. Instead of simply selling a good or service in a competitive marketplace, like most for-profit organizations, nonprofits can more reliably solicit financial contributions from businesses, foundations and households that share the values inherent in the nonprofit's mission statement. Legal oversight and the organization's "nondistribution constraint" (any profit or surplus must be plowed back into the NPO [nonprofit organization] in support of its mission) provide assurance that such contributions will serve a societal need rather than personal enrichment.

It's not clear to me that you need to establish a nonprofit at this stage. You might operate for a while longer as an independent proprietor, gaining traction without the governance constraints (the CEO of a nonprofit is responsible to an independent governing board) and additional state and federal reporting requirements.

When you're ready to make the leap to nonprofit status, you will find helpful guidelines provided by the Minnesota Council of Nonprofits at www.minnesotanonprofits.org/.

About the author: Charles M. (Mel) Gray is professor of business economics and senior fellow in the Center for Nonprofit Management at the University of St. Thomas Opus College of Business.