Automated selling for non-profit organizations

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hi everyone okay so i'm going to actually do a little bit of a different video today that i was actually anticipating and um i thought this was a great question it came from kelsey this morning i happen to see it in our group and i just wanted to answer this really quick um so today's video will not be edited i just want you guys to know that um but her question was can i start a not can i start a for-profit underneath my non-profit and kind of make it like a subsidiary of my non-profit business and i thought that was a great question i feel like i've answered this before but i wanted to go a little bit more in depth about it you guys know that i very much think that everyone should create a non-profit that makes money and it makes money specifically to create your purpose and continue it going and i think it's really mostly for sustainability now the reason that i'm so focused on this is because otherwise starting a non-profit can be really tough and you know getting grants and trying to chase after sponsorships and trying to find donors all the time can just prove to be a very tough situation and i've been there but i the best thing i have done is to create something that is part of my business the nonprofit business that allows us to work off of the funds for most of the year and if i have donors who would like to donate then they can go and they can donate on their own at their own time with the amounts that they'd like instead of having to constantly ask ask ask ask ask and sometimes make people feel uncomfortable so with all of that said in today's video i want to talk to you about how you can create a for-profit under your nonprofit and also come up with a way for you to have a monetization strategy for your business so let's jump right into this the first thing i want to talk to you about is the difference between a non-profit and a for-profit and the difference is that a for-profit is really anyone can go start a business there aren't really any legal requirements on you i mean if you decide if you start as a sole proprietorship you can just go start your business get a business license to all of that but if you are a non-profit there are a few more restrictions because they want to make sure that if they're giving you this tax exempt status that you actually are using the tax exempt status the way that it's supposed to be used and that you're taking those dollars that you do receive whether from donors grants sponsors um uh unrelated business income any of those types of uh fundings that are coming into your business they want to make sure that you're using them appropriately and that you're using them for what you said which is a charitable purpose so the difference is that the non-profit has a purpose that is charitable and generally a for-profit is focused more on creating a profit so you want to find out which way you want to go first but before you start any business non-profit or for-profit and then you want to find out when you're starting your nonprofit business and you want to actually create another business underneath it you want to make sure that you are thinking about what type of what what's the best structure for your nonprofit business to create a sub a subsidiary for profit business you guys can tell that i don't generally record off the cuff like this but here we go um so i have some notes down here that i'm gonna be looking at um the first the first thing i want to talk to you about is uh if as a non-profit you do have some sort of business or something that you might run on the side that's related to your non-profit say you run an event uh every year and you make a profit that's part of your nonprofit it's it's related to your nonprofits related to your purpose people are aware of that and they attend the event and they and you make money for your non-profit however let's say that you decided that you you want to do like a you want to open up like a barbecue or something a barbecue restaurant that's going to support your non-profit but you help children so it doesn't seem related to your organization it's actually a whole other business that's when you need to start thinking about really creating a whole new business for your non-profit because that will be considered unrelated business income tax and that's called ubit on the irs.gov website now i do just want to give you all a disclaimer that i am not a lawyer i am totally speaking to you from the information that i understand and the way i understand it um and from running a nonprofit of my own and running a for-profit business of my own um so i'm giving it to you from that perspective so i just wanna make sure you all know that so the next part of this is that your um what i want to talk about next is like so what can you do right because you you do want to make funds for your non-profit you do want to be sustainable and you do want to create a non-profit that's going to allow you to turn it into a business and create a sustainable income for your non-profit and for the programs you run and all of those types of things and that's one of the things that we talk about a lot in the tribe which is why i want to talk about today so one of the things that you need to understand about the money that you're going to be making no matter how it comes i'm going to give you three different options um next of the different ways you can set up your for-profit subsidiary for your non-profit business um but before i get there i want to just say there are a couple there are only a couple of ways that you can use it when it's attached to your non-profit you can only use those funds to reinvest into program related services i am not sure i i'm i'm pretty positive but i'm not sure i believe that you can also pay salaries from that as well um but the structure of that and i would definitely bring in a lawyer for this the structure that has to be extremely extremely clear when you set this up as your business as your nonprofit business you have to set it up correctly so that the irs knows that you are using the unrelated business income tax for your business or any income that comes into your business you are using for the purpose of your nonprofit of your you know charitable services um if it's for staff to to implement those services all of that type of stuff you have to be very very clear on this so i'll give you my recommendation so my recommendation for starting a business alongside your non-profit is to keep it absolutely separate and what i would do is i would say like a portion of these funds we take a portion of these funds from this for-profit business and we give it back to whatever business you know whatever your non-profit is so basically that non-profit be i mean sorry that for-profit business becomes almost like a sponsor to your non-profit business so that the delineation is very clear as to this is a completely separate business that i run over here and it pours into this non-profit i would keep it absolutely separate i'm going to give you a couple of other options that you can do but that is how i would set it up and how i would recommend that you set it up so really you'll be running two separate businesses and honestly no matter how you set this up you will literally be running two separate businesses unless you go with my last option so um the first option i just gave you is to create two separate businesses and keep them totally separate that's the safest way that is the most clear way and that's the way that your patrons your donors uh people who support your business or your non-profit your for-profit or non-profit business understand how they work together synergistically um and how if they purchase or use this business they'll also be supporting your non-profit so that would be my recommendation go set up a completely different business license go set up a completely different business name everything would be separate and you can advertise them together you can you know co-market them together you can call it cause marketing you can do a lot of things related to that but you are protecting both businesses and yourself so that's how i would recommend that you do it number two is you can form a subsidiary of your nonprofit and that would be a c corporation that you basically is still attached to your nonprofit but you create a c corporation instead of um any other type and i will talk about the other types um you could you could create that so the c corporation is basically what you're going to use and i would definitely research that i would talk to a lawyer about that i don't know enough about c corporations i just know that that is the then the one that you would use it would not be an s corp i mean it would not be an llc i see a lot of you asking me about an llc for your non-profit and um that is just it's too loose because llc is more set up like a pass-through for money rather than an actual corporation and so you want to be as strict and clear about the delineation between your nonprofit and your for-profit because you are working with the federal government and you want to make sure that you have all your decks in a row and that you are very very clear about where this money is coming from and where this money is going so um so but that is an option you can make a subsidiary of a non-profit and have it as a c corporation and run it run your funds and the c corporation as something separate meaning that the corporation would have a separate board and your nonprofit would have a separate board these boards would not would not overlap so you wouldn't have someone sitting on this board sitting on that board as well you'd have two separate boards you'd be running separate meetings you'd have separate financials everything would be separate which is why i say i think the best option is to just start two separate businesses and the only difference would be that possibly your c corporation might have a similar name to your non-profit or it might be underneath you're not housed underneath your non-profit with that same name and that's where a lawyer would come in handy to really walk you through that process um and and i i say this guys because getting a lawyer to to sit down and ask a lawyer questions is not as expensive as hiring a lawyer to actually give you all of the time to set these things up most lawyers are willing to answer a few questions and you pay them their fee for the hour it could be a hundred dollars maybe 200 it could be more than that depending on which lawyer you choose but you want to get someone who is well versed in non-profit law so that you understand so they understand nonprofit law and corp corporate law as well so that they can explain to you how these corporations are set up and how it will or will not hurt you uh to be a subsidiary under a non-profit the next thing is a benefit corporation now i have a full video on a benefit corporation and sorry about that guys um i have a full video on a benefit corporation and that is by andy keller and i will link that in here as well and he tells from start to finish he has a benefit corporation and it's called chico bags and or chico bag it might just be chico bag but basically he started a benefit corporation he talks about the pros and cons of having a benefit corporation and what all that means and basically they have a purpose they have an environmental uh focused purpose but they are also a for-profit company but they are not completely tax-exempt so that's a good one to watch if you're considering something like that um and then there are people who have a full-on for purpose profit company um but have a charitable side to that business like um oh my gosh now i'm totally blake mykowski uh who who runs um the shoes oh my gosh i can't oh my gosh i can't think of the shoes toms so uh that's another option for you as well if you are leaning more towards the for-profit side but you want to do something with a purpose or you want to do some sort of charitable aspect to your business that's another option and that is starting from the for-profit side meaning that you still get taxed but you're doing something for for good and so a benefit corporation is also run very similarly and i could be totally i don't want to say i'm wrong on this but um he may also be a benefit corporation as well but i don't think i don't think he is um but i know he's not nonprofit so my point is is that yes you can make a profit but it is in the structure of how you set things up so there's a benefit corporation and then there's also um an l3c which must have a non-profit purpose and this is about as close as you're going to get to an llc and um but the focus has to be a non-profit purpose so you might want to look at something like that as well depending on how you want to set up your structure these will require research and maybe i'll create some different videos that will go into each of these individually but as for now um i would do some research on an l3c i would watch the video on the benefit corporation and then i would also um speak to a lawyer or do some research on a c corp but if you ask me i think the easiest way to do this is to start your own business separately like a sole proprietorship start your own business and have your own non-profit and you can link the two together as far as the for-profit can then um donate to your non-profit and that way it's very very clear it's very very separate it's very clear to trace the trail and the money trail as far as like it came from this business and this business paid taxes and then it goes to a non-profit but the boards are not mixed you may not even need a board for your sole proprietor uh business and you can do it unrelated you can have an unrelated business um that you run over here like it can be focused on socks or something or whatever you want to create and then you have your non-profit that maybe helps kids or something now i want to make sure that you guys understand there are lots of different ways to make money in your nonprofit and um one of those ways is to create events um you can sell things from your non-profit like say say that you have um you know the people that you support are making the product and then you sell that product on your website or on your or you just sell the product it doesn't have to be necessarily from your website those are things that are part of your business activities as a non-profit so it's still related and you can do that if you create an event under your nonprofit and that's how you bring in funds which is what my nonprofit does um you can also do that as well so what i'm trying to say is you may not need to start a whole other business but what you need to understand is that if you start a business that is unrelated to your nonprofit that will be deemed as unrelated business income tax and sometimes that business will actually take off and so you will be taxed on that income if it's from your nonprofit and the irs sees it as ubit which is unrelated business income tax um but your safest bet is to either create separate i'm always going to go create separately always keep your stuff separate your non-profit is not anything that you want to lose your status over or that you can no longer do your purpose or that you really want to mess with with the um with the irs so i would recommend that you do it separately but you do have these other options that are available the c corp the um benefit corporation the l3c or just having um unrelated business income tax through your nonprofit so think about that guys i feel like there was a lot to throw out in that video kelsey that was a fantastic question i really appreciate you asking that and um i just wanted to make sure like i was like hey i had another video planned for today but this is the one we're getting so anyway um i'm excited to answer this for you guys so let me know if you have any questions down at the bottom and what your thoughts were for creating a um subsidiary or another business that's going to help support or sustain your non-profit if you have something like that i would love to hear it um you can also leave it on the blog or you can leave it down below in the video below to let other people know as well so thank you guys so much for watching i want you to get out there and unleash something amazing and i don't even think i introduced myself in this video and i apologize um i'm ashley tate and i'm here to help purpose-driven entrepreneurs unleash there's something amazing so thank you all so much for watching and i will see you next tuesday bye guys