When not to start a not for profit
Which legal structure to operate within is a challenge that many social entrepreneurs have.
In our experience of working with many social entrepreneurs the story goes something like this…
Step 1: Have a great idea to create positive change in someone’s life
Step 2: Become highly excited, search, search, learn, learn, shuffle contradictory advice
Step 3: Fueled with filtered compliments decide to go ahead and make it a reality
Step 4: Setup a not for profit organisation (or, as you’ll discover it’s actually an ‘incorporated association’ which might be registered as a charity with the Australian Charities and Not for Profit Commission (ACNC), or perhaps an Aboriginal Corporation registered with the Office of the Registrar of Indigenous Corporations (ORIC) with benevolent intentions enshrined within it’s constitution (yes, you need to create a constitution).
But it’s not just setting up a not for profit is it. It’s getting a board, it’s learning the legal implications of the legal structure, it’s dealing with compliance and at times ambiguous terminology, it’s reporting to your public and funding bodies and above all it’s keeping your nose clean – because we all know how tall poppy vindicating Australian’s love a good knee chopping, particularly when it’s of the good turned not so great variety, just ask Belle Gibson.
Now, I take no legal responsibility for the following statements, if you want advice of that nature look here (The Not for Profit Law Information Hub) for a very comprehensive guide.
Let these sobering facts wash over you:
- There are around 600,000 not for profit organisations in Australia at the present moment
- There is currently 53,965 charities registered with the ACNC (which means they are not for profits who receive Deductible Gift Recipient status).
- In April 2015 the ACNC distributed a media release letting the Australian public know that 6,000 of those charities were non-compliant and risked de-registration.
- Tired, overworked and underpaid is not, ever a plausible excuse for not turning in compliance paperwork on time.
- If your legal structure is an incorporated association or Aboriginal Corporation you will be governed by a board. That board MAY outweigh your decisions, even though you may be the founder.
- If you are the founder of a not for profit and want to seek employment via your entity there will be both ethical and legal concerns that you will need to consider.
So, if NOT a not for profit, then what?
Before you rush out and incorporate consider these things;
- Have you approached any like minded organisations to discuss a potential ‘auspicing’ arrangement? That means, that organisation looks after your finances and compliance (in reality, you might do it but you will negotiate a partnership with the entity about who does what and how much it costs). Personally, I always recommend this in the early days for numerous reasons;
- It tests the market; If you can’t find an auspicing partner that will touch your idea either everyone you’ve approached is out of touch (this does actually happen), you haven’t knocked on enough doors, or, you need to do some rethinking
- It gives you a chance to breathe. You don’t have to learn everything at once and can actually test out your social concept in the marketplace at the same time as slowly but surely learning the boring bits (well, people like myself don’t put them into this category but many do)
- You’ll have an inbuilt team and maybe even mentors to work alongside
- If you are lucky (or wise) enough you’ll be able to ride on the coat tails of your auspicing partner to speak with other potential partners, client groups and funding bodies
- You’re administrative fees will actually contribute to your auspicing organisation surviving as well – times are tough in the not for profit sector, particularly for smaller orgs. Every dollar counts. It’s a win win.
- You’ll learn, you’ll grow and you’ll connect (if you choose to)
- It’s the most inexpensive market research opportunity you’re likely to have.
- Do you have any business experience? If you do it will kind of help, there are many similarities in private sector business to the not for profit world, but there are still some stark differences including;
- The pay rates are incredibly low
- When it comes to funding, it’s equally important to spend money (and how you do it) as it is to make it
- You may also be working alongside volunteers which is usually great but sometimes it’s really not
- The fact that you’re doing good things doesn’t exempt you from normal financial pressures such as paying bills, your rent (or mortgage)
- It’s the kind of work that never, ever ends. Think you’ve solved the problem? Try holding a beach ball underwater for a while and you’re likely to experience similar levels of satisfaction
- How much time can you spend on your entity before you get paid? And how much unpaid work are you prepared to put in?
- Not for profit organisations are time hungry in very similar ways to start-ups, and for that matter small business. There is never, never enough time. As a not for profit manager of a small grassroots organisation I worked over 70 hours per week, most weeks for almost 3 years. Guess what happened ?? Yep, burnout. You WILL put in unpaid overtime, you WILL experience days when you go way out of your way to deliver only be disappointed, and then on the days when the sun shines and birds sing you’ll see a glimpse of success – and that will have you hooked. At least being employed to do what you are passionate about carries some form of employment conditions (even if you choose to ignore them).
- What assets are you prepared to throw into the mix?
- Chances are there won’t be a car to use, it will be yours. There may not be a computer, mobile phone or even internet connection. Office space – phah! Oh yeah, where do the office supplies come from? Yeah, you. that’s only where it begins.
Oh there’s so much more to add to this story, clearly my advice is to incorporate as a last ditch effort.
But don’t let the legal structures get you down. Defecting from the corporate world to a world of ‘meaning’ has been one of the most rewarding things I can say I’ve ever done. If you truly must incorporate, go here as a starting point. ACNC