Best practices — and practices to avoidIs your nonprofit considering the sale of goods or services as part of your income-generating profile? Keep these dos and don'ts in mind.
- Follow applicable tax guidelines. Be aware of any registration requirements or tax liabilities you may incur. Seek professional advice as needed.
- Offer goods and services that have a connection with your nonprofit's mission. Consider organizational assets that could be offered for sale, including material assets (such as works of art) and immaterial assets (such as performances or instruction).
- Develop a branding and marketing plan that leverages your nonprofit's mission. Consider the costs and benefits for the brand of asking supporters to become customers as well as donors.
- Partner with reputable vendors. Consider legal consultation before committing to any binding contractual relationships with vendors of products or services.
- Evaluate your insurance coverage. Make sure you have adequate coverage for any new activities your organization pursues.
- Recruit and train staff members who are able to manage the goods and services business. In some cases, these may be employees who come from the private, rather than the philanthropic, sector.
- Make sure your website clearly represents the products and services you're offering. You'll also need the capacity to handle a potentially large number of orders or requests for service, whether you're selling in person or online.
- Offer goods or services for sale that distract or detract from your nonprofit's mission. Remember that your nonprofit's name and reputation are on the line in every goods or services transaction.
- Expect sales to completely replace traditional fundraising through donations and gifts. Similarly, don't expend more time, effort or money than can be recouped with profits from the sale of goods or services.
- Fall for pitches from commercial vendors that seem too good to be true. You know the old saying: if it seems too good to be true, it probably is.
- Offer goods or services than can be purchased anywhere, from anyone. Play up your organization's unique angle, twist or perspective.
- Get stuck with unintended tax consequences. In the U.S., unrelated business income tax can be levied against nonprofits that make too much money from the sale of goods or services if profits aren't applied directly to the mission or the products or services aren't related to the nonprofit's work. In the U.K., taxes may be incurred for what authorities consider non-primary purpose trading.
- Depend too heavily on income-generating sales. In the U.S., you might consider spinning off the profit-making portion of the business into a separate operation If you're at risk of losing your tax-exempt status due to the sale of goods or services. In the U.K., a trading subsidiary must be used for non-primary purpose trading when there's a significant risk that your charity could lose money.