Nonprofit organizations can obtain funding from grants, contracts, client fees, commercial companies, and charitable trusts/bequests. Grants and contracts are often used to implement new programs, while client fees and commercial ventures can cover program costs. Charitable trusts and bequests provide long-term funding.
Funding for nonprofit organizations can come from many places. Grants and contracts often provide a large portion of an organization’s funding. Fees from clients and business ventures also allow organizations to obtain funding for programs.
Foundation and government grants often provide a significant portion of funding for nonprofit organizations. Agencies often prepare grant proposals when implementing a new program to apply for financial assistance from the government or a foundation. If awarded a grant, the organization will receive an amount of money that will be spent for specific purposes based on the proposal and stipulated by the funding source. Grant renewals may be available when initial funds have been expended.
Contracts, especially government contracts, are a common source of funding for nonprofit organizations. If a nonprofit agency provides a service that could be useful to other organizations, such as transportation for the disabled, the agency may receive a contract from the government or another organization to provide the service. A contract usually stipulates a period of time and a payment process. Popular types of contracts include cost reimbursement, performance, and managed care contracts, and the type used determines the payment calculation.
Contrary to popular belief, a nonprofit organization can make a profit as long as it spends the funds to provide a service to its customers. Charging fees from clients for services rendered can be a significant source of funding for a nonprofit organization. It is not uncommon for client fees to cover partial or full costs of a program. In some cases, the fees collected from a popular program could also provide enough funds to cover the expenses of other programs administered by the organization.
In addition to client fees, commercial companies sometimes provide funding for non-profit organizations. Some charities sell products to earn money for their programs. For example, a retirement community may sell crafts created by the residents. To avoid losing its non-profit, tax-exempt status, the business enterprise must be directly related to the organization’s mission and the business cannot be too large. Online store fronts are popular outlets for nonprofit business enterprises because they cost little to implement or maintain.
Charitable reminder trusts and bequest programs also provide long-term funding for nonprofit organizations. In charitable reminder trusts, donors provide stock, bonds or cash to an organization, receiving a tax break and guaranteed income for life. After the donor passes away, the organization receives the remainder of the trust. Similarly, legacy programs allow people to leave a portion of their assets to an organization. Donors essentially include the organization in their wills, with the organization receiving the gift when the donor passes away.
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