What are Alternative Revenue Streams? And Why does my Nonprofit need one?

To think your organization will be healthy by relying exclusively on donations and grants is unrealistic and puts tremendous pressure on you and your team to raise the funds needed to sustain the organization. As a result, you are constantly in survival mode, and it’s very difficult to thrive and magnify your impact when you are worrying from day today where the funds are going to come from to keep the lights on.

What do we mean by alternative revenue streams? We’re referring to anything that is not the traditional fundraising process through events, direct asks, competitive foundation grants, and corporate sponsorships. It could be a business such as a catering business, or it could be a store, or it could even be a service for hire. The idea is to come up with a way to sell something that the nonprofit produces or does. An ideal business model would be one that generates revenue but also in some way benefits the constituents who are being served by the organization. A car wash that is operated by developmentally challenged individuals who are part of a day center would be a perfect example. 

Here are my Top Three Reasons for identifying and implementing an alternative revenue stream for your organization: 

#1 You gain control of your nonprofit’s financial health.

By far the best and most rewarding benefit of identifying and activating an alternative revenue stream is the control and confidence it gives you over the management of your organization. Paying the bills, hiring team members, building out the resources that you need, and expanding your programming are all within reach when you have reliable and consistent income that is generated by something other than the goodwill of people and their propensity to donate. You will feel empowered by the ability to generate additional funds! 

#2 You earn the respect of donors, funders and the community.

While we all know that loyal and consistent donors are wonderful for nonprofit organizations, and that foundations can play a big role in the accomplishment of our mission, one or both of these sources of funds could disappear at any moment. Funders admire and respect nonprofits that are resourceful and build out a stable infrastructure thereby reducing the risk that they will struggle during tough financial times. 

#3 Your organization’s team develops an entrepreneurial mindset.

Many nonprofit organizations are very traditional in their systems, processes, and even technology usage. The process of developing a business within the nonprofit requires a willingness to take risks, be innovative, and train the team to be adaptable. It is also healthy for the Board of Directors to be part of entrepreneurial projects. 

And of course, it goes without saying that by expanding funding sources, your nonprofit has a much better chance of surviving in the long run and continuing its work for many years to come.

But what about that pesky UBIT?

Here’s what the IRS says:

For most organizations, unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization's exemption.

Regardless of what is ultimately determined regarding your additional revenue, it is still revenue that you would not have had otherwise, so even if you pay taxes on it, you are ahead of the game. Just make sure your CPA is consulted regularly as you set up your new business. 

Our suggestion? Get creative, find a great side business, and get your nonprofit on solid financial footing. Here are some examples of creative ways to start a business within your nonprofit!

Here are two examples of social enterprise businesses that have been very successful as alternative revenue streams for their nonprofit.

Joshua's Catering and Deli from The Lord's Place. 

Vibe 305 Cafe, a project of Roaming Hunger.