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Nonprofit Organizations Explained: How They Work, Make Money & Make a Real Impact | The Nonprofit Launcher | YouTubeToText
YouTube Transcript: Nonprofit Organizations Explained: How They Work, Make Money & Make a Real Impact
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This content clarifies the fundamental nature of nonprofits, emphasizing that they are mission-driven legal entities, not devoid of funds, and that their success hinges on effective revenue generation strategies beyond just grants.
There are so many people who want to
start a nonprofit, but they still
struggle to understand exactly what a
nonprofit is. Like, what's the
difference between a nonprofit and an
LLC? Where does the funds come from? How
can we use the funds? Can I be paid?
What is this tax exemption that I keep
hearing about? Can I get a grant? Are
grants the only option? Can I charge a
fee for my services? Well, in this
video, I'm going to break down exactly
what a nonprofit is, break down some of
the misconceptions about the nonprofit
space, some history about the nonprofit
space and how it became what it is
today. and lastly, how somebody like you
can get started. So, if you've been
thinking about starting a nonprofit but
unsure how it works, this video is for
you. What's going on, guys? My name is
Timothy Wright. We're back again with
another video. And in this video, I'm
going to do my best to explain exactly
what a nonprofit is. So, a nonprofit is
simply a legal business entity just like
an LLC, an S Corp, or CC Corp. The only
difference is this organization is
created with a mission intent instead of
profit intent. Now, the biggest
confusion with that is just because this
organization is missiondriven, it does
not mean your mission does not need
money to drive it. The key ingredient to
understand how this works is knowing
that you can't actually pocket the
funds. You have to continue to use the
funds to grow the mission, even if that
means paying yourself. So, what is
pocketing the funds? Let's say, for
example, I have an LLC and I have a
service and I charge $5,000 or $2,000 or
$1,000 for it. Someone pays my business
for the work that we're doing. The money
goes right into my business bank account
and then I go to Chick-fil-A and buy me
some food with my business credit card
or I use the money that's in my
business's bank account, transfer it
over to my personal bank account and pay
my rent with it, pay my mortgage with
it, pay my cell phone bill with it. When
you're running an LLC, running a
for-profit, there's no one telling you
that you can't do that. There's no laws
to tell you that you can't pocket the
funds because that's why an LLC is
created. But when you're running a
nonprofit, you can't just pocket the
funds. You can't get a donation for $100
and then you use $25 of that donation to
go get you some food at Chick-fil-A or
Starbucks or whatever it may be. But
what you can do is pay yourself a
percentage of the money that you just
generated as long as it's reasonable.
But you'll pay yourself as an employee
or independent contractor for the work
that you're doing. That's going to be
the biggest difference. So when you
become a nonprofit, you also have the
opportunity to become a 501c3 taxexempt
organization as well. Most people
believe that this is one thing when it's
actually two separate things. A 501c3 is
a tax exemption code for nonprofit
organizations. So, you have to become a
nonprofit with your state first. Once
you become a nonprofit, you can then
apply for your nonprofit to be
taxexempt. Most people think that
they're creating a 501c3. Hey, yep. I
filed my organizational with my state
and now I'm 501c3. That's not the only
thing you have to do. Again, the
nonprofit status is one thing. Becoming
a 501c3 organization is another thing.
You have to apply for this organization
to be taxexempt. LLC's, S Corp, and CC
Corps, they don't have this opportunity.
Now, with this tax exemption, this
allows all the money that you're
generating to further produce your
organization's mission to be taxexempt.
So, it doesn't matter if you receive
$10,000 from John. It doesn't matter if
you receive $100,000 from Tim. All this
money could be used as taxexempt revenue
as long as it's further producing your
organization's mission. This aspect
right here is a huge incentive to the
reason why people create organizations.
Now, with this tax exemption, this also
allows donors to receive a tax deduction
on the amount of income they donated as
well. So, if someone gives your
organization again that $10,000, you're
able to provide them with the donor
acknowledgement letter, which is going
to be your receipt essentially letting
them know how much money they just
donated to your organization, and then
they'll be able to provide that to their
CPA or to their accountant and get tax
deduction at the end of the year. Now
you see the term nonprofit and in most
cases when people see that they believe
no money. But that is a huge
misconception. Look, I want to provide
you some data here. Look, over 1.5
million nonprofits were registered in
the US as of 2024 according to the IRS
data. And the nonprofit sector
contributes to over $1 trillion
economically annually. It accounts for
about 10% of the America's workforce.
And we're in every industry now. health,
education, social justice, housing,
arts, mental health, environmental, so
much more. The term nonprofit does not
mean no money. It just means that you
can't pocket the revenue. You can pay
yourself a percentage. So, let's say you
raise $100,000 as the executive
director, as long as it's voted on by
the board. That's something that you're
going to need to do as well. Vote on how
much money that your yourself as a
founder can generate from every dollar
that's received. I'm going to encourage
you go watch the video that I created on
how founders can generate revenue, but
also how board members can generate
revenue as well. That's going to give
you a very good outline and
understanding of what you need to do to
position yourself to be paid as an
executive. So, it's clear that money is
definitely being raised in this space.
Trillion dollars annually, over 12
million people employed, and again, 10%
of the Americans work for a nonprofit.
But it's important to understand the
difference between pocketing the money
and being paid for your work. Now, how
do nonprofits actually make money?
Spoiler alert, grants are not the
largest way for nonprofits to raise
capital. I I repeat, grants are not the
largest way that nonprofits raise money.
So, let's break this down. According to
Urban Institute, Giving USA, and the
NCCS, over 49% of the revenue comes from
program service fees. Program service
fees. So, this means se fees for your
service, tuition, ticket sales. the
YMCA, their largest revenue stream is
the memberships, hospital services,
museum tickets, right? Whatever is a
nonprofit, there is a way for you to
raise capital for that business. And
that is going to be through the program
service fees. So maybe you're getting
ready to have an event and you want to
charge for ticket sales. Maybe at your
event, you're going to have four or five
different vendors and each of these
vendors, you're going to charge them
$250 per person to sell any products and
programs or services they may offer as
well. All these are revenue generating
ideas that you could have for your
organization and not be 100% relying on
grants. Number two is government
contracts and reimbursement. 32%, listen
to me, 32% of the money coming from the
nonprofit sector is from Medicaid
reimbursement, housing vouchers, and
state partnerships. So, if you're an
organization that is looking to house
people, if you're someone that's looking
to provide Medicaid, I want you to look
more into Medicaid reimbursements. What
type of organizations and foundations
provide Medicaid reimbursement? This is
32% of the revenue generated in the
space. This is something that I'll be
spending more time on than grants. Why
is that? That's a good question. Well,
I'm glad you asked. Did you know that
corporate grants and foundational grants
in the last 24 months was less than
5% less than 5% of the money generated
in the last 24 months came from
foundational grants. Now, why why why is
it so important for me to tell you this
is because we worked with thousands of
different organizations and what I've
realized is that people come into the
nonprofit space because they think they
can get a grant, which you definitely
can get a grant, but if you listen to
what I'm telling you, this is not the
easiest way. This is not the most
successful way. And what happens is new
nonprofit founders are spending all of
their time trying to find a grant when
this only makes up 5% of the revenue
instead of spending all their time
trying to create a program or service
that can pay them 49%. Instead of trying
to find government contract, instead of
focusing on individual giving, which is
another 13% of the revenue raised in the
nonprofit space. And something now that
is growing rapidly rapidly is
sponsorships and business partnerships.
These are ways that people in the
nonprofit space are gaining success
quickly. You know, I get DMs every
single day. Do you guys offer grant
writing services? You know, we're
looking for funding for our building. We
need $17 million, right? And it's like,
you guys have been open for 3 years and
you've only spent all your time trying
to find grants and that hasn't worked.
Why haven't you tried to pivot? And I
know it's only because how we view what
we do determines how we do what we do.
Our perspective drives our performance. Our
Our
perspective drives our performance. So
if we want to have a performance shift,
we need a perspective shift. Right? So
in my opinion, if you're watching this
video, if you believe in the information
that we provide, I want to encourage you
to stop spending your entire day looking
for grants. I'm not telling you don't do
it at all. Maybe you want to outsource
it and have your board members spend
some time looking for grants so you can
spend time finding ways to raise money
for your organization that is much more
effective. Are you or are you pro are
you listening to the data that I
provide? 49% of the nonprofit revenue
comes from program services fees. 32%
comes from government contracts and
reimbursements. 13% comes from
individual donations and gifts. And 85%
of those donations come from regular
people. Right. Um 5% less than 5% comes
from foundation and corporate grants.
And then what's growing rapidly is
sponsorships and business partnerships.
So coming into the nonprofit space, I
really need you to know this. Grants are
not the highest form of funding. Do you
hear me? Grants are not the highest form
of funding. Do you know what the most
sold product in the world is? The most
sold product in the world, and Google
this is the lottery ticket. Do you know
why? is because everyone loves the idea
of getting something for nothing.
Everyone loves the idea on hitting big
and not doing that much effort for it.
This is why a lot of people come into
the nonprofit space and they only want
to get a grant. This is why grant
writers are making a lot of money. This
is why people who are um saying they can
find you grants but don't actually find
you grants. This is why they're making a
lot of money is because just to be
honest, a lot of people come into the
game and they're too lazy to gain some
information and knowledge on how to do
it correctly. They hear free money. Free
grant. Ooh, grant. I can get free money
to start my business. That sounds great.
Let me do it. Now, although that is a
great thing and grants are a huge
benefit to nonprofits, if you come into
this industry only trying to acquire
grants, I believe you're going to fail.
So then you may say, "Well, Tim, if
grants aren't the most accessible way to
funding for new nonprofits, well, what
do you suggest that we do?" I want you
to write this down. Raising funds is the
highest form of selling. Raising funds
is the highest form of selling. Now, I
it's important to me to say this is
because I know that people come into
this space and they don't like the idea
of selling. They don't want to sell.
They don't want to be salesy. They don't
want to be pitchy. And you don't have to
be salesy or pitchy in order for you to
have success. But the number one skill
set, Google this, where do you work at?
Wherever you work at, more than likely
the highest income earning position are
the sales reps. People who sell. Selling
is the highest skill in the world. You
sold your wife on marrying you before
you married her. You sold your husband
on marrying you before he married you.
Right? You're selling your kids on
listening to your opinion instead of
listening to the world's opinion. Again,
how we view what we do determines how we
do what we do. I want to encourage you
to work on research how to become a
master salesman. Why is that? Is because
fundraising is the highest form of
sales. In most cases, when you're
raising funds, when you're trying to
raise funds, the idea is still in the
ideation phase. So, there's not an
actual physical product. There's not an
actual physical land. So someone is
going to donate or contribute to the
idea. So if we're contributing to the
idea, this means that you, me, we have
to be very good at
articulating our idea. Are you with me?
We have to be very good at articulating
the power of our organization, the
vision of our organization. Listen to
me. The very first nonprofit that was
created in America was called Harvard
College, 1636. Harvard Harvard
University today. That was actually the
very first nonprofit. Let me read this
to you. And as I read this, I really
want you to hear the perspective and
also the vision behind why they thought
this should be created. I want you to
remember that why they thought this
should be created. All right. Harvard
was created to educate clergy and
produce literate leaders for growing the
colonies in New England. Why was it
created? The Massachusetts Bay Colonies
leadership believed. They believe that
an educated ministry was essential to
the survival in the spiritual direction
of our society. They
believed they believed that the educated
ministry was essential to the survival
and the spiritual direction of our
society. They created this organization
because they really thought it could be
a huge help to the world and they
communicated it in that way. Is it Is
this making sense? I I really hope that
it is. How was it funded? Harvard was
funded entirely through donations. In
1638, it received its first large gift
in books and funds from John Harvard,
which the school was named after. This
traditional charitable giving for public
benefit made Harvard the prototype the
prototype on how nonprofits operate
today. And I need to share this with you
because I know that every thought leads
to a new thought. Every idea leads to a
new idea. Every form of information
leads to a new form of information. This
organization again was created to
educate clergy and other leaders for New
England colonies. They wanted to
preserve literacy so individuals could
read the Bible. And they wanted to
advance public good through knowledge
and moral leadership. While Harvard has
evolved into a massive institution in
which we all know today, its foundation
as a charitable
donationfunded educational institution
established many of the early American
norms for philanthropic giving,
religious and educational missions, as
well as the idea of public benefit
institutions not operated for private
profit. So, whatever nonprofit you plan
on creating today, this was the origin.
I want to encourage you to rewind this
video 30 seconds, a minute or two
minutes, however far you need to go
back, just so you can hear this again
and really let this sit in your spirit
so you get it. So, I'm from Texas and
every year me and my family, we love
going to the state fair, right? Just in
this past year, I remember I was
researching the address to the state
fair. I went to the website for some
crazy reason. I don't know how I got to
the website, but on the website, I
scrolled to the bottom and it said
something crazy. It said that the State
Fair of Texas is a 501c3 nonprofit
organization. What? A nonprofit? I don't
get it. I The ticket cost $20 to get in.
For my daughter's ticket, the tickets is
$12 to get in. A turkey leg. A turkey
leg is 22 tickets. Each ticket is $1.
How? How? This place is very expensive,
right? How are they a nonprofit? I was
so confused. So, I did a little
research. The mission of this
organization is to celebrate all things
Texan by promoting agriculture,
education, and community involvement
through annual fair and yearround
initiatives. Why is this a nonprofit?
Even though it brings in millions of
dollars annually, by the way, in 2024,
they generated over $450
$450
million. Stop listening to your friend,
your cousin, the pastor. He told you
that nonprofit can't generate revenue.
He lied. This is a clear I'm giving you
a clear distinction of the truth right
here. So even though we're generating
millions of dollars annually, the key
difference lies in where the money goes.
All the revenue is reinvested into the
fair's mission. Even if they have 450
employees and we need to pay these
employees to further produce the
organization's mission, we can do that.
Even if it means we have to pay the
executives, we can do that. But what we
can't do, what we can't do is pocket the
funds. The money can't go from just the
business account into your personal
account and you go buy a Ferrari even
though they generated 400 million. What
has to happen is you as the executive or
you as the board member or you as an
employee of the organization, you're
going to be paid based on the work that
you're contributing to the organization
through salary or through 1099 as an
independent contractor. The State Fair
of Texas has no owners or shareholders
profiting from it. It supports
educational, cultural, and community
programs in Texas. Now, what the State
Fair does as a nonprofit, they host the
annual state fair, which draws a huge
amount of revenue from tickets, rides,
foods, and sponsorships. They fund
scholarships. Over $18 million was
awarded to Texas students since the
early 1990s. They support agriculture
and livestock education. So, anytime you
go to the fair, they're always promoting
the livestock education, training people
on cows, horses. They have horse rides,
all things Texans, right? They also
heavily invest in the South Dallas and
Fair Park communities through workforce
development, neighborhood grants, and
local business support. And then lastly,
which is a key ingredients to how they
can actually be a nonprofit, is they
preserve Texas heritage and culture,
funding exhibits, music, food, and
history programs. Now, if you go back
and read the mission, the mission
statement says to celebrate all things
Texans by promoting agriculture,
education, and community involvement
through an annual fair in yearround
initiatives. If you think about this
mission statement, think about all the
things that I just shared with you. This
is how they legally, ethically, morally
generate $400 plus million dollars as a
nonprofit. Nonprofit does not mean no
money. Nonprofit does not mean no money
generated. Nonprofit just means that you
can't pocket the profits. Hopefully,
this video is making sense so far. So,
just to give you a little bit of an
encouraging data, in 2023, Americans gave
gave
$499 billion to charitable causes. So,
it's not that people aren't willing to
give to your organization. You just have
to market yourself to be found. Over 85%
of donations came from individuals, not
companies and foundations. The average
nonprofit founder who's built a
million-doll nonprofit started with less
than $5,000, but they built their
organization through passion, community,
and strategy. And more than 70% of
donors give to organizations with clear
and emotionally compelling missions and
good marketing. So, getting ready to
start a nonprofit, I can guarantee you
that if you don't already have a
network, if you don't already have a
group of people that know you and know
your intent, and it's only strangers
that are working with you, don't
anticipate receiving massive amounts of
donations yet. Because what you're going
to have to do the same way as any other
business does is you have to market and
promote your services. You have to
market and promote your cause, market
and promote your mission, market and
promote your storytelling. You know what
I realized about the nonprofit space is
that everybody wants to live an
outstanding life, but not everybody
wants to stand out in their life. And
this is going to be the key ingredient
to you being successful. Imagine you
want to live an outstanding life, but
you don't want to stand out. Imagine you
want to live an outstanding life, but
you don't want to tell anybody about
your organization. This does not work.
So, look, I get it. You say that you
want to be behind the scenes. You're a
person that not really good on camera.
you're someone that is an introvert.
Hey, me too. I didn't feel like I was
good on camera only because I hadn't
gotten on camera only because I hadn't
started receiving some of the validation
and how people felt about my videos. And
then it gave me a lot of confidence to
get better. And I just want you to know
that your life can get better as you get
better. Results come from you then to
you. Results come from you then to you.
So if you have a problem with what
you're getting, you have to question
what you're giving. So you want a lot of
people to give to your organization. I
want you to question in your spirit.
What is it that I'm giving the
information? Is it valuable? Is it
useful? Is it genuinely needed? Or do I
want people to need it? This is
something that you have to be real with
yourself about. Once you create this
awareness, it's going to be very simple
for you to grow your organization. Now,
running your nonprofit, you're going to
need at least three board members, and
they could be, including yourself. These
board members can be family. If they
are, that's completely fine. These board
members in most states can be under the
age of 18. So, you can almost have
anyone be on your board. It doesn't
matter who it is. The only thing is as
you start to grow, you want to make sure
that you have skill sets that are
valuable to the growth of your
organization. So just because Tim is
your friend doesn't mean Tim should be
on your board if Tim doesn't have the
skill sets that are needed to grow the
organization. Running this business, I
want you to know that you will not be
able to do it alone. You're going to
need your board. You're going to need
volunteers. You're going to need people
who are willing to support. And the way
to do this is to market and promote your
organization. You have to be good and
get good. If you're not good right now,
it's completely okay. But you have to
decide that you're going to get good at
learning how to communicate your
mission. Can you write that down for me?
You have to decide that you're going to
get good at learning how to communicate
your message to your audience. This is
how you will succeed as a nonprofit
organization. So look guys, as we wrap
up here, nonprofit does not mean no
profit. It does not mean no money
generated. I gave you clear data on how
many different organizations are raising
large amounts of money as a nonprofit
organization. Over 12 million people
today are employed by nonprofits. So,
you can definitely start a nonprofit and
raise capital without only applying for
grants. I know that you're going to
apply for grants and you should apply
for grants, but what I would encourage
you not to do is spend all of your time
applying for grants. actually create a
service that people need, actually
create programs that people need,
partner with different businesses,
partner with different foundations. You
have to go put yourself out there and
talk to people about sponsoring your
organization. The best way to build
connection is toeto-toe. I want you to
remember me telling you that the best
way to build connection is toeto toe.
sitting at a desk in front of somebody
explaining who you are, what you are,
how you are, why you are, how you are,
why your business is, how it is.
Remember that people support people more
than they support businesses. So, people
need to know you if you want them to
know your organization. Remember me
saying that. I believe in you. I respect
you. I admire you for being on this
journey. If you're looking for more
indepth of exactly how to start a
nonprofit organization, I'm going to
encourage you to go watch my video that
I created on how to start a nonprofit
organization in 2024 or in 2025. It's
probably the most in-depth video that
you've seen on actually how to start.
Hopefully, this video has been
informative for you and you now have a
better understanding of what a nonprofit
actually is. Gave you some history about
a nonprofit. And again, I know that
every thought leads to a new thought.
So, with that being said, again, my name
is Timothy Wright, the founder and CEO
of the nonprofit launcher. I'm signing
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