Self-financing is one of the options that a nonprofit organization has to develop a more diverse income stream.
It can also help to support programs and cover expenses that donors and grant makers do not want to fund.
There are many different approaches to self-financing. You could
- Charge fees for current services.
- Manufacture and sell products.
- Resell products.
- Offer services based on organizational skills and expertise at market prices.
- Take on contracts from the government and the private sector.
- Collect fees from members in exchange for services provided to members.
- Rent out office space, a building, land, equipment.
- License a logo and brand name to another organization
The following examples of self-financing activities are based on a research project that involved nonprofit organizations in a number of South American countries.
Most of these activities are closely linked to a specific program (e.g. health related services, agriculture) that the NGO runs. Some are unrelated to its mission.
Products sales by individual NGOs
- Orthopedic appliance and prosthesis.
- Grains and cereals.
- Construction of low-income housing.
- Shoes, meat, dairy and silk products.
- Food and drinks (pub).
- Diverse goods (mini-market).
- Wallets and woven goods.
- Alpaca meat.
- Artistic photographs.
- Baked goods.
Sales of services by individual NGOs
- Rehabilitation and medical services.
- Health programs.
- Guided tours for tourists, events and theatrical productions.
- Training related to microfinance and consulting services.
- Printing related services.
- Circus and clowning classes.
- Training on the use, technical support, maintenance and repair of IT equipment for blind persons.
- Land use planning services for rural communities.
- Resource development training.
- Employment services.
- Language classes and volunteering programs.
Making for-profit products and services a significant source of income
The rest on this webpage is directed only at those nonprofits who want to generate a significant amount of income through manufacturing and selling goods and services.
This might possibly involve founding a Social Enterprise that operates separately from the traditional nonprofit activities.
Graphic 1: Benefits resulting from for-profit goods & services
Preparatory work involved
Nonprofits have to be aware that considerable preparatory work is necessary before the organization can decide whether manufacturing and selling goods and services for a profit is an option that has chances to succeed.
The preparatory work involves some activities that most NGOs will never have faced before, like:
- Market Research
- Analysis of core competence
The preparation requires special knowledge and skills from those that will conduct these activities.
Graphic 2: Preparatory work that NGOs will have to perform
Screening ideas and studying the most promising ones
The different techniques used to generate self-financing ideas have hopefully resulted in a list of ideas that you want to analyze further.
The purpose of this analysis is to select the most promising idea for generating income through for-profit goods and services and determine its likelihood of success.
The main steps involved are presented in graphic 3.
Graphic 3: Finding the most promising idea
Step 1 of the process documented above requires the screening of ideas gathered through brainstorming, workshops and interviews as well as other research.
You would use the following criteria to reduce the list of ideas:
- Does the idea fit to our strategic plan?
- Does the idea fit to our mission?
- Would we use our core competencies?
- Would we serve core customers?
- Would current beneficiaries pay?
- Could we make a profit?
The preliminary market analysis (step 2) deals in more detail with some aspects of step 1 as well as additional topics.
It will involve
- Defining the main characteristics of future products and services
- Finding out more about possible customers
- Establishing the competencies needed
- Finding out more about competitors
- Looking in more detail at income, expenses, risks and uncertainties
Determining the likelihood of success of the most promising idea (step 3) is a time consuming process.
Main activities are:
- Market research and analysis
- Analysis of market requirements and organizational capacities
- Financial planning and analysis
Barriers to implementing significant for-profit activities
For-profit activities can face numerous obstacles in a NGO.
These can be connected to
- The organization´s current legal status
- A special tax status or other advantages granted by the authorities to nonprofit organizations
- Conflicts between making profit and the NGO´s mission and core values
- Negative consequences for important current activity
- Resistance against self-financing among employees
- Lack of experience in planning and managing business activities
- Problems to fund capacity building programs and the start-up phase.
Actions to overcome barriers
a) Revisit your organizational documents. Decide whether they should be modified allowing for-profit activities because these will further your main goals.
b) Revisit your mission statement and your core values. Decide whether they should be modified allowing for-profit activities because they serve to achieve the main purpose of the NGO.
c) Talk to your donor and try to convince him that your business activities will not negatively impact the program he funds.
d) Limit your unrelated business activities according to tax rules. Alternatively you could consider establishing a for-profit subsidiary.
e) Evaluate whether expected negative implications on a current activity are not overcompensated in the long run by what you can achieved with the earned income.
f) Define actions that will minimize negative impacts.
g) Try to convince those who resist for-profit activities that their concerns about risks, uncertainties and public image are unfounded.
h) Explain why developing self-financing ventures helps achieving the mission and is essential for the long-term survival of the NGO.
i) Develop plans to manage risks and uncertainty of self-financing.
j) Replace staff members that do not accept change once a decision to go ahead has been made.
k) Communicate to donors, communities and other external stakeholders as well as the general public why you want to go the route of self-financing.
l) Develop capacity building programs that address the existing lack of experience.
m) Employ paid staff and find volunteers with experience and skills that you do not have at the moment.
n) Ask Venture Philanthropists to fund capacity building programs and the start-up phase.
Services / Guide to further reading (available online)
A.Horsnell, Exploring the climate for earned income development, 2000, at: http://www.authenticityconsulting.com/npbd//Workbook%201%20-%20Climate%201.0.pdf
- The workbook will help NGOs to decide whether they should pursue self-financing and what kind of difficulties they may have to overcome
A.Horsnell, Taking stock of your business development assets, 2000, at: http://www.authenticityconsulting.com/npbd//Workbook%202%20-%20Assets%201.1.pdf
- The workbook will help NGOs to look at their resources from the point of view of earning income.
A.Horsnell, Identifying your best earned income opportunities, 2000, at: http://www.authenticityconsulting.com/npbd//Workbook%203%20-%20Opportunities%201.1.pdf
- The workbook will help NGOs to identify self-financing opportunities, to rate and rank them.
S.K.Alter, Managing the double bottom line: a business planning reference guide for social enterprises, 2000, at: http://www.virtueventures.com/resources/mdbl
- The comprehensive guide describes in detail all aspects relevant to business planning for social enterprises. It will help NGOs to conduct market research and to plan operations, finances, human resources and marketing.
The Forth Sector, A business planning guide to developing a social enterprise, at: http://www.forthsector.org.uk/docs/New_BusPlanGuide.pdf
- The guide provides an overview to the whole business development process in an easy to understand language.
B.Rouson, Business Planning for Nonprofits, in: Enhance Vol.2/issue 1, Jan.2005, at: http://www.allianceonline.org/assets/library/7_businessplanningfornonpro.pdf
- The publication discusses when business planning is needed and explains the differences between business planning to strategic planning.
The Regional Environment Center for Central and Eastern Europe. Planning for Sustainability: Supporting NGO Self-financing Ventures, 2001, at: http://archive.rec.org/REC/Programs/NGO_Support/SNFP.html
- The study presents the findings of a 2-year pilot project conducted in Central and Eastern Europe. It discusses why self-financing has become more important and describes the problems NGOs face that want to start self-financing ventures. It also includes a business plan guide.
Self-financing activities of NGOs
J.L.D.Bello, Self-financing activities among civil society organizations in Peru: a national assessment, 2007, at: http://www.nesst.org/documents/PeruCountryAssessmentENFINAL.pdf
- The research covers nine organizations in Peru with self-financing activities.
R.Gutiérrez, N.Franco, L.F.Avella, Self-financing activities among civil society organizations in Columbia: a national assessment, 2007, at: http://www.nesst.org/documents/ColombiaCountryAssessmentENFINAL_000.pdf
- The research covers nine organizations in Columbia with self-financing activities
P.Estupiñan, Executive summary, CSO Self-financing activities in Ecuador: a national assessment, 2009, at: http://www.nesst.org/documents/200906NESsTEcuadorExecutiveSummary.pdf
- The research covers nine organizations in Ecuador with self-financing activities.
S.Mazzeo, Executive summary, CSO Self-financing activities in Argentina: a national assessment, 2009, at: http://www.nesst.org/documents/200906NESsTArgentinaExecutiveSummary_000.pdf
- The research covers ten organizations in Argentina with self-financing activities.
Yanapuma Foundation, How you can help us carry out our work, at: http://www.yanapuma.org/en/support.php
- Yanapuma is an example for a NGO that generate funds through providing language classes and volunteering programs. Earning income through providing services to volunteers is a widely spread method in Ecuador.