“Non-profit’ is a tax status, not a business plan.” That’s what Jan Sobel, President and CEO of the Boys & Girls Club of the West Valley, pointed out to a group of about 50 senior non-profit leaders at a two-day training session sponsored by the Annenberg Foundation last month. She was reminding those in attendance that non-profit managers need to think – and act – like businesspeople, if they want to be successful. That means more in the way of strategic thinking, business planning, financial pro formas, management training, and all the approaches and activities businesses have found to be vital to their viability over the decades. That also means non-profits have to have banking relationships, attorneys, CPAs, and other advisors and consultants…again, just like businesses. And of course, she’s right. Our Valley’s non-profits – and the hundreds of thousands across the country – receive a tax-exempt status from the federal government, under Section 501©(3) of the IRS code. But they darn well better make a profit, or they’ll go out of business…because they ARE businesses. Perhaps these organizations should be known as “not-for-profit,” rather than “non-profit,” organizations…because without profitability they can’t exist. There are, according to one of the discussion leaders at the Annenberg Conference, a staggering 18,000 non-profits in Los Angeles County. According to a report commissioned by the Weingart Foundation and released just last September, “Los Angeles County depends on nonprofit organizations to provide vital services, fuel social and cultural innovation, and advocate for change. They are also an important economic force, representing seven percent of the gross metropolitan product and six percent of the labor force. In fact, Los Angeles County has more nonprofit organizations than any other county – as well as most states – in the nation.” Think about that for a moment… Los Angeles County is home to more non-profit organizations than any county in the nation. That means more payroll, more business for vendors and suppliers, more economic benefit to the region. Very competitive It also means more competition for financial support from government, foundations, corporations, and high-net-worth individuals. Those non-profits who operate in a more businesslike fashion are likely to be more successful in their constant quest for funding. Even today, too many non-profits are run by well-meaning social agency types who don’t realize how important it is for them to run their organizations along recognized business principles. Too many non-profit organization leaders burden themselves with self-inflicted chips on their shoulders regarding their place in Our Valley’s business environment. Perhaps it’s not only such non-profit organizations’ leaders’ views, it’s a misperception on the part of many of our business leaders, as well. For example, at a VICA Board of Directors meeting just a few years ago, one of the organization’s officers initiated a heated brouhaha by stating that there were too many non-profits and educational institutions on VICA’s Board, and not enough businesses, and that a Board membership quota should be established for non-profit organizations. Following a heated riposte by the president of one of the Valley’s citadels of higher learning and a few others pointing out that such organizations were major employers, patronized local vendors, and were the source of both primary and secondary expenditures, the motion to restrict non-profits to ten percent of the VICA Board was defeated. According to the new Book of Lists published by the Business Journal, just the ten largest non-profits in the Valley had 3,573 paid staff. Just like for-profit public entities, non-profits have to publish an annual report, divulge their sources of income, and maintain books and records available to the public. Money left over The only difference between a non-profit and a for-profit is what happens to the amount of revenues over expenses: in for-profits that amount (supposedly) goes to the shareholders; in non-profits, profits are plowed back into the work for which the organization was formed. And the results of a major new research study conducted the end of last year for the Los Angeles Alliance of Boys & Girls Clubs by California Lutheran University’s Damooei Global Research, demonstrated that for every $1 invested by the Clubs, the community receives $16.42 worth of positive economic impact. How’s that for return on investment! Remember, the next time you write a check to a reputable local non-profit organization, you’re accomplishing three things: supporting their activities that benefit our society, enjoying a tax deduction, and supporting the Valley’s economy. Not a bad business deal, is it? “Philanthropy is decades behind business in applying rigorous thinking to the use of money.”Michael Porter Harvard Business School Martin Cooper, President of Cooper Communications, Inc., is Immediate Past President of the Los Angeles Quality and Productivity Commission; Founding President of The Executives; Vice Chairman of the Boys & Girls Club of the West Valley; and a member of the Boards of the Valley Economic Alliance and of the LAPD’s West Valley Jeopardy Program. He is Past Chairman of VICA and Chairman of its Board of Governors; and Past President of the Public Relations Society of America-Los Angeles Chapter and of the Encino Chamber of Commerce. He is the 2010 recipient of VICA’s Harmon Ballin Community Service Award. He can be reached at [email protected].