My Friend Said

This is some free advice about free advice. Yes, I understand the irony. 

I have had a number of clients that start their consultations with "My friend said..." 

The first question to ask your friend is, "How many nonprofits do you manage and can I see their 990s?" If they look blank, then they have no idea what they are talking about. Just ignore them.

Friends have said: 

You don't need money to start a nonprofit

There are startup costs for a nonprofit just like any other corporation. You need to pay the State a fee to incorporate. You need to pay the IRS for a 501(c)(3) designation. You need startup funds to purchase materials for your programs. Now, there are some grants that will pay for a nonprofit's startup costs, but you have to be able to find them and apply for them. (If you have to pay to apply for a grant, you might want to find another one.) Accessing a grant service will cost money. Finding a grant writer will cost money.  

You don't need money to run a nonprofit

A nonprofit is still a corporation and it needs funds to operate. You should have done a budget to determine your operating costs. Unless your operating costs are zero or you are self-funded, you will need money. (If you are self-funded, you need money, it's just your money.) 

If you have a nonprofit, you can get paid from it

This is true. You can be paid a salary as an employee of a nonprofit. However, this assumes that the nonprofit is generating enough income to pay your salary (and pay unemployment taxes and any other employee fees) plus the income needed to operate its programs. Grants generally will not pay operating costs and that's what employees are. If you have enough programs operating, you can split your time and bill yourself as a program manager in each of your programs but the grantor will have to approve the budget. If you have a program that has $300 worth of expenses for materials and $30,000 worth of expenses for program management, funders may consider that excessive. 

If you have a salary approved by the board, that is an expense that is on the books for the nonprofit. Your salary cannot be "whatever is left in the till." If your nonprofit does not generate enough income to cover your salary, you will not get paid.  

If you have a nonprofit, grants pay for everything

I don't know where this rumor started, but it is not true. Well, never say never, but it is exceedingly unlikely that someone will find enough grants to start and maintain a nonprofit with a mission of any significance. Grants are generally not designed to be long-term funding sources - usually, the term will be one to two years (or so) and often, a question on the grant application will be "How will this program be funded when this grant expires?" You may also be asked to find multiple sources to fund an expensive program, and you might be asked if you are working with other organizations and how the program work is divided. 

If your for-profit is losing money, you can convert it to a nonprofit and have grants pay for it 

This is wildly inaccurate. If you have a failing for-profit, you have a bad business plan. Period. You can't convert a for-profit to a nonprofit. You would have to dissolve the for-profit and start over - and a nonprofit does not have profit as its fundamental goal. Even if you can define a mission for a nonprofit that matches the for-profit, you can't just keep the profits because all nonprofit income must be used for the mission, not to enrich the founders. 

My assumption is that if you file a Form 1023 based on a for-profit business plan and mission, it would be rejected. I am not an attorney, but you would have a business that serves anyone and charges for all services, that does not sound like a charity. Charities generally have target audiences for their services.