Culture Club – Peninsula Arts & Humanities Alliance

After heading the Peninsula School of Art for five years, I am still surprised by some of the comments and questions I hear. One that I hear most often is “I didn’t realize you were a nonprofit,” and on the flip side, “If you’re a nonprofit, then you’re really not a business.”

The truth is – we are both a nonprofit and a business.

A nonprofit is by definition a corporation. Whether you are a for-profit or nonprofit corporation, both are legal entities and the corporation acts as a separate “person.” The corporation makes the contracts, pays the taxes, incurs the debt and protects the individuals involved from being personally liable for the consequences of business activity. Both have to generate money to pay their bills and, if the corporation is to acquire new assets and grow it needs profits both to use for this, as well as to attract new investment (in the case of a nonprofit, new investment takes the form of contributions from people and people are just as reluctant to contribute money to a failing nonprofit as they are to invest in a bankrupt for-profit corporation).

The primary difference between a for-profit and nonprofit corporation is that a for-profits exists to earn and re-distribute taxable wealth to owners, employees and shareholders. It is intended for the benefit of its owners. Profit is the goal and the business pays taxes on that profit. On the other hand, a nonprofit corporation exists to further a purpose. A nonprofit has a mission that benefits the “greater good” of the community or society. It does not pay income taxes (they do pay payroll, unemployment and some property taxes), but it also cannot use its funds for anything other than the mission for which it was formed. Nonprofits can and do make a profit (more accurately called a surplus), but it must be used solely for the operation of the organization. Earnings may not benefit individuals or stake-holders. Moreover, when a for-profit goes out of business, its assets can be liquidated and the proceeds distributed to the owners or the shareholders. When a nonprofit goes out of business, its remaining assets must be given to another nonprofit.

Key characteristics of nonprofit corporations are:

• A nonprofit is driven by its mission rather than by the profit motive.

• A nonprofit serves those who cannot afford to pay full costs.

• Excess revenue over expenses is used to further the organization’s exempt purpose.

• A nonprofit is more accountable to its board and the public than for-profit organizations (all tax forms and financial statements are open to public inspection – see http://www.guidestar.org).

• A nonprofit looks for ways to respond to community needs without regard to profit.

• A nonprofit’s board is typically comprised of unpaid community leaders motivated by public service.

At the beginning of each year, a for-profit prepares their annual business plan, they make decisions about the products and services they will offer – how much inventory to carry, how many meals they need to serve or rooms to rent, and how much they need to charge for these products and services to cover their costs, pay their employees and (maybe) earn a profit.

Unlike a for-profit whose products are determined by profits that can be earned, a non-profits’ choices are driven by their mission. In the case of Peninsula School of Art our mission is to facilitate artistic transformation through integrated visual arts education experiences. In other words – we teach art through workshops, exhibitions, events and community outreach programs.

At the start of each fiscal year, the board of the Peninsula School of Art approves an annual budget. Implicit in this budget is a revenue strategy for the organization – where will the money come from to provide the products and services. Peninsula School of Art (and all members of the Peninsula Arts and Humanities Alliance) earns a portion of our revenue by charging for services, and we also receive contributions to support those programs which may not generate revenue but are essential to our mission and the community.

When we make a decision about a program, we ask ourselves a series of questions:

• Will the program generate income? If not, can we raise money to cover the costs?

• Does it facilitate artistic transformation or educate our constituents?

• Is it the “right” thing to do?

Some programs, like our workshop program, are sources of earned income. Students pay tuition (if they cannot afford the tuition, we have a scholarship program supported by donors). Other programs, like our exhibitions and outreach programs, do not typically earn revenue, but are supported through contributions by individuals who believe that access to these programs is vital to our community. Our gallery is free and open to the public, and while artwork is sometimes for sale, it is the exposure to new and different media, or a larger educational theme that drives our exhibition choices, not the salability of the artwork. Annually the cost of providing free community outreach and exhibitions programs is close to $100,000. And while most workshop programs cover the direct costs (instructor fees and supply fees), they do not cover the cost of the facility, marketing or administration of the programs.

If a for-profit business is successful, the owners of the business increase their assets or the worth of the business. If we are successful, we too increase the assets of the organization, but not for the benefit of one or more owners, but for the benefit of the community. Moreover, financial assets are just one piece of the puzzle, the larger questions are:

• Did we succeed in our mission?

• Did we have an impact in our community and serve a larger audience?

• Does our community perceive the value of the organization?

• Did we receive contributions because individuals valued the work we did?

• Did we generate enough revenue to cover our costs and is it sustainable?

Like a for-profit, we have bottom line. We make choice about expenses, staffing and services based on the revenue we can generate – whether earned or contributed. Unlike a for-profit, we are also accountable for these choices – not just to the staff and the board of the organization, but to the entire community who support our mission through their participation and contributions.

Peninsula Arts and Humanities Alliance, Inc., is a coalition of non-profit organizations whose purpose is to enhance, promote and advocate the arts, humanities and natural sciences in Door County.