From Profit to Non-Profit
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Topic: From Profit to Non-Profit
Posted By: Guests
Subject: From Profit to Non-Profit
Date Posted: 12/12/04 at 11:40am
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I formed a theatre company about 1 1/2 years ago and so far all is doing well. We have finished two seasons in the black and carry only a minimal amount of debt that was created during setup. So my question to all of you is this: Did any of you ever take a troupe non-profit and with hindsight - how do you feel about it now? I am aware of the new time committment that is taken on with writing grants and such, but there is an underlying pressure in the community that we should go non-profit that I cannot ignore. My advisers all think it is a good idea - but none of them are educated in financial management. I could go either way - I am doing just as much creative financing as a for-profit troupe that I would be doing for a non-profit troupe. Thoughts? Alan Saunders, Producer http://www.centerstageplayers.com - www.centerstageplayers.com |
Replies:
Posted By: DanLB
Date Posted: 12/15/04 at 12:39pm
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I am not an expert on non-profits, but with what I know I don't see a reason why you wouldn't want to make an arts orginization non-profit. You will save money not having to pay sales and other taxes and it makes it much easier to get grants and donations. I am not sure what you are getting at when you say: "I am aware of the new time committment that is taken on with writing grants and such". If you theater is financially stable now, then there is no reason you wouldn't be in the same financial state as a non-profit. If you are doing fine now without grants then you probably don't have to spent time writing for them when you become non-profit. Dan |
Posted By: dougb
Date Posted: 12/16/04 at 11:58am
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I can not see any benefit to being a for-profit theater company. In
addition to 30 years working for non-profits, I owned two for-profit
businesses. There is no more paperwork for a non-profit - as a matter of fact,
here in Washington State there is far less paperwork for non-profits - I do not
have to file any state or federal annual reports except for the annual state
corporation registration for $10. If we were for-profit we would have to file
both federal and state income tax reports even if we have no
profit.
When I
owned a for-profit corporation, my family were the directors and we never paid
any income taxes because we never made a profit - I always took all the profits
as pay - the personal income taxes were less than corporate taxes - but I still
had to file all the paperwork each year. You can do the same with a non-profit
- there is no prohibition to paying yourself - and your actors will probably not
object to you getting a reasonable pay for your efforts running the business.
I would caution you on paying people involved in a production like the director. Our theater does not pay anyone - if we pay one person then the others will feel left out. One big theater I am aware of used to pay directors $1,000. It got into a bidding war, where some directors got $1,200 and one got $2,000 then the musical directors wanted to get paid so they got half what the directors got paid. Then the choreographers and then the tech people then the set builders on and on. It has added 50% to the cost of their doing a production at this theater and they are in financial trouble and they have lost most of their volunteers so now they have to pay people to do about 90% of what the volunteers used to do for nothing. Our life is much easier as an all volunteer organization - and we have no trouble getting volunteers. As a for profit you will be in the very small minority of theater
groups - even the "professional" theaters are incorporated as non
profits.
Also,
as a for profit - you are cutting yourself off from the really big
bucks. Yes, people will advertise in your programs but the big
bucks that are needed for lighting and sound equipment and building
improvements come from grants and larger donations - individuals and
businesses that will want to see your 501(c)(3) status. We are
here in the northwest so Microsoft is a big player in the philanthropic
world. Microsoft (and many other corporations) match their
employees donations if you are a 501(c)(3).
I am also president of our Community Foundation and we make a lot of grants each year and many are for the arts. We require a 501(c)(3) as a condition of getting a grant. After
we were forced to move away from the big theater and go on our own, we
bought some portable theater lighting equipment (that we still use)
that cost $1,800. After that we have leveraged our money with
grants and donations from big donors - none of which would have
happened if we were not 501(c)(3). In the last two years we have
raised over $10,000 - all from donations and grants. That would
not have happened if we were for-profit.
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Posted By: Guests
Date Posted: 12/18/04 at 8:45am
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Thanks for the replies guys! As far as time committment... as a for-profit I don't have to apply for grants and donations because there aren't many available to a for-profit... But for a non-profit my role changes to become a grant writer and constantly seeking donations.... so I would assume that would take more time. Center Stage Players is an all-volunteer troupe at the moment, but we do "pay" our orchestra members... it's not much - more like gas money but it seems to be the only way to get them to play for us. I have no intentions of ever paying the actors, directors, etc. because they seem to do better when the are enjoying doing theatre on the side rather than as a job. Alan Saunders, Producer www.centerstageplayers.com |
Posted By: dougb
Date Posted: 12/19/04 at 11:57am
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Just because you are non profit, it doesn't mean you HAVE to get grants
and donations - it just makes it possible. We do not do public
fundraisers for ourselves - if someone wants to donate, so much the
better. When we needed money to buy and install our lighting
equipment, we wrote personal letters to a couple dozen people we knew
supported us and we got the money. I know for a fact that our big
supporters would not have contributed if we were for-profit. As for grants, we have gone after two. In both cases, our local community foundation likes to make hardware grants to local non profits. We got grants from them for our sound equipment. The best part? They limit their grant applications to one page!!! |
Posted By: Scott B
Date Posted: 12/19/04 at 6:14pm
I've recently examined the non profit vs profit situation and Doug has provided a lot of valuable information. I guess what I don't understand is ... how do you get your money to run the theatre now? And ... by becoming a non profit entity, how does that change what you're now doing? It would seem to me that you would just do the same thing as you're now doing. Scott |
Posted By: Guests
Date Posted: 12/21/04 at 12:01pm
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I agree with Scott, Nothing really changes when you go from Profit to non-profit as far as day to day business except in the bookkeeping. The difference is that incorporating as non-profit doesn't change anything except your status with government. I would still have to apply for 501(3)c status separately. So it is possible to be non-profit and still pay taxes.... The issue I am facing is that I have three owners of this troupe and I would like to pay them for their time investment. As a for-profit it is easy - just start a payroll. But with a non-profit I come under the scrutiny of the IRS. Anyone know what a realistic salary would be for a corporate director? I would like to pay the other owners upwards of $30,000 annually for their contribution. Thoughts? Alan Saunders, Producer www.centerstageplayers.com |
Posted By: dougb
Date Posted: 12/22/04 at 11:42am
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First I don't see how you could be non profit and pay taxes - the
501(c)(3) is only to assure those who make donations to you that they
will be allowed to deduct them from their income taxes. Secondly, I think $30,000 for a director is going to be hard to sell to anyone. Whether you are for profit or not. Maybe if you did $10,000,000 or $100,000,000 a year that might be reasonable. The real test is what are they doing? How much time do they spend? How much does that break down on a per actual hour spent doing director duties? If they worked full time doing real work for your organization it would be $15 an hour - maybe reasonable in your area, maybe not. If they worked (attended meetings) for 5 or 10 hours a month, that comes to $250 to $500 an hour - no one is going to believe that for a director. If you make enough profit to pay them $30,000 each as a return on investment, you should stay for-profit. |
Posted By: Guests
Date Posted: 12/24/04 at 11:54am
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Perhaps it is different in other states - here in Ohio you can incorporate as a non-profit. You are still required to pay taxes as a non-profit until you are granted 501(3)c status (which can take up to 15 months). Many of the troupes in the area are non-profit but not granted 501(3)c status - so they pay taxes on their income. My corporate directors put in in excess of 40 hours a week and I think that justifies their salary. Our income can support it easily but it sounds as though we are not in the norm. |
Posted By: dougb
Date Posted: 12/25/04 at 12:38pm
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Not so here in Washington. And no federal income taxes. It
took us less than three weeks from the time we mailed our 501(c)(3) to
the IRS till we got approved. |
Posted By: cowpatteaz
Date Posted: 3/29/05 at 3:04pm
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Great beginnings for a non profit creative organization here. I have learned a lot in these posts. Probably doing in rural KS what I knew wasn't a profitable thing anyway, this just affirms my ideas and ideals, to get a place open for the talent and it will come. Thank you. |
Posted By: Kathy S
Date Posted: 3/29/05 at 11:47pm
| Our theatre is in a v. small town in the cornfields of Iowa. We started 5 years ago and are doing really well. We have a loyal following which grows with every production (usu. three/ year). One thing about doing theatre in the countryside is that your competition is probably not other theatres...it tends to be high school sports, church, bars, country club... But the people who want live entertainment (theatre) are, as I said, loyal fans. We are in a location where the closest community theatres are about 40 to 60 miles from us. We draw audience from a large radius -- even from much larger towns and university towns. |