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The Case for Nonprofits

Sometimes it's necessary to look beyond the church for ministry growth.

Normandale Lutheran Church, located in Edina, Minnesota, a suburb of Minneapolis, has formed several nonprofits over the years to house outreach ministries, including The Center for Healing and Wholeness, a nonprofit that provides education and support for seniors and their caregivers. The Center was incorporated as a nonprofit in order to pursue grant funding and form partnerships with organizations beyond Normandale Church. The initial partners were a large healthcare organization, a Lutheran financial services company, and a local Catholic congregation.

Incorporating the Center has allowed Normandale to bring "more focus and energy to a specific part of our mission and ministry," says Dale Howard, associate pastor of outreach and congregational care at Normandale. The separate nonprofit has drawn a strong response from volunteers. "Through the Center, we have been able to muster and maintain a larger number of volunteers with a strong commitment to the work," Howard says. "Inviting people to focus on one kind of ministry has galvanized the volunteers and helped our church make great use of the skills and interests of church members."

In addition to providing volunteers, the church also generously supports the Center with financial gifts, adding its funding into the mix of foundation, government, and corporate grants that have been secured by Center staff. The Normandale congregation and the Center for Healing and Wholeness have created a "ministry synergy," fitting together the best of the congregation with outside partners and funders. The result: a ministry extended far beyond what one congregation could do on its own.

More churches are extending their ministries to new communities and new people by forming separate 501(c)3 nonprofit organizations. Schools, daycare centers, youth programs, housing initiatives, and a host of other church-based outreach programs now operate under their own nonprofit status. Some churches use a nonprofit as an umbrella organization for a teaching and equipping ministry or for mission work in other countries. Often, these separate organizations remain connected to their sponsoring church congregation in some way after they are formed.

Churches of all sizes, temperaments, demographics, and denominations are forming nonprofits—no one has a monopoly on this model. Is this model right for your church? How can your church decide if it is?

Mission Possible

The main reason to start a church-based nonprofit is that the model will help you realize your ministry dream. To discern whether developing a nonprofit is best for your church, keep the discussion focused on your mission, always asking, "Which model will best help our ministry flourish and succeed?" By staying focused on your ministry dream, you will avoid making decisions based on who's in control, how you can get money, and the congregation's fear of change.

Too often, I see congregations pursue the nonprofit model because of what they can "get" for their ministry—money, partners, people, and more visibility. All of these may come, in part, because you decide to start a church-based nonprofit, but the decision to go ahead needs to be based on how you can best realize your ministry dream.

You'll know it's time to seriously explore the nonprofit model when members begin describing a ministry program as though it is a caged bird. For example, a congregation has a youth center and the church members in charge begin to sense that it should be bigger in scope and mission, perhaps involving people and organizations beyond the church. The youth center staff may be constantly bumping up against church policies and church board decisions, indicating that a different kind of structure and governance is required. The church seems to be holding back the ministry, preventing it from becoming what it could become.

If you reach the point where the ministry is calling you to explore a different model, even telling you that it's time to "set it free," then your congregation should have a discussion about the benefits and challenges of forming a church-based nonprofit.

More Than Money

The most common reason churches give for wanting to explore forming a nonprofit is "getting access to funding." This is a definite benefit of the model. Some potential funders assume that church programs exist primarily to draw new members into the congregation and to promote a particular theology. These people are more likely to give to a particular program if it is set up under a separate nonprofit organization.

Many foundations and corporate giving programs won't (and can't, according to their bylaws) give directly to religious or "sectarian" organizations. Even funders that are willing to give to a church often seem more comfortable with the separation that a nonprofit can provide. You also may be better able to attract donations from individuals outside your congregation and funding from other churches, particularly those in a different denomination.

Greater access to funding is not the only benefit to this model. Attracting new people into your ministry is another real plus to forming a nonprofit. A church-based nonprofit can choose to have its own board of directors that has at least some members from outside your church. Having these "outsiders" involved can bring new expertise, connections, and resources to your ministry work. For example, if you are looking for an accountant to serve on your nonprofit's board, you may not find one in your church congregation, but you might find one in a nearby business or congregation.

You may also find that you can attract staff members and volunteers who don't want to get directly involved in your church (for a variety of reasons), but who strongly support the work of your nonprofit. Finding the staff members you need is critical to the success of your ministry programs. Particularly if you need specialized skills, you may need to look far beyond your church congregation for staff members who can do the job.

Another benefit to this model is that the nonprofit may be able to develop relationships with a wider variety of collaborative partners than the church could do on its own.

I observed this with a church-based nonprofit that worked collaboratively with public schools. The nonprofit recruited and trained volunteers to go into the schools and help students improve their reading and math skills. Some school staff members initially were suspicious of the motives of the church in mobilizing volunteers, but seemed to relax when they realized the nonprofit was organizing the effort. The nonprofit received broad-based community support and funding from several sources (not just the church). This showed the school staff that the work was not just about increasing the size of the church congregation.

Some churches pursue this model to insulate the congregation from legal or financial responsibility for the ministry being conducted under the nonprofit. To limit liability for the church, the nonprofit needs to be set up so that it operates very independently from the congregation. That means the bylaws, articles of incorporation, board structure, and staffing for the nonprofit must be set up so that the church has very limited control.

Build Community Ownership

Moose Lake Covenant Church decided to pursue the church-nonprofit structure as a way to expand its food and clothing ministries and draw new people and resources into the work. About 300 people worship at the church each Sunday in Moose Lake, a community in Northern Minnesota that is home to over 2,000 people.

Moose Lake Covenant's nonprofit is the umbrella organization for the Sonshine Pantry and the Sonshine Closet, two outreach ministries developed by members of the church. The pantry distributes surplus groceries to community residents at much-reduced prices. The Sonshine Closet is a thrift store that sells used clothing, housewares, and furniture.

The major reason for Moose Lake Covenant forming the nonprofit is financial—the church struggled to secure grants for the programs because many funders can't give directly to religious organizations. Time and again, church staff read about promising funding opportunities through foundations and corporate giving programs, only to hear from funders that they could not give money directly to the church.

Another key reason for choosing the church-nonprofit model is to help the community trust that the programs are there to help people in the Moose Lake area, not just in the church congregation. According to Senior Pastor Todd Van Zee, people in the broader community "saw the pantry and closet as a way for us to get funding into our church through the fees people pay for the groceries and clothing. In fact, none of these dollars come to our church; they are all funneled right back into the two programs and other efforts to meet community needs." In this case, forming the nonprofit is helping the church build trust with the broader community.

Including community members on the nonprofit's board is also seen as a real plus of the church-nonprofit model. A key part of the church's ministry vision is for the entire Moose Lake community to feel a sense of ownership in the food and clothing programs. Bringing people from outside Moose Lake Covenant onto the nonprofit's Board of Directors has been one way to cultivate that sense of community ownership.

However, the benefits of this structure also bring challenges. Church members who started the ministries struggle with letting outsiders provide input and possess decision-making authority. "The people who invested so much in these ministries are worried that they don't have as much control over the programs," says David Nelson, minister of education and visitation. "We have had to continue to talk about how to let go of control and accept other people's decisions."

Three Cons to Consider

As you consider the church-nonprofit model, part of your discussion should focus on the challenges and risks of the model for your church. Forming a separate nonprofit isn't right for every congregation, so if you eventually decide to keep all ministry programs under the church (rather than moving some under the nonprofit), don't consider the decision a failure. Too often, I have worked with congregations that decided to form a nonprofit without thinking through the implications carefully, and then ended up with structure that didn't serve the ministries.

The most significant risk of forming a church-based nonprofit is the distance that can develop between the congregation and the ministries under the nonprofit. Consider whether implementing the church-nonprofit model might lead to the following difficulties for your congregation:

The nonprofit may become disconnected from the mission of the church.

The nonprofit could veer off in a different direction than the church, particularly if the church decides not to exercise much control over the new organization's mission or governance. Creating a separation in your organizational structure could also create separation in a number of other ways—the way the two groups see their mission, live out their faith, relate to the community, or implement their programs, for example.

I watched one church-based nonprofit separate from its congregation over how the people of the church were to be involved in the ministries under the nonprofit. Church leadership had a vision for "equipping the saints" by encouraging members to develop ministry and to volunteer in the community through the nonprofit. The vision of the president of the nonprofit and his board, however, was to move the nonprofit more and more toward paid, professional staff positions and corporate partnerships.

The nonprofit may lose its faith focus.

Forming a nonprofit could also diminish the faith focus of the ministries under its umbrella. If the church serves as the spiritual "engine" for ministry, then distance from it might make faith a minor part of the nonprofit's work rather than the driving force behind it. Sometimes this occurs because the nonprofit draws in people and funders who share the vision for the work but who don't embrace the faith aspect of the work. This may not be a concern for your church if the ministry programs under the nonprofit don't have faith content.

The church may assume less ownership for the ministry.

A nonprofit could also lead people in the congregation to feel less ownership for the ministry. If you set up a health clinic under the nonprofit, for example, with its own staff and board members, people in the church might begin to say: "We don't need to get involved with the clinic; those people over there are taking care of it." Ideally, nonprofits should continue to draw support from the people in the church as well as building connections with outside funders and partners. Communicating to church members about the nonprofit and its needs is the key to encouraging their involvement.

In addition to the potential separation that can occur between the church and nonprofit, forming a nonprofit can also create new administrative work and challenges. When you create a nonprofit, there will be more paperwork, more programs to oversee, more meetings to plan and host, and potentially more staff to supervise. You will also need to raise at least some money for the nonprofit, even if its programs and operations remain small—another time-consuming task. Some congregations decide not to invest time and money into the administration of a nonprofit and instead focus their resources on direct ministry programs under the church.

Control Issues

Conflict that develops around church-based nonprofits usually occurs because of confusion about who controls the organization. Does the pastor of the church control the nonprofit, or does the church board? Will the director of the nonprofit have to run all decisions by church leaders, or can he operate independently of the church? Will the new nonprofit have its own board of directors, or will it be governed by the church board?

These are just some of the questions that will arise pretty quickly once the new organization is formed, so it is important to include "control issues" in your early discussions about the church-nonprofit model. There are a number of ways to structure the connection between the nonprofit and the church:

• The church can form the nonprofit to operate as a "wholly-owned subsidiary" of the church, where there is little, if any, separation between the two organizations.

• The church can decide to retain control over some functions of the nonprofit but not others—retaining "veto power" over changes to the nonprofit's mission, for example, to ensure that the nonprofit stays in alignment with the congregation's mission, but leaving other decisions to key staff members of the nonprofit.

• The church can decide to give birth to the nonprofit and then "send it forth," with the congregation retaining little, if any, control over the nonprofit.

These are just three examples of how the church-nonprofit connection can be defined—there are many other ways to develop this structure, depending on the situation at your church. I often encourage groups to look at control as a continuum, with control by the church at one end and autonomy of the nonprofit at the other end. Many groups decide to land somewhere in the middle, with the congregation retaining at least some control over the nonprofit, but offering some autonomy to the nonprofit as well.

Defining how the nonprofit is governed by its board is one key area of control that you will need to make decisions about as you plan. You also will need to decide whether the nonprofit will have its own board of directors, or be governed by the church board or another leadership group within the church. And if the nonprofit does have its own board, who will serve on it?

Congregations that desire a stronger tie with their nonprofits often require that a number of church members or church staff sit on the nonprofit's board. Congregations that want to give more autonomy to the nonprofit may require that just one or two (or perhaps not any) church members or staff serve on the nonprofit's board.

Ministry Synergy

At its best, the church-nonprofit model creates a synergy between the two organizations, bringing out the best in each so that ministry can flourish. Ideally, the members of the congregation are engaged in the work of the nonprofit, even if the church opts to have limited or no control over the nonprofit. Church members can give generously of their money, and the nonprofit can then leverage those dollars in approaching outside funders such as foundations and corporations. I once leveraged a few thousand dollars given by church members to the church's nonprofit (including 50 cents given by a young child) into a five-figure foundation grant.

Church members can also give generously of their time, providing hundreds or thousands of hours to the work of the nonprofit every year. One church-based nonprofit I directed had volunteers serving as tutors, mentors, music teachers, camp counselors, nurses, doctors, housing remodelers, office helpers, and in a variety of other positions. This strong level of volunteer support drew funding, other volunteers, and collaborative partnerships that the nonprofit needed.

The nonprofit brings to the church an ability to do ministry in a new way, reaching new people and institutions that the church alone could not. Ministry that moves forward with outside funders and partners can inspire church members to give even more to their congregation and may keep them there if the church goes through difficult times. A church-based nonprofit may even draw new members into the church as they see creative outreach through the nonprofit.

Joy Skjegstad is a speaker and consultant on nonprofit management and ministry development, and is the author of Starting A Nonprofit At Your Church (Alban Institute, 2002), a book outlining the steps involved in forming a separate nonprofit. She has served as the executive director of two church-based nonprofits, and has also written Winning Grants to Strengthen Your Ministry (Alban Institute, 2007).

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