What it takes to change your school’s financial status
By Karen White
Thinking of changing your studio’s status to nonprofit, or creating a nonprofit entity to provide financial and organizational help for your team or company? Other studio owners who have done it have one initial piece of advice—don’t think it’s going to be easy.
“When I started, I thought this would be a great idea, but I had no idea how to do it,” says Carolyn Nelson-Kavajecz, founder and owner of Sterling Silver Studio, LLC, of Superior, Wisconsin. “It sounds like an easy process, but it was really time consuming.” But, she adds, “I learned that I’m not too proud to admit when I don’t know how to do something. If you ask enough questions, somebody will be willing to help you out with a good cause.”
The Sterling Silver Booster Club Inc. was established as a 501(c)(3) nonprofit in 2004 to provide financial assistance to low-income or struggling students, and since 2008 has raised and distributed $45,000.
While this nonprofit is a separate entity that serves as a complement to the studio, other owners have chosen to place their entire business under a nonprofit designation. In either case, nonprofit status opens the door to receiving grants, helps to avoid some taxes, and proclaims to the public that fulfilling the organization’s mission takes precedence over making money.
Nonprofit status opens the door to receiving grants, helps to avoid some taxes, and proclaims to the public that fulfilling the organization’s mission takes precedence over making money.
Not to say that nonprofits don’t make money—they do. “When I started,” Larisa Hall says of her business, Tap Fever Studios in La Jolla, California, “I wanted it to be nonprofit, but somebody said, ‘If you are charging money for classes, you can’t be nonprofit,’ which wasn’t correct.”
A nonprofit business like a dance studio can charge for services, set its own pricing, pay employees (including the artistic director), and function—financially—in most ways like a for-profit. The difference is that any profit collected by a for-profit business will go to an owner or be distributed amongst shareholders, while a nonprofit serves a more altruistic master. For example, Sterling Silver Booster Club’s entire reason for being is to raise money that is handed out to dancers in need.
The organizational structure of a nonprofit also differs. While for-profits are run by an owner who makes all decisions, accepts all responsibility, and answers to no one, nonprofits are led by a board of directors who are—depending on how the nonprofit’s bylaws are structured—either somewhat or very involved with the operation, finances, and future of the organization.
Ask yourself: why?
When Hall had a hard time finding adult tap classes after moving to San Diego in 2003, she started thinking about opening a studio—and in her vision, it was always a nonprofit. “I didn’t want to have to say no to anybody. Anybody who wants to dance should be able to, even people with disabilities or who can’t afford it,” she says.
She knew that, as a nonprofit, her studio could apply for grants to help her fulfill that mission. (See “The Fine Art of Finding Money,” this issue.) Although her first few grant-writing efforts have fallen short, she plans to make a big push this year. “It’s really hard to get grants until you’ve been established for a few years, but I feel we are finally getting to the point where we have all our ducks in a row,” Hall says. “It’s important to me. People feel happy when they’re dancing, and I’d like to be able to provide that.”
Gail Harts had a similar idea in mind when she turned her studio from for-profit to nonprofit in 1999, 11 years after she first opened in Portsmouth, Virginia, with three students. “My studio was filled with kids who had the ability, talent, and desire, but didn’t always have the money” to pay for classes or competition travel expenses, she says. A core group of parents often pitched in with fundraising, but most of the costs were coming out of her own pocket.
“I don’t think the nonprofit is why I do what I do,” says Harts, whose school, Gail Harts Performing Arts Group Inc., is now located in Virginia Beach. “It’s just an avenue for me to be able to do more. It assists you with your vision, with your passion.”
After much thought, Nelson-Kavajecz decided against turning her entire studio nonprofit and chose to establish the Booster Club instead. She knew how much work and devotion it had taken her to build her studio and wondered if there would always be enough people willing to volunteer their time to continue to grow the studio if it transformed from an owner-operated business to a nonprofit led by a board of directors.
But she had a second reason as well. Since its inception in 1991, Sterling Silver had benefited from strong community support, Nelson-Kavajecz says. Her vision of a booster club was one that not only supported Sterling Silver students, but students of the arts throughout the community. Creating a separate nonprofit would ensure that the club could stay alive even if the studio was sold someday.
Determine a mission
Nelson-Kavajecz’s vision was simple—to help kids experience the arts. While she could often absorb a needy kid or two into classes without charging tuition, she couldn’t pay for all the shoes, dance clothes, costumes, and team travel expenses that were stymieing parents in her working-class community. Equally important to Nelson-Kavajecz was that any young artist—from dance students to high school music students to Junior Miss contestants—could apply for a Sterling Silver Booster Club scholarship.
In her first years of business, Harts had partnered with nonprofits such as the YMCA and the Girls’ Club of Portsmouth (now Girls’ Inc.) by, for example, agreeing to teach a baton twirling class in exchange for dance program space. She also taught dance in afterschool programs funded by grants received by other arts-based groups. Through it all, she “learned what being a nonprofit can do for you,” in terms of extending the reach of her school’s deeply rooted aims; Harts wanted her nonprofit to partner even more closely with other community nonprofits and work together to bring the arts to underserved children.
Boiling that vision down into an official mission statement—a sentence or two that tells the world who the nonprofit is and what it does—can be tricky. Harts’ mission statement is this: “To elevate, educate, and empower our youth through encouraging them to enhance their community by establishing productive lives through their own efforts.”
Each nonprofit functions according to an established set of bylaws. These bylaws determine how often the board must meet, what constitutes a quorum, rules of membership (how to add or dismiss a member), the system for annual nomination and election of officers, and other operational details. The bylaws also can spell out the responsibilities, salary, and other details of the artistic/executive director position or other paid positions within the nonprofit. Hall’s bylaws state that she is the executive director indefinitely and can be removed only because of gross mismanagement.
While bylaws can cover a lot or a little and are unique to each nonprofit, they must meet certain legal and legislative requirements. Nelson-Kavajecz says she had to tweak her drafts of the Booster Club’s bylaws several times to make them comply with Wisconsin state laws.
File the application
Nonprofit status is granted to organizations that file the necessary paperwork with both the federal (visit irs.gov/Filing/Charities-&-Non-Profits) and state government. (For details on each state’s requirements, visit usa.gov/Business/Nonprofit-State.shtml). Generally, this also includes filing Articles of Incorporation, applying for a federal employer identification number, and filing for state and local exemptions from various taxes such as sales tax. Along with the IRS application fee (which can range from $300 to $750), each state has its own set of application fees.
Filing can be tedious, time consuming, and frustrating. “It’s a long, bumpy process to learn it all,” says Hall, who is now glad she changed her mind about opening her studio in 2008 as a nonprofit, and instead concentrated solely for the first two years on getting her business up and running. (The school has been a nonprofit since 2010.) “There’s so much that goes into a nonprofit. We took our time and considered the application thoroughly to make sure we had everything correct.”
It’s also not something that should be—or could be—tackled alone. Although many companies and organizations hire a lawyer and/or accountant to see them through the process, these three studio owners reached out to friends, acquaintances, and even parents for help and advice.
One of Hall’s adult tap students who had just finished law school and needed to gain experience working with nonprofits lent a hand. Nelson-Kavajecz reached out to students’ parents or community members with legal or nonprofit experience, and her own accountant “offered a ton of advice,” while Harts’ questions were answered by the IRS agent handling her application, as well as by a friend who had gone through the process for her daycare center.
Establish a board
Unlike private businesses, nonprofits are overseen by a board of directors. (Minimum size requirements vary from state to state.) Board members are not employees; instead, they should be individuals from the community who “know your purpose,” Harts says. While not involved in day-to-day operations, they should have some useful skills in areas such as fundraising, marketing, or finance that could help the nonprofit pursue its goals.
Boards must have meetings on a regular basis and keep minutes, and compile an annual financial report for the IRS. Most important, Harts says, boards have the power to remove or “vote out” the studio’s artistic director—even if the director is also the founder, like herself.
Putting together a board involves far more than just calling up a few friends, Hall says. “It was really hard. Basically you are asking people to volunteer their time, and they have to be interested in dance and want to help you with your vision,” she says.
Hall’s board currently seats 11 people, a recent increase from nine, and includes several of her adult tap students. Two members are involved with writing grants, while others help with facility repairs or marketing. Her studio moved recently, and board members with real estate experience helped with lease negotiations, she says.
The Sterling Silver Booster Club’s board has four officers elected annually plus additional members—mostly parents, parents of former students, or adult alumni. Board meetings are open and are always well attended by other parents and supporters, who are encouraged to participate in all discussions. While she attends meetings to offer advice or answer questions, Nelson-Kavajecz says she leaves all decisions about fundraisers, as well as the distribution of scholarships, to the board. That autonomy, she believes, protects her from any claims of favoritism, and it also ensures an active, engaged board.
Harts’ board is made up of her husband as vice president, her studio accountant as treasurer, and an administrator with extensive experience in nonprofits as her secretary. She considers them an invaluable support system that generates ideas for fund-raising, represents the studio in the greater community, and “pushes me to grow” the nonprofit according to its mission statement.
Worth the effort
Harts received her nonprofit status in 1999, only to discontinue it in 2004 when she closed her studio due to an injury. The school reopened in 2007 in a larger facility, and Harts wanted to expand its offerings to include music, art, and theater. So she applied for reinstatement, which is pending. “Working in your community and giving back to your community is the most rewarding part of being a 501(c)(3),” she says.
Nelson-Kavajecz believes the Booster Club’s mission as a community-wide nonprofit is vital to its success. Some of the volunteer mothers and fathers from her dance studio who work the hardest to raise funds never ask for a dime, and former scholarship recipients have returned as young adults to express their thanks.
“It’s very positive and very group-based,” Nelson-Kavajecz says. “Everybody who is part of this nonprofit is looking out for the entire group, and the financial stability of the entire group, and not just with an interest in their own child.”
Hall never realized how involved the approval process was going to be, but she says she’s glad she took the time and made the effort. “People like the fact that you care about the community and want to help people,” she says. “I’ve had a few people come to the studio specifically because, they said, ‘I saw you were a nonprofit and I really like that.’ ”