Nonprofit Growth: Revenue Diversification, UBIT, HR Policies, and Board Governance
Nonprofit Growth Means More Than New Revenue
The Colorado Nonprofit Association recently shared poll results showing that 886 respondents identified revenue diversification as the trend most likely to reshape the nonprofit sector over the next five years, with workforce innovation close behind. Other responses included philanthropic reform, strategic partnerships or consolidation, and AI integration into organizational workflows. That tracks with what many nonprofit boards and leadership teams are dealing with right now: how to grow, how to keep staff, how to adapt, and how to do it without creating avoidable risk.
From where I sit, the first two issues deserve more professional service attention earlier than they typically get. Revenue diversification can raise unrelated business income tax issues. Workforce innovation only works well when the organization has solid HR policies and practices.
And both of those depend on something else: board governance that is actually working.
Revenue Diversification Can Create UBIT Problems
A lot of nonprofits are trying to reduce dependence on one funding source. That makes sense. More earned revenue, sponsorships, fee-based programming, rentals, and side ventures can create stability when grants or donations shift.
But not every new revenue idea fits neatly inside a tax-exempt structure.
The IRS says unrelated business income generally comes from a trade or business that is regularly carried on and not substantially related to the organization’s exempt purpose. If a tax-exempt organization has $1,000 or more of gross income from an unrelated business, it generally must file Form 990-T.
That is where good intentions can run into preventable problems. But they are almost always preventable when the right planning occurs.
Check out our UBIT decision tree when facing these questions. We certainly do not think nonprofits should avoid earned revenue. It means they should evaluate it carefully before they build around it.
That is one reason we developed the Decision Tree. It is meant to help churches and nonprofits think through whether a revenue stream may trigger tax, whether a separate entity should be considered, and what questions should be answered before the organization gets too far down the road.
Workforce Innovation Requires Real HR Infrastructure
The second major theme in the poll was workforce innovation. That is not surprising either.
Nonprofits are trying flexible schedules, new management structures, shared leadership models, outsourced functions, better benefits, and different ways to recruit and keep strong people. Colorado Nonprofit Association’s own salaries and benefits survey highlights how much attention the sector is giving to compensation, benefits, leave policies, and flexible schedules.
If an organization is changing how people work, supervise, get evaluated, get paid, or raise concerns, it needs policies and practices that match those decisions. Otherwise the organization creates confusion for staff, inconsistency for managers, and unnecessary exposure for the board.
In practice, this often means reviewing or building the basics:
employee handbooks
classification practices
leave policies
compensation approval processes
conflict reporting
complaint procedures
documentation and supervision structures
That work is not glamorous, but it is often the difference between a healthy transition and a mess that later becomes a legal or governance problem.
Board Governance Is What Holds Both Together
Revenue diversification and workforce innovation are often treated like separate issues. They are not.
Both require boards to make thoughtful decisions, ask the right questions, and stay focused on the nonprofit’s best interests. Basically satisfy their three primary roles: duty of loyalty (put nonprofit’s interests first), duty of care (be active and informed), and duty of obedience (to laws, bylaws, and mission).
Under Colorado law, directors of a nonprofit corporation must discharge their duties in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner they reasonably believe to be in the best interests of the nonprofit.
That standard matters when a board is considering things like:
launching a new earned revenue program
approving a partnership
changing employment structures
setting executive compensation
deciding whether internal policies are strong enough for a new phase of growth
The IRS also continues to emphasize governance practices like conflict-of-interest policies and board processes that help protect charitable assets and keep decision-making aligned with the organization’s mission.
That is where many nonprofits need more than a narrow answer to a narrow question. They need service providers who can look at the whole picture.
A new revenue stream is not just a tax question. It may also be a governance question, a contract question, an employment question, and a structural question.
A workforce change is not just an HR question. It may also be a board oversight question, a policy question, and a risk-allocation question.
Growth Is Easier When the Legal Structure Matches the Mission
The goal is not to make nonprofits more cautious for the sake of being cautious.
The goal is to help them take smart risks with better support.
That usually means putting enough structure in place that the organization can move forward without guessing. When board governance is healthy, HR practices are clear, and new revenue is vetted with the tax rules in mind, leaders can spend less time worrying about avoidable problems and more time serving people.
That is the kind of investment nonprofits will need to grow.
Not professional services (legal, accounting, etc.) that just answers one question in isolation. Services that help the organization make decisions across governance, tax, operations, and people issues in a way that actually fits how nonprofits function.
A Few Questions Colorado Nonprofit Leaders Should Be Asking Right Now
If your organization is trying to diversify revenue, this is a good time to ask:
Is this activity actually related to our exempt purpose, or is it just producing cash?
If we grow this program, will it create Form 990-T filing obligations or other tax issues?
Do our board minutes and approval process show real oversight?
If we are changing staffing models or workplace expectations, do our HR policies still match how we operate?
Do we have the right legal, accounting, and financial advisors looking at these issues together, rather than one at a time?
Those questions are easier to answer before a program expands, before a personnel issue escalates, and before the board finds itself trying to clean up something that could have been addressed earlier.
Final Thought
The Colorado Nonprofit Association poll points to something real. Nonprofits are trying to build more durable organizations while the ground is moving under funding, staffing, and technology.
That kind of season usually rewards organizations that think holistically.
If revenue diversification is on your list, UBIT should be part of the conversation.
If workforce innovation is on your list, HR policies and practices should be part of the conversation.
If either one is on your list, board governance should be part of the conversation.
That work is easier to do sooner than later.
If your nonprofit is working through new revenue models, staffing changes, or board governance issues, Willey Law Firm helps organizations think through those decisions in a connected way. We also offer a practical UBIT Decision Tree resource for nonprofits and churches evaluating whether a revenue stream may create tax exposure.