I was startled the other day to hear someone say that since the economic downturn started, applications to acquire federal nonprofit status have climbed 30 percent.

I doubt there's been a sudden surge to do good for one's fellow man (although some of the increase may be due to that). Rather, it appears that there's a sense that nonprofit organizations somehow have it easier than their for-profit brethren and that "going nonprofit" is a way to circumvent the current economic difficulties. I've long felt that there's a substantial public misunderstanding of what it means to be a non-profit organization. So, on behalf of all the hard-working 501c3 organizations in our county (conservatively estimated by Nonprofit Enterprise at Work as numbering at least 900), let's explore some facts and some common misperceptions.

Nonprofit organizations are dedicated to contributing to the public good. Fact.

This is the raison d'etre of nonprofits. To be recognized by the federal government as a nonprofit organization and achieve tax exempt status (under section 501c3 of the Internal Revenue Code), an organization must make a compelling argument that it is being formed for the public benefit, focusing on charitable, religious, educational, and/or scientific purposes.

Establishing nonprofit status can be a lengthy and costly process. Fact.

Obtaining federal nonprofit status does not happen overnight. It can take anywhere from 6 months to more than year to complete the bureaucratic application process and can (although not necessarily) cost hundreds of dollars in legal fees. Becoming a nonprofit is a not a quick fix solution to a business' financial difficulties.

Financial data about nonprofit organizations is a matter of public record. Fact.

Nonprofit organizations with even minimal income ($25,000 per year and up) are required to file a Form 990 with the federal government. This document mimics the familiar income tax form and requests information on an organization's income and expenditures, plus its board of directors, key activities and other data. Since nonprofits benefit from public largesse (in the form of tax relief), this information is publicly available for anyone to review - a transparency that not every business owner might welcome.

Nonprofits aren't really important to the economy. Misperception.

Michigan benefits from more than $100 billion in economic activity from the nonprofit sector, including hospitals, human services agencies, and thousands of interest groups. In Washtenaw County alone, nonprofit arts and cultural organizations represent a $165 million industry (in 2002 dollars), employing ca. 2,600 FTE.

Grants to nonprofits are available for picking. Misperception.

Grants are not funds that are handed out like candy simply because an organization has 501c3 status.

To think of grants like welfare money for nonprofits is a gross misperception. Rather, think of grants like RFPs (requests for proposals) of the nonprofit world. A funder (be it the State of Michigan or a private entity like the Gates Foundation) wants to accomplish a certain goal, such as making arts and cultural activities available to more people or eliminating the incidence of AIDS in Africa).

A nonprofit organization submits a grant proposal offering a strategy for accomplishing the funder's goal (e.g., presenting low-cost concerts in a park, undertaking AIDS research).

If the proposal satisfies the funder's goals, the proposal may be accepted and funds awarded, just as might happen with a contractor proposing to build a highway or fill roadway potholes.

Nonprofits don't know how to operate "like businesses." Misperception.

Given the excesses taken by some business people on Wall Street, at Enron, and elsewhere, let's just say thank God nonprofits don't act like businesses!

On a serious note, nonprofit organizations are businesses and behave accordingly: paying rent, meeting payroll, and delivering services, etc. In addition, many nonprofits routinely attain higher standards, conducting annual financial audits (necessary to apply for some grants) and each year identifying ways to attract investors (aka sponsors and donors).

Not to mention, many nonprofits accomplish their work by motivating unpaid workers (aka volunteers) to perform a multitude of tasks ranging from the mundane to the creative. How many for-profit business leaders could run their operations with only a smile and a pat on the back to motivate the troops?

The bottom line? We need both nonprofit and for-profit organizations to have a healthy and properous community. When each sector focuses on what it does best, we all benefit.

Tamara Real is executive director of the Arts Alliance and is a regular contributor to Michigan Business Review.