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Nonprofit vs. not-for-profit

kenneth hawkins 83 Comments

Nonprofit vs. not-for-profit

Non-profits are either member-serving or community-serving. Member-serving nonprofit organizations create a benefit for the members of their organization and can include but are not limited to credit unions, sports clubs, and advocacy groups. Community-serving nonprofit organizations focus on providing services to the community either globally or locally. Community-serving nonprofits include organizations that deliver aid and development programs, medical research, education, and health services. It is possible for a nonprofit to be both member-serving and community-serving.Nonprofit and not-for-profit are terms that are used similarly, but do not mean the same thing. Both are organizations that do not make a profit, but may receive an income to sustain their missions. The income that nonprofit and not-for-profit organizations generate is used differently. Nonprofit organizations return their income back to the organization if they generate extra income. Not-for-profits use their excess money to pay their members who do work for them. Another difference between nonprofit organizations and not-for-profit organizations is their membership. Nonprofits have volunteers or employees who do not receive any money from the organizations fundraising efforts. They may earn a salary for their work that is independent from the money the organization has fundraised. Not-for-profit members have the opportunity to benefit from the organizations fundraising efforts. Both nonprofits and not-for-profits are tax exempt under the IRS publication 557. Although they are both tax exempt, each organization faces different tax code requirements. A nonprofit is tax exempt under 501(c)(3)requirements if it is either a religious, charitable, or educational based organization. Not-for-profits are tax exempt under 501(c)(7) requirements if they are an organization for pleasure, recreation or another non-profit purpose.

Management

A common assumption of non-profits is that they are run completely by volunteers. This is not the case. Most non-profits have staff that work for the company, with many then bringing in volunteers to do the work led by the staff. The money to pay staff comes from the state law that allows nonprofits to pay reasonable salaries to their employees. NPO’s must be careful that their staff are not making too much money. If that is the case, the IRS has the right to penalize the non-profit. 

The extent to which a nonprofit organization is considered business-like, for example in how they manage their resources and accomplish their missions, is something nonprofits have to balance. Although the goal of non-profits isn’t to make a profit, they still have to operate as a business. Nonprofits have the responsibility of focusing on being professional, financially responsible, replace self-interest and profit motive with mission motive, and have the ability to speak both languages of the nonprofit, which is the business language and the nonprofit language. The business language provides the ability to work with money, such as applying for grants, which is crucial for non profits, while the nonprofit language provides the ability to speak to the community. Nonprofits need to balance these both out to have a successful organization.

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