By Jim McCarthy Oct 1, 2010 3 comments

A Non-Profit Doesn’t HAVE to Lose Money

Technically, the main difference between a non-profit organization and a for profit one is that a non-profit can’t distribute its “surplus” (aka, profits) to shareholders.  In other words, investors/donors can’t expect any money back from their investment.  But that surplus can be “reinvested” in things like salaries, buildings, and new programs and often is.  Or it can be retained for future use.

There’s no obligation to lose money.   In fact, I’d suggest that since the public is conferring tax benefits on these organizations, their leaders have a stewardship duty to see to it that the organization survives and thrives.  It may not be all about the Benjamins for you personally, but if you really care about the “mission” of the organization, you’ll have the mindset that it should run at least a small “surplus.”  It’s true that the surplus isn’t the point of the organization, but that doesn’t make it a very, very good idea.

Why?  Discipline.  All organizations need to be pretty hard on themselves in thinking about what is and what isn’t a good use of resources to achieve their “mission,” whether that’s a purely altruistic one or a purely craven one.  Consistently running a shortfall is a sign that an organization is not disciplined enough to make those choices about resources.

Non-profit status is not a license to lose money.

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3 Comments

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