How Is a Nonprofit Different from a For-profit Business?

Answer: Here are some of the differences between a business and a nonprofit:

When you start a business, it is for the financial benefit of its owners and/or shareholders. Profit is the goal and the business pays taxes on that profit. A nonprofit entity has a mission that benefits the "greater good" of the community, society, or the world. It does not pay taxes, but it also cannot use its funds for anything other than the mission for which it was formed. Nonprofit organizations can and do make a profit, but it must be used solely for the operation of the organization or, in the case of a foundation, granted to other nonprofit organizations. When a for-profit organization goes out of business, its assets can be liquidated and the proceeds distributed to the owners or the shareholders. When a nonprofit goes out of business, its remaining assets must be given to another nonprofit.

Purpose

Many people think that nonprofit means that the organization cannot make a profit. This is not true. In order to survive, nonprofit organizations must ensure that there is a surplus of revenues over expenses. We use the term nonprofit because these organizations are not set up for the sole purpose of making a profit. Rather, they pursue public benefit purposes that are recognized under federal and state law.

What makes an organization a nonprofit is that:

its mission is to undertake activities whose goal is not primarily for profit no person owns shares of the corporation or interests in its property the property and income of the nonprofit corporation are never distributed to any owners, but are recycled back into the nonprofit corporation's public benefit mission and activities.

Ownership

A nonprofit organization is, in a way, owned by the public. It belongs to no private person and no one person controls the organization.

The assets of a nonprofit are irrevocably dedicated to the charitable, educational, literary, scientific, or religious purposes of the organization.

The cash, equipment, and other property of a nonprofit cannot be given to anyone or used for anyone's private benefit without fair market compensation to the nonprofit organization.

In fact, a nonprofit's property is permanently dedicated to exempt purposes. When and if the organization dissolves, any remaining assets after debts and liabilities are satisfied, must go to another nonrofit organization...not to members of the former nonprofit or other private individual.

Control

Control of a nonprofit is exercised by a governing board of directors or trustees. The responsibility of that board is to see that the organization fulfills its purpose. Board membersdo not act as individuals, but must act as a group.

No one can be guaranteed permanent tenure on a board, and the board can, if necessary, fire an executive or remove board members.

This means that no one, not even the founder of the organization, can control a nonprofit. In some states, such as California, there are rules governing the pay of directors of a nonprofit. Most boards of directors are not compensated, except for expenses such as travel to and from board meetings.

Accountability

Nonprofit organizations are accountable to the public and must file annual information returns with the federal and state governments. The federal form that nonprofits must file is IRS Form 990. On it the nonprofit must report information regarding its finances, including the salaries of the five highest paid nonofficer employees. IRS Form 990 must be made available to the public. Most nonprofits have them available at their headquarters and on the web. The tax forms are also easily obtained through certain websites such as www.guidestar.org. At the state level, nonprofits are usually overseen by the State's Attorney General's Office. That office usually has the power to take a nonprofit corporation to court to make sure it complies with the law.

Significance
The most fundamental difference between nonprofit and for-profit organizations is the reason they exist. For-profit companies are generally founded to generate income for entrepreneurs and their employees, while nonprofits are generally founded to serve a humanitarian or environmental need. Nonprofit organizations channel all of their income into programs and services aimed at meeting people's unmet or under-met needs, such as food, water, shelter and education, or towards other issues such as deforestation and endangered species. For-profit companies offer products and services that are valued in the marketplace, choosing to distribute profits between owners, employees, shareholders and the business itself.

Features
Sales revenue, in the form of cash and receivables, is the life-blood of for-profit organizations. These companies rely on earned income and credit arrangements with lenders and suppliers to finance their operations. Nonprofits, on the other hand, rely almost entirely on donations and grants from individuals, government entities and organizations. Nonprofit and for-profit organizations' income source determines, to a large extent, how the company can use its money. Since nonprofit income comes from donors, nonprofits are expected to utilize their funding in a way that maximizes benefits to their targeted recipients. Since for-profits earn their own income and pay their own debts, they have much more ethical leeway as to how they spend money. Related Reading: How to Ask Dealerships for Auto Donations for Your Non-Profit Organization

Tax and Liability Considerations

For-profit companies are taxed in a number of ways, depending on their form of organization. Small businesses, for example, are usually sole proprietorships and partnerships. The IRS treats the income from proprietorships and partnerships as personal income, and the owners are held personally liable for all business debts. Nonprofit organizations can register for income-tax exemption under section 501(c)3 of the tax code. Contributors to nonprofit organizations are offered tax incentives for their donations as well. According to the Service Corps of Retired Executives (SCORE), nonprofit organizations are treated as legal entities for tax purposes, leaving company founders not liable for organizational debts.

Hybrid Organizations
Recent years have seen a melding of for-profit and nonprofit business models, as nonprofits seek to stabilize their income and for-profits seek to give something back to the community. Goodwill Industries, for example, is a nonprofit organization that accepts clothing donations, then sells the clothing in for-profit retail stores, using the income to grow the organization and fund programs and services for needy families. Chick-fil-A, as another example, is a for-profit restaurant chain that channels a large portion of its earned income into its own charitable activities.

Human Resources Considerations

Workforces look quite different between for-profit and nonprofit organizations. For-profit companies are staffed with salaried and hourly employees, with the occasional unpaid intern. Nonprofits, on the other hand, usually employ a small workforce and a large corps of volunteers. Procedures for hiring and firing, as well as employee motivation, communication and direction techniques vary considerably between salaried employees and volunteers.
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The Major Accounting Differences Between Profit & Non Profit Organizations by James Green, Demand Media
For-profit and nonprofit organizations, as their names suggest, differ in terms of their goals. While the former focuses on profit maximization, the latter does not. This has a considerable impact on the accounting methods of each type of organization. While for-profits base their accounting around quarterly income, nonprofits prepare statements that revolve around their activities only.
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For-Profit and Nonprofit Organizations
There are several differences between for-profit and nonprofit organizations. While the aim of for-profit organizations is to maximize profits and forward these profits to the company's owners and shareholders, nonprofit organizations aim to provide society's needs. Non-profit organizations have no owners. Instead of maximizing profits, which means maximizing revenues while minimizing costs, they are more concerned with ensuring the revenue is greater than costs. This ensures that the nonprofit can still provide society's needs.

Tax Exemption
For-profit organizations must pay taxes on their net income, but this is not true for nonprofits if they are exempt from taxes. If a nonprofit's goal is to increase the welfare of society, governments tend to help this cause by minimizing the nonprofit's costs as much as possible. It is these differences between the two types of organizations that have an impact on each type's accounting methods. When a tax-exempt nonprofit submits their accounts to the IRS, they are only assessed for taxes that are secondary to the organization's scope, such as sales tax or real estate tax. On the other hand, the IRS scrutinizes the earnings made by for-profits, in addition to any secondary taxes. Related Reading: Banking Rules for Non-Profit Organizations

Balance Sheets
Most for-profit organizations prepare a balance sheet every quarter. A balance sheet lists the company's owner's equity. Owner's equity is comprised of assets, which is everything the company owns, and liabilities, which is everything the company owes to others. Owner's equity has a direct impact on the company's common and preferred stock, if applicable. A nonprofit does not use a balance sheet, because it has no owners. They will instead compile a "statement of financial position," which focuses only on assets and liabilities. Adding assets to liabilities gives the company's net assets. Accountants then scrutinize net assets to assess the financial size of the nonprofit.

Income Statements
In addition to a balance sheet, a for-profit will prepare an income statement each quarter. The income statement will list the company's revenues, gains, expenses and losses. The main purpose of an income statement is to assess the company's financial performance on a quarterly basis. This in turn has an impact on the company's value and share price, and company stockholders have a legal right to these income statements. Nonprofit organizations, on the other hand, do not compile an income statement but instead prepare a statement of activities each quarter. This document simply lists the organization's revenues minus expenses, plus net assets. Nonprofit and for-profit businesses have multiple similarities and multiple differences. The process of marketing also differs, with the biggest differing factor being that the purpose of for profit marketing is to encourage customers to buy, while the purpose of nonprofit marketing is usually to encourage people to give. This means that the return on investment differs between the two. Although the principles of marketing remain the same, some of the methods must, of necessity, be different.
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For Profit Marketing

The objectives of marketing in the for profit environment are usually to let potential customers in your target market know about your product or service and how it can benefit them, with a view to selling it in exchange for money. The corporation keeps the money, and the customer enjoys the product or service he has bought. For profit marketing also focuses on developing new markets for existing products or identifying markets for new product lines.

Nonprofit Marketing
A nonprofit organization markets the work it does or the cause it supports, instead of a product or service. The purpose of marketing is to build awareness of an issue and to gain financial support from the public for its cause. The customer gives his money to the organization in exchange for the opportunity to contribute towards its philant hropic work. As with for profit marketing, the result is that the corporation keeps the funds, while the individual retains the knowledge that the organization uses his money to make a difference for its cause. Related Reading: What Is the Difference Between a Firm's Before Accounting Profit and After Accounting Profit?

Similarities
For profit businesses market using a variety of common methods, such as the marketing mix, target market identification, positioning, branding, public relations and advertising. Nonprofits may also use the majority of these methods; for example, the nonprofit marketer will conduct market analysis to identify potential donors and sponsors. The nonprofit advertises the work it does using similar media as the for profit, such as online and print, radio and possibly television advertising. Public relations professionals work just as hard as they do in for profit environments to build the visibility of the organization, maintain its reputation and establish its image as an authority in its field, while direct sales are likely to take the form of a request for a donation.

Differences
The major difference between the marketing of the two types of corporations is the fulfillment of the customer need. The for profit marketing customer has a need of his own that he fulfills by the purchase of the goods or services; the nonprofit customer recognizes the need of others and his ability to help fulfill it through donation of his time, money or service. For this reason, retail sales of the primary product or service do not apply to the nonprofit corporation. Many nonprofits do conduct retail sales of promotional items to help raise funds, but this is not their primary product or service.

At a nonprofit organization, the board of directors is not paid, and if the nonprofit makes a profit, it cannot pass on the profits to staff in the form of profit-sharing checks (though it can use the profits to increase staff salaries, hire more staff, etc.). Also, nonprofit organizations are mission-based - they

cannot engage in program activities that do not contribute to its mission in some way (an animal shelter can't open a bicycle recycling program, for instance - unless it's doing so as a fundraiser for its animal shelter programs). Their overall success is measured by how well they meet that mission, whatever that mission is - that may mean that success puts the organization in some debt. And, finally, many activities by a nonprofit are tax-exempt - they do not have to pay taxes on many/most of their activities. A for-profit organization pays its board of directors, and if it makes a profit, cuts profit-sharing checks to the board and, if there's enough, to staff. They might have a mission statement, but their mission is profit -- to make as much money as possible. If they end up in debt, they are a failed business. Both types of organizations pay staff, pay benefits (health care, vacation, etc.), pay someone to take care of accounting, and may pay people for marketing, human resources, facilities management and other administrative tasks. Most nonprofits pay staff far less than staff would make in the for-profit world. Both organizations are "owned" by their boards of directors. There are nonprofit hospitals and for profit hospitals. There are nonprofit hospices and for profit hospices. There are nonprofit recycling centers and for profit recycling centers. There are nonprofit theaters and for profit theaters. There are non profit universities and for profit universities. And on and on.

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John Laidlaw answered 3 years ago For-profit organizations keep the financial benefit of the stock holders and owner in high regard. At the end of the day they offer a service or services but the money goes to them instead of into the service itself. Non-profit organizations do make a profit but that profit must be spent only on the organization's objective/mission. IE if the non-profit organization is a homeless shelter/s, the money that they make from it may be spent on new beds, aquiring food, aquiring new land to make a new shelter, expanding upon one of their current shelters, refurnishing a shelter, buying a building for a shelter and/or main office. In short, NPO ( Non Profit Organizations ) can only put their profit back in to the organization in some form. This can include paying for travel fee's and whatnot. NPO's also don't have to pay taxes.

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http://nonprofit.about.com/od/qathebasics/f/nopvspro.htm
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Jayne answered 3 years ago The main difference between a non-profit organization and a for-profit organization is that the former is non-profit making and the latter's aim is to make a profit. A non-profit organization obtains its funds from donations either from the government or from the public for specific programs that they carry out. Usually, a non-profit organisation is set up to support a cause. The group most likely to benefit in a non-profit organisation is the group whose cause the organisation is working to improve. The employees of the organisation, however, will benefit not in monetary terms but in terms of doing something meaningful to support the cause they believe in.
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Clueless Girl answered 3 years ago i believe for non profit organizations all the money goes to charity.
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1. o Analyze
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Understand o
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Develop o
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