The Key Differences Between Non-profits and For-Profit Organizations

Running a non-profit organization is an entirely different undertaking than running other types of for-profit businesses. There are different rules that must be adhered to and a separate set of things that need to be considered before opening your doors.

Aside from the general mission of most non-profits, there are structural differences that need to be taken into account when you are considering starting one. Once you understand these key differences you will be better equipped to take on the challenges of running a non-profit for yourself.

Who Really Has Ownership

Most businesses are owned and controlled by a private individual or a group of private persons. A non-profit, though, is technically owned by the public. This means that control over most of the major decisions is in the hands of a board of directors as opposed to a single person.

Because of this fact, no one owns the profits generated by the organization or the assets held by it. The board also has a say in the management of the organization as they have the power to fire any executives that are seen as unfit to adequately perform the job.

The benefits to having the structure designed in this way include the fact that no one person can make important decisions alone. These decisions must be made by a collective group that has the non-profit’s best interest in mind, as opposed to their own pay check.

Insurance Needs

Non-profits have different needs when it comes to insurance and risk management because of the distinctive set of challenges that they face on a regular basis. For this reason it is important to enlist the services of an agency that understands these challenges.

For example, Ecclesiastical is a charity insurance company that is specifically set up to cater to the insurance needs of non-profits. Furthermore, it is also owned by a non-profit. This means that the professionals there are better prepared to help with the particular issues than those who run charities must regularly deal with.

Money Matters

Probably one of the most obvious differences between for-profit and non-profit organizations are the ways in which they are funded, the manner in which the funds are utilized, and the taxes levied on those funds.

While private companies generate profit via the selling of goods and/or services, non-profits typically seek to deliver particular services for those who need them at a minimal or no cost. In this way, they don’t have customers per say. Without paying customers or clients, money has to come in through other means.

Government grants and donations from the public are two ways in which a non-profit can earn money. Because money doesn’t generally come in through a regular revenue stream, the government doesn’t take the funds acquired by non-profits in the same manner in which they do other for-profit businesses.

Despite possessing a tax-exempt status, charitable organisations must still pay taxes on purchases as well as profits earned from developing property.

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Author: Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to editor.webposts@gmail.com.