Every non profit organization has a purpose which is known as its mission. Unlike a for-profit organization, a non profit organization does not exist to generate revenue.
Other Similarities & Differences between Non Profits & For-Profits are as follows:
Similarities between Non Profits and For Profit Business
- Both non profit as well as for profit organizations have goals and missions which are well defined. Their products or services are known by every one.
- The non profits should satisfy the objectives and needs of their various stakeholders just like a private company knows their customers and serve them accordingly.
- Both non profit and for profit organizations have limited resources and the goals must be met with the limited funds.
- Like private and commercial business corporations, many non profit organizations have boards, management and different levels of staff which help in the efficient working of the organization.
Differences between Non Profits and For Profit Business
- There is third party funding in the case of non profit but not in for profit business. A non profit may get donations, grants and government funds.
- The non profits are generally run by the volunteers but for profit businesses are run by employees who are hired at wages.
- The stakeholders might not contribute financially to the organization unlike the for profit business where the shareholders have to contribute financially.
Entrepreneurs looking to start a new small business have a wide range of decisions to make before they begin. One of the most basic decisions is whether to enter the for-profit or nonprofit sector. For-profit and nonprofit organizations have much in common, but there are significant differences between the two. Familiarizing yourself with each type of organization can help you to decide which direction to take in your entrepreneurial career.
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.
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.
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.
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.
About the Author
David Ingram has written for multiple publications since 2009, including "The Houston Chronicle" and online at Business.com. As a small-business owner, Ingram regularly confronts modern issues in management, marketing, finance and business law. He has earned a Bachelor of Arts in management from Walsh University.
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