There continues to be confusion among NGOs about what the term “not-for-profit” really means and how best their “business enterprise.” It definitely not the organization has permission to go bankrupt! Technically speaking, there are several different categories of organizations, but the most commonly referred community-based charitable nonprofit, or 501 (c) (3). The key words in 501 (c) (3) designation is “loving.” This simply means that the organization is providing services to the community that is considered to be worth it, within IRS guidelines, and it is considered taxable. As I have mentioned many times before, this exemption is a privilege and should be treated as such.
Also, remember that the agency must first be formed under the laws of whatever state will operate. In other words, an organization (usually non-stock company) is first taken and then applies for a non-profit designation from the IRS. For the purposes of this article, we are talking about small and medium-sized community-based organizations in the Non-Profit Sector, not churches, hospitals, educational institutions, or government-funded institutions.
I am often asked if it’s okay for a non-profit to make. The answer is yes. I also asked if a non-profit needs to be run like a business. The answer is yes again. But there are distinguishing features between the for-profit sector and non-profit sector and it is important for non-profit organization to understand the differences in order to keep in line with their IRS designation.
I work with a number of non-profits who are facing real financial difficulties, especially in recent years, with the recession and down economy. It is important to distinguish between these uncontrollable economic shocks from a philosophical and policy-driven directions to a non-profit has chosen within the guidelines of its mission. For example, if a rural community-based clinic is not charging enough in fees to cover their costs, then it must be subsidized by contributions to offset the loss of income or, plain and simple, it will go bankrupt. This should not be a difficult concept to understand: if a non-profit is not more money than spending, it is in financial trouble. Yes, just like for-profit, a non-profit will achieve cost. However, any push for ordinary non-profit that greatly exceed the cost of revenue is likely to be perceived by its members who go against its charitable mission. However, owners of for-profit are very keen to maximize their profits.
So, if you ask me whether a non-profit should be run like a business, my answer will be yes and no. Yes, there are many major aspects of the organization that need to be run like a business; but no, there are distinctions within a non-profit to consider different than a typical for-profit company. Using rural clinic example again, if the role of the clinic is to provide health care for all individuals regardless of their ability to pay the full fee, the services it will be subsidized by other means, such as donations, which is probably exactly what errand her kingdom and probably the key reason was granted charitable status by the IRS in the first place.
Over the years I have repeatedly urged the Board to take responsibility for their non-profit very seriously. However, care must be taken if the board goes to find no difference in operation as a for-profit company. This is possibly one of the most difficult aspects a non-profit board to realize. Not every aspect of a non-profit can be run like a business – and most non-profit board members come from the for-profit sector – so it is understandable for the board to try to apply business skills they practice every day to the non- profit that they have agreed to serve.
I do not have any problem with the mindset, if it can be controlled. In fact, the majority of “business” practices do not, indeed, apply equally to non-profit and for-profit. Things like such responsibility, conflict of interest policies, the need for good accounting and proper accounting, to follow human relations issues, rules and regulations; the list goes on and on, but the point should be clear. Unfortunately, too many charities falter when it comes to running a business in operation. There are three immediate reasons that come to mind when the common challenges among all non-profit
1. Members often companies to raise funds to operate a non-profit to directors and employees, but knowledge and enthusiasm Secretary lies within the skills of the actual project implementation agency. Fundraising will be a major frustration.
2. Oh, no members have not enough time to provide the service requires proactive board and fundraising is not enjoyed by very many, so it is not done; nor government usually push for business-like approach to running the organization.
3. The managing director and staff non-profit excel in tasks, and do not usually have strong business skills, or someone available to assist them. Disputes concerning companies often come between “All business” approach and “not in any business” philosophy among staff.
Every time I look into the inner workings of a non-profit that is a problem with the operating company, I can almost always determine the root cause of falling into one of three that were identified above.
Where is the right balance, and how does a non-profit find it? Well, it depends a lot on the non-profit and its role, but the staff and management need to work together to find nuances that best fit their operations to organization to be viable and sustainable. If agreement can not be found, will become Executive very frustrated and will eventually leave the organization. Likewise, hard-to-find board members becoming less and less. No one enjoys volunteering to oversee the organization is in constant financial challenge.
I remember the very first board my one non-profit. I asked why there was no financial report on the agenda and if I could have a copy of the budget. Honest to goodness, the manager told me that the agency had no budget and actually argued with me that it was not necessary. To make matters worse, the majority of the members told me that they agreed with the Secretary! I remember considering to get up and walk out the door right then and there! Seriously. True story. I spent the next few months concerned and frustrated. I forced the board and staff to operate more like a business when, perhaps, I should have spent more time teaching why change was important. Ultimately, the manager had to say for the lack of implementation of such directives, which is always a sin.
somewhere along the line, an accountant friend of a non-profit board declared an interesting line of thinking to me, “the money is good, money is bad.” We laughed at his comment, but it’s amazing how many times over the years, I remembered what he said. Obviously, it is true. If the non-profit has no money, focus staff and board is thrown into crisis mode, the role of the Agency on the back burner, and every day is a struggle. This is exactly the same for a non-profit to for-profit, so if the basics of the company are identified, a non-profit is very much business it was better to be working as one, or it will cease to exist .
To be fair to the naysayers, the nuances of the non-profit must be determined and guided policy. Back to the example of a rural clinic, if not a subsidy in service fees for certain clients of the clinic was required, there would be no need for a non-profit charitable status because the agency would operate as for-profit and certainly not provide charitable community. This distinction is not visible and will be clearly understood by staff and management.
In short, every organization in the non-profit Sector will implement the business or it will not be able to sustain its activities. And not least, each charity will remain true to its mission or it will lose its tax designation. These are key issues for boards and staff to calculate and implement. In the end, it will always be to drive business operations.