What “Non-profit” organizations have in common with “For-profit” companies

Non-Profit vs For-Profit

The term “Non-profit” is slightly deceiving. Non-profit does not mean “no profit.” In reality, it means that the organization is not in existence for the sole purpose of making profits. Successful non-profits know how to effectively earn profits. Then they need to know how to recycle those funds back into the organization’s mission and operations. We’re taking a look at non-profit vs for-profit entities.

Non-Profit vs For-Profit

Non-profits have a lot in common with for-profit organizations. Classify both organizations as business entities. This is because they expect to earn profits. If losses are incurred, the organization is at risk for shutting down. A surplus of revenue over expenses is essential for ensuring the continuation of both non-profits and for-profit entities.

Both often create legal separation between the organization itself and its members. This protects members and employees from financial and legal liabilities. Most for-profits have full-time employees and managers, and many larger for-profits also have chief officers to handle management of the entire business. Although non-profits often have volunteers as staff, larger non-profits need a full-time staff of employees, managers, and chief officers to support the organization. Both non-profits and for-profits often have a board of directors of elected officials who oversee the organization or company.

Many for-profit business strategies and management techniques are effectively incorporated into non-profit organizations. Creating and implementing budgets and cash management are financial management tools that are vital to maintaining operations. Cash is king. If a for-profit or non-profit does not have enough cash reserves to continue operations or to provide services, the organization is probably on the road to failure. Since revenue can often be hard to predict, control of expenses is critical in budgeting. Not only are budgets a method for allocating resources, but they also provide a way to control expenses. Just as a for-profit company needs a financial team and manager to plan and budget enough funds for operations and developments, a non-profit needs a financial supervisor to plan and budget sufficient lead-time to get grants and funds for organizational programs.

Clear Goals and Objectives

Most importantly, goals and objectives must be clear for all members of both for-profit and non-profit organizations. If different members and employees are not working toward the same mission, then the organization will not be on the right path to success. The end goal of a for-profit most often would be maximizing profits and financial benefits for its owners and/or shareholders. The end goal of a non-profit should be ensuring that there are enough profits to continue making a difference. Also, they need to provide for the “greater good” of the community, nation, or the world.

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Non-Profit vs For-Profit

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One Response to What “Non-profit” organizations have in common with “For-profit” companies

  1. Teri Green August 13, 2018 at 10:48 pm #

    Very interesting article. Been doing research on the differences between for-profit and nonprofit accounting. It was confusing and your article did help me understand the difference. Was helping with a homework assignment in managerial accounting. There were not many references out there to find out the needed information.

    Thanks again for posting this.

    Teri Green
    Atlas Biomechanics

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