Are you considering some of the differences between nonprofit and for-profit organizations?
How do these structures compare?
In this article, we’re answering these questions and exploring which option might be best for your business.
Both nonprofits and for-profits are powerful entities that can impact the world.
Let’s find out which one is best for you.
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For now, let’s dig in further to profits vs. nonprofits and find out which is better for you to start.
Here we go!
What Are Your Goals?
With a for-profit company, your goal is to make a profit and distribute that profit to shareholders.
With a nonprofit structure, on the other hand, your goals are rooted in a mission for social good.
This is an important distinction not only for identifying your own personal goals with your business but also for how your business will be regulated.
A for-profit company will be taxed on its profits at the federal, state, and local levels.
Because nonprofit companies don’t pay out profits to shareholders, they, therefore, are exempt from paying those revenue taxes.
Additionally, because nonprofits are in the business of donating money, these donations result in a tax write-off.
Donors to a nonprofit organization can also write off their donations on their own taxes, making the venture beneficial for several different sectors of the community.
When evaluating your goals as a business owner, you will have to decide whether you are out to make a profit, or want to forego profits to put that money back into your business.
The government incentivizes nonprofit structures through tax write-offs, which are designed to keep the money working through the community.
How is Revenue Generated?
For-profit companies must sell services and/or products in order to generate revenue.
These transactions take place with a mark-up by your company to create a profit margin, which can then be reinvested into the business or distributed among stakeholders.
Nonprofit organizations can also generate revenue from products and services.
So how does this make them different from a for-profit design?
That’s where profit margins come in again. Nonprofit companies cannot profit off their goods and services for redistribution among shareholders; all revenue generated from profit margins must go back into the business in the form of:
- Salary payments
- Equipment costs
- Marketing and outreach
- Additional expenses
Nonprofits can also generate revenue through donations in addition to the sale of goods and services.
I’ve put together a new GUIDE that’s packed with science-backed nonprofit fundraising methods, resources, strategies, and killer marketing methods.
You should check it out if you want to get more donations and you want to fast-track the entire process.
How is Wealth Created?
In a for-profit venture, you can build a company to be as large and powerful as your skills will take you, or sell the company some time down the road.
This isn’t necessarily true for a nonprofit venture.
Nobody technically ‘owns’ a nonprofit company, meaning that it can’t be sold. Nonprofit companies can merge with one another, but you can’t sell the company in the traditional capitalistic sense.
An easy way to think about this is as follows:
For-Profit Company = Personal Asset
Nonprofit Company = Public Good
The Startup Process
When deciding which type of business to start, there are some differences in the mindset that take place.
For a nonprofit venture, you will likely be dealing with a core demographic that has some kind of need.
Your company, then, comes in with a solution to that need that is not yet available in your community or at-large.
To start up, your nonprofit will raise funds for that solution from people who care.
In this sense, a nonprofit acts as a sort of intermediary between the core demographic in need and those willing to help out through the creative solution.
With a for-profit company, there is still a search for a core need and solution(s) to meet that need.
These types of companies then create a service or product to be that solution and are responsible for demonstrating how their solution is better than any alternative on the market.
Put simply:
In a nonprofit structure, people who care pay for the solution to a problem.
In a for-profit structure, those suffering from the problem itself pay for the solution.
Make sense?
Conclusions
I hope that this article was helpful in distinguishing some of the key differences between nonprofit and for-profit companies.
So: which one is right for you?
Only you can answer this based on your specific missions and goals for starting a business.
Whichever route you choose, I have some great resources that can help you out.
Check out these videos for more nonprofit guidance:
- How to Get Funding for A Nonprofit
- How to Start a Nonprofit and Make Money
- Nonprofit Social Media Strategy
I also have an awesome book, Nonprofit Crowdfunding Explained, which goes way more in-depth to give you everything you need to know about funding your nonprofit startup.
Don’t forget about my Youtube Channel and Podcast where I’m always giving the best tips and talking with successful entrepreneurs from both ends of the spectrum.
Looking to launch your nonprofit or for-profit business with the help of crowdfunding?
I’ve helped tons of startups run successful campaigns, and I’d love to team up with you as well.
I’ve put together a new GUIDE that’s packed with science-backed nonprofit fundraising methods, resources, strategies, and killer marketing methods.
You should check it out if you want to get more donations and you want to fast-track the entire process.
Schedule a free coaching call with me to get started!
