Nonprofits Can Make a Profit
Posted on Wednesday, May 17, 2017
A common misconception of nonprofit organizations is that these organizations cannot make a profit. That is not true.
According to the Indiana Secretary of State, a nonprofit corporation is defined as follows.
“This is a corporation whose purpose is to engage in activities that do not provide financial profit to the benefit of its members. Such corporations must obtain nonprofit or tax exempt status from the IRS and Indiana Department of Revenue to be free from certain tax burdens.”
Of course nonprofit organizations must make a profit. Revenues must exceed expenses for the organization to continue to grow. The profits just cannot benefit its members. (The IRS specifically states that no part of the net earnings of a section 501(c)(3) organization may insure to the benefit of any private shareholder or individual.) Unlike for-profit entities that have owners who receive distributions or dividends from the entity’s net income, nonprofit organizations are not designed to make money for owners or shareholders. Nonprofits exist to benefit the public, not individual interests.
Excess revenue over expenses should be used to further the organization’s exempt purpose. There are instances where a nonprofit may make too much unrelated business income and risk their exempt status; however, in general, nonprofits need to make a profit to grow their programs and ensure sustainability.
Posted by: Carrie Minnich, CPA
Posted in Mission Minded Nonprofits
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