Q: How do nonprofits stay in business if they aren’t allowed to turn a profit?
A: Dear Wondering:
The term “nonprofit” can be confusing. Nonprofits can and do earn a profit—they wouldn’t be able to survive otherwise. However, unlike for-profit businesses, nonprofits don’t distribute their profits to their members as personal income.
Instead, a nonprofit’s excess revenue goes toward furthering the organization’s mission, whether that’s growing the organization, supporting fundraising, or supporting other nonprofits. Additionally, as long as you don’t violate any rules against self-dealing by overpaying yourself or by commingling your personal assets with those of the nonprofit, one of your organization’s expenses can include paying yourself a salary to run the nonprofit.
A nonprofit works to serve a public purpose, as opposed to serving for the financial benefit of a particular person, entity, or corporation. As such, traditional nonprofits are organized around a shared mission, social cause, or community need, and they work to provide some public service.
A Family Business Lawyer™ can ensure your nonprofit has the proper legal, insurance, financial, and tax systems, so you can do the most good for the most people, and you can have a business you truly love.