What Does Not For Profit Mean?

Not for profits are kind of like volunteers...

They give up making money in an effort to help others. As long as they’re working toward the greater good, they’re happy.

Not for profit indicates that an organization does not aim to turn a profit. But don’t get confused — That’s not the same thing as not being profitable or being unprofitable. Some companies simply don’t perform very well and fail to make a profit despite their best efforts. Those aren’t not for profits — they’re just not profitable.

Not for profit organizations, sometimes referred to as nonprofits, on the other hand, purposely prevent themselves from making any profits from their endeavors. Instead, all the money they receive or otherwise make is either reinvested into the organization’s operations and management or directly put toward a specific cause in the form of donations or other projects. It doesn’t go in investors’ and shareholders’ pockets like a for-profit company’s money does.

Because not for profits use their money to give back to the public and serve a charitable purpose, they receive many tax exemptions. This eases their financial burdens and leaves them with more money to contribute to their cause. Most nonprofits receive tax breaks on both a federal and state level.

Many not for profit organizations are household names. Specific examples of large organizations include:

• UNICEF gives humanitarian support to children.
• The Boy Scouts of America runs social and developmental programs for youth.
• PETA advocates for animal rights.
• The American Red Cross provides emergency assistance and disaster relief.
• The Salvation Army seeks to spread a Christian message and runs charity drives.
• The Mayo Clinic provides medical care, educates, and conducts research.
• YMCA provides community services.

But this is just the tip of the iceberg. According to Cause IQ, there are 1.86 million nonprofit organizations (NPOs) in the United States.

Examples of smaller NPOs include the Leapfrog Group, which rates the quality of hospitals and medical centers, Mercy For Animals, which fights for animal rights, and Professional Women in Construction, which fights for gender diversity in the architecture, construction, and engineering sectors.

Not for profit organizations face many challenges in their day-to-day operations. Because they don’t typically produce tangible, in-demand products, nonprofits primarily rely on the support of volunteers and donors to stay afloat and cover their operating costs.

Typically, nonprofit organizations will run events and fundraisers (often staffed and operated by volunteers) to drum up donations and raise awareness of their causes.

The money the nonprofit receives will generally either go directly to a cause, i.e., purchasing food for the homeless, or indirectly to a cause, i.e., paying for salaried staff, who can advance a nonprofit’s strategy and improve its execution.

In some cases, these two can be mixed. For example: The Boy Scouts of America needs staffers to organize and run events, so salaries and operating costs are going directly toward the advance of its cause — providing programs for youth.

It’s important to note that not for profits do make money, but they don’t make profits. That means that all of a nonprofit’s money is reinvested back into its cause in one way or another.

In contrast, for-profit businesses redistribute profits to shareholders, which then take that money and use it however they please, whether it’s for the betterment of the company or simply to buy a new car.

The Internal Revenue Service (IRS) defines 29 different types of not for profit organizations. Of these, several are particularly common:

501(c)(3): Organizations that serve religious, scientific, literary, or other charitable purposes

501(c)(4): Organizations that work toward social betterment

501(c)(5): Trade unions, labor unions, agricultural groups, and horticultural groups

501(c)(6): Chambers of commerce

501(c)(7): Social clubs and other organizations that provide recreational opportunities and group activities

By definition, not for profit organizations cannot make a profit. However, that does not mean that they can’t make any money.

Rather, all the money that a not for profit makes must go either directly to one of its charitable causes or toward the operation of the organization, i.e., paying employee salaries, office rent, and utilities, etc.

Most anyone can start a not for profit, but consider seeking professional advice. For starters you’ll need to:

1. Choose a name: The name for your organization is up to you, but it must meet state guidelines for not for profit organizations.
2. Appoint a Board of Directors and draft bylaws: The board and the bylaws will set the rules for the operation of your organization.
3. Choose a structure: You’ll have to decide how to legally structure your organization as either a trust, association, or corporation.
4. File the necessary paperwork: You’ll need to file your articles of incorporation, other paperwork, and pay filing fees to your state.
5. Apply for tax exemption: Once your organization is founded, you’ll need to apply to receive tax-exempt status.
6. Get any necessary licenses and permits: Not for profit organizations may need specific licenses or permits. Check with your state’s laws to see if you’ll need any.

Not for profits are widely recognized as having the following advantages:

• Tax exemption: The IRS exempts not for profit organizations from most taxes. This can save the organization significant amounts of money.
• Dedicated employees: Not for profits and nonprofits offer valuable services and further important causes. Their employees often tend to be passionate and dedicated to the cause, which can help foster an important sense of purpose and teamwork among them.
• Eligible for public and private grants: Not for profits can benefit from grants that are specifically aimed at public charities.

However, there are some downsides to not for profit organizations:

• Public scrutiny: A not for profit organization’s finances must always be viewable by the public, leaving them open to constant scrutiny. Plus, some people may disagree with the organization’s cause, leaving it vulnerable to ideological backlash, too.
• Highly regulated: Not for profit organizations must keep detailed records to maintain their tax-exempt status. They also need to follow strict regulations regarding their bylaws and structure.

For-profit organizations typically have one primary goal: to make money for their shareholders. Not for profits, on the other hand, do not seek to turn a profit. Instead, any money they make is reinvested into either its projects or the operation of the organizations.

In a for-profit organization, profits are there to be enjoyed by the shareholders in whatever way they please. They could end up donating them to charity, or they could just as easily buy a virtual reality headset.

The bottom line: For-profits seek to benefit shareholders’ wallets; not for profits seek to benefit society or a group of members.

There is no clear distinction between not for profit and nonprofit organizations. Some say that the difference is that nonprofits benefit society at large, and not for profits benefit only the organization’s members.

However, this is highly contested. For the most part, the terms “not for profit” and “nonprofit” generally can be used interchangeably.