Grace College Differentiates Between For-Profit and Nonprofit Leadership
October 2, 2020
If you’re interested in nonprofit leadership and the way nonprofit organizations offer help to societies, it’s important to know the difference between nonprofit and for-profit organizations. This is just a starting point for understanding and developing ideas for nonprofit goals and methods. Grace College’s online master of nonprofit management degree will help you develop the skills you need to work for and even start a nonprofit organization.
Nonprofit organizations were created to fulfill certain benefits to society. Many offer health care services or focus on the needs of lower-income Americans, which helps explain the recent growth in nonprofit leadership. In exchange, nonprofits enjoy tax benefits that for-profit organizations do not have. These distinctions, and several others, illustrate the primary differences between nonprofit and for-profit organizations. Let’s take a look at the structural, financial, and cultural differences that exist between for-profit and nonprofit organizations.
No one owns a nonprofit organization in the way that shareholders own a for-profit corporation. Nonprofit leadership consists of a board of directors, which elects officers who oversee business operations.
- Nonprofit boards are much larger than for-profit boards, to help members develop in the organization and to have appropriate community representatives who can report what is happening within the community. Large boards of 25 to 30 members are not uncommon, with some exceeding 100.
- Although for-profits may have just a few committees, nonprofit boards have many. In addition to audit, compensation and governance committees, nonprofit boards may add development, investment and facilities committees.
- “The responsibilities and motivations of nonprofit board members couldn’t be more different from those of their for-profit brethren,” Strategic Finance says. Nonprofit board members are not financially compensated and often are expected to contribute to the organization to the extent that many can’t afford being a board member. Nonprofit leadership positions also require a great deal of time and emotional engagement.
For-profit organizations are focused on making the biggest profit possible by selling products or services. Taxes apply and surplus income is typically distributed to stockholders as profit or dividends. Nonprofits operate in a different fashion and enjoy specific financial benefits.
Like for-profit organizations, nonprofits can earn income through products and services that are sold or given. It is a common misconception that nonprofits cannot bring in money, this simply isn’t true. And in addition, nonprofits rely on private contributions, government grants, grants from foundations, bequests, corporate philanthropy and more.
Here is the biggest difference: profits earned by nonprofit organizations are not distributed to shareholders. Instead, profits pay for reasonable salaries, expenses and activities that further the organization’s mission. Although income cannot personally benefit an individual in a nonprofit, salaries are not considered personal benefits. An excessive salary can undermine an organization’s nonprofit status.
The biggest tax advantage for nonprofits is exemption from corporate income taxes. If the organization gains this status, such as with a 501(c)(3) designation, the nonprofit commonly receives exemption from similar state and local taxes.
“Working for a nonprofit is like living in a small town,” Rob Asghar writes in Forbes. “Working for a for-profit corporation is like living in a large city.” According to Asghar, many for-profit organizations focus on the financial bottom line, while those in nonprofit leadership focus on a sense of community.
Although collaboration and the mission are strong in nonprofit organizations, other areas can be lacking. Generally, for-profit organizations offer optimal conditions for employees, as they are better able to invest resources in training, compensation and education. Andrew Yang, founder of the nonprofit Venture for America, explains in Business Insider that “incentives are different” for nonprofits and it’s easy to rely too much on intrinsic motivation.
Many nonprofit organizations do not fit into these common generalizations. For Yang, his nonprofit is focused on rewarding people at the market rate and allowing workers to build their careers there. He has succeeded through investing resources into the staff and in other areas, which is helping Venture for America achieve its mission to assist entrepreneurs.
Managing with Nonprofit Leadership
Nonprofit leadership comes with challenges, such as hiring and managing staff, technology use, raising funds and creating the right culture. But with the correct approach, leaders can achieve maximum impact in the community. It requires commitment, knowledge and application of skills to carry out the organization’s mission efficiently.
When you complete our Master of Nonprofit Management degree you’ll graduate with the ability to take your newly acquired knowledge and skills, combined with your compassion for something greater than yourself, to effectively manage your nonprofit organization. And now, you can leverage your organization’s structure, finances and culture to make it the best it can be!
Future fundraising professional, the way forward is Grace.