We all know about charities and Non-profit organizations and the amazing work they do worldwide. While we know they bring in money in way of donations and other sources, this does not mean they do not make a profit.
On a technical note: Non-profit organizations are entities created for purposes other than making a profit, such as charitable, educational, religious, or social goals.
Exempt from tax.
In many countries, they are exempt from paying federal income taxes and rely on donations, grants, and fundraising to support their operations. This is specific to the country and the tax laws therein.
So, they don’t make any money and everyone involved works for free and in good faith for the cause they believe in?
UM NO!
This is a massive misconception about these entities. This leads to the public believing that they are always cash strapped. Unfortunately, this is what the entities themselves put out. They are always looking for donations, and rightly so.
This goes on further and starts affecting the service providers to the companies. Because of the “always have no money” aspect, the service providers often give their time for free or are expected to do it at a significantly reduced rate.
What is the difference?
While they can generate revenue, the key difference is that any surplus income is reinvested back into the organization to further its mission rather than being distributed to shareholders or owners.
This means that, while they may “make a profit” in the sense of having surplus funds, it’s not profit in the traditional business sense, as it must be used for the organization’s objectives.
An example here:
ABC ltd has revenue of 100 000 and a surplus of 35 000. The company then declares a dividend or bonuses to shareholders, individual persons
Charity XYZ has revenue of 100 000 and a surplus of 35 000. No person gets that money. That 35 000 gets ‘ploughed back” into the cause.
Have you registered for our app? register here – It’s FREE! (for now)