How do Nonprofits Make Money?

Nonprofits do not traditionally make money or profit. Though the term “nonprofit” sounds like “no money,” it has another prospect in making money. Their main mission is to earn profit for an organization in different ways, like charity, donations, funds, conducting sports competitions, selling tickets for cultural or educational or literal performances, religious offerings, etc. The term “nonprofit” doesn’t mean that they don’t make money but have other goals in mind for people’s benefit. Nonprofits may generate funds from individual donations, get grants from state or govt., sell products, or offer services to make money to enhance the purposes better.

Furthermore, as long as the nonprofit organization is operated and organized to its related missions, it can secure the tax exemptions, consequently, make more profits.

So, how do nonprofits make money and utilize it?

Contrast between Nonprofit and For-profit Income

The first and foremost difference between nonprofit and for-profit income is the purpose of each organization. A for-profit business makes a profit to benefit and create wealth for its owners, whereas nonprofit makers do not gain for any individual or group of people. Nonprofit targets the ease of public.

For-profits include balance sheets and income statements—Conversely, the nonprofit deals with statements of financial position and activities. As the nonprofit organization doesn’t have any “owner,” they don’t have an owner’s equity as in the other profit income business. They mostly get their revenue from donations, contributions, fundraising campaigns throughout the year, or sometimes from membership fees.

How to Generate Income?

Besides receiving income from various charities or funds, they earn additional income to cover the administrative costs. Making money in a nonprofit is relevant to whether the income is taxable.

It’s considered “nontaxable income” when it comes from an activity connected to the nonprofit’s purpose. Alternatively, if the profit is earned from “unrelated activities,” it’s subjected to income tax according to the Internal Revenue Code. Let’s give you a brief on related and unrelated business activities.

Related Activities

Nonprofits run businesses with a social mission. They incorporate a business strategy for the organization to earn money by supporting and arranging activities relevant to their missions.

For example, a group names Art Lovers is organized for an art exhibition to encourage the youths in modern arts and raise money to support the local artists. They generate profits from selling tickets and paintings. As the activity doesn’t jeopardize the tax rules, this profit is tax-exempted.

Nonprofit service gives an excellent opportunity to earn money as long as it’s related to the organization’s mission. They can sell products like books, garments, tickets to seminars or performances or conferences.  For instance, your organization offers scholarships for needy students. This educational activity will be tax exempted as long as it follows IRS tax regulations.

Unrelated Activities

On the contrary, some nonprofit activities are not related to the organization’s goals.  Those unrelated activities are subjected to income tax if it meets the following requirements:

  • Becomes private interest more than public interest
  • Becomes a regular business
  • Not related to the organization purpose

Let’s go back to the example of Art Lovers nonprofit group. Though the sale is huge, they start selling outside of exhibition by advertising in sources for rare paintings for extra income. Soon, the group finds itself in the business of buying paintings from sellers and re-selling them to the public. Nonprofits will have to report this earning to IRS and hence pay the tax.

Hence, you must take cautions as organization head before taking actions.

How Philanthropy Supports Charities

Every charity needs help to progress. There are many ways charitable nonprofits receive supports from philanthropic people or institutions. It fulfills the commitment to the public and rounds out the income pie to develop nonprofit missions. The fundraising sources are as following:

Individual Donations

Individual donations are the top source of income for nonprofits. Like American individuals, bequests, foundations and corporations gave an estimated $427.71 billion to U.S. charities in 2018 (source “Giving USA 2019: The Annual Report on Philanthropy for the Year 2018”). Charities spend much time developing a connection with their supporters and creating ways for individuals to interact with organizations.

Nonprofits recruit volunteers for such interactions as they spend much time to stick along with the program.

Most nonprofits encourage individuals to donate online, attend events, consider planned giving where donors make plans to leave money or assets to nonprofits for the future, both during their lifetimes and after death.

Grants From Corporations, Foundations and the Government

Other important fundraising sources are corporations, foundations and grants from Government for 501(c)(3) nonprofit organizations. This means a large portion of the work you’ll do in engaging with the public to get their support.

Usually, these grants fund a specified project for a specific time. Grant proposals are the answer to a funding emergency though it involves a lengthy application process. On the other hand, the grant is not the main source of income but it indeed gives financial support to nonprofits.

Nowadays, corporate businesses take responsibility for their citizen. They contribute a good portion to the revenue stream of nonprofits. Thus sets the backbone of nonprofit fundraising. Nonprofit makes partnerships with corporate through events like sponsorships, matching gift programs, paid release days, employee-volunteer programs etc.

Is Nonprofit Salary Worthy?

Now there is a question arises, can you get rich starting a nonprofit?

Nonprofit sometimes replicates as “no money,” which is not very inappropriate. If you are thinking of making a great career in a nonprofit, you may need another way. Nonprofit is for those who think out of the box and want to do something to better people or society. Besides, nonprofits emphasized supporting a cause rather than making a profit. The salary here is kept really low. The salary structure depends on the market rate and the charity’s financial status.

Let’s take a glance. According to data from salary comparison site pay scale, the nonprofit salaries range from around $32,000 to $70,000. The average is around $50,000. A mid-career Program Manager, a nonprofit organization with 5-9 years of experience, earns an average total compensation of C$57,928 based on 191 salaries. An experienced Program Manager, a nonprofit organization with 10-19 years of experience, earns an average total compensation of C$62,092 based on 159 salaries.

Now look at the benefits:

  • Saving taxes
  • Vehicle running cost  
  • Tax free rent payments
  • Funding mortage
  • More savings thus can pay loans, credit cards or school expenses

Values and Ethics: Crucial for Integrity in Nonprofits

The real fact is you need money to support your idea of nonprofit. Once you set your strategy to run your mission for a particular purpose, you need to build strict values and ethics. Everyone must obey it in according to fulfill the task. A guideline will help the organization to work smoothly.

A set of principles can make the employees, board members and volunteers work transparently. The statement of values and codes demonstrates the commitments of the organization. It helps to build a healthy environment.

One must keep in mind the pros and cons of what to do and not do to generate a good income. If a source of income produces high revenue but still it goes against the ethics of the team, you need to make a tough decision to maintain a good image of the company.

The Bottom Line

Nonprofit makes money for the benefit of society. The profit goes back into the organization for further development. The more the members will increase, the more awareness will create. New digital opportunities may be helpful to reach more audiences, thus increase efficiency.

However, data analysis and technologies will help to study the pattern of people’s behaviors in the future. Therefore, fulfilling the goals will be easier.

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