It’s a common misconception that nonprofits must end their fiscal year with a balance of zero dollars, or close to it, in order to make their mission successful and retain that ever-so-important nonprofit status. This is not true. In order to function and truly be successful at reaching its goals, a nonprofit must conduct itself as a business, and yes, that means making money.
Nonprofits can make money through individual contributions, sales of products or services, grants, and donations, among others. Nonprofits are typically distinguished from for-profit organizations by the purpose of the organization and its tax status. The term “nonprofit” gives way to the idea that these organizations aren’t in the business to make money in the traditional sense. As long as the organization is properly registered with the government and has a recognized purpose or mission, it is free to make or lose money.
While a nonprofit is free to make money, it is important to note that some of this money may be subject to income tax. “Unrelated” income, meaning income that is not directly related to the purpose of a nonprofit’s tax-exempt status, is usually taxed on any amount larger than 1,000 dollars.
Finances are hugely important to the longevity of a nonprofit. A nonprofit must be able to cover all company expenses with room for growth and not be operating “from paycheck to paycheck.” Nonprofits often make money in excess of what they are in immediate need of in order to continue to conduct events, services, etc. in the future. Similar to for-profits, if a nonprofit isn’t growing, it will likely not be around for much longer.
The idea that nonprofits need to make money goes beyond the need to conduct events and services directly related to their mission. Overhead costs, meaning the costs associated with conducting a business, must be taken care of in order for any events, services, etc. to be conducted. Common overhead costs include employee salaries, office rent, utilities, and insurance. These are the things that organizations simply cannot live or function without.
To function and be successful, a nonprofit must make its finances a priority. It may seem counter-intuitive to think of a nonprofit ending its fiscal year with a profit that could have been spent directly on the organization’s mission, but in fact, it is the right business decision. Nonprofits are created with a mission that is meant to be served for a long time, and without proper allocation of funding, that operating time frame is shrunk tremendously. Making finances a priority might include hiring a team of finance professionals, budgeting successfully, and of course, making money to ensure the nonprofit stays around long enough to achieve its mission and goals.
Since 1991, JMT Consulting Group has worked exclusively with nonprofits to deliver the finance, development, and productivity solutions required to meet their unique goals of sustainability and mission effectiveness. Their experts use decades of nonprofit experience to mitigate risk, anticipate needs and make holistic recommendations based on the broad range of projects they have successfully delivered to over 2,000 clients across the U.S. Learn more about how JMT’s Cloud-based technologies and unparalleled support processes help nonprofit organizations achieve their missions at jmtconsulting.com.