The Chasm Between Business and Charity

Is really very small.

It comes down to what you do with your profits.

Because believe it or not, both business and nonprofit cannot operate without profits.

I often consult small businesses and non-profit organizations on how to best direct their organizations.  Sometimes the most important topic is marketing, other times it’s legal issues.  But no matter if I’m working with a for-profit business or a nonprofit organization, one thing is true:

It’s always about money.

Money isn’t the end-game of nonprofits, nor should it be.  But it’s a necessary grease the machine must be provided with or else the lights go out.

There are many ways to provide funding for your business or nonprofit:

  • Nonprofits can ask for donations from their network of friends and acquaintances.  One person may not be able to contribute, but don’t let that stop you from asking them if they know anybody else that you should be talking to.  Trust that you will find the funding you need.
  • Businesses can pitch their idea to investors.  TV shows like ‘Shark Tank’ have opened up the public’s eyes to all sorts of new, innovative ideas and have provided an incredible amount of exposure for VCs, as well.
  • Both businesses and nonprofits can create a product or service to sell at a rate above its cost.  In general, profit is the amount of revenue left over after all expenses are paid.

This is an important distinction to be made:

What you do with profits is what determines whether you are a for-profit business or a nonprofit.

Granted, you have to decide this upfront when you start your venture, but after that line is drawn, that’s basically where the differences stop in regard to surplus revenue (profit).

Both exist to serve a need in the community, but businesses aim to create wealth for the stakeholders, while nonprofits must reinvest the profits back into the business or forwarded on to other charitable organizations.

Both must make a profit, though.

Imagine this:

A local coffee-lover decides to open up a coffee shop inside a church.  He sets it up as a nonprofit, and starts advertising around the neighborhood.  He places signs out by the nearest roads during morning rush hour to catch morning commuters on their way to work, and business increases.

Say he sells a hundred cups of coffee per day and after all expenses are paid including labor, materials, and utilities, he has zero dollars left over.  How will he buy more coffee?  More cups?  He’s spent all his money on the first round, and didn’t make enough surplus revenue to even continue operation.

He has to begin the process all over again, asking for donations or pulling from his savings (again).  How defeating.

Let’s imagine he adds fifty cents to each cup sold to purchase additional coffee, etc.  At the end of the day, he has fifty dollars with which he buys more supplies.  He reinvests his profits back into the business, as he should.  This is all fully within the bounds of the law.

If he had pocketed the fifty dollars as profits for his sole benefit, he would be acting as a business and not as a nonprofit.

What if instead of fifty cents, he sells his coffee at a markup of sixty cents per cup (ten cents per cup additional revenue) and set the extra ten cents aside for future expansion?  Is that legal as a nonprofit?  You bet it is.

The bottom line is this:  Nonprofits and businesses must both make a profit if they are to survive.  What you do with that is up to you.

What do you think?  Can a business fill a need in the community and still be profitable?  Can nonprofits become successful and even grow beyond their local community?

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