Introduction to Non-Profit Organizations – A Comparison to Profit Driven Businesses

This article is about the characteristics of a non-profit organization as compared to those of a profit driven operation. What are the differences? Actually there are NO DIFFERENCES between the two types of operations. Think about this for a moment, both have to make enough money to continue to exist. Without funding, a non-profit will go out of business, and there have been many that cease to exist because of the lack of funding. The same goes for a profit driven operation. Without a profit, you will go bankrupt and cease to exist.

Why is there all this misunderstanding? The answer is keyed to the order of the primary objectives for the business/organization. The best way to understand this is to look at a regular business operation. What are the primary objectives? Let’s take a look:


2. The second objective is to sell or make a product/service that is desired by as many people as possible. Whether you sell widgets or dig a ditch, you want to the best and for your customers to talk about you in a positive light. PRIDE is at stake here, you want your company to be the best.


Now in the non-profit world, the same three characteristics or primary goals are exactly the same. The difference is the order in which they exist.  For the non-profit organization it flows as follows:

1. The number one objective matches their mission statement, to do some type of good for our society. Notice this is the number two objective for the profit driven company. For a non-profit, making money isn’t its primary goal; to SERVE is the primary purpose.

2. Unlike the profit driven business, non-profits believe that it is best to provide for the security of the folks that work for the organization over making a profit. This makes sense because they generally don’t pay as well as the profit driven business, so it is important to have staff that care about the primary goal of serving the community at a lesser wage. The staff know that the organization will do everything in its power to continue and provide security in this job. They need the employee to stay for as long as possible. Again, this helps to achieve the primary goal of service to the community.

3. Finally, the non-profit needs to make money to continue in operations. Now they don’t call it a profit, they use the term – Revenues in Excess of Expenses. Notice this is semantics at the end of the day, but we accountants use this terminology to identify what type of operation we refer to when discussing financial reports. I can’t stress the importance here, a non-profit MUST MAKE A PROFIT to survive. Without a profit, ultimately the organization will cease to fulfill the primary objective.

In summation compare the two types of entities:

                             For Profit                                Non-Profit
# 1 Goal             Make a Profit                            Serve Society
# 2 Goal             Sell a Service/Product               Employee Security
# 3 Goal             Employee Security                    Make a Profit

This area of Business Economics is dedicated to helping the non-profit achieve ALL three objectives. As you learn more, Act on Knowledge.

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