PROFIT ACCOUNTING MINDSET FOR NONPROFIT ORGANIZATIONS 1
Tom Durso over at The 501(c) Files sees increased expenses for nonprofit organizations:
“Led by a rise in the federally mandated minimum wage and growing fundraising costs, expenses for nonprofits increased by considerably more than the rate of inflation in 2007, reported the NonProfit Times earlier this week. Bad news, to be sure, but also an opportunity for nonprofits to reach out to existing donors in new ways and to new donors for the first time.”
In addition to new ways and new donors, nonprofit organizations –called NGOs (non-government organizations in the
With nonprofit glaringly in the minds of the principals, managers, and staff of these types of organizations, there is a tendency to think (and act accordingly) that they do not have to be profitable.
To be viable on a long term basis, an organization –even a nonprofit organization– has to be profitable –meaning revenues have to exceed expenses. If revenues did not exceed expenses on a regular and consistent basis, the net assets or fund balances of a nonprofit organization will keep on decreasing.
The principals, managers, and staff of nonprofit organizations have to maintain a mindset which dictates that operations have to be profitable.
The fundamental difference between a nonprofit and a for-profit organization is: the net assets (assets minus liabilities) of a nonprofit organization do not belong to any private entity, while the equity (also assets minus liabilities) of a for-profit organization belongs to private entities (i.e., the stockholders). But, either has to be profitable to be viable in the long run.
I think that a more appropriate term for nonprofit organizations is: not-for-profit instead of nonprofit. This is not a case of quibbling or sleight-of-hand semantics, but a case of maintaining a profitable mindset while realizing that the profit does not belong to any private entity.
image from Microsoft Clipart
