Not-for-Profit vs Nonprofit: What’s the Difference?
There’s nothing like the spirit of hope. To work together toward a common goal is to foster relationships, commit to a better world for all, and to provide guidance and camaraderie where it’s needed most.
Nonprofit organizations and not-for-profit organizations do their best work in their own lanes. They serve different purposes, but they do have some similarities worth noting. If you’re considering which route to take for your organization, keep these practices in mind.
What is a nonprofit organization?
In the nonprofit world, there are plenty of bylaws, policies, and definitions to bear in mind. Nonprofits exist to foster community engagement and support, commonly centered around charitable organizations. The goal is to inspire, educate, enlighten, and provide healing to the world around it.
Nonprofits can sometimes be confused with not-for-profits. And while they may have some similarities, it’s important to understand their differences in order to utilize them appropriately, and for the betterment of your organization.
What is a not-for-profit organization?
Nonprofit and not-for-profit are terms that are often used interchangeably even though their expectations and regulations differ. Unlike a nonprofit organization, an NFPO does not earn profit from its owners.
The funding for a not-for-profit stems from activities and donations that circle right back into keeping the organization running, and not-for-profits do not have to exist for the benefit of the community. Whoever the members of the not-for-profit are, regardless of the organization’s intention, can create a goal, and strive to reach that goal, without existing to serve the public good.
Key differences between not-for-profit and nonprofit organizations
Like many cities and state sectors, there are endless organizations that branch out into parameters that are similar but hold key differences, and serve varying groups of people.
Differences in scope and scale
Not-for-profits are referred to as recreational organizations that generate revenue, but without operating for the purpose of earning that revenue. Not-for-profits can be any size, and depending on the chapter or goal that unites it, can continue to expand. A not-for-profit’s scope tends to have a smaller scope than a nonprofit organization's. Because the parameters are more flexible as a registered nonprofit, they tend to see more.
The nonprofit exists to excel and evolve the organization for the greater good. All of the financial and operations data remain public so that your donors can have transparency on where those funds are and how their contributions are being used.
How are the two taxed differently?
Taxes are the eye roll of the 21st century. But nonprofits pay zero dollars toward taxes on any of the funding received through community or individual fundraising. Not-for-profit organizations have to apply for tax-exempt status through the internal revenue service, although they are not exempt from taxation. Not-for-profits do not pay any property or sales taxes.
Employee payment and accounting
Volunteers make up a huge portion of the nonprofit world, but that’s not to say they don’t have full-time employees who are paid via grants and government funding. Not-for-profits cannot have their own separate legal entity, and can pay their employees a salary, but those wages will be taxed–even if the organization has achieved a tax-exempt status. Since nonprofits are able to have a separate legal entity, there’s far more flexibility in both employee payment and accounting.
Sources of revenue
Nonprofits maximize their revenue intake via the causes they fight for. Through fundraising, grants, and individual donors, the contributions received are considered sources of revenue that drive the organization.
Not-for-profit’s exist, not with the purpose of earning or generating revenue, but to create an organization where people can come to learn, enrich, and create camaraderie in their lives. If they do earn revenue, those funds go straight back into the organization itself to make improvements and evolve.
Some examples of organizations that fall under each category
A nonprofit organization can look like a day shelter, where folks experiencing homelessness can check their mail, take a shower and grab a hot cup of coffee. Not-for-profit organizations could be anything from sports clubs to mothers gathering to share parenting tips, and techniques.
Which organization is best for your goals?
So, which direction is your heart pulling you? If there’s a need in your community that you can assist with, a non-profit just might be the perfect intersection for your intention. And if you’re noticing an absence of niche groups or clubs, maybe this is your moment to define your goal. No matter what you choose, creating an organization, cut from the Kloth of your own design, is a powerful and fulfilling experience for all.
How Mark Goldsmith started a community-focused organization
After 35 years in the business world, Mark Goldsmith designed an organization that focuses on reducing recidivism and helping formerly incarcerated individuals to achieve a better life. If you’re curious about how he got started, head over to his website and pick up a copy “From Madison Avenue to Rikers Island: The Making of a Social Entrepreneur”.