What Does Non-Profit Organization Mean?
For a long time, I did not really understand what “non-profit” meant. It didn’t make sense to me, even though I’d worked with, and for non-profit institutions and organizations. If an organization is collecting money in exchange for services, and employees were being paid salaries, it seemed like a business to me. Surely someone had to be making money somewhere along the line?
I know some of you out there are probably laughing, thinking it is ridiculous to not understand “non-profit.” But I’d be willing to bet there are a lot of people out there who still don’t quite get it. This post is for you…
IYRS School of Technology & Trades is a non-profit (officially “not-for-profit organization”).
So what does this statement mean?
IYRS is a tax exempt organization in which no person or corporation financially benefits off of educating a student. Period.
As is typical of a curious person such as myself, to learn more I went to the folks who know more about this than I do. Rebeka Mazzone is the Chief Financial Officer here at IYRS, and here was her explanation to me:
"Nonprofits (officially “not-for-profit organizations”) are granted a special tax status under the Internal Revenue Code section 501(c) because they have a mission that is to fulfill a public good. As a result, they generally are exempt from paying taxes. Many people believe this status means that they are not allowed to generate a profit, which is not the case. This means that generating a profit is not the primary motivation, rather providing goods or service for public good is the primary motivation. In fact, generating a modest profit is a good idea as it allows you to reinvest in growth and expansion of additional services. As such, the profits are reinvested into the mission.”
Let’s break this down:
Non-profit organizations have various sources of income, depending on the industry. Income sources are different for cause-related organizations, schools, hospitals, etc. For IYRS, our main sources of income are through student tuition, outside donors and public or private grants.
In some cases, there are tax benefits for those who donate or provide a grant to a non-profit institution.
Board of Trustees
Most non-profit organizations have a Board of Trustees (same idea as a Board of Directors in the corporate world), which is a governing body who as a group oversee the operations of the organization. They are responsible for ensuring the strategic direction of operations meet the core principles of the organization.
Where Does the Money Go?
There is a lot that goes into the finance function of a non-profit. Any money coming in is used to support day-to-day operations and growth of the organization. A small sample of where income may be distributed:
- Administrative Costs (employees and faculty who run the day-to-day operations of the non-profit)
- Keeping the Lights On (electricity isn’t free…nor is heat, air conditioning, water, rent, etc.)
- Classroom Materials (for IYRS this may mean carbon fiber, wood, diesel engines, etc.)
- Equipment (the purchase, upkeep and enhancements of equipment as needed is required for most non-profits)
- Technology (computers, projectors, etc.)
- Campus Enhancement & Maintenance (doors, windows, locks, trash disposal, paint, etc.)
- Expansion (as demand for a school or a cause grows, so do the needs for facilities, space, program development, etc.)
Summary: Visualizing All of This
Non-Profit Organization Cash Flow:
For-Profit Organization Cash Flow:
To summarize this crash-course in not-for-profit organizations, I’ll reiterate that any income that remains beyond the spend of organizational operations (in the corporate world called “profit”) is reinvested in the fulfillment of the organizations mission.
As Ms. Mazzone made clear to me, for an organization to simply plan for a “break-even” is a mistake - an organization, even not-for-profits, should always aim for a profit. The big difference is that in successfully generating a “profit” is for the good of the organization and those involved, not for an individual or a corporation to put in their bank account.
Ms. Mazzone continues:
"Ownership interest is absent from this structure, in essence the mission owns the assets of the not-for-profit corporation. There are some special regulations that guide what they can and cannot do. For example, since nonprofit spending must benefit the mission of the organization, no expenditure can result in a benefit to an individual associated with the nonprofit (like employees, board members and vendors)."
Ways to Support IYRS:
Whether it is through a donation to the Annual Fund, attending an IYRS program, or even purchasing a student-restored boat, your donation gets redistributed to support the mission of IYRS: to transform lives and give our students the power to build almost anything, most notably their careers.
This post was written by Josh Singer, Marketing Manager at IYRS.
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