A correspondent challenges my position on nonprofits...
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Business and charity do not mix. It is either a business, or a charity. If you wish to help people, do well in business, and then share the profits. Plenty in business do just that.
..and this is an entirely valid point of view.
However, if one separates the 'one-way' exchange of 'charity', or the casual giving of excess funds generated by a for-profit business, from the more formal 'two way' exchange which is the standard for community/government sanctioned non profit organisations, it becomes clear that there are huge and profound differences.
Indeed, many for profit businesses do contribute to causes or issues considered important by the management, yet even in the best of times, there are far more needs than there are people able to make those top - down decisions, or funds to meet those needs.
A formal non profit IS a business, in fact at first(or second) glance might be indistinguishable from a for profit concern. It is a matter of how the non profit has chosen to allocate its profits in exchange for tax relief - not money it is getting from anyone, but rather its own tax liability that sets it apart.
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My visceral reaction is negative: if it is non-profit to help a targeted group, then the orientation is off, and all market signals are missing. How can you possibly ever improve the product and grow without customer-focus? Your supplier will be distressed to learn you are not directly customer-focussed. It is extremely unlikely he will be interested in supporting a charity with his business operations, (although he may be a prodigious contributor to charity from his profits).
In fact - successful non profits DO improve only with a clear customer focus, however, there are differences.
Depending on the organization's mission, the entire notion of 'product' must be viewed in a different light as it is often illegal for a non profit to offer a product that is in direct competition with that offered by a for profit - again as part of the trade off for receiving the tax relief.
There are ways to do it, and depending on the sophistication of the organisation there are accounting systems to allow for a separation of revenues from non profit and for profit activities within the same organisation - - so provided there is not language in the organisations by-laws or mission to expressly prohibit the sale of an item, and if the taxes are paid on those non-compliant items, they may be allowed to sell an item. This gets to an area that is very situatioin specific and should be looked at by a tax attorney or accountant.
The fact is that the non profit sector represents a huge customer base, for goods and services or any other business operation, and from the standpoint of the supplier, they'll never know the difference of who bought the widgets - they invoice and get paid as with any business.
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Now I believe profits are just another business expense, something left over after all other expenses, and not particularly important to the entrepreneur (lifestyle is what motivates the entrepreneur.) So to designate an enterprise "non-profit" is uninformative, except for negative connotations.
'Non-profit', is a term tossed about fairly loosely - - but for our discussion is generally understood to mean an organization which has received a formal 'determination', from the Internal Revenue Service to be any of a dozen plus types of 'non profit'.
'Non profit' by choice is far different than 'non-profit' by accident - which might mean there was a serious problem(!) - but is an entirely different set of issues.
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Here is another counterintuitive point: rarely do we see a nonprofit wherein the leaders do not draw an exceptional wage for their services (Salvation Army excepted). Sure, all excess funds are plowed back into the org, but if excess is too consistent, goodness, that ends up as wages to the leader and staff of the nonprofit. We are told that these exceptional wages are required to attract the exceptional people who lead such organizations. I doubt it.
Urban legend - fascinating, but total nonsense.
Of course, there will be the problem children as with any sector of society, who will be used as sound bite examples in the media - however,
The vast majority of non profits are all volunteer organisations -
Those growing to a point where payment of salaries becomes possible generally have pay ranges well below their for profit counterparts.
There is very clear language in the IRS code which details, in pure IRS-Speak 'excessive salaries'.
It is literally a handful of the above mentioned problem children who will ever come close to crossing those excessive salary lines. For the rest of the nonprofit sector, it's simply a distraction.
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Are you thinking "if we do poorly, we can seek another grant..."?
Ha!..Don't we all wish!
If a non profit does poorly, it will simply cease to exist.
The entire notion of non profits having to swat away grant money is simply silly.
The competition for funds from grant making groups is intense. Groups 'doing poorly', don't stand a chance in this environment and will find they need to improve their internals before the grantmaking orgs will take them seriously.
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Is it just another way to avoid serving customers, he scariest part of being in business?
Not sure what this means.
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Is it a sort of emotional blackmail as a marketing plan? (It's for the children!)
This is to imply there is something negative about helping your community - yes - to helping the children.
Far better to make a strictly business enterprise, and direct the profits to your favorite charity.
As noted above - this establishes a top-down system of among other things, maintaining a permanent underclass - forever dependent on the 'charity' of those who, for whatever reason are more fortunate from a financial perspective.
The alternative is to allow and encourage the community to seek ways to solve its own problems - of feeding the hungry or house the homeless - or maintain the parks and care for the children while NOT being either dependent on or relying on the charity of more prosperous individuals - with the only real exchange from the government's standpoint being a relief of a tax burden.
Sure - donations can be sought and full community participation encouraged, and in fact both are required of the government for tax exempt status - but such groups are not a burden on anyone or dependent on the whims of an individual donor yet provide the essential services that make a community strong and sharing the financial burden among many.
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