Nonprofits Should Strive for Profit

Nonprofits, despite their name, should generate a profit. The term “nonprofit” is misleading because it suggests that these organizations must operate at a financial loss or break even.

Nonprofits need revenue that exceeds expenses to reinvest in their mission, expand programs, and ensure sustainability. Without a surplus, nonprofits rely on unpredictable donations, grants, and investment income.

A better way to describe nonprofits are as "tax-advantaged entities" rather than “nonprofits.” The primary difference between a nonprofit and a for-profit business is that a nonprofit reinvests its surplus into its mission rather than distributing it to shareholders. In line with this notion, nonprofit financial statements refer to “net income” (aka “profit”) as “change in net assets”.

Many impactful nonprofits generate revenue through services, endowments, and strategic investments. Calling them tax-advantaged acknowledges their ability to operate like businesses while benefiting from favorable tax treatment received for social contributions.

By embracing a profit-oriented mindset, nonprofits can maximize their impact and reduce dependence on external funding. A financially healthy nonprofit attracts more donors and grants because funders want to support organizations that demonstrate longevity and responsible fiscal management.

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