By Tracey Sandilands Updated March 04, 2019
Nonprofit organizations have founders, not owners. The founders of a nonprofit are not permitted to make a profit or benefit from the net earnings of the organization. They can make money in various other ways, however, including receiving compensation from the nonprofit. Net earnings and surplus funds may be built up and invested for the organization’s future operational use.
Non-Profit Income
Nonprofits generate income from a number of sources. Fundraising is the most common method of obtaining operating capital. This includes grant writing, sponsorship and revenue generation. Grant writing occurs when the organization applies for grants made available by government bodies and philanthropic organizations for specific purposes.
Corporate sponsorship works by enabling companies to fund aspects of the nonprofit’s work in exchange for visibility in their markets. Revenue generation is based on sales of products and services to support the organization's work and activities.
Non-Profit Expenses
Most registered nonprofits operate on the same principles as a small business, with fixed and variable cost components. Fixed costs account for overhead, rent, staff salaries, utilities and basic administration expenses, while variable costs apply to the cost of operations. In the nonprofit environment, this is typically the cost of delivering the services offered by the organization or of producing the items sold for revenue generation. Whatever the source of the organization's income, the nonprofit must operate efficiently from a financial viewpoint.
Net Earnings for the Year
As with for-profit business operations, a nonprofit prepares a balance sheet and income and expenditure statement at the end of each fiscal year. This shows whether the staff has managed the organization’s budget effectively and delivered a healthy financial result. If the income is more than the expenditure, the nonprofit has a surplus of money, which is the net earnings for the year. If the management has spent more than it has brought in, it is in deficit and possibly owes money to third parties.
Retained Earnings and Financial Worth
The retained earnings of a nonprofit organization is the total of each year’s surplus funds. This represents the organization’s financial worth and, provided the funds are managed correctly, should be a positive amount available in the bank account. The retained earnings can be invested for safekeeping and the generation of interest or dividends for the nonprofit, or they can be reinvested back into the operation of the organization. In the case of reinvestment, the money can be used to fund operational costs, including compensation and benefits for the founders or directors, management and staff.
FAQs
Nonprofit organizations have founders, not owners. The founders of a nonprofit are not permitted to make a profit or benefit from the net earnings of the organization. They can make money in various other ways, however, including receiving compensation from the nonprofit.
Do owners of nonprofits make money? ›
Non-profit founders earn money for running the organizations they founded. They often put in long work hours and make far less money than executives at for-profit organizations. When running a non-profit is their sole employment, it is reasonable for them to draw a salary for the work they do.
Do non profits actually make a profit? ›
Myth: Nonprofits can't earn a profit
The key difference between nonprofits and for-profits is that a nonprofit organization cannot distribute its profits to any private individual (although nonprofits may pay reasonable compensation to those providing services).
Can the president of a non profit get paid? ›
Does the president of a nonprofit get paid? Although some nonprofit organizations may be led by volunteers—such as Bostic, who does not receive a salary for being a foundation president and CEO—many nonprofit presidents are compensated for their work as it is their full-time job.
Who pays the CEO of a nonprofit organization? ›
The board of directors is responsible for hiring and establishing compensation (salary and benefits) for the executive director/CEO that is “reasonable and not excessive,” but is also enough to attract and retain the best possible talent to lead the organization.
Can the CEO of a non profit make money? ›
Although the truth is, nonprofit CEOs can pay themselves a fair salary for the work they do running the organization. While there is no clear answer as to how much you can pay your CEO, it's generally a good idea to have your board of directors conduct an annual review.
Do CEOs of nonprofits make a lot of money? ›
In fact, the median salary for chief executives at California nonprofits is only $88,005, according to a recent survey by the Center for Nonprofit Management, which I head. And nonprofit leaders are sharply underpaid compared to CEOs of forprofit businesses of similar size.
What happens if a non profit makes a profit? ›
The same is true when it comes to operating a nonprofit as well. So, yes, 501(c)3 organizations (as well as other categories of nonprofits) are allowed to make a profit. And as long as it comes from activities related to their stated mission and purpose, those profits are tax-exempt.
What happens to money in a non profit? ›
With the exception of endowments and savings, all of the money that comes in must also go out. The idea behind the rule is to require charitable organizations to dedicate as much income as possible to the charitable purpose they purport to serve.
What happens to the profits in a nonprofit business? ›
Nonprofits do not distribute profit to anything other than furthering the advancement of the organization. As such, you will be required to make your financial and operating information public so that donors can see how their contributions are being used.
The executive director has to answer to the board, making them the highest authority in the nonprofit, even if they aren't directly on the payroll.
Who has final control of a nonprofit organization? ›
Governance responsibility is vested in the board of directors or trustees. These individuals are accountable to state and federal authorities to ensure the organization operates in a legally compliant manner and for the purposes outlined at formation. Also, a nonprofit cannot be sold.
How much does the CEO of St Jude's make a year? ›
Jude is $1.3 million per year.
What is the founder of a nonprofit called? ›
Does the Founder Have a Title? The founder or founders of a newly formed nonprofit typically hold the position of Board President or Chairman of the Board (often referred to as just “Chairman”). The founder's official title and role can change depending on the needs and desires of the board.
How do nonprofit founders make a living? ›
The founder is hired by the nonprofit as the executive director (or in a similar leadership role). This way, the founder is paid, but they do give up all their authority to the board of directors, which governs the nonprofit and has hiring/firing authority of the founder's position.
Is the founder of a nonprofit the owner? ›
Probably the most difficult thing to realize is that you will not be the owner of the organization. As a tax-exempt organization your nonprofit will be accountable to the people it serves, to its funders, the attorney general, and the general public.
What is the most profitable non profit company? ›
Lutheran Services in America
Founded just 25 years ago, the nonprofit's network is worth over $23 billion and in terms of revenue, is the highest earning nonprofit company in the country.
How much money can a 501c3 have in the bank? ›
The short answer is that there is no limit to the amount of money nonprofits can keep in reserves. As long as it can be proved that funds are being used to advance the nonprofits' mission, then the money can be directed as the nonprofit wishes.
How do I start a nonprofit organization with no money? ›
STEPS TO STARTING A NONPROFIT WITH NO MONEY
- Create a Business Plan. The first step is to create a business plan. ...
- Develop/Establish your board of directors. ...
- Register your Nonprofit with State and Federal Government. ...
- Create a Marketing Plan. ...
- Fundraising/Grants. ...
- Find Fiscal Sponsors.
