Extension News

Nonprofit organizations and common misunderstandings
Jul. 10, 2013 @ 05:00 AM

Nonprofits are organizations that exist between the private, for-profit world and government agencies that carry out important social, economic and political functions in our society. 

A nonprofit is defined as a corporation or association that conducts business for the benefit of the general public, without shareholders and without a profit motive. Not-for-profit organizations have public ownership. They have governing boards, but cannot sell shares to others or personally benefit board members in any taxable way. In contrast, for-profit organizations can be privately owned and may re-distribute taxable wealth to employees and shareholders.

Confusion often comes when the terms “nonprofit” and “profit” are used in the same sentence to describe aspects of the organization. Jan Masaoka, author of “The Best of the Board Café, Hands-on Solutions for Nonprofit Boards,” discusses common misunderstandings about nonprofit organizations: 

• Nonprofits cannot make a profit: They CAN earn a profit, more accurately called a surplus, but these earnings must be retained by the organization for continued operation, expansion and future plans. Earnings are not distributed to the membership.

• Nonprofits cannot charge for their services: Many non-profits rely on user fees for operating capital.

• Nonprofits are poorly managed compared to for-profit businesses: This is a complicated comparison, due to their profoundly different nature of business. Nonprofits often manage resources just as well or even better than for-profit companies of similar size, while being undercapitalized and highly regulated in all aspects.

• Nonprofits cannot lobby: It is true that nonprofits cannot support or oppose individual political candidates; however, they certainly can support or oppose specific ballot proposals (such as for the public library millage or against Medicare reform.)

• A nonprofit budget has to be balanced: Not true at all. There may be need for a cash balance at end the year that will be used to purchase an item in the next year. The overall goal is to have working capital to allow programs to continue and make strategic purchasing decisions.

• Nonprofits only help needy people: There are many nonprofit organizations that comprise the cornerstones of our communities. When we serve as volunteer nonprofit board members, we are giving back to our communities to help improve our overall quality of life.

• Nonprofits don’t contribute to the local economy: According to the IRS, the total revenue of 501(c)3 public charities reporting in 2009 was $1.4 trillion, with total assets running at approximately $2.6 trillion.

• Nonprofit board members must have received services from the agency: While many organizations designate some board seats for clients, there is typically a mix of community people on the board.

If you interested in starting or receiving training for your non-profit board, please contact Kittrane Sanders, Community Rural Development Agent, Harnett County Cooperative Extension at (910) 814-6028 or ksanders@harnett.org. Like us on Facebook at North-Carolina-Cooperative-Extension-Harnett-County.