You may assume that a nonprofit is not a good fit for you. You may erroneously conflate a nonprofit model of business with an organization whose sole mission is to help humanity. But there are numerous, solid reasons why you should consider registering your company as a nonprofit. With a for-profit business, the owners and shareholders generally receive the profits. With a nonprofit, any money that’s left after the organization has paid its bills is put back into the organization.
These are some of the first questions to ask yourself to determine whether you are going to start a nonprofit or a for-profit business:
Who Are You?
A nonprofit company seeks to serve the public in some way. Unlike a for-profit company, a nonprofit’s success is measured not by how much revenue is earned but by how close it gets to achieving its aims. This is an ongoing process, of course, and your mission is apt to evolve as time goes on. If your business will improve some aspect of the world, whether that’s in your community or the environment, consider nonprofit status.
How Will You Be Funded?
- For-profit companies can take advantage of crowdfunding platforms, seeking monetary donations from friends, family, and the community at large. But they may also rely on traditional bank loans or venture capital investors.
- With a nonprofit organization, private donations of time and money, corporate sponsorships, and government grants are typical ways of securing funds to keep the business going and moving forward. Nonprofits have also used crowdfunding platforms.
Know Your Audience
- A for-profit company should have a specific market and target demographic in mind when planning. And while this audience is subject to change, like everything else in the course of running a business, there is a core group who you are always seeking to find and refine.
- With a nonprofit, your ideal customer looks less specific. You may find that like-minded people look different when it comes to who they are and how to market to them.
Who’s the Boss
- With a for-profit, the company’s leaders have a financial stake in the business and may have profit-sharing options or the structured potential for bonuses.
- Nonprofit organizations are usually, though not always, led by a board of directors who guide the organization but who don’t have direct financial ownership. And while financial success, i.e., increasing the bottom line, isn’t the No. 1 goal, these things must be measured mathematically for any business to operate sustainably. The company’s leadership team will work to balance profit and loss.
- For-profit organizations focus on finances and business metrics, and to this end, productivity and efficiency are paramount. Often, but not always, the individual is valued above the team, and each employee will be measured by his own success.
- Nonprofits tend to be more a communal or collaborative effort, and long-term success is achieved by meeting goals over a specified period of time, with room for ebb and flow.
Death and Taxes
- In most cases, nonprofits are registered as 501(c)3 organizations. That means they can provide their services as a public good without rendering a portion of their earnings back to the government. How this is determined is open to interpretation. A business manager or similar advisor may be helpful in such matters.
- If you are running a for-profit business, you are required by the government to pay federal income tax on the profit that your business earns by April 15 of the year following the year in which you earned the income. Income taxes are based on the gross profit that your business earns after subtracting operating expenses from gross revenue.
Greenlight Maine supports ventures that are both for-profit and nonprofit seeking to launch and flourish in Maine.