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Someone explain non-profits to me.

fuzzybabybunny

fuzzybabybunny

Moderator<br>Digital & Video Cameras
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I don't get them. My health insurance and the hospital I go to are non-profits. So a non-profit runs and people pay the non-profit. How is this money that is being paid to this non-profit not, uh, profit? People working for this organization get paid... so they are... profiting... right? Nurses and doctors get paid very well at these non-profit organizations. How is that not profit?

When I think "non-profit" in colloquail terms I think "working for free" or "working just to cover my costs so I'm not going in debt."
 
Typically a company want to make more than it has in expenses. Non-profit just seeks to meet those expenses.
 
ISAslot said:
Typically a company want to make more than it has in expenses. Non-profit just seeks to meet those expenses.
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Not necessarily, they are allowed to take in more than they put out but that extra needs to be used towards furthering their stated purpose. For instance, a non-profit hospital could take in more than it needs to run in a year and then use that extra money to improve their facility or buy new equipment. They could even save it for future expenses.
 
To be a non-profit, you can have cash reserve, but you just can't use it for stuff they will not allow you to. So, yeah, your cash flow needs to be zero, so you usually put the extra money aside in a different account for reserve. That said, all nonprofits needs to prove that the funds are being used right, so any movement in money is tracked. Once in a while, they get funds from sources that have no restrictions, so it is always wise to use the accounts with restrictions first.
 
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A non-profit is nothing but a tax classification. But, it has to have certain characteristics set out by the IRS. They do have "profit", but it's not taxed and is instead but into a "General Fund" for later use.
 
The nonprofit I worked for back in the day, we had shit for offices (old building, bad neighborhood, etc.) However, they spent a lot on equipment and software to help us do our jobs.
 
Spoooon said:
The nonprofit I worked for back in the day, we had shit for offices (old building, bad neighborhood, etc.) However, they spent a lot on equipment and software to help us do our jobs.
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It's better when you work for a university run non profit. Man...non profits that do research, they have it made....
 
The key is that you can't pay dividends to owners or investors. The employees are entitled to a salary (which can be quite high), but they cannot pocket all the money that they make over their expenses, as you would be able to do in a for-profit company.
 
Somebody thinks of a get-rich-quick idea, selects the non-profit business designation, and builds the business. People willingly volunteer or accept low paid positions while other people happily donate their money. The funds generated by the business go directly into the owner's pocket.

The owner gets filthy rich while everyone supporting the owner remains non-profit.
 
Bignate603 said:
Not necessarily, they are allowed to take in more than they put out but that extra needs to be used towards furthering their stated purpose. For instance, a non-profit hospital could take in more than it needs to run in a year and then use that extra money to improve their facility or buy new equipment. They could even save it for future expenses.
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indeed. i interned for a large health system until recently. revenues > $1billion but income over expenses was like 3% (or was it 4? definitely under 5). IT infrastructure is always being upgraded in one area or another, new hospitals and clinics are picked up to be improved, staff gets a raise here and there, facilities are renovated...they just purchased a hospital in my town that needs some serious infrastructure upgrades and renovations. part of the buying committment was to spend several million doing that to improve the facility.
 
Somebody thinks of a get-rich-quick idea, selects the non-profit business designation, and builds the business. People willingly volunteer or accept low paid positions while other people happily donate their money. The funds generated by the business go directly into the owner's pocket.

The owner gets filthy rich while everyone supporting the owner remains non-profit.
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Owner goes to federal prison when NPO fails audit.
 
chusteczka said:
Somebody thinks of a get-rich-quick idea, selects the non-profit business designation, and builds the business. People willingly volunteer or accept low paid positions while other people happily donate their money. The funds generated by the business go directly into the owner's pocket.

The owner gets filthy rich while everyone supporting the owner remains non-profit.
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No they don't. Most money that goes to non profits are restricted. Lots of times they tell you that you whether you can use it for salary or that they have to use it for a certain purpose. Also, non profits in sciences....the salary is VERY high since it usually break through research.
 
Gibson486 said:
It's better when you work for a university run non profit. Man...non profits that do research, they have it made....
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As a graduate student, I feel that a significant portion of the tuition that undergraduates pay goes to subsidize my PhD. Yes, most of my funding comes from research grants, but the facilities come from the endowment (which would otherwise go to funding undergraduate education), and the faculty are largely paid for by the school.

The last one sounds fine, except that the faculty are hardly (if ever) evaluated on their teaching ability. I've been told by multiple faculty that they've been discouraged from spending as much time on their teaching, and that they need to turn out more papers. Furthermore, the university will pay certain "superstar" faculty members far more than others, to make sure they don't go elsewhere. None of these superstars are paid extra because they're good teachers; it's always because they're the best researcher.

This is all great for my career, as it means that I get paid to get my PhD, but it makes no sense from the perspective of the undergrad, the majority of whom won't use the research the facilities, and probably wouldn't be able to tell the difference between high-end and second-tier research when they do.

I think as the costs of an undergraduate education continue to escalate, you're going to see a separation in funding in the big schools between the undergraduate and graduate institutions, and they'll become separate entities.
 
seepy83 said:
That's right. The business covers its costs and does not turn a profit. The people that work there get paid...they are a required expense in order for the business to function.
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So all the employees of the non-profit are paid a salary (which could be quite high) and it's simply classified as an operating expense.

What about the owner of the business? Isn't he also an operating expense, and can be paid a hefty salary? And what's stopping the business from earning surplus, and just giving all the employees a raise? They're all just operating expenses anyway.
 
fuzzybabybunny said:
So all the employees of the non-profit are paid a salary (which could be quite high) and it's simply classified as an operating expense.

What about the owner of the business? Isn't he also an operating expense, and can be paid a hefty salary? And what's stopping the business from earning surplus, and just giving all the employees a raise? They're all just operating expenses anyway.
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I don't think non-profits can actually have a 'owner'. They have CEOs like a normally run corporation and can be paid hefty amounts, but they also have a civilian board of trustees who oversee the operation.

Non-profits can go out of business too, so if you're constantly doling out raises and bonuses then sooner or later the gig is up. They are also restricted in the ways in which they can raise money. A credit union for instance can't offer the type of mortgages that a regular bank can; they can't open up branches anywhere they like either.
 
Gibson486 said:
To be a non-profit, you can have cash reserve, but you just can't use it for stuff they will not allow you to. So, yeah, your cash flow needs to be zero, so you usually put the extra money aside in a different account for reserve. That said, all nonprofits needs to prove that the funds are being used right, so any movement in money is tracked. Once in a while, they get funds from sources that have no restrictions, so it is always wise to use the accounts with restrictions first.
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I worked for a non-profit for a year (organic farming research), and determining what to bill my time to was my least favorite part of the job. We had a government contract at the time, and anything that could be tangentially related to that contract was billed to it (they did give us millions to do something that should have cost a few hundred thousand, so you have to find a way to use the money).
 
fuzzybabybunny said:
So all the employees of the non-profit are paid a salary (which could be quite high) and it's simply classified as an operating expense.
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All companies, whether for-profit or non-profit, classify employee pay as an operating expense. As far as a company is concerned, that's exactly what employee pay is. It's an expense they have to incur in order to obtain a resource (in this case, labor).

fuzzybabybunny said:
What about the owner of the business? Isn't he also an operating expense, and can be paid a hefty salary?
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Non-profits are set up as corporations, not as sole proprietorships, so there is no "owner" in any traditional sense. As others have pointed out, there may be an equivalent position to CEO who is appointed by a board of trustees and this person's salary may well be quite high. Generally, however, these persons' salaries are much lower than in the for-profit sector for PR reasons. Still, if the cost of acquiring suitable labor is high, and a non-profit can afford it, they will pay it.

fuzzybabybunny said:
And what's stopping the business from earning surplus, and just giving all the employees a raise? They're all just operating expenses anyway.
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The same things that stop any other company from doing the same thing. At some point operating expenses would be so high that the company couldn't function anymore.

ZV
 
fuzzybabybunny said:
So all the employees of the non-profit are paid a salary (which could be quite high) and it's simply classified as an operating expense.

What about the owner of the business? Isn't he also an operating expense, and can be paid a hefty salary? And what's stopping the business from earning surplus, and just giving all the employees a raise? They're all just operating expenses anyway.
Click to expand...

Nonprofits in engineering and science have high salaried employees. They are companies like mit lincoln lab , harvard ,and mitre. They pay alot because it is usually cutting edge research. Also, as mentioned, you cannot blindly spend money. The money given usually had restrictions in what you can spend it on and even what companies to buy from. As for salary, lots of times, the money spent has to be justified.
 
Nonprofits can pad salaries to get zero net profits.

If you imagined so, any law or consulting firm could be nonprofit. All they care about are salaries and not profit.

Stupid classification.
 
tokie said:
Nonprofits can pad salaries to get zero net profits.

If you imagined so, any law or consulting firm could be nonprofit. All they care about are salaries and not profit.

Stupid classification.
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No they can't. Non-profit can still profit. They just have to use the left over money to achieve a goal of the non-profit. Your salary is your salary. If there is extra money at the end of the year, you can't give it out to employees as bonuses and with every salary increase, there has to be a good reason for it.
 
Gibson486 said:
No they can't. Non-profit can still profit. They just have to use the left over money to achieve a goal of the non-profit. Your salary is your salary. If there is extra money at the end of the year, you can't give it out to employees as bonuses and with every salary increase, there has to be a good reason for it.
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Retroactive promotions. Then demote.

It's not as hard as you think to fudge the numbers. I guarantee you would be shocked by some of these "executive staff" working for non-profits and the salaries they receive.
 
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