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Nonprofits and For-Profits Are Different Featured

Nonprofits and For-Profits Are Different Possessed Photography

As indicated by their names, nonprofits and for-profits are different terms of ownership structures, operations and purpose. They can also have different goals, funding sources and visions. As such, understanding the differences between nonprofits and for-profits can help you know the type of business or organization you want to launch. This article explains the differences between nonprofits and for-profit.

Purpose

Every company exists to serve a particular purpose. However, there are stark differences between the purposes of for-profit and nonprofits. While for-profits may have various goals, their primary mission is mostly to make profits and develop effective products and services that are of value to the customer. Companies develop products or services intended to solve a particular problem faced by the customer or make a profit. In contrast, nonprofits do not prioritize profits as suggested by the name. Rather, they are dedicated to pursuing a certain cause for social benefit. Some examples include assisting people in getting safe drinking water, food, forest conservation and wildlife.

Funding

One of the most important aspects of running an organization, whether for-profit or nonprofit, is finding a way to fund projects and operations. For-profits tend to fund their projects and operations through various sources such as bank loans, investments from investors and revenues collected from sales. If a product has a high market value, local and international investors and venture capitalists might offer funding.

On the other hand, nonprofits take a different approach. Instead of seeking investors, it seeks donations in terms of money and kind. It also seeks corporate sponsorships and government grants. Other funding sources include crowdfunding and online fundraising, which have become popular.

Diversity of audience

For-profits have a more defined target audience. For instance, since the company seeks to reach and build a relationship with consumers who will buy its products and services to help generate revenue. The relationship between the company and its clients and feedback coming from the customers allows it to increase its revenues and expand its offerings to reach new markets and audiences. On the other hand, nonprofits do not deliver products or services directly to the customer. Rather, it targets a diverse audience, which includes volunteers, donors, sponsors and the public. Due to this broad audience, these organizations must balance the interest of each segment.

Leadership

For-profits have a clear leadership structure. Whether a privately-owned small business or a large corporation with an elaborate board, stakeholders and leadership, responsibilities are distributed among selected groups of individuals. Due to this, for-profit leaders are concerned with how to increase profit and revenue for the organization. On the other hand, nonprofits are mostly led and directed by a board of directors who guide the organization’s future without having a direct financial ownership. These organizations are not concerned much about financial success. Rather, the leadership has to balance the social or environmental issues with financial success in terms of donations.

Taxation

Nonprofits are usually registered as 501(c) 3 organizations. This means that they can provide their services for public good without giving any of their earnings to the government in form of taxes. The same is the case for companies or individuals donating to such organizations. These individuals and organizations are able to write off their donations as tax-deductible. On the other hand, the for-profit companies cannot benefit from tax exemptions and must pay taxes as stipulated by law.

Employees/staff

The workforce within a nonprofit are different compared to the for-profits. For instance, while the for-profits consist mostly of paid employees and interns, nonprofits rely heavily on volunteers. Volunteers are always on the frontline leading an organization in delivering its goals and mission.

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Scott Koegler

Scott Koegler is Executive Editor for PMG360. He is a technology writer and editor with 20+ years experience delivering high value content to readers and publishers. 

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