There is a misconception when it comes to the nonprofit community, and that mistaken belief is that a nonprofit isn’t meant to make money. This is something I’ve had to explain entirely too many times to individuals that don’t understand nonprofits. The truth is, nonprofit organizations do in fact make or lose money just like for-profit organizations.
Just like a business, if a nonprofit is continually in the red they are not very likely to stay operational. However, combining the terms profitability and nonprofit seem to leave individuals with a nasty feeling. So instead the word profitability is replaced with sustainability. No matter what word you choose, the fact of the matter is that in order for a nonprofit organization to remain healthy, it must be profitable.
Income +/- expenses = profit or loss. Any for-profit company that is losing money has to address their investments or to acquire loans in order to fund themselves. This same principle can be applied to nonprofit organizations.Revenue +/- expenses = sustainability or loss. If a nonprofit has an operating loss, that funding still needs to be found somewhere. It’s not uncommon for nonprofit organizations to have loans during certain slow periods of the year while waiting for an annual event to take place and refill their cash reserves.
It’s extremely important that nonprofit organizations manage their finances to ensure their long-term success. Profitability or sustainability is necessary for nonprofits to maintain and grow their programs. Without it, the programs will likely flounder and eventually the organization will find itself closing the doors. Hopefully this small summary provides you with a better understanding to nonprofits and their financial requirements.
Jon Osterburg, Director of Business Development for Jitasa