Starting Up: The Non-Profit vs. For-Profit DilemmaBy
There are so many factors to consider. I’ve been involved with both types of organizations from the ground up. There is a time and place for each one. But which is right for you? First, let’s look at the difference between the two.
For-profit: As the name implies, this structure is designed to turn a profit for the owner. Think corner deli, home party sales, or a lawn care service. Sales, whether of goods or services, are the primary income source. There is typically a manager and can have employees varying in number. The company can opt to have shareholders as well depending on the legal structure. Taxes are owed on any profits made. When it goes out of business, the assets can be sold and the money distributed to the owners or shareholders.
Non-profit: A non-profit benefits the noble good of the community. Think food pantry, Big Brothers Big Sisters, or Habitat for Humanity. The organization is tax-exempt, and any profits made must be channeled back into operations to promote the original mission. A governing board controls the decisions, which are then implemented by a director or overseer. Income sources are varied and must be generated by the governing body through donations, grants, fundraisers, endowments, or other sources. When it dissolves, any remaining assets must be given to another non-profit.
There are also legal differences and filing requirements that vary from state to state. Be sure to contact an attorney and accountant to learn the specifics for your area.
Next, there are several questions to ask yourself before you decide whether to start a for-profit or a non-profit. You need to examine your market, motives, and mission. This will help you clarify your purpose.
- Why does your community need this? What niche will the organization fill?
- Have others expressed interest in using this type of business?
- Which way will your target community more likely support your mission – through frequenting your business or donating to your non-profit?
- What kind of structure do you want to have – do you want to call the shots, or do you want a governing board to oversee the organization?
- Do you want the control to manage the profits any way you want to?
- Are you concerned about a pressing need or cause in your community? What is the best way to meet that need?
- What is your primary mission or purpose for starting the organization?
- Which type of fundraising are you more prepared to do – selling your goods/services, or selling your cause to generate support?
Above all, as you’re making this decision, pray! Seek God’s direction to see which type of service will be the most beneficial to you, your family, and your community. Ask Him to place the right people in your path who can help you. There are so many great resources available.
Whether you start a non-profit or for-profit, be sure you are passionate about what you are doing. Stay tuned over the next few months as I cover some of the basics of starting a non-profit organization.
Have you started a for-profit or a non-profit? What made you choose one over the other?