April 20, 2011 by admin?
BY: ?Richard Farnsworth ? Senior Consultant
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Non-profits are a sector of our world of business that is often overlooked when we use the term ?business?.? It appears that since many of the organizations that have a non-profit status are charitable human service organizations that they do not play a significant role in the large picture of our State?s or Nation?s economy.? Statistics, however, do not support that perspective and the realities of operating a successful non-profit present many of the same challenges faced by the for-profit sector.? In the following paragraphs I would like to fill in some of the blanks in our knowledge of non-profits that may help people to better understand their role in our society, our economy and their challenges.
WHAT IS THE DIFFERENCE BETWEEN A FOR-PROFIT AND A NON-PROFIT?
It is important to differentiate the non-profit from the for-profit by more than just the bottom line.? Maintaining solvency is obviously critical in either type of business as the same rules of operation apply to both types of organizations.? I would like to address some of the issues around those rules a little later.? The difference between the two models is essentially in the question:? Why are we in business?
Being involved in the for-profit sector may indeed be based on an idea, a new invention or an activity that is enjoyable to the founder.? But the intent is that this idea, invention or activity must be managed in such a way as to generate revenue and a level that exceeds expenses.? As a result, making money at a sustainable level becomes the primary focus that drives the operation of the organization, whether an individual initiate or a large corporate structure.
Non-profits, however, have a very different reason for being and a different mechanism that allows for their existence.? First of all the creation of a non-profit usually grows out of an identified community need and may be driven by a charismatic leader or a committed group of people dedicated to a cause or idea.? The fact that non-profits must have a Board representing their community and doing so on a voluntary basis is some indication that the motivation is based on their mission.? That becomes the driving force and the focus of their commitment.? Gaining the resources to achieve that mission is a means to the end, not the end in itself.
IN THE BIG PICTURE DO NON-PROFITS MAKE A DIFFERENCE?
Nationally the non-profit sector represents about 8.11% of wages earned in 2008.? Maine is a little different in that we have about 17% of our economy based on non-profits with over 80,000 people employed by this sector (Maine Association for Non-Profits).? Some of this may be the result of a greater social conscience as well as a policy by State government to contract the vast majority of their human service component to the service community, the majority of which are non-profits.
WHAT ABOUT THE TAX EXEMPT STATUS?? DOESN?T THAT GIVE THEM A COMPETITIVE EDGE OVER THE FOR PROFIT SECTOR?
In some respects that is correct.? However, the laws governing the non-profits reflect our society?s recognition of the service/need that these organizations meet and so have determined that taxation is counterproductive.
A second component of this is the fact that the vast majority of non-profits are involved in activities that are not competitive with the for-profit sector as they are not seen as a source for generating a significant profit.
Along with the tax exempt status non-profits are also legally allowed to solicit donations as well as to raise funds through such activities as raffles, auctions and other events.? These funds represent either the whole of the operating funds for the organization or are a significant supplement to the organization?s budget.? Even organizations that have significant service contracts with government agencies often find that their true costs are not covered and need to be supplemented by funds that are raised outside of their contracts.? Likewise, any tax benefit goes back to the community as there is no payment to either Board members or to shareholders.
BUT NON-PROFITS AREN?T SERIOUS BUSINESSES.? THEY DON?T HAVE TO DEAL WITH THE SAME RULES OF OPERATION THAT THE FOR-PROFIT SECTOR HAS TO DEAL WITH.
In that respect non-profits have to deal with the same challenges as any business.? Recruiting and retaining a talented and productive workforce, completing background checks, meeting OSHA training requirements, and meeting Federal employment screening standards as to citizenship and other related qualifications.
In addition they are challenged to provide appropriate benefits for employees and balance what can be given with available resources.? Health insurance costs make no exception, if you are non-profit or for-profit, with a group of 100 lives to be covered.
In addition, training for the specific job functions may require up to 100 plus hours of an employee?s time away from the job.? A cost that has be born through other channels since you often cannot bill for that time.
Finally, maintaining compensation levels in order to keep the workforce in which you have invested all of this time and money is a challenge.
Need I say more?
BUT NON-PROFITS AREN?T SUPPOSED TO MAKE ANY MONEY.
Like any business, continued financial losses will result in bankruptcy and dissolution.? While a non- profit needs to remain financially solvent as stated earlier, the money that it makes does not go to the shareholders or to Board members.? Those surplus resources, when they do accumulate, must be returned to the community through new and/or enhanced programs or services.
Should a non-profit find that it can no longer maintain its operation it is required by law to transfer any remaining resources and/or physical property to another non-profit so that those resources will continue to be used for the purpose intended.
BUT WHAT ABOUT THOSE NON-PROFIT EXECS THAT HAVE THOSE HUGE SALARIES OR HAVE BEEN INVOLVED IN SCANDALS?
Like any organization, non-profits are subject to the weakness of our human condition.? It makes no difference if a person is an executive of Enron or a United Way, illegal, immoral or unethical behavior is subject to the same public and legal scrutiny.? Over the past 10 years there have been many examples in both sectors of our economy that demonstrate the human frailties of lust, power and greed that go far beyond breaches of ethical standards.
I could go on and on.? However, I do believe that there is a continued need for these organizations and for the services that they provide.? While the needs of our society change it is important to recognize the roll of the non-profit in fulfilling those needs and making society a better place.? It is also important to note that non-profits will change with society?s needs as their ability to survive depends on their relevance and flexibility.
Richard Farnsworth is a Senior Consultant for Career Management Associates an HR consulting firm that specializes in Professional and Executive Search, HR Consulting and Services, Outplacement and Career Transition, Executive Coaching, and Contract Employment. Please contact him at rfarnsworth@cmacareer.com or 207.780.1125
Filed under For Organizations, Podcast ?
Source: http://www.cmacareer.com/for-organizations/2011/04/non-profit-an-interesting-part-of-the-puzzle/
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