In recent interactions with nonprofit board members, there has been a difference in familiarity regarding the operational nuances between for-profit and nonprofit organizations. Given that many board members do not interact with the organization on a daily basis, there may be unintentional assumptions about how nonprofits operate. In this episode, we dive into the fundamental similarities and differences between nonprofit and for-profit organizations, with the goal of enhancing mutual understanding among all participants.

Timestamps:

00:00 Introducing the differences between non-profit and for-profit organizations

01:20 Similarities

04:10 Differences

Transcript:

This week’s episode of I501c the podcast for nonprofit board members. I want to discuss the difference between for profit businesses and nonprofit businesses. Why you say? Well, I’ve recently done several board retreats which are typically comprised of business folks. If you entrepreneurs in a lot of cases that want to help their communities and it’s very, very commendable, but there’s really a lack of understanding or appreciation for the differences between the similarities and the differences, differences between running a nonprofit and a not for profit.

Hey, I want to jump in real quick. Somebody asked me the other day, what does the CORLEY Company do? Well, we do three things for non-profits. One, we facilitate meetings. Yes, like board retreats where we discuss governance and strategy with all the members of the board. Number two, advise CEOs and help them as they make decisions and implement actions to drive their mission.

And then finally, we produce podcasts such as this one, but also for a number of nonprofits to help you get the word out, get your message out. So if you’re interested in any of these services, please feel free to reach out to Michael@thecorleycompany.com. Now back to the podcast.

So I thought I’d use this opportunity as my off week. If you will, interviewing guests to share my thoughts on that. As you’re looking on the screen, I have I’m going to go through a number of bullet points on what are the similarities between a for profit and a nonprofit when we’re running a business, whether for profit or nonprofit, what are the similarities?

Well, number one is a nonprofit is similar to that for profit in terms of it’s running a business. You are running a business. The only difference? Well, there are few differences, but the primary difference, of course, is the tax status. So if you go with the mindset, even a nonprofit, I’m running a business, it will help you make some critical decisions.

You’ve got to worry about revenue. That’s right. Revenue. And a lot of cases that come through grants, donations or there are a number of nonprofits that have earned income as revenue opportunities. And I would direct you to the podcast we had with the folks from No Margin, No Mission, Mike Oxman and Larry Clark, who have dedicated their consulting practice to helping nonprofits build earned income opportunities.

Nonprofits and for profits both have expenses. You’ve got to watch that bottom line. That’s why we have budgeting, and we’re sensitive to being good stewards of that expense line. Marketing. Yes, Both nonprofits and for profits have to worry about marketing. In the nonprofit world, you have to do marketing to get your word out, to educate the community about the good that you do, and also for perspective donors and funders.

People want to know about what you do and the impact you’re making. That’s what marketing is all about. Human resources. You know, there’s this there’s this sense on the nonprofit side that everybody should work for less money and just do it for the for the greater good. Well, I could argue on the other side of that argument, but the reality is people should be paid a comparable wage, should be paid commensurate with the contribution, the making with the organization.

And guess what? It’s an organization, nonprofits, organizations, just like for profit. Typically, your number one resource is your human resource, your human capital. And so good organizations on the nonprofit side will in board members will really pay special attention to the h.r. Function of the organization. Technology is critically important and creates wonderful leveraging and impact. If used. You don’t have to be in a nonprofit and use old computers and old systems or you shouldn’t and they should not be the expectation and should be run like any other business.

So they have technology needs just like the for profit world in training, the opportunity to train people and grow and develop. In fact, we recently talked about that a couple of weeks ago on a podcast to send people to conferences. You know, the reality is these are employees or even your CEO. Your leader is a leader. Everybody wants to train, grow and develop or should be, and it should be no different in the nonprofit sector as in the for profit sector.

Now, there are differences, though, between the two types of entities, and I want to talk a little bit about those. I think a lot of there’s some misunderstanding special C along among new board members about the differences or lack of understanding of the nonprofit sector. So let me walk through a few of the differences. Of course, the tax data sets a given nonprofit versus for profit.

I don’t have to belabor that. Nonprofit world You work with volunteers? Volunteers oftentimes can be a secret source, as Janine Amick referenced on a podcast not too terribly long ago, and how she deploys them and what a great cost savings that is for them. But volunteers and to engage and work with volunteers, that takes a different style of leadership.

And you’ve really got to appreciate the volunteers can walk out and leave at any time. So you want to thank volunteers, you want to pay special attention to your volunteers for profit sector. You don’t worry about volunteers. You’re paying people and they’re going to do what you say typically do. Volunteers may not and don’t have to do what you say.

Client selection in the for profit world, Whether or not we can choose our clients in the for profit world, we can target specific clients. Those typically, of course, are paying clients in the nonprofit sector. That’s not entirely true. For those of you in the homeless sector, you don’t pick certain homeless people to take care of and not other homeless people you don’t pick.

Homeless people have money to take care of and to provide a product to. It’s you’re trying to solve a social good. So on the nonprofit side, we don’t have the luxury of selecting our clients and selecting high paying clients. We accept everybody. We’re trying to fix something, trying to do something in the social sector, really different perspective. Also, in the nonprofit sector, the revenue source is typically donors, funders and working with donors.

Working with funders is really different than any other type of client because again, these people do not have to give you their money. And so for you to engage in court, them to cultivate them, if you will, you’ve got to have a clear message and you’ve got to be willing to take the time to cultivate that relationship. In many times it could be very quick or it could be a multi multi-year relationship.

Everything in the nonprofit sector should be about the mission, about the mission of the organization for profit side. I understand for profits have missions. I when I ran a company, we had a mission statement, but at the end of the day, it was all about the bottom line. That’s not bad and that serves a very useful purpose. And it is one of the sectors in our economy.

But in the nonprofit sector, it’s not about the bottom line or the bottom lines important. But at the end of the day, it’s about driving that mission. And every decision made, I would argue every decision made ought to be how do we further the mission of the organization collaboration? This is probably the one that I think a lot of board members struggle with, and that’s that notion of collaboration instead of competition in the for profit world, it’s about competition.

We want to outdo our competitor and the you can have one winner and one loser in the nonprofit sector. If you’re going to solve a social ills, some challenge, then it’s going to take collaboration because you cannot do it yourself. No singular organization is going to solve food insecurity. It’s going to solve the grade level reading issue. It is going to take a cadre of organizations working together, attacking this from a little different specific area.

Collaboration is critically important. So when asked if I’m a board member and my CEO says We’re going to work with this organization, that organization, that’s a good thing. That’s not a competitive threat. And I’ve heard people say, no, we can’t work with that organization. They’re a competitor. In the nonprofit side, you’re going to get much more leverage and scale by collaborating and have a collaborating mindset in order to solve your mission.

That goes back to mission. The reason you collaborate is not for the sake of collaboration, for the sake of solving and addressing the mission. Collaboration is one heck of a good way to do that. And finally, on the for profit side, you really don’t. And there is no governance. Sometimes governance is just the law. You may not even have a board of directors.

If you’re in a privately held company, you’re not required to do so. And the nonprofit side, you are required to have a board of directors. It’s codified in state statute, at least here in Florida. It is in most states. And I’d say probably about every state that I’ve looked up. It is in Florida. It’s code chapter 617 of the code that says you must have a minimum of three board members and it goes on down from there.

And the different requirements that you need to have. And that’s because you’re entrusted with guarding the public good tax exempt organization. Government doesn’t get the taxes and they want the board of directors to oversee to ensure that you’re you’re exercising your duty of care, loyalty and obedience, which is a whole nother podcast on governance, but making sure basically, in short, making sure the nonprofit is doing what it says it’s going to do.

It is being good stewards of the tax exempt dollars that it’s getting. So there you go. Couple What about 12 differences, similarities and differences between a nonprofit and a for profit and that leads into how the nonprofit is run. So board members, I encourage you, take the time to listen to your CEO, to ask questions and to understand the nuances, the differences between leading a nonprofit and a for profit.

And when you have those conversations, you’ll know why it’s much slower in the nonprofit sector and why there’s a need for collaboration, dare I say consensus, and just much more time building relationships and engagements. And that does slow down the decision making process. But it’s necessary for the long term, greater good of the organization. Anyway, that’s enough today.

This is Michael Corley and I just want to share a little bit on the similarities and differences between for profit and nonprofit. From my perspective and I will 501 see you next week.

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