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Should "Non-Profits"
try to lose money?
Q. I serve on the boards of some medium
to small non-profit groups. In at least two different
organizations, I was amazed to hear a fellow board member make
the statement, "We should continually spend more than we
take in, and we shouldn't build up any assets because we are a
non-profit organization. We will get in trouble or lose our tax
exemptions if we come out ahead on any of our activities or if we
build up any assets." I was very upset about this but didn't
have a real good comeback at the time. What can I say?
A. The misunderstanding
you describe is far too common. It seems to
be confusion over the term "non-profit."
Organizations
that are "for profit" have stockholders to whom
retained earnings can be distributed as dividends. A "for
profit" business may or may not make a profit, and of course
it will eventually cease doing business if it runs out of cash
and becomes insolvent. A "non-profit" organization
exists to fulfill a service mission, and cannot pay dividends.
As
far as "making money" or "losing money" on
activities, insolvency can kill a non-profit organization just as
fast as a for-profit business. Tell your friends to think about
all the charities, educational organizations, and religious
organizations that amass sizable assets.
As board members, the
financial health and strength of your organization is just as
much your concern as its service mission. In short, you MUST
"come out ahead" on the average, unless you are
planning to close down.
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