Non-Profit Myths

It is worth noting that some common assumptions about nonprofits are actually more like urban legends. These stories have been passed along through so many people they have gained a measure of credibility just by their longevity.

Myth #1: Nonprofits can't make a profit.

The IRS guidelines clearly state that any profits cannot be simply distributed to board members, as corporate profits are to shareholders. But, they do not say that nonprofits cannot have profits. In fact, surpluses (profits) are needed by nonprofits to even out their cash flows, to provide reserves for emergencies, and to allow them to pay for equipment, research, staff development, building renovations, and other necessary investments.

Myth#2: Nonprofits can't charge for their services.

In fact, many nonprofits exist solely or mostly on fees charges, such as nonprofit preschools that charge tuition, or community choirs that sell tickets to their concerts.

Myth #3: Nonprofits are poorly managed compared to businesses.

It depends which business! Compared to Enron, Montgomery Ward, Webvan? In fact, nonprofits often achieve growth rates well above for-profit companies of comparable size, and do so while undercapitalized, highly regulared, and still with the highest of ethical standards.

Myth #4: Nonprofits can't lobby.

Nonprofits cannot engage in any electoral activity -- they cannot support or oppose candidates. However, they can support or oppose ballot measures (such as for public school bonds or against new immigration laws). In addition, nonprofits can encourage legislators to support or oppose various pieces of legislation -- as long as such lobbying activities are an "insubstantial" part of their activities. More information.

Myth #5: A nonprofit budget has to be balanced.

In some years a nonprofit will want to budget for surpluses, such as to create a cash reserve, or to save up for a large purchase. In other years the same nonprofit might budget a deficit, for example, to do one-time programs with windfall money, or to invest in a new fundraising director, or a publicity strategy. Over time, the financial goal of a for-profit is to maximize profits; the financial goal of a non profit is to sustain sufficient working capital for program continuance and strategic choices.

Myth #6: Non profits aren't important economically.

Surprisingly, nonprofits generate 6% of the US gross domestic product, and employ 1 in every 14 American workers. Nonprofits mobilize the efforts of an army: 83.9 million adults volunter 15.5 BILLION hours each year for the community and public benefit. This is the equivalent of 7.7 million full time staff. In comparison to this 7.7 million staff, the total active military personnel in all services (Army, Navy, Marines, and Air Force) is 1.4 million!

Myths & Urban Legends -- Courtesy of Board Cafe - The Newsletter Exclusively for Members of Nonprofit Boards of Directors