Can a non-profit make a profit?

Posted by
Estela Kennen
Mar 2, 2007

Some people have a mistaken understanding of what a nonprofit is and can do. Non-profit organizations can certainly make money – to pay for operating costs like staff salaries, rent, insurance, materials and supplies, advertising, and any additional expenses involved in providing their services to the community. Without money, most non-profit organizations simply could not afford to exist.

Most non-profits rely at least partially on donations from individuals and corporations, as well as grants from government and foundations to offset their operating costs. However, most nonprofit organizations also earn money directly, through mechanisms such as membership dues, fees-for-service, or thrift shops. Nonprofits can even make more money than they need for operating expenses. However, non-profits are limited in how these profits can be made and spent. These guidelines apply to all 501(c) organizations:

Any profits made must go back to the organization and be used to fulfill its tax-exempt purpose. Profits cannot be distributed to staff (other than in the form of their regular pay), board members, or any individuals affiliated with the organization. Non-profits can have no owner shareholders who benefit from surplus revenues.
Unrelated business income (UBI) must be reported to the IRS and is subject to taxation. This is true even if the money made from the unrelated business is used wholly to help pay for the non-profit’s expenses.
If the UBI becomes “excessive” with respect to how much related business income the non-profit is making, the organization could lose its tax-exempt status.

Oct 22, 2009 4:48 PM

Guest :

Actually.. it's not just "funny". I'm considering starting an animal sanctuary and this WILL be my full-time job. The point is that the people who legitimately run or work at these non-profits will never be rich!

Think of humane societies. Although they have volunteers, regular staff are a requirement. Without them, stability wouldn't exist.

Nov 7, 2009 10:45 AM

Estela Kennen :

Big-time church pastors getting paid mega-bucks run the risk of having their nonprofit status revoked by the IRS. It happens...
As for Executive Directors setting their own salary, the best thing to do is submit to the board that the Director's salary be the average of what it is for a nonprofit that size in that field (ie, hospital administrators get paid differently than private school principles than animal shelter execs) in that geographic area, and have the Board approve it and any future raises.
Good luck!