When a not-for-profit corporation makes money, what do they call their “profits” since they don’t make profits?
Payroll?
I imagine they just call them “money” or “assets”. They’re not allowed to use them as profits in the usual way. Basics of Nonprofit Corporations:
I’ve heard some not-for-profit organisations use the term operating surplus, which is then held in reserve or ploughed back into the organisation in some way.
Well, the UK Co-op group (which I suspect is at least one of the largest co-ops in the world) has no qualms about using the term:
From their annual report:
I work for a nonprofit “research institute.” Any profit we make is used to buy test equipment and cover operating expenses.
A not-for-profit corporation can make profits, but the profits can’t benefit private shareholders or individuals.
Profits are called excess, surplus, or net earnings. Here is an example of a Form 990 (informational return required by the IRS from 501©(3) entities ) filed by The Christian Broadcasting Network, Inc. last year.
http://documents.guidestar.org/2003/540/678/2003-540678752-1-9.pdf (you may need to register to see it).
The Company showed an excess of over $6,000,000 for 2003.
Here is a link to a website that explains how to read a Form 990.
http://www.npccny.org/Form_990/990.htm#no2
According to the IRS,
http://www.irs.gov/charities/charitable/article/0,,id=96099,00.html
Hope this helps.
I work for the fundraising department of a university. We call donative revenue minus overhead (i.e. administrative outlay) “net donations” or more simply “net.”
“Net donations” are surpisingly little-used, at least in our branch of non-profits, as a tool for measuring fundraising efficacy. The big “number” is always total donative revenue, followed by dollars raised per dollar overhead. I’ve never understood exactly why “net” wasn’t considered important, but our Governing Board never even asks us for that figure.
The non-profit I work for part-time calls the profit The CEO’s Paycheck. CEO Jackass took a six figure bonus last year. This year the company lowered wages on one project by a third and got sued for shoddy performance on another. I’m waiting with baited breath to see if this twit will hand himself yet another undeserved load of money despite his extremely poor performance.
I worked for another nicer non-profit a few years ago and the surplus money we made was distributed in the form of $100 bonuses to all staff members.
One condo (officially, ‘not-for-profit’) I worked for used “Revenue and Expense” in place of the usually “Profit and Loss” terminology. Surplus ‘revenue’ sitting in the bank was simply referred to as ‘cash assets’ or ‘reserve fund.’ Overall gains in surplus revenue was dubbed growth in ‘equity.’
Peace.
You sometimes hear of “non-profit” hospitals being transferred to being for-profit, usually being acquired by hospital-owning chains.
What happens there, financially? The chain couldn’t just declare it now owns the Generosity Children’s Hospital, plant and equipment, right? So where does the money it would pay for it end up?
And the same for Old Folks’ Homes called Assisted Living Facilities.
One important thing to keep in mind is that ALL companies are run for-profit. Otherwise they go out of business. What companies choose to do with those profits is another story. But deriving them is the same for both- the accounting standards don’t change whether you are a LLC or a NPO. It is still a revenues less costs kind of story.
-Tcat
Sorry MaryEfoo, didn’t read your question.
Why don’t you think the chain can declare the equipment as theirs? If they ‘aquire’ that hospital, as you say, the chain now owns the hospital. Period. They own it and can do what they want with it (unless there are existing agreements or board resolutions or yada yada yada). There might be some changes to the accounting of those physical assets to recognize their value and depreciation schedules (LIFO and FIFO), but this is the same story for any company aquiring another one.
Maybe you think that a Not-for-profit (NPO) organization is somehow a different entity under the laws eyes? Not really. It is a legal organization that has owners (which can be humans or other organizations) and has to follow certain guidelines and even pay taxes. It can designate signatories who can sign contracts, it can be sued for negligence, it can be taken to court and thrown into bankruptcy. NPO’s are business just like every other business out there, but they choose to be not-for-profit because of many (mainly tax) reasons.
So when a big meany corporation comes along and wants to aquire this sweet little NPO, it just signs a check to the owners and they sign a contract releasing/transferring their claim to ownership. Now the new owners can choose to allow it to remain a NPO, or they can ‘close’ the NPO part and ‘open’ a new company in its place. (Yes, this is extremely over-simplified, but is true. In the end it is just pieces of paper being signed and new tax forms being filled out.)
-Tcat
Hi. I work in the profit section of a non-profit. Here, all profits are called “assets” and are deposited in a Foundation account. Everyone does their budgets in October, present them to a board committee, and then is granted an operating budget out of the Foundation fund. Excess assets are used towards acquisitions and expansions.
As the OP seems to have been answered I’m going to hijack this thread a little!
Is there anything to prevent you creating a phenomenally successful non-profit business, whilst taking advantage of the tax-breaks that this includes, and then selling all of the assets and the successful trading name to your new for-profit business?
Even if the material assets are sold/purchased at market rate I would have thought you would get a good deal on the business?
Aren’t there business entities that are run for a loss? Don’t some individuals or foundations run seperate entities that lose money each year that they continue to prop up?
I worked for a profit-aimed division (publishing) of a non-profit (one of the bigger Trade Association/Lobbying Groups in DC) for a couple of years.
We might have been non-profit but we made a bundle as an association. We used it for good bennies (I was fully vested in the 403b from day one) and parties. Many, MANY expensive parties. That’s how I met Bruce Hornsby and Steve Cropper.
And my little arm was sort of an embarassment. Our pubs made so much money that they ended up trying to wash some of it out by charging us $45/sq ft in rent on our space and giving us all big offices to eat it up.
The amount various non-profit businesses get from chartiable individuals or foundations is counted as part of their revenue. For example, if I ran a non-profit soup kitchen, my revenue source would be from donations, and my expenses would be food cost, utilities, labor, ect. My revenue would have to exceed the expense for me to keep the soup kitchen going.
How do these two statements reconcile?
You can’t make a profit from a not-for-profit.
Let’s say that I, a public-spirited physician, start my very own not-for-profit hospital. Over the years it becomes fabulously successful and finally attracts the attention of one of the big for-profit chains. They offer a gazillion dollars to acquire the hospital and its assets. Who gets the money?
Not me.
In most cases, the hospital board takes the proceeds from the sale and puts them into a foundation (let’s say, to provide low-cost health care for everyone in my community)
Now here’s the interesting thing about a foundation. According to the U.S. tax code, it has to spend a certain amount of its principal (known as the corpus) each year. It can’t just invest all the money and live off the interest.
In other words, a foundation is required to spend itself out of business eventually.
The people who run not-for-profits are trustees, not owners. They may get a salary for their efforts, perhaps even a generous expense account and great benefits, but they don’t get the long-term benefits of being owners.