We hear about them all the time. This nonprofit organization is doing such great work for endangered animals, or that nonprofit organization is helping a community. But what is a nonprofit organization? And how do they make money if they’re not out for profit?
A nonprofit organization is any kind of organization or institution established to further any social cause. Members of a nonprofit organization are often committed people who are passionate about helping others.
Essentially, a nonprofit organization doesn’t make any profit from any of its income revenue. Whatever it receives, it gives back to the people or the cause they’re advocating. In many cases, nonprofit organizations hold much power in making the difference they want to see.
Why do nonprofits need money?
Even though a nonprofit organization will not make any profit from its income revenues, it still needs money to operate. This is because a nonprofit organization still needs money to function like any other business entity.
They need a lot of resources in order to operate efficiently. Many of these resources, such as food, clothes, medicines, and medical care equipment, are not cheap. Furthermore, since nonprofit organizations don’t charge the people they help, it can be quite challenging for them to have a healthy operations cash flow.
How do Nonprofits spend money?
Regardless of the nonprofit organization’s cause, each of them needs money to operate. Not only for the resources they need to help other people but also for their entity. While most nonprofit organizations accept volunteers, many of them have employees on the payroll.
These employees are often administration employees that help with day-to-day operations such as customer service, finance, and Human Resource. These employees may receive a salary that’s much lower than professionals in a business corporation, but they still need to be paid.
Other than that, nonprofit organizations also have a lot of petty cash and miscellaneous expenditure to cover. Instead of getting a large check at the end of a project like any other business, nonprofit organizations have to rely on many different ways to generate income.
How do Nonprofits make or generate money?
There are four major ways that a charity or not-for-profit organization make money.
Nonprofit Products and services
One of the most common ways a nonprofit organization makes money is through products and services. You may have seen this in nonprofits that support local artists and artisans. The organization will often have exhibitions or showcases to promote artists and/or the artisans’ artworks. All proceeds from the sale of the artwork will go back to the creators of the art.
Often, the nonprofit organization will have an agreement with the artists where the organization will receive a small commission for organizing the event and helping to promote the artists. It’s a win-win situation for both parties because nonprofit members are usually very adept at handling public relations and marketing, so they can help local artists to gain better exposure.
Other than selling products, many nonprofit organizations also offer services to the community. At a small fee, members of the community can seek any form of help they need, usually in the form of counseling, rehabilitation support, or therapy groups.
Many people benefit from this type of service because there are usually professionals involved. These professionals, such as therapists or counselors, may either volunteer their service or receive a small payment as a token of appreciation. The money received from the services fees is used to either pay these professionals or spent on maintaining the facility of the services.
Nonprofits in this nature are valuable to the community, especially in minority communities, because it offers a safe place for people to seek help without prejudice or discrimination. This type of nonprofit is so crucial in helping the community that it also often receives donations from the public.
Grants and government support
It’s quite common for a large or highly significant nonprofit organization to receive grants from the private sectors or receive government support. This type of nonprofit usually makes a striking impact in the community, such as in protecting the rights of the Aborigines or providing shelter and aid for domestic violence victims.
The grants given to this type of nonprofits are usually large amounts because the money goes back to the community the nonprofits are helping. Whether it’s for building a community center or a shelter, or for purchasing goods, this type of financial aid is necessary for nonprofits of this nature.
It’s also not uncommon for this type of nonprofit organizations to receive donations from people who are from other parts of the world. Some nonprofits managed to gain global trust and exposure that they receive support from people from all over the world.
Usually, this type of nonprofits will also receive government support. Even though they may not receive much financial aid from the government, to have the backing of their government gives these nonprofits a lot of leverage. The public will be more confident in getting involved and the nonprofits can conduct events or functions under the patronage of the government.
Nonprofit organizations that receive government support often conduct talks and seminars under the ministry or department they’re related to. These events give nonprofit organizations an excellent platform to further their cause and provide information to the public.
Publicity and exposure are critical for nonprofits. Through these means, the nonprofits can gain more support from the public without having to spend much. It’s imperative for nonprofit to be careful with their money, so any kind of support from large bodies is highly significant.
Charitable giving donation of donors
Another way nonprofits make money is through donations. Anyone can make contribution to their cause at any time. All nonprofit organizations accept donations in any form, so they’re able to use these donations as their resources.
Sometimes, a private donor will make a large donation to support the nonprofit’s cause. Most of the time, the organization will conduct charity events. At these events, which is usually open to the public, is a good way to let others know of the work the nonprofit is doing as well as to raise money.
Nonprofits usually organize charity events in conjunction with public holidays and these events are usually filled with fun activities. Small business owners are often welcomed to sell their goods at the event where a large proceed of their sales will be donated to the nonprofit.
Events like these are a great opportunity for small business owners to gain exposure and increase their CSR efforts. At the same time, they’re doing their bit for the community by donating their proceeds to the nonprofit that organizes the event.
Membership fees or association fee
Almost all nonprofit organizations charge those who are interested to join them a membership or association fee. Typically paid annually, this fee is one of their income revenues where it will be used for the things mentioned above.
While the public can volunteer their time and effort to the nonprofit organizations, some might want to be officially involved in the organization. Joining as an official member is a good way to encourage the public to be more committed and serious about the cause they’re supporting.
Not only that, the members of nonprofit organizations are also usually driven and passionate people who want to make a significant impact. By paying a membership or association fee, these members pledge their effort to the nonprofit while at the same time contribute to the organization’s financial needs.
There could be more ways that any charity or nonprofit organizations make money or generate revenue, in many case they behave very much like for-profit organizations, who needs to maintain a healthy cashflow.
I hope the article provides you some basic information of how a charity or nonprofit work.
How do Nonprofits make money?
- Nonprofit Products and services
- Grants and government support
- Charitable giving donation of donors
- Membership fees or association fee
Learn more at Circle Acts High Impact Philanthropy