By Tracey Sandilands Updated March 04, 2019
Nonprofit organizations have founders, not owners. The founders of a nonprofit are not permitted to make a profit or benefit from the net earnings of the organization. They can make money in various other ways, however, including receiving compensation from the nonprofit. Net earnings and surplus funds may be built up and invested for the organization’s future operational use.
Non-Profit Income
Nonprofits generate income from a number of sources. Fundraising is the most common method of obtaining operating capital. This includes grant writing, sponsorship and revenue generation. Grant writing occurs when the organization applies for grants made available by government bodies and philanthropic organizations for specific purposes.
Corporate sponsorship works by enabling companies to fund aspects of the nonprofit’s work in exchange for visibility in their markets. Revenue generation is based on sales of products and services to support the organization's work and activities.
Non-Profit Expenses
Most registered nonprofits operate on the same principles as a small business, with fixed and variable cost components. Fixed costs account for overhead, rent, staff salaries, utilities and basic administration expenses, while variable costs apply to the cost of operations. In the nonprofit environment, this is typically the cost of delivering the services offered by the organization or of producing the items sold for revenue generation. Whatever the source of the organization's income, the nonprofit must operate efficiently from a financial viewpoint.
Net Earnings for the Year
As with for-profit business operations, a nonprofit prepares a balance sheet and income and expenditure statement at the end of each fiscal year. This shows whether the staff has managed the organization’s budget effectively and delivered a healthy financial result. If the income is more than the expenditure, the nonprofit has a surplus of money, which is the net earnings for the year. If the management has spent more than it has brought in, it is in deficit and possibly owes money to third parties.
Retained Earnings and Financial Worth
The retained earnings of a nonprofit organization is the total of each year’s surplus funds. This represents the organization’s financial worth and, provided the funds are managed correctly, should be a positive amount available in the bank account. The retained earnings can be invested for safekeeping and the generation of interest or dividends for the nonprofit, or they can be reinvested back into the operation of the organization. In the case of reinvestment, the money can be used to fund operational costs, including compensation and benefits for the founders or directors, management and staff.
FAQs
Nonprofit organizations have founders, not owners. The founders of a nonprofit are not permitted to make a profit or benefit from the net earnings of the organization. They can make money in various other ways, however, including receiving compensation from the nonprofit.
Do owners of nonprofits make money? ›
Non-profit founders earn money for running the organizations they founded. They often put in long work hours and make far less money than executives at for-profit organizations. When running a non-profit is their sole employment, it is reasonable for them to draw a salary for the work they do.
Can nonprofits make a profit? ›
Nonprofits have salary costs just as for-profit businesses do. Thus, they may pay reasonable compensation to anyone providing services (like employees). Nonprofits are allowed to make a profit, but they must be funneled back into the organization's activities. Making money gets two big thumbs up from David!
Can the president of a non-profit get paid? ›
Does the president of a nonprofit get paid? Although some nonprofit organizations may be led by volunteers—such as Bostic, who does not receive a salary for being a foundation president and CEO—many nonprofit presidents are compensated for their work as it is their full-time job.
Who pays the CEO of a nonprofit organization? ›
The board of directors is responsible for hiring and establishing compensation (salary and benefits) for the executive director/CEO that is “reasonable and not excessive,” but is also enough to attract and retain the best possible talent to lead the organization.
Do CEOs of nonprofits make a lot of money? ›
In fact, the median salary for chief executives at California nonprofits is only $88,005, according to a recent survey by the Center for Nonprofit Management, which I head. And nonprofit leaders are sharply underpaid compared to CEOs of forprofit businesses of similar size.
What is the most profitable non profit company? ›
Lutheran Services in America
Founded just 25 years ago, the nonprofit's network is worth over $23 billion and in terms of revenue, is the highest earning nonprofit company in the country.
How do nonprofits make money to pay employees? ›
✅ Nonprofit salaries can come from donations. They can also come from grants, program fees, or other income-generating activities. ❌ Nonprofits don't have to pay payroll taxes. ✅ Nonprofits are exempt from federal unemployment taxes but still have to adhere to payroll tax regulations.
What is the difference between a nonprofit and a 501c3? ›
Actually, no! These terms are often used interchangeably, but they all mean different things. Nonprofit means the entity, usually a corporation, is organized for a nonprofit purpose. 501(c)(3) means a nonprofit organization that has been recognized by the IRS as being tax-exempt by virtue of its charitable programs.
What is the founder of a nonprofit called? ›
Does the Founder Have a Title? The founder or founders of a newly formed nonprofit typically hold the position of Board President or Chairman of the Board (often referred to as just “Chairman”). The founder's official title and role can change depending on the needs and desires of the board.
Governance responsibility is vested in the board of directors or trustees. These individuals are accountable to state and federal authorities to ensure the organization operates in a legally compliant manner and for the purposes outlined at formation. Also, a nonprofit cannot be sold.
Can the CEO of a nonprofit be on the board? ›
In most states it is legal for executive directors, chief executive officers, or other paid staff to serve on their organizations' governing boards. But it is not considered a good practice, because it is a natural conflict of interest for executives to serve equally on the entity that supervises them.
Is the founder of a nonprofit the owner? ›
Probably the most difficult thing to realize is that you will not be the owner of the organization. As a tax-exempt organization your nonprofit will be accountable to the people it serves, to its funders, the attorney general, and the general public.
What is the lowest paid charity CEO? ›
The lowest paid are religious charities, the study found, noting that the CEO of the International Fellowship of Christians and Jews gets paid close to $500,000. Editor's note: An earlier version of this article included American University, which is included in the Charity Navigator survey.
How much does the CEO of St. Jude's make a year? ›
| Name & Title | Charity | Compensation |
|---|
| James R. Downing President/CEO | St. Jude Children's Research Hospital | $1,546,372 |
| Brian Gallagher Past CEO | United Way Worldwide | $1,538,953 |
| Harry Johns Past President/CEO | Alzheimer's Association | $1,468,134 |
| Deborah W. Brooks Co-Founder/CEO | Michael J. Fox Foundation for Parkinson's Research | $1,423,665 |
45 more rowsOct 2, 2023
The most common way nonprofits do this is through endowments, where nonprofits accept and then hold donations in an investment fund. Investments, like stocks, can also be donated by individuals.
How much money can a non-profit have in the bank? ›
The short answer is that there is no limit to the amount of money nonprofits can keep in reserves. As long as it can be proved that funds are being used to advance the nonprofits' mission, then the money can be directed as the nonprofit wishes.
