Are Not For Profits Becoming For Profits?

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Are Not For Profits Becoming For Profits?

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February 28, 2013

There are many types of businesses that you can begin if you are thinking about starting a career change.   I’ve noticed as of late that more and more people are beginning not for profit organizations with the intent of really making a profit.  Seems like an oxymoron if you ask me, but doesn’t it make you wonder how many individuals work for any organization that is supposed to be in the business of not making a profit yet there are countless people employed by that organization that make six figure incomes?

We wonder why college is becoming so expensive.   Colleges and universities are supposed to be nonprofit organizations.    These very colleges have billion dollar endowments, coaches that make millions of dollars a year and professors that are all earning six figure incomes.  Why shouldn’t they have to bear the same tax load as an organization as every other company does in America?   Look at the hospitals throughout our country that are also supposedly nonprofit organizations.  Yet doctors and some physician assistants alike are getting paid six figures to high six figure incomes to work within these structures.   Where does the community benefit from a nonprofit organization that keeps raising prices to pay for their overhead?  Even in the religious community you have large churches or synagogues that have huge overhead with their staff and sell books, CD’s, and coaching programs.    All of these examples look to me much more like a nonprofit organization than a for profit organization.

The exact definition of “nonprofit” (also known as not-for-profit) is foggy at best because there are so many versions of nonprofit organizations. These groups can be educational, scientific, religious or charitable [source: www.irs.gov]. Roughly half of these groups are 501(c) (3) tax-exempt charities [source: www.nccs.org]. Basically, a nonprofit takes the money it makes and puts it directly back into its causes and missions instead of sharing profits among its employees or stockholders.  That is the theory!!   In reality, most nonprofits pay higher salaries now to get better employees and aren’t really putting the cash toward these causes or missions.

The key to calling your group a nonprofit organization is quite elementary Watson — don’t make a profit. You can still receive a salary in exchange for your work and hire employees, but the overall goal of a nonprofit organization is to keep administrative and fundraising costs to a minimum.   See my note?   Keep administrative and fundraising costs to a minimum!   Today, it is just becoming the opposite and smart business owners are figuring out how to take advantage of this tax loophole within the 501(c) (3) tax-exempt structure.

We know that within the past four of five years that economic times have been tough.   I find it interesting that the two areas which have defied gravity when it comes to costs have been healthcare and college education (my guess is that fees to religious organizations have gone up as well).    One possible solution to all of this is to really separate the difference between a true ‘not for profit’ and a ‘not for profit’ that is really in the business of being a for profit which most of the large ones are today.     Wouldn’t we all like to apply for tax-exempt status?

Written by:

Ted Jenkin

CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®

Editor in Chief of Your Smart Money Movesbe nonprofit

Co-CEO and Founder of oXYGen Financial, Inc – The Leaders in Gen X & Y Financial Advice and Services

Ted Jenkin  is one of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation.

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