Are Not For Profits Becoming For Profits?

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.

Find us on Facebook here – CLICK CLICK

About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin @ Your Smart Money Moves

Hey!

My friends and family all think I’m a workaholic, but I say I’m just a guy that loves to help people do better in life.

My mother is still the only one that calls me by my real name Theodore Michael, my wife calls me Teddy, but for the rest of you it is just plain old Ted.

Ever since I was a little kid, I always loved money and being an entrepreneur. In fact, I still have cassette tapes of me talking to my grandmother at the age of five and my mother tells me all the time how much I played with money as a kid...

Read More About Ted Here

Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor regarding your individual situation. 

Background and qualification information is available at FINRA's BrokerCheck website.

4 Comments

  • Avatar
    February 28, 2013

    I enjoy your blog, but have to disagree with this post. High functioning nonprofits really do use profits to further their missions, they aren’t padding their staff salaries like you suggest. I worked with nearly 600 nonprofits in the Atlanta area in a past job and it’s extremely rare for individuals to “take advantage” of the tax structure of nonprofits. Sure, lots of nonprofit employees make fair wages…would you prefer them to work for free?

  • Ted Jenkin @ Your Smart Money Moves
    March 1, 2013

    Andrea– great comment and I respect your point of view. Hasn’t been my experience in any college, university, hospital, and some of the major non profits when I have seen their salaries and financials. Of course people need to be compensated for what they do. Making more than six figures in this type of structure does seem exorbitant to me.

  • Avatar
    March 12, 2013

    Great read, thanks! -Mario Robinson | TheRobinsonFinancialGroup

Leave a Comment