Financial Fuzziness in Charitable Funding

It’s interesting that we have come to define charitable benefit organizations as “not-for-profit”.  “Non” profit doesn’t clearly identify the nature of social benefit organizations.  It only states one characteristic that isn’t true.   Actually, it simply hints at the fact that “non-profits” usually don’t generate too much profit, or that it isn’t their primary goal, or that the profit generated is to be used for a particular purpose.  Since charitable organizations have grown beyond simply being different than business enterprise in regard to their source of income, it may be more accurate and helpful to define community benefit programs with a term other than “non-for-profit”.

One fallout from being labeled as “nonprofit” includes a set of assumptions about “for profit” business that by implication, must not be true about “nonprofit” organizations.  We may assume that business endeavors are productive, innovative, driven, highly complex efficient organizations.  Thus “nonprofit” organizations may be considered unaccountable, dealing in activity that can’t be measured or evaluated.  The “bottom line” that makes this simple for business doesn’t seem to fit or isn’t given the same regard in nonprofits.

Businesses have customers who must be served and satisfied for success. Nonprofits have clients who may or may not be helped.  Competition is a primary motive in business.  Nonprofits operate from concern and caring.  Nonprofits receive donations.  For profits charge fees. Not-for-profit organizations have dreams while goals and objectives are required for responsible commercial operations.  Business requires measurable results and growth within a limited time in order to survive.  Nonprofits may continue trying various approaches and programs with good intentions and social theory.  These and other assumptions naturally arise by defining charitable groups as “not” or the opposite of for-profit business organizations.

As many nonprofits have matured in purpose and productivity, using multiple revenue streams and talented executives in administrative positions, the line between “for profit” and “not-for-profit” has become blurred.  Corporations are becoming more socially and environmentally responsible.  Whether for profit or reasons of conscience, businesses are giving attention to bottom lines that include people, community and the planet as well as profits.  As the cost of caring rises, donations and government funding dwindle, nonprofits are seeking more ways to generate income.  Without the same requirements of a corporate board and stockholders, nonprofits may be more flexible in financial matters while retaining their tax exempt status and continuing to collect financing from various sources.

Until rules and regulations catch up with the growing common ground between profit and nonprofit organizations, there may be lack of clarity as charitable nonprofit organizations operate social business enterprises and subsidiaries.  Self monitoring along with public transparency is needed for members and donors to maintain trust in charitable causes.  Investors with an interest in community welfare and sustainability look for financial profit as well as social ROI.  New rules will eventually be created to deal with profitable practices of nonprofits and charitable work of for-profits.  Transforming practices and stereotypes can begin now.

See related research from Stanford, Wharton Business School and University of Minnesota professors describing for-profit and not-for-profit stereotypes.

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