Nonprofit vs. For-Profit — What’s the Difference?

Do you know what makes a nonprofit organization different from a business, which is also called a for-profit organization? They seem similar at first because they both help people, raise money, and have leaders. But their goals and how they spend their money are very different. Let’s break it down into four main parts: goal, profits, revenue, and taxation.

Step 1: Goal

The main goal of a nonprofit is to help people or improve something in the community. Its main goal is to serve a social mission or raise money in order to help the community. Examples of nonprofit organizations are food banks, environmental groups, or animal shelters. 

On the other hand, the main goal of a for-profit organization is to make money. The goal of a business is to grow, pay off debts, and reward their owners and shareholders. For example, the goal of tech companies or clothing brands is to make money to keep expanding.

Key takeaway => nonprofits want to help the community, while for-profits want to make money.

Step 2: Profits

If a nonprofit organization has extra money, called a surplus, it puts that money back into the organization to help it carry out its mission. For example, if a nonprofit school gets extra money, it might use it to buy better equipment or offer more scholarships.

In the case of for-profit organizations, the owners and shareholders can share the profits or the business can reinvest them to grow the business. For example, a restaurant could use any extra income to open a new location or give bonuses to its employees.

Key takeaway => nonprofits put their profits back into their mission, while for-profits give me out to grow or reward their employees.

Step 3: Revenue

Nonprofits get money from donations, fundraisers, grants, and sometimes by selling goods or services. For example, one way for a nonprofit art center to get money for community programs is to hold an art sale.

A for-profit organization makes money by selling products or services (for example, phones, clothes, or apps). Sometimes, it can make money through private investments.

Key takeaway => nonprofits rely on donations and grants, while for-profits rely on customers and investors.

Step 4: Taxation

Usually nonprofits don’t pay business tax because they are tax-exempt. This is because they have a public mission and are subject to certain rules, such as IRS 501(c)(3) in the U.S. Tax Law.

However, for-profit organizations have to pay business tax, just like people have to pay income tax. This is because they make money.

Key takeaway => nonprofits don’t pay business tax, but for-profits do.

Final Takeaway

Both nonprofits and for-profits play important roles in society. Nonprofits help communities and work on issues that might be overlooked.  On the other hand, for-profits create jobs, drive innovation, and boost the economy.

If you want to start a business ask yourself: Do I want to make a change or make money? Both paths can be successful, it just depends on what success means to you.